CloudConnect Day Three: Amazon Ushers in Futures Market for Cloud?

Airlines buy futures contracts on jet fuel to mitigate the risk of price increases. Manufacturers do the same thing with electricity. So why can’t we buy a futures contract for the Cloud?

We’re not quite there yet, but a new capability from Amazon Web Services (AWS) paves the way for a full-blown market for Cloud instances: The Amazon EC2 Reserved Instance Marketplace. Yes, it’s still in beta, but Amazon is putting one more piece of the Cloud-as-utility paradigm in place.

To understand the context of this nascent marketplace, it’s important to get your head around how Amazon charges for Elastic Compute Cloud (EC2) instances. There are three core purchasing options: On-Demand Instances, Reserved Instances, and Spot Instances.

With On-Demand Instances you pay as you go with no up-front commitment. Alternately, you can make a low, one-time initial payment for Reserved Instances with a one- to three-year commitment, at a significantly lower rate than On-Demand Instances. With Spot Instances, you essentially bid on the type of instance you are looking for, setting a maximum cost. The cost for Spot Instances fluctuates, but if the cost exceeds your maximum, Amazon shuts the instance down.

The lowest cost option is the Reserved Instance — assuming, of course, you need each instance for the one to three year term that you commit to. But what if you need those instances only some of the time? That’s where the marketplace comes in.

Let’s say you need your Reserved Instances only during the holiday season. The rest of the year you can offer them to third parties who would bid to essentially sublet those instances from you when you’re not using them.

So far so good, but this story gets really interesting when you think about the opportunities that such a marketplace presents to speculators and other market players. You could theoretically buy up a number of Reserved Instances in hopes of selling them at a higher amount (a highly risky strategy, given Amazon’s history of lowering prices). The more lucrative play might be to establish a futures market. Companies pay a relatively small fee today to guarantee maximum pricing in the future. Or given the downward pricing pressure from Amazon, perhaps you want to buy a put option on the Reserved Instances you already purchased.

Today it’s too early to tell how this Cloud marketplace will pan out. But with their 12% cut of marketplace transactions, there’s no question the big winner, win or lose, will be Amazon.

Share the Post:
Share on facebook
Share on twitter
Share on linkedin


The Latest

positive contribution tech

Technology’s Positive Contributions to Society

Technology has and continues to improve our lives. From the business world to the world of medicine, and our day-to-day lives, you can’t go a day without interacting with at least one form of technology. While some fear technology may be going too far, there are many ways in which

How to Choose From The Best Big Data Platforms in 2023

How to Choose From The Best Big Data Platforms in 2023

As big data continues to become increasingly popular in the business world, companies are always looking for better ways to process and analyze complex data. The process critically depends on the platform that manages and analyzes the data. In this article, we will provide a guide to help you choose

Why transparent code is a good idea

Why Transparent Code is a Good Idea

Code is used to make up the apps and software we use every day. From our favorite social media platforms to our online banking services, code is the framework used to build these tools that help make our lives easier. Code is complex. Software today requires large teams of programmers

The Role of WordPress Hosting in Website Speed and Performance

The Role of WordPress Hosting in Website Performance

The term “WordPress hosting” refers to a specific type of web hosting service that offers hardware and software configurations tailored to the needs of WP sites. It’s important to remember that a WP hosting package is not required to host WordPress webpages. WP web pages are also compatible with standard

Data Privacy vs. Data Security: What you Should Know

Data Privacy vs. Data Security: What you Should Know

Data privacy and data security are often used interchangeably, but they are two completely different things. It’s important to understand the difference for anyone who handles sensitive information, such as personal data or financial records. In this article, we’ll take a closer look at data privacy vs. data security. We’ll