Amazon EC2 Spot Instances - A Flop?

When Amazon Web Services launched EC2 spot instances in December 2009, I was very excited about the beginnings of potential revolution in how computing resources could be priced, bought and sold. I have followed this unprecedented phenomenon with great interest, blogging my thoughts along the way.

But today, over 1.5 years since the launch, I am not so sure anymore. While I have no insider information on what goals AWS set out for this program and how it’s been performing against these goals, there is a significant publicly available indicator that convincingly shows that this thing that AWS calls “spot market” is not performing the function of a spot market (clearing at equilibrium price). Instead, EC2 spot instances as of today are simply a discounted product with a couple of features removed (similar to an airline selling non-refundable tickets at a discount to a price of fully-refundable tickets).

There are basically 4 features that AWS strips out of their regular on-demand product to justify a discount:

  • a call to request an instance does not return an object corresponding to the instance you requested; instead you get a spot response object
  • there is an unfedined time interval between creation of spot response object and instance object (this time interval is usually small but technically it’s not defined)
  • a spot instance even during normal operation may never get started
  • a spot instance, once it’s started, can be terminated by EC2 under certain conditions even during normal operation

Officially stated goal of this discounting is for EC2 to be able to reduce unused capacity while retaining a legal right to reclaim such capacity quickly if a need arises suddenly. As currently designed, it’s a win-win for both EC2 and customers. It’s a terrific idea. But it’s not a market driven by supply and demand.

If you want to see for yourself, please open a new browser tab and head over to http://cloudexchange.org. Pick a product. Wait for a chart to load. Observe a nicely fluctuating price. So far so good.

But now, instead of looking at a weekly chart or monthly chart, look at all-time chart (click “All” in the lower right). Do you see it? It's a flat line! Well, more specifically, you will see a predominantly constant-amplitude oscillator with constant upper and lower limits.

It's the fact that oscillator's upper and lower limits are constants that shows that this is not a true spot market. Why? Because such limits are easily identifiable - you only need to take a look at a long term chart. And if bidders know in advance what the maximum price is going to be (occasional spikes notwithstanding), they should rationally bid above known maximum. And if this were a real market driven by supply and demand, the oscillator should have swung higher on some future iteration (once enough bids above current known maximum accumulate). But it doesn't.

Note that it’s impossible to perform more extensive analysis due to lack of information - we don’t know how many bids are coming, for what times, we don’t know available supply (which can be fluctuating independently of bids since it’s shared with on-demand regular product). But overall constant upper and lower limits over long term are very unlikely in a system driven more or less by supply and demand.

You might object to my calling this a flop. Maybe you are right. This pricing mechanism definitely serves a purpose. But the idea of spot instances was to form a spot market - otherwise AWS should have named them “discounted instances.”

I think such renaming is the right thing to do, and with the knowledge they accumulated in the last 18+ months, AWS should start a real spot market, one driven by supply and demand, with more market information than just historical prices published via API. That’s what pioneers do - they critically analyze the past and continue to build fascinating future for all of us.

More on cloud pricing is here.

Categories: cloud-computing |