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Why Are You Still Paying Retail Prices?!
Episode Summary
Join Pete and Jesse as they continue the Unconventional Guide to AWS Cost Management with a conversation about why you shouldn’t be paying retail prices for AWS services. They touch upon why every AWS customer gets an account manager regardless of how much they’re spending, why Amazon doesn’t want you spending money wastefully in AWS, the magic number at which your AWS account manager will reach out to you and why you should be the one to initiate the conversation anyway, how account managers want to save you money but how there are only so many internal levers to pull, how you shouldn’t use “we’re going to move to another provider” as a bargaining chip unless you can actually move away from AWS within a week, and more.
Episode Show Notes and Transcript
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Transcript

Corey: This episode is sponsored in part by LaunchDarkly. Take a look at what it takes to get your code into production. I’m going to just guess that it’s awful because it’s always awful. No one loves their deployment process. What if launching new features didn’t require you to do a full-on code and possibly infrastructure deploy? What if you could test on a small subset of users and then roll it back immediately if results aren’t what you expect? LaunchDarkly does exactly this. To learn more, visit launchdarkly.com and tell them Corey sent you, and watch for the wince.


Pete: Hello, and welcome to the AWS Morning Brief. I am Pete Cheslock.

Jesse: I’m Jesse DeRose.


Pete: Fridays From the Field. Triple F.


Jesse: Wooo.


Pete: It’s going to be a thing. We’re working on it. And you can follow along this Unconventional Guide by going to the duckbillgroup.com. Website, you can download this entire Unconventional Guide as a handy PDF. We’ll include the link in our [show notes 00:00:33]. It’s a really long link that I’m not going to read out here.


Jesse: Is it wrong that I want Rebecca Black’s, “Friday” to be our opening intro music now?

Pete: Oh, yeah. That would be, actually, pretty good. I feel like the cost of licensing that might be a little higher than we want to bear. But I don’t know, maybe there’s some sort of fair use thing that we could do with it.

Jesse: I like it. We’ll think about it.

Pete: Well, you know what? We can all just sing it in our heads. And that’s a good way to get it—

Jesse: [laugh].


Pete: —very cost-effective way.

Jesse: We know that you’re groaning as much as we’re groaning, and that’s what’s important.


Pete: That is very true. So, today, we are talking about why are you still paying retail prices for your Amazon usage? And maybe you’re sitting there going, “Well, what else would I pay?” Well, you’d pay less than that, right?


Jesse: Yeah. Last week, we talked about reservations and savings plans, reserved instances. And that’s really important, but today we’re talking about something a little bit different than that. Reservations are still important and still, potentially, part of this conversation, but it’s possible to not pay retail prices. You have to think about it in the same way that you’re thinking about reservations: you have to be willing to make investments into your cloud spend, into your cloud usage.


Pete: So, we mentioned this in a previous episode, that no matter how much your spend is, from a couple of dollars a month all the way up to hundreds of millions of dollars a month, you have an account manager with AWS. You may have never met them, but there is someone that is specifically assigned to you. And the reason for this is that every big-spending client out there starts as a small-spending client, if you’re a startup, you might be spending $10,000 a month. That can be a huge amount of money for your business, but Amazon knows that next year, you’re probably going to spend more than that. And so everyone gets an account manager, and that account management team is there to help you improve your bill. 

And by that I mean, help you spend less when it’s possible. So, the way they do this is by helping investing in this relationship. They want you to save money. And I’m not making a funny here, that may sound like a very strange topic. But Amazon doesn’t want you to spend your money wastefully. That makes for angry customers. Right, Jesse?


Jesse: Yeah, this is ultimately something that I see come up again and again. AWS’s account management team really wants to help you; their job is literally to help you. This relationship is super, super important, and can manifest in a number of different ways: it can manifest in your account manager trying to set you up with a solutions architect or technical account manager to use more AWS services; it can be talking about some of the discounts that we’re going to talk about today; it could be a whole slew of things, maybe credits to move or migrate from your data center into AWS. That’s when we’ve seen a couple times with a couple different clients of ours.

Pete: Yes, specifically, we’re talking about one of the most well-known, I guess, of all of the discount programs inside of Amazon called the Enterprise Discount Program. This is often referred to as an EDP. And you might have an Enterprise Discount Program—this is actually separate from something called an Enterprise Agreement which is just, I believe, some shared legal agreements of how you will operate on the platform. This is actually broader than that. This is both Amazon and your business committing to certain terms—so legal is going to get involved; it’s going to be some legal requirements that are needed—but at the end of the day, this is how you can get a discount on your spend, just a straight, broad, cross-service discount that applies to all of your spend—for the most part. I say ‘all’ but for a majority of your spend within Amazon.

