Amazon.com (Nasdaq: AMZN ) has its head in the clouds. The online retailer is a pioneer in cloud computing, thanks to a willingness to extend the IT infrastructure that powers its own sites and services into a rent-by-the-hour computing service of its own. And now the time has come to lock customers into long-term contracts. This could be the beginning of a beautiful growth story.
A $0.10-per-hour charge for using Amazon's smallest Elastic Computing Cloud (EC2) platform with a Red Hat (NYSE: RHT ) Linux operating system adds up to about $876 per year. Move to the beefiest instance, with many times the memory, processing power, and storage space and a Microsoft (Nasdaq: MSFT ) Windows environment, and you're looking at $10,512 a year per virtual machine.
But a new pricing plan locks customers into a one-year or three-year contract, with base fees ranging from $325 to $2,600 for one year, or $500 to $4,000 for three years. In exchange for that commitment, the customer gets a much lower hourly rate. Running the smallest machine 24/7/365 as a reserved instance adds up to $588 under a one-year contract, or $3,435 for a souped-up battleship under a three-year deal. Then there's a bit extra for data transfer, extra storage, and whatnot. Still, slashing virtual hardware costs by two-thirds is a significant price drop.
These virtual machines on Amazon's robust infrastructure can run any service you like, and they already power dozens of business-class applications. Autodesk (Nasdaq: ADSK ) , Washington Post (NYSE: WPO ) , and the Harvard Medical School are just a few of EC2's customers -- and all of them can save a good chunk of change by moving to this new pricing plan. That's how you attract more corporate customers and ensure that they won't jump to some competitor's service when the mood strikes.
And there's plenty of new ground to break here. Hotshot messaging service Twitter already hosts its images on EC2's sister act, the Simple Storage Service. As Twitter grows -- and boy, is it ever growing! -- it could make sense to move the whole shebang into Amazon's cloud-computing servers. That's just one of many examples of Amazon's growth potential in the virtual computing space.
And now, your concluding moment of techno-irony: Although Amazon can thank VMware (NYSE: VMW ) for getting the world accustomed to virtual machines in the first place, EC2 actually runs Citrix Systems' (Nasdaq: CTXS ) XenSource virtualization software.