AWS Cloud Storage Price Discrimination Done Right

Until yesterday, Amazon’s AWS Cloud storage had two options

  1. Standard Storage which is positioned for data that is accessed more frequently and require higher level of availability- like production backups.
  2. Glacier Storage which is positioned as storage for last resort copy, for data that is rarely accessed and when accessed it was acceptable to wait for hours before the data became available to use.

k15502780You can think of option 1 as first class train car in AWS cloud train and option 2 as third class train car. Unlike the third class train cars of late 19th century data is not exposed to elements, customers get the same level of protection. It is just possible long delay to access the data in case customers need it.

The first class ticket for your data costs 3 cents a GB per month. Third class ticket costs 7/10 cent a GB per month. You can see the large spread in value and price difference. It is highly likely there exists a market for a in-between, a second class ticket. And Amazon was able to verify just that from its data,

Although this storage model is characterized by infrequent access, customers still need quick access to their files, so retrieval performance remains as critical as ever.

In order to meet the needs of this group of customers, we are adding a new storage class for data that is accessed infrequently.

To fill this chasm – to meet the customer need for second class service without the frills of first class (like first to board the train), with the same protection guarantee of first class but without the limitations of third class (waiting days to get in and out of train) – amazon introduced a new tier of storage called S3 Infrequent Access. And the price? Just below the midpoint of two extremes.

s3-pricing

Doesn’t this risk more customers who currently travel first class switch to second class? Likely but what it does is frees up budget to have more of the data travel second class. In the worst case it is revenue neutral and poised to grow from then on as data continues to grow. By positioning right, calling it Infrequent Access goes a long way to reduce temptation to switch from first class to second. In addition the stated data availability metric (how long customers may have to suffer an outage during a year) fortifies the price fence.

Note that while Amazon states  99.99% availability for Standard vs. 99.9% for Infrequent Access (8.6 seconds per day vs. 86 seconds per day down time) it need not do anything to cripple the service to reduce availability. Like I discussed in Google case the stated availability level simply serves as deterrent even though most customers may see better than than 99.9%. The posted sign leaves the door open for Amazon to cost optimize to get better margin from the second class service.

This is price discrimination done right.