Earlier today, I wrote about Amazon’s announcement on the availability of the new Micro Instances and their aggressive pricing strategy.
The surprising factor for me is their competitive pricing. Their on-demand instance is only 2 cents per hour for Linux and 3 cents per hour for Windows. A 24/7 usage of a Linux Micro Instance comes to less than $15 per month, less than the cost of a comparable traditional VPS. Their reserved instance is even more aggressively priced at $0.007 per hour for Linux. A 24/7 use of a Micro Instance costs only $5 per month (of course, with a one time fee (of $54 for 1 year and $82 for 3 years) associated with the reserved instances). In my opinion, this is a pretty aggressive pricing by any standards (traditional VPS or other cloud providers).
While thinking about it, it occurred to me that this is a boon to SMBs because they could now slap an open source software like a CMS or Collaboration Suite on a Micro Instance and have a cloud application running for cheap. Let us dig into this premise a little bit more.
SaaS has turned out to be a boon to many SMBs and we are seeing more and more adoption these days. But there are some who are hesitant to move to SaaS for various reasons including
- Lack of availability of SaaS alternatives for many SMB applications
- In some cases, SaaS pricing can boomerang as the number of users increases
- Worries about vendor lock-in
- Worries about lack of transparency on the security front
- Worries about longevity of vendors
- Worries about training the employees and other users on a new system
- Worries about lack of customization
These are some of the issues that prohibits large scale SaaS adoption in the SMB sector. Even though some of them are just worries in the mind of users, we cannot deny the fact that many SMBs use shared hosting, VPS and Dedicated Servers to host their applications. But they are not the ideal solutions. Shared hosting can be too restrictive for running many applications and offer less than optimal performance. VPS cannot scale out easily and suffer from sub-optimal performance due to hoster’s greed. Dedicated servers also have a scale out problems and high cost issues. Similarly, the standard Amazon instance is too expensive for SMBs to have a 24/7 usage.
While thinking about this Amazon announcement, it occurred to me that SMBs can now combine the low cost and seamless scalability of Amazon Micro Instances with almost zero cost of Open Source Software to have powerful cloud applications at their disposal. In the last few years, we have seen a tremendous growth in the open source software suitable for businesses of all sizes and shapes. Micro Instances open up an opportunity for SMBs to use these applications without incurring huge hosting costs.
For example, a small business could start with a small reserved instance at approximately $11 a month for instance costs and EBS costs for reasonable usage (+ bandwidth charges which could range from pennies to few dollars). They could then use Amazon’s CloudSwitch, Autoscaling and Load balancing to fire up few extra on demand instances during the time of spikes (say, just before Christmas or during some important events), manage the increased usage seamlessly, shut it down after the spike goes away and pay much less than what one would have paid with reserved standard instances or VPS or dedicated servers for the same use case. On top of these cost savings, SMBs also have multitude of choices in the form of open source software, the ultimate sign of freedom and liberty which we keep talking about.
However, here is a word of caution. We should keep in mind that Micro Instances are not miracle pills for SMBs. They are very good for low traffic applications that are not data intensive. As Vladimir Vuksan points out in his cost analysis of Amazon Micro Instances, the cost could boomerang very fast on data intensive applications with high storage I/O. These Micro Instances lack ephemeral storage and makes use of EBS for running. Certain applications and use cases might result in very high unanticipated charges.
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