One of my 5 steps to prepare for Cloud is to understand your current cost model. After all, how are you going to know if the cost of a new service is attractive if you don't know what your current costs are?

What will the costs models of the new cloud services look like? Well many are yet to be seen but a large difference we are already seeing is moving from a fixed cost, whether that be monthly or annual to a consumption based pricing, only pay for what you use. Consumption based pricing is of course nothing really new, its has been around in many areas for a while, such as hosted storage or carriage. Although a slant on cloud based consumption is that it is not pre-provisioned.

Yet the consumption based pricing was one of the more visionary elements of Amazons EC2 service. Pay by the hour or pay by the Gigabyte. Thats they way people want to consume cloud services is what we keep hearing, pay-as-you-go.

Therefore it was interesting to see that this month Amazon introduced an additional pricing model, its called "Reserved Instances".

Reserved Instances give you the option to make a low, one-time payment for each instance you want to reserve and in turn receive a significant discount on the hourly usage charge for that instance. After the one-time payment for an instance, that instance is reserved for you, and you have no further obligation; you may choose to run that instance for the discounted usage rate for the duration of your term, or when you do not use the instance, you will not pay usage charges on it.
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Reserved Instances can be purchased for 1 or 3 year terms, and the one-time fee per instance is non-refundable. Usage pricing is per instance-hour consumed. Instance-hours are billed for the time that instances are in a running state; if you do not run the instance in an hour, there is zero usage charge. Partial instance-hours consumed are billed as full hours.

So you can have pay-as-you-go or you can get a discount by paying in advance. People have even done the calculations to determine where the change point is to swap to the prepaid model. Sounds like the new pay-as-you-go model may not be as great after all if the old model of longer term contracts can bring the customer cost savings and the supplier some more predictable revenue stream.

What might the future hold for cloud pricing? I think the mobile phone market is a great example of where we will end up; too many plans which you can't really understand and compare, many different means of bundling and packaging. Pre-paid, account, big packages with large usage amounts included or small packages with hefty additional usage fees.