Cloud Price Wars – What about the network?
The cloud price wars that began at the end of March have been all about compute and storage pricing. I don’t recall hearing network pricing being mentioned at all; and indeed there haven’t been any major shifts in network pricing.
|Photo credit: Datacenter World|
Network is perhaps now the largest hidden cost of using major IaaS providers, and also one of their highest margin services.
Let’s take a practical (and personal) example. At the start of last year the Raspberry Pi images for OpenELEC that I was hosting on my Pi Chimney site were being downloaded around 35,000 times a month generating 3.5TB of network traffic.
Let’s have a look at my options using present prices:
- AWS EC2 assuming I could use a free tier instance and that it wouldn’t melt under the load then my data transfer out of Amazon EC2 to Internet would be $0.12 per GB for a total of $429.96
- GCE pricing is pretty close to AWS. The first TB is $0.12, and the 1-10TB is a little cheaper at $0.11 for a total of $404.48 – a paltry saving of $25.48
- Once again pricing is the same for Google Cloud Storage
- Azure is also $.12 for the first 10TB, though it offers 5GB free where Amazon only offers 1GB (and Google offers none), so it’s fractionally cheaper at $429.48
- The first offer I find on LowEndBox (a marketplace for cheap virtual private servers) with a 4TB bandwidth allowance is XenPower’s XP-XL at $6.68 – a saving of almost $400 against the cheapest major IaaS vendor!
When this was a real issue for me I used a VPS provider that included 3TB of network with the $10/month server I was using, I would switch traffic at the end of the month to a second VPS I had that included 1TB of network in the $6.99/month. The site has subsequently moved to GreenQloud where they provide complimentary hosting in exchange for me advertising their sponsorship.
Let’s for the sake of argument say that the $6.68 for a VPS is just bandwidth – the compute, storage and IP address come for free (which they don’t). Furthermore let’s say that’s cost price for the VPS provider. In that case we can take an Amazon charge of $480 (for 4000GB) and calculate a gross margin of 98.6%.
Of course VPS providers don’t get compute and storage and IPs for free, so it’s reasonable to assume that Amazon (and it’s competitors) are getting >99% gross margin on bandwidth. Nice business if you can get it.
Of course the calculation above assumes that the VPS provider and Amazon pay the same for their bandwidth, which of course they don’t. Amazon has a far better bargaining position with its telecoms providers than XenPower (or any other VPS provider likely to show up on LowEndBox). It’s fair to assume that Amazon pays much less for its bandwidth than XenPower does.
What is the cost of bandwidth anyway?
Bandwidth within co-location centres gets charged by the MBps. A typical rate at present is $2/month for a 100Mbps link, or $1.50/month for 1Gbps. 10Gbps links are cheaper still, but nobody seems to want to publish pricing information on the Internet. Driving one of those 1Gbps links at full speed would translate into a cost of $0.00474 per GB/month. That’s still a lot more than the $0.00167 per GB/month from XenPower.
My example fits into the 0-10TB price band for the big clouds. Amazon (and its competitors) have a tiered pricing structure where the cost drops to $0.05/GB for 150-500TB, and there are three bands beyond that with a price of ‘contact us’. It’s not at all clear why there’s consistent pricing for instances but ramped pricing for network. What is clear is that the cloud providers can sell transfer in bulk at less than $0.05/GB.
Bandwidth != transfer
Bandwidth is the capacity of a network link, whist transfer is the actual traffic pushed across it. In real life network utilization is bursty, and so it’s necessary to buy more bandwidth than the notional transfer being supported over time (otherwise the network becomes a bottleneck).
So how do the VPS providers do it?
It’s a mixture of factors:
- Throttling – the VPS provider will have an Internet connection with a given bandwidth, and once that’s saturated then customers will start to notice additional latency. Individual servers might also be throttled.
- Capping – once a bandwidth allocation is used then the VPS might be switched off until the end of the billing cycle.
- Mostly unused – the VPS provider can build a statistical model of how much transfer actually gets used, which won’t always be the max for every customer.
All of this adds up to VPS providers paying for a limited amount of bandwidth.
|Photo credit: Rusted Reality post|
So what’s different about IaaS?
IaaS providers are charging by transfer actually used without imposing caps, and having to buy sufficient bandwidth to support that transfer without throttling, which involves some degree of oversupply from a capacity management perspective. That said, it still looks like a very high margin part of their business, and one that hasn’t become cheaper as a result of the cloud price wars.
 GreenQloud offers 1TB free with its servers then charges $0.08 per GB for transfer, so one of their Nano servers would come in at $212.10/month for my 3.5TB workload.
 IPv4 addresses are starting to become a significant cost contributor to very low end VPS offerings, which is why IPv6 only packages are starting to crop up.
Filed under: cloud, CohesiveFT, networking | 5 Comments
Tags: amazon, Amazon Web Services, aws, Azure, bandwidth, cloud, GCE, google, iaas, margin, Microsoft, pricing, transfer