Muli Ben-Yehuda's journal

Ever wonder how Amazon prices its spot instances? Or, having dug deeper, perhaps wondered why the prices sometimes appear a little funny? Wonder no more: Orna Agmon Ben-Yehuda tells the gruesome story of how Amazon really prices its spot instances in our new paper Deconstructing Amazon EC2 Spot Instance Pricing. Warning: not for the faint of heart.

Cloud providers possessing large quantities of spare capacity must either incentivize clients to purchase it or suffer losses. Amazon is the first cloud provider to address this challenge, by allowing clients to bid on spare capacity and by granting resources to bidders while their bids exceed a periodically changing spot price. Amazon publicizes the spot price but does not disclose how it is determined.

By analyzing the spot price histories of Amazon’s EC2 cloud, we reverse engineer how prices are set and construct a model that generates prices consistent with existing price traces. We find that prices are usually not market-driven as sometimes previously assumed. Rather, they are typically generated at random from within a tight price interval via a dynamic hidden reserve price. Our model could help clients make informed bids, cloud providers design profitable systems, and researchers design pricing algorithms.