The encyclopedia · Product & Design · Product decision · 2009–2015
Amazon sold its spare cloud capacity by letting customers bid for it.
EC2 spot instances auction unused capacity at a deep discount, so Amazon sells idle servers and customers get cheaper compute.
Amazon
the move
Cloud providers hold large pools of compute that are not always needed, and idle servers are a pure loss if they cannot be filled.
In late 2009 Amazon introduced spot instances: customers bid for spare capacity and received it while their bid exceeded the current spot price, accepting that it could be reclaimed.
Research on the pricing found the spot price was often not a simple market-driven auction but reflected a hidden dynamic reserve price, yet the effect was to let Amazon sell unused capacity at a discount.
why it works
- Customers who can tolerate interruption will pay for spare capacity at a discount
- Selling idle servers converts a fixed cost into incremental revenue
- A separate auction lets the provider price marginal capacity without lowering standard prices
- Bidders get cheaper compute for fault-tolerant, interruptible work
what transfers
If you have perishable capacity you cannot always sell at list price, find its own market: let the marginal customer bid for the marginal capacity separately.
what came after
Spot instances became a standard fixture of cloud pricing, adopted across the industry, and spawned a field of research on bidding strategies and spot-price dynamics. Their auction design has also been examined for how the provider sets prices and how customers should bid.
references
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