Amazon has lowered their EC2 instance pricing with an annual commitment. The deal is you pay a fixed price up front for 1 or 3 years. For that, Amazon significantly lowers the cost per instance hour (you still only pay for the hours you use) and guarantees that an instance of the type you reserved will be available whenever you need it during your 1 or 3 year period. This is great for customers that run full time servers on EC2 or want to know that their 50 backup instances will be there in a pinch when they need them and are willing to pay for that assurance.

With AWS, I always have to do the math to translate their hourly pricing into monthly pricing for comparison. So here is the breakdown of the new pricing discounts. Note that this pricing doesn’t include bandwidth or optional EBS storage, and this is based on the default “Small” instance type (which I’ve found to be quite capable). So what’s the discount work out to when the up-front payment is taken into consideration?

If you’re running servers that don’t use a lot of bandwidth, this is ridiculously low pricing for what you get. At the end of the day, I’d happily pay more for this service over traditional dedicated hosting. Amazon’s new EC2 pricing will secure their position as King of Cloud Computing and make it nearly impossible for a smaller competitor to compete with them on price alone.

Of course, the real value of EC2 isn’t the pricing - it’s the unbelievable flexibility of managing servers with an API. As a quick example, I just launched a new release of EditMe and was able to test the deployment on exact replicas of my production servers before the actual deployment. I encountered a number of glitches that I was able to address without having to compromise the live service. All this was done in an afternoon and cost me about $10.