Friday, August 25, 2006

Innovative Amazon.Com Web Services announced a new web service yesterday - their utility computing service, which they have named "EC2". This service is priced at $0.10 per instance-hour, according to TechCrunch. That comes out to $72 per month for a server.

The server configuration is equivalent to a 1.7GHz Xeon processor, 1.75GB or Ram, and 160GB of disk space. This is more than enough for most enterprise applications and the costing is extremely competitive. Amazon is doing a great deal to commodities key pieces of infrastructure in the computing world - storage, CPU and also services through their Mechanical Turk marketplace.

Let's take a hypothetical case - a client that wants a 5 year hosting deal for an ERP solution. They will need servers, storage, and support.

  • 20 CPUs
  • 1 Terabyte of Storage
  • 200 GB of Bandwidth consumption per month

Over 5 years, using Amazon's infrastructure, your cost will be approximately $100,000. This is going to be far, far less than any comparable quote you would receive from a traditional hosting service.

Other companies are providing similar pricing, such as As this model takes off, traditional hosting companies could be under threat. This transformation may not be immediate, but it will happen.

Today, highly customized server environments are typical and don't lend themselves to this kind of virtualization. Companies are more often charged $2-4,000 per server per month for custom configurations. Given the choice between a custom configuration and using a standard one, we will see new installations quickly migrate towards this commodity model. At $2,000 per server per month, the cost for 5 years is $2.4 million for the same 20 CPU install instead of $100,000.

Amazon's web services are positioning themselves to become a key provider in this future environment. Storage and CPU power are key, but so is their online services marketplace - Mechanical Turk. With these three combined you can have a complete package for hosting that includes support services.

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