Amazon Web Services lets users sell reserved instances
The company hopes to make reserved instances more attractive by increasing flexibility — Amazon Web Services (AWS) has announced an online marketplace where users of its cloud computing services can sell their reserved server instances …
Context & Ripple Effects
By September 2012, AWS is already described as by far the largest cloud service provider, though independent verification is lacking, and it has spent the year courting enterprise workloads — including January's free Windows on EC2 offer. Reserved instances are its tool for locking in predictable revenue: customers pay upfront for discounted capacity over a term.
The new marketplace attacks the main objection to those commitments — illiquidity. A customer stuck with more reserved capacity than it needs can now resell it rather than eat the cost, which matters in a year when AWS's repeated outages (June's storm-related North Virginia failure echoing April 2011) have reminded buyers how quickly workload plans change.
First-order effects
- Existing reserved-instance holders gain an exit: over-committed customers can recover part of their upfront spend instead of writing it off, making the 1-3 year commitments materially less risky to sign.
- AWS gets a lever to push more upfront-commitment sales, converting customer hesitancy about term length into additional reserved-instance revenue.
Second-order effects
- A secondary price for compute commitments emerges inside AWS's own walls — resale discounts become visible demand signals AWS can use to tune list pricing and discounting on future instance offerings.
- Rival cloud providers face pressure to match commitment flexibility or lose deal negotiations on the liquidity argument alone.
Third-order effects
- If the pattern holds, long-term compute capacity drifts toward being a tradable instrument — contracts with market prices set partly by holders rather than solely by the vendor — prefiguring what would become the broader contractual-compute market.
- Vendor-controlled secondary markets concentrate pricing power further in the platform owner: AWS sets both the primary terms and the venue where they are unwound.
The trend: Cloud providers are turning fixed capacity commitments into liquid, market-priced instruments, with the platform owner operating the exchange.