Amazon delivers elastic cloud computing pricing driving creative destruction of IT business models

I am at first hesitant to write another Amazon Web Services post as I haven written so many Amazon posts lately, but AWS’s latest announcement of spot pricing will drive changes at multiple levels.

What AWS spot pricing has done is simple.  You can now bid for EC2 spot instances in a spot market way  for AWS capacity.

Amazon EC2 Spot Instances

Spot Instances are a new way to purchase and consume Amazon EC2 Instances. They allow customers to bid on unused Amazon EC2 capacity and run those instances for as long as their bid exceeds the current Spot Price. The Spot Price changes periodically based on supply and demand, and customers whose bids meet or exceed it gain access to the available Spot Instances. Spot Instances are complementary to On-Demand Instances and Reserved Instances, providing another option for obtaining compute capacity.

Amazon CTO Werner Vogels summarizes the significance.

Spot instances are a great innovation that, as far as I know, has no equivalent in the IT industry. It brings our customers a powerful new way of managing the cost for those workloads that are flexible in their execution and completion times. This new customer-managed pricing approach holds the power to make new areas of computing feasible for which the economics were previously unfavorable.

Why is this significant?  Nicholas Carr explains.

AWS: the new Chicago Edison

DECEMBER 14, 2009

The key to running a successful large-scale utility is to match capacity (ie, capital) to demand, and the key to matching capacity to demand is to manipulate demand through pricing. The worst thing for a utility, particularly in the early stages of its growth, is to have unused capacity. At the end of the nineteenth century, Samuel Insull, president of the then-tiny Chicago Edison, started the electric utility revolution when he had the counterintuitive realization that to make more money his company had to cut its prices drastically, at least for those customers whose patterns of electricity use would help the utility maximize its capacity utilization.

Amazon Web Services is emerging as the Chicago Edison of utility computing. Perhaps because its background in retailing gives it a different perspective than that of traditional IT vendors, it has left those vendors in the dust when it comes to pioneering the new network-based model of supplying computing and storage capacity.

Besides the economic benefits what this means is there is now a financial incentive to re-architect applications to be efficiently turned on and off.  These questions are normally not asked at the Enterprise Architect level, but the AWS user base now will.  

Architecting Applications to Use Spot Instances

There are a number of best practices to keep in mind when making use of Spot Instances:

Save Your Work Frequently: Because Spot Instances can be terminated without warning, it is important to build your applications in a way that allows you to make progress even if your application is interrupted. There are many ways to accomplish this, two of which include adding checkpoints to your application and splitting your work into small increments. Using Amazon EBS volumes to store your data is one easy way to protect your data.

Test Your Application: When using Spot Instances, it is important to make sure that your application is fault tolerant and will correctly handle interruptions. While we attempt to cleanly terminate your instances, your application should be prepared to deal with an immediate shutdown. You can test your application by running an On-Demand Instance and then terminating it suddenly. This can help you to determine whether or not your application is sufficiently fault tolerant and is able to handle unexpected interruptions.

Track when Spot Instances Start and Terminate: The simplest way to know the current status of your Spot Instances is to monitor your Spot requests and running instances via the AWS Management Console or AmazonEC2 API.

Choose a Maximum Price for Your Request: Remember that the maximum price that you submit as part of your request is not necessarily what you will pay per hour, but is rather the maximum you would be willing to pay to keep it running. You should set a maximum price for your request that is high enough to provide whatever probability you would like that your instances run for the amount of time that you desire within a given timeframe. Use the Spot Price history via the AWS Management Console or the Amazon EC2 API to help you set a maximum price.

An example of using spot instances is Pfizer’s Protein Engineering group architecting their AWS app to have “must do” and “like to do”

The Protein Engineering group at Pfizer has been using AWS to model Antibody-Antigen interactions using a protein docking system. Their protocol utilizes a full stack of services including EC2, S3, SQS, SimpleDB and EC2 Spot instances (more info can be found in a recent article by BioTeam's Adam Kraut, a primary contributor to the implementation). BioTeam described this system as follows:

The most computationally intensive aspect of the protocol is an all-atom refinement of the docked complex resulting in more accurate models. This exploration of the solution space can require thousands of EC2 instances for several hours.

Here's what they do:

We have modified our pipeline to submit "must do" refinement jobs on standard EC2 instances and "nice to do" workloads to the Spot Instances. With large numbers of standard instances we want to optimize the time to complete the job. With the addition of Spot Instances to our infrastructure we can optimize for the price to complete jobs and cluster the results that we get back from spot. Not unlike volunteer computing efforts such as Rosetta@Home, we load the queue with tasks and then make decisions after we get back enough work units from the spot instances. If we're too low on the Spot bids we just explore less solution space. The more Spot Instances we acquire the more of the energy landscape we can explore.

Here is their architecture:

Going back to Werner Vogels blog post, Cloud computing has three different purchasing models.

Different Purchasing Models

The three different purchasing models Amazon EC2 offers give customers maximum flexibility in managing their IT costs; On-Demand Instances are charged by the hour at a fixed rate with no commitment; with Reserved Instances you pay a low, one-time fee and in turn receive a significant discount on the hourly usage charge for that instance; and Spot Instances provide the ability to assign the maximum price you want for capacity with flexible start and end times.

  • On-Demand Instances - On-Demand Instances let you pay for compute capacity by the hour with no long-term commitments or upfront payments. You can increase or decrease your compute capacity depending on the demands of your application and only pay the specified hourly rate for the instances you use. These instances are used mostly for short term workloads and for workloads with unpredictable resource demand characteristics.
  • Reserved Instances - Reserved Instances let you make a low, one-time, upfront payment for an instance, reserve it for a one or three year term, and pay a significantly lower rate for each hour you run that instance. You are assured that your Reserved Instance will always be available in the Availability Zone in which you purchased it. These instances are used for longer running workloads with predictable resource demands.
  • Spot Instances - Spot Instances allow you to specify the maximum hourly price that you are willing to pay to run a particular instance type. We set a Spot Price for each instance type in each region, which is the price all customers will pay to run a Spot Instance for that given hour. The Spot Price fluctuates based on supply and demand for instances, but customers will never pay more than the maximum price they have specified. These instances are used for workloads with flexible completion times.

What’s next for AWS?  Users are asking for sub hour increments.  It makes sense if you continue down the path of spot market pricing and the ability to maximize utilization.

This is awesome. Market pricing for computer power. People have dreamed of this and now Amazon is making it happen!

Now the real question is when will AWS start charging for half hours or quarter hours?

I have projects I need to run every hour for only 15 to 20 minutes ... but they need to run every hour.