Jesse: So, now you’re thinking to yourself, “Fantastic. How do I sign up, sign up? Shut up and take my money.” So, there’s levels to this. We’ve usually seen clients or AWS customers, whose spend exceeds $1 million per year. That’s usually the sweet spot where your account manager will step in and say, “Hey. Hello. Hi, how are you?”


Pete: Yeah. That’s where you get the introduction because at that spend, yeah, okay, you’re at—what—$100,000 a month, at least? Six figures a month, that’s real spend. That’s real spend that’s probably not going to go away anytime soon. And it’s spend that probably is going to increase in the coming years.


Jesse: And even if you’re not at $1 million per year, you can still start that conversation with your account manager today. They can still tell you what are the levers that you have in order to become part of this EDP program? What are the levers that you have to start getting discounts on your usage today?

Pete: So, something we see a lot of, we actually help a lot of our clients, hold their hand through this negotiation process, and help our clients negotiate on their behalf to improve their discounts. And a good number of our clients actually, will preemptively negotiate these contracts in advance of their spend growing on Amazon, basically making these multi-year commitments because maybe they’ve just closed a deal with a large customer, they’re expecting some future growth and they want to make sure that they can get the biggest discount possible. And that’s what an EDP can do is, basically you’re saying, “I commit to spending a certain amount of money per year, and in exchange, I will get a discount.” Now, there’s a lot of nuances here, but the key thing is that when you make that commitment—let’s say, “I will spend $10 million a year for the next three years.” If I spend less than that, I am going to be on the hook for the difference, for the shortfall. And they do this for multiple reasons. Obviously, Amazon is a public company. They want to smooth out their revenues, and these commitments help them do that.

Jesse: Yeah, and I think one other thing that’s important to note is that AWS will likely come to you and say, “Okay, we’ve looked at your past six months of usage, and based on your past six months of usage, we expect you to grow in this way, make this kind of financial commitment in order to be part of this discount program.” Now, you may say, “Well, wait a minute. That doesn’t make sense with our business model, or that doesn’t flow with the fact that, like Pete mentioned, maybe we just signed a big customer and we are going to double our size in the next few months.” But you need to be able to show AWS why the data that they’re looking at may be wrong if you want to ultimately convince them that they should give you a different commit level than what they originally propose.

Pete: Yeah, and that can be a challenge. They’re going to want to see a certain level of growth over the next few years to give you a certain level of discount. You may have additional information that they may not have, so you’re definitely going to need to have a lot of research on your side. As a lot of the previous episodes we discussed, having a lot of insight into your spend, the ability to have clear forecasting that you can share with them. If your future forecasts say, well, our business is only going to see a growth of about 5% year over year, and here is how our business growth is tied to Amazon spend, what your account manager will do is take that back to their internal teams and basically help them come up with a plan that works. 


So, the more ammunition you have, the more powerful you—I don’t want to call it your negotiating leverage is because negotiating with them is weirdly rational. They’re kind of following a script, although, in many cases, it’s a little rough that I think a lot of our clients find that process.

Jesse: Yeah, I think that there are definitely levers that can be pulled in order to find different commitments and come to agreeable terms together, but to your point, Pete, it is scripted. The negotiation process is very fixed and regimented; your account manager is ultimately trying to give you the best deal based on the data that they see, but internally, there are only so many different things that they can optimize for. Maybe there are four levers, and if you could tell your account manager, “Hey, this one lever is the most important one for me,” then they can fight for that one. But if you say, “Well, I need all four of these levers. I need all four of these things to be discounted,” or, “I need all four of these things to be available to me,” it’s going to be a lot harder for them to get approval on your discount.


Pete: Yeah, and we actually get this question a lot, which is, “Well, if it is so regimented if there is so little leeway in negotiating these EDPs, where we help out when we do it for our clients?” And oftentimes, it’s helping them understand what is negotiable and what’s not, reduce the amount of time that’s wasted in the back and forth, but then also model out different discounts and different commitment levels because this is another scenario where you can give them some upfront payments for additional percentage points of discounts, but what does that represent over time? Or here’s additional discounts if you make a longer commitment. Talk with the engineering teams, talk with the financial teams. If you’re willing to commit to three years, I honestly think, with the exception of some rare clients that we work with, if you’re in for three, you might as well be in for five because you increase your discounts. And what’s going to happen in three years? Are you just going to be like, yeah, we’re just moving to GCP. Even if you made that statement in three years, it’s going to take you two more to get off; it’s going to—

Jesse: Absolutely.

Pete: —take a long time to actually do a migration of cloud vendors.


