Balancing Commitment Discounts with Vendor Lock-in

Balancing commitment discounts with vendor lock-in

In general, the cloud market, which is quite capital intensive, is oligopolistic, with Amazon, Microsoft, and Google dominating. The big public cloud providers layer value-adding managed service offerings on top of commoditized compute. These offerings make management easier but result in vendor lock-in, making it technically challenging to move an application from one public cloud to another.

The providers also offer commitment discounts. These are effectively discount coupons purchased in advance that can be applied to usage in the future. Commitment discounts lead to greater vendor lock-in, but most customers will want to use them because they can drastically reduce the cost of their cloud services.

Adobe reduced its EC2 costs by 60% by purchasing reserved instances (RIs).

Source: Adapted from Storment & Fuller 154; Info-Tech Research Group