Cloud Pricing Models Explained: A Guide to Understanding Your Options

Companies are steadily shifting their IT infrastructure to a cloud environment. Finding the right cloud provider often proves a challenge for companies. Not only because of GDPR considerations, but also because of pricing options and costs. If customers start digging into the different options for pricing or try to compare prices, they will soon get caught in a jungle of different models. Reserved instances, spot instances, preemptible instances, volume discounts, on-demand – all those are possibilities at cloud providers. Some more complex, some easier to use.

Cloud Computing Pricing Models – An Overview

Cloud providers offer different options for their customers in terms of pricing. The most common pricing models at cloud providers are:

• On-demand pricing
• Spot pricing
• Preemptible pricing
• Reserved instance pricing
• Volume discounts or tier based pricing

On-demand Pricing

On-demand or pay-per-use pricing is the simplest and mostly the default option at cloud providers. Customers pay exactly what they use. However, not all on-demand pricing modes are created equal. On the fine lines of the pricing options, the granularity can vary drastically from one provider to another. Almost all are billed with an hourly unit, with some charging for full hours - every hour started is due - and others with down to the minute or second. While most are converging to minute or second granularity, some still have minimum billing periods of first 5-minutes for example. At Exoscale, instance pricing is based on an hourly rate with per second granularity and no minimum billing period.

!!! note “Some providers will charge a minimum for on-demand, a first minute or 5 minutes, up to an hour in some cases. So on-demand might not always be the exact per second charge.”

Spot Pricing

Spot pricing or instances are basically an auction-based system. Customers bid for instances and as soon as the market price drops below the bid, the instance is “bought” at the market price (not the bidding price). This means that this type of pricing needs a lot of supervision, and the bidder needs to wait for the market price to reach the bid.

Preemptible Instance Pricing

The fact that the price of spot instances can drastically vary is a big showstopper to keep cost under control. One of the pricing models available to overcome this is called preemptible instances. In this mode, instance it is the duration of the instance and not its price that is made a variable. Instances will then have a known price per hour, usually heavily discounted, in the region of 50% or more, but can be reclaimed by the provider at any time. To make sure users design their workload and application with this in mind the instances are also short-lived and will stopped after 24 hours.

Preemptible instances are perfect for compute batches that have a fixed duration - a few minutes to a few hours - while maintaining a fixed known upfront cost.

!!! note “While not yet available at Exoscale at the time of writing, reach out to us if this model is of interest to your use case as we believe it is a more elegant and predictable pricing structure.”

Reserved Instance Pricing

With reserved instances customers commit in many ways. First, a commitment to a time frame, mostly between one and three years, is required. The longer the commitment, the higher the cost savings. Second, a commitment to a certain instance type and a certain zone. The discounted rate is therefore bound to the chosen instance.

Flexible reserved instances

To overcome the flexibility issues highlighted above, providers introduced a new instance pricing type that offers a compromise between on-demand and reserved instances often called Flexible Reserved Instances.

This pricing model, regains some of the agility that cloud computing introduced but with vastly different discount target, less than half of what is normally achieved with reserved instances with full upfront payment for 36 months, down from 60% at best to 30% in average.

Volume Discount

A volume discount is a well-designed option for customers with fixed high workloads. Customers commit to a certain minimum usage per month and receive in exchange a discounted rate. The commitment requires a minimum period of 12 months but can be enhanced further.

Pricing models - from simple to complex

Simplicity is one of the core values at Exoscale. This is why we decided to offer our customers only the most transparent and easy to use pricing options for their cloud infrastructure.

At the moment we offer on-demand pricing and volume discounts. Focus on your applications, do not waste your resources on complex pricing models.