Jesse: And I think this gets back to one of the points we talked about in the previous episode about reservations, in terms of the breakeven point: essentially, last time we talked about what’s the breakeven point for your reservations? Are your workloads going to be around long enough that, essentially, the discount is worth the upfront commitment? Same thing applies here. If that you’re going to remain on AWS for this amount of time, if that you are going to hit certain commits in AWS spend a certain amount of time, then it is absolutely worthwhile to consider this program; it’s absolutely worthwhile to negotiate a contract to get Private Pricing.


Pete: I think another point, too, as folks start looking at, should we make these commitments to Amazon and they start that negotiation process, you’re going to really want to—and if not you, your executives are going to really want to say, “Well, just tell Amazon that if they don’t give us a good discount, we’re going to go to GCP.”


Jesse: Yeah.


Pete: And I urge you—don’t ever say those words out loud to anyone.

Jesse: Please. Please don’t.


Pete: Because the reality is, is that the folks at Amazon know more than your executives do about who actually leaves Amazon, and the number of people that do that are pretty small. Now, if you were to threaten to say, “Oh, we’re going to move to Google,” or, “We’re going to move to Azure,” or Oracle, or whatever, if you can show yourself doing that, I would imagine that that is a handy negotiating tactic. Meaning, can you shift a majority of your workload to another vendor within the course of, like, a week—some clients we’ve seen actually do that—and that has a bit more impact to the negotiating process than does just saying, “Well, we’re going to up and move,” and ignoring the fact that you’ve built this bespoke Kinesis-Lambda-event-driven infrastructure that has zero portability whatsoever.

Jesse: Yeah, this definitely gets back into the argument of, “Well, we don’t want to be locked into any cloud vendor.” But you kind of already are.

Pete: Yeah. I mean, outside the fact that you have whatever your architecture is, you’ve all your engineers that you have been, hopefully, building up from a technology perspective that are all experts on Amazon. So, this all goes back to the, in three years, if your business were to say, “We’re going to up and move somewhere else,” you totally have the ability to do that; it’s going to take you years; you’re probably going to lose most of your engineers if you decided to just one day move to Azure. So, again, if you’re in for three, you’re probably in for five, so definitely consider that as well.


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Jesse: Now, with all of this said, there are definitely lots of different opportunities for Private Pricing within this space. And we’ve talked a little bit about, you know, there’s different levers that can be pulled. Some of that is Private Pricing for specific services. So, for example, if you know that you are very storage heavy—you use a lot of S3—maybe you want to focus on Private Pricing for S3, you want to focus on some deep discounts for your S3 storage. Or maybe if you are very compute-focused, you want to focus on discounts for EC2, or maybe if you are very focused in other areas, you want to focus on Private Pricing for those things. 

But again, this comes back to the conversation of what are the levers that are most important for you. Understand that there are definitely a lot of different opportunities to get Private Pricing with a lot of different services. And unfortunately, AWS doesn’t really explain what all of those are upfront. This is one of the things that we found frustrating for clients and for ourselves. There’s a lot of different things that we’ve seen in terms of baseline Private Pricing, but there’s definitely more that we haven’t seen and it’s not as clearly documented as we would like it to be.


Pete: And this actually is a great segue into the other type of big discount program. So, you have the cross-service discount of an EDP; within that EDP you might be able to negotiate, like Jesse mentioned, specific per-service discounts. Maybe you’re storing 10 petabytes of data on S3, but if you’re paying retail price for that, that is quite expensive. And you’re using it quite a bit. What you can do is commit to spending—continuing to use—it’s the usage commitment—a certain amount of S3 over a period of time and they will extend you discounts for that. 


That’s a place where these are often called a Private Pricing Addendum. Sometimes the EDP is called a PPA. There seems to be no solid terminology on what these are. But the most important part is we normally consider an EDP a multi-year commitment of a certain spend amount, and inside of it might be some per-service discounts, but broadly, there’s a cross-service discount on the top. You can outside of that whole EDP process—even without an Enterprise Discount Program—get a Private Pricing Addendum—a PPA—where if, let’s say you’re using quite a lot of data transfer of a certain type, or a lot of CloudFront and maybe not a lot of other things. 

Again, you can make those usage commitments and say, “I’m going to commit to sending a certain amount of data through this service over the next year. And again, in exchange for that, I’ll get a discount.” And what’s interesting is that the commitments can feel difficult to get across to financial teams because you’re going to commit to a certain usage, which means you’re going to commit to a certain spend. It is a commitment, but it’s a discount of commitment. And so when you start figuring this out, let’s say if you were able to get like a 50—five-zero—percent discount, on a certain service that you’re going to commit to, your usage would have to drop by half before you were paying on-demand rates again. 

I’ve done that in the past where I’ve looked at it and be like, “Well, I might be able to make some optimizations to reduce my network data transfer. Do I really want to make this commitment?” But the reality is, is that I would have to reduce it by the discount amount in order to be back to just paying retail prices again. So, you got to think of those breakeven points, essentially, just like you would think about those, as we’ve talked about in the previous episode of your reservations; where are the breakevens at?

