I have recently spent an increasing amount of time discussing (arguing) about whether the cost per instance in cloud computing is going up or down. The reason for this is that while objective analysis by reputable third parties shows that computing costs are reducing, what we observe from our own standpoint is that the average cost per instance that customers are managing in the ParkMyCloud platform is actually increasing. Following on from a recent blog by our CTO (The Cost of Cloud Computing Is, in Fact, Dropping Dramatically) we decided to undertake some more detailed analysis to look at this phenomenon.
We identified a cohort of our customers who had been with ParkMyCloud for at least one full year and looked at what happened to their average cost per instance over a one-year time period. What we discovered was that the average cost per instance, as charged by the cloud provider, had indeed increased from $214 to $329 per instance per month for our customers using Amazon, Microsoft and Google clouds – a 65% increase. Set against the backdrop of the reported falling costs of cloud computing, this clearly seems to be an anomaly. Or is it?
Digging a little deeper, we discovered that two-thirds of our customers were spending an increased amount per instance per month over the last 12 months and only one third were paying the same amount or less than before. Interestingly, of those who saw a price increase, one third saw their average cost per instance increase by more than 25%.
So what do we think is happening? One possible explanation is something we will refer to as The Apple Upgrade Syndrome. Each time there is an iPhone upgrade cycle, Apple’s product marketing gurus carefully price the new products — and they also adjust the pricing on their older products. When we walk into the Apple Store to peruse the new offerings, we have a clear choice of either purchasing the previous flagship model at a discounted price, or the new, sexy upgraded model at a price premium. A rational actor should buy the discounted model, which just the day before was hundreds of dollars more. But that’s not what most of us do. What we want is the new model with the additional bells and whistles (e.g. face tracking technology and studio lighting settings for the camera) and are willing to pay the extra. As a result, despite the overall cost of mobile computing falling, your monthly phone bill keeps increasing.
We believe that the same phenomenon is at work in cloud computing when the new generations of instances are released, and the cloud computing buyers decide to trade-up to these new more powerful instances (e.g. more cores, more memory, etc.), despite the fact that previous generations of instances might actually have their prices reduced. So while Amazon, Microsoft or Google might pronounce a “25 percent improvement in price-performance” for a new generation of instances, the reality is that new instances cost more and therefore drive up the monthly spend.
Next, we’ll share a more in-depth analysis that will review the instance types driving these increases. At the end of the day, we are all likely correct. The cost of cloud computing is indeed going down, but the average cost per instance is actually going up.