Jesse: Yeah. So, there’s definitely work to do here, unfortunately. We are sending you home with homework; I’m so sorry. But it’s homework that is worth doing because, again, the more data that you can show to finance, to leadership to sign off on making these kinds of investments, and the more data you can bring to AWS to show why you should be getting the kinds of discounts that you want, the better discounts you’re going to get, the less you’ll end up spending on your AWS bill.

Pete: Yeah, that’s important, too., you’re not going to, again, negotiate for a certain price. Like, eh, maybe a little bit, it might swing here and there for some services, might be different than other services. Largely, there’s tiers, there’s usage tiers; you’re going to fall within some of those tiers. But oftentimes, too, I find that I might see a client with a large amount of spending a service still—again—paying retail prices, and if your account manager is worth their salt, and you go to them and say, “Hey. Is there Private Pricing for AWS Systems Manager Login Manager”—whatever random service is out there, their response should hopefully be, “You know, I don’t know, but let me go find out.” 

Because if, again, your usage is at a substantial amount and you’re willing to commit to that usage, service teams like those commitments; it’s obviously good for so many different reasons, and if you can make those commitments, just like you would make a reservation commitment or a multi-year EDP commitment, there are discounts that can come along with that.

Jesse: Yeah. So, start that conversation with your engineering teams internally to look at these usage numbers, and start that conversation with your account manager today. Start reaching out to ask them, “Hey, we’re seeing a lot of spend here. Is there opportunities for discounts?” Now, also keep in mind that if you haven’t already purchased savings plans and reserved instances, that might be the first place that your account manager suggests investing some money and some time, but past that there are absolutely opportunities for other discounts.


Pete: Yeah. And again, your account management team isn’t out to get you throughout any part of this process. They’re oftentimes just looking out for your best interest. And the key thing is that when the EDP is signed and over with, then you’re still having that relationship with them, that professional relationship over many months or years that they may be assigned to your team. So, they’re not trying to make this a difficult thing. 


They’re hopefully trying to let you know what is reasonable and what’s not. But even inside of Amazon, there are just too many places to know where to go, what discounts exist, they don’t really have a good process around this. And so that’s where asking these questions, having them chase this stuff down, is the biggest thing that you can do internally. And I feel like I wonder if Amazon account managers are like, “Oh, God, Pete and Jesse. You’ve just given me all this additional work.”

Jesse: You’re welcome.

Pete: Well, it is Amazon review period right now, so if I did have the ability to give some account managers a positive review, I absolutely would.

Jesse: Yes.

Pete: And you know what? I will say this: you most often can give your account manager positive feedback. They should be including a link in their emails. This is Amazon we’re talking about. This place operates on data-driven feedback. 

If your account manager goes above and beyond for you, click that little link and say something nice to them. That is directly impactful to their livelihoods. And if they are going above and beyond—which they definitely don’t need to—you want them to continue on at that business.


Jesse: Yeah, we’ve definitely seen account managers and technical account managers who have gone above and beyond and have created great, great relationships with their AWS customers. And that is so critical to an ongoing healthy relationship using AWS.

Pete: Finally, if you’re thinking about using a new service within Amazon, ask if there’s any investment credits to help you adopt that service. I’ve even seen certain types of credits existing as a SaaS provider when we want to do a large-scale proof-of-concept for a new client. Amazon, they’re not dumb. They know new clients means more servers. So, they will very often give you some credits. 

If you were like, “Hey, we have this client. We want to give them a three-month POC; it’s going to cost us this amount of money; here’s the business case.” They will probably get you those credits. They know what that means. But again, they’re not going to do this stuff if you don’t ask. And of course, sadly, a lot of these things—they are getting better at communicating, but the information just isn’t widely out there.


And then finally, if this is all just super-complex, reach out to us at the Duckbill Group, we negotiate more EDPs than most Amazon account managers do, and we can really help you gain some confidence in that process, so. You can also go, like I said, to the Duckbill Group site, we have this Unconventional Guide up on the site. We’ll include a link in the [show notes 00:21:25]. And yeah, if you have any questions or feedback about this episode, about an EDP or a PPA, go to lastweekinaws.com/QA. We would love to answer those questions. Feel free to put your name in, or just leave it blank. That’s totally fine too.

So, if you’ve enjoyed this podcast, please go to lastweekinaws.com/review and give it a five-star review on your podcast platform of choice, whereas if you hated this podcast, please go to lastweekinaws.com/review give it a five-star review and tell us what is on your wishlist for your next Private Pricing or EDP negotiation. Thanks.


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