Max: 00:08 I had a good intro to talk about companies looking to reduce their IT spend, but instead, I’m gonna jump right in and talk about why I don’t like EDPs, and how I’ve seen companies really get hurt with an AWS EDP. And I’m gonna walk you through a couple of things. So if you’re not familiar with it, an EDP, is an enterprise discount that, Amazon will grant, at a certain size. So if you’re a US based company, once you cross, $500,000 in annual spend, you usually get assigned to a named account manager, and that named account manager will start pushing you into an EDP. And, if you cross the $1,000,000 threshold, then absolutely you’ve had a conversation around an EDP.
Max: 00:52 And in the EDP, you get a private pricing agreement, and the PPA is gonna have terms. So this is a PPA, that, has been adjusted a little bit, but but is from one of our one of our customers, one of our clients. And in this case, it’s a 3 year, EDP agreement. Now the first thing I wanna tell you about EDPs and why I don’t like them is EDPs are discounts in exchange for increases in spend with AWS. I’m gonna repeat.
Max: 01:22 You are committing yourself contractually to spending more money with Amazon each and every year you’re inside of that EDP. Now there’s some commercial levers you can pull. You can have, you know, a total spend commitment throughout the entirety of the ad agreement. That’s very uncommon. Usually, you’re gonna see something like this.
Max: 01:39 It says, you know, contract year 1, you’re gonna get an 11% discount. Year 2, you’re gonna get an 11 a half percent discount. And year 3, you’re gonna get a 12% discount. In exchange for those discounts, you are committing to spending $6,500,000 year 1, $7,500,000 year 2, and $8,500,000 year 3. If you are on an escalating growth trajectory with your AWS spend and your consumption, and you know that you are gonna spend, you know, $7,000,000 this year, $8,000,000 a year, $9,000,000 next year, or 7,000,000, 9,000,000, 12,000,000, or whatever the actual numbers are, then EDPs can be a good tool for you to use.
Max: 02:18 But if you are in a flat line of spend or you are in a declining or decreasing spend, this EDP can become Kryptonite and a giant albatross around your ability to make changes. And I’m gonna explain and and and break into that a little bit more. So the first thing about the EDP that people do not realize is EDPs, on contract, require enterprise support. So enterprise support is, here’s here’s, you know, list pricing from Amazon’s website, which I’ve used here. I’m gonna close that up, which shows, you know, tiering up to a $150,000 is 10%.
Max: 03:00 By the way, your your base enterprise support is $15,000 a month, and then these tiers apply. So you’re gonna pay, 10%, 7%. Amazon likes reducing, percentages as, you know, pricing increases. So this is list pricing off Amazon’s website. You can go check it out for yourself.
Max: 03:16 Now, again, let’s say you were looking at this and you were going through it and you’re saying, hey. You know, we’re we know we’re gonna spend $7,000,000 this year, and our projections are we’re gonna spend $8,000,000 next year, and we’re gonna spend 9,000,000 the the year following. If you can project out your cloud spend 3 years, kudos to you. I find very little companies can actually predict their economy, their consumption, their growth rate, their customer spent, you know, like, everything in their application to that level of, you know, granularity at a at a 3 year cycle. Usually, it’s not the case.
Max: 03:46 But so what we’ve done here is I’ve put in, you know, these numbers, 7,000,000, 8,000,000, 9,000,000. Here’s a discount that this PPA gave, and here is a spend commitment. Now the spend commitment comes up and and it’s gonna be very important in a moment. And let’s say, you know, year 1, you absolutely nail it. You hit the $7,000,000, you know, right on the target.
Max: 04:05 Well, for that $7,000,000, you’re paying $244,000 enterprise support. You’re getting a discount of $770,000. Woo hoo. You saved $770,000, and your adjusted bill is 6,474,000. Right?
Max: 04:23 So now here’s where this gets really interesting. Remember the spend commitment I was talking about earlier? What that means is that in this case, you are writing a check. You are spending $25,000 that you are not getting any utilization out of. Right?
Max: 04:40 So, actually, understanding what your projected spend is, what your actual spend numbers are, and what your spend commitment is, these things become very important thresholds, that you should have in track. Right? Now okay. This is great. $25,000, that’s not so bad.
Max: 04:59 We still save $750,000 in service. We’re not we’re not so bad off of our discount. Let’s say you nail year 2 at exactly $8,000,000. Not $8,000,000, $8,000,000. Now, again, you have a lot of AWS support that gets built into this.
Max: 05:15 You’ve gotten a good discount, $920,000, and you’ve got this spend shortfall. Now a $145,000 against $920,000, I would say, let’s take that every day of the week. Every day of the week, you should take that, and you should look at that and say, okay. We’ve come out ahead on this agreement. So where do we get really stuck with these things?
Max: 05:38 Well, where we get stuck with these things is where we are today. In today’s world, when we’re looking at how do you reclaim your spend and spend less money, what happens if your spend actually goes down? Or you do something that means that your spend goes down? So instead of spending $9,000,000 year 3, you flatline. And you go back, and you only spend $8,000,000 under this agreement year 3.
Max: 06:03 You’ve got a $1,100,000 spend shortfall. So all this money that you thought you saved in your EDP, you actually spent more money because of the spending shortfall. What happens if you actually decrease your bill? This is where things get really scary. Right?
Max: 06:18 You’ve dropped down to $7,000,000 in actual spend because your team has done a good job, either that your business is contracted, you know, or your team has done a really good job of going thorough and figuring out how to optimize your services within the AWS environment to result in you spending less money. So, you know, last year, you spent $8,000,000, you’re 2 on this agreement. And then this year, you’re gonna spend $7,000,000 or, hey, you could spend $6,000,000 or $5,000,000. Well, what happens here? What happens here is this number down here gets you.
Max: 06:50 You you you get got, to use the phrase from a friend of mine. Where we see this a lot and these numbers, by the way, are pretty small. You know? $7,000,000 a year in AWS spend, that that’s not a huge commitment. You know, when we start talking with with companies, maybe they’re spending, you know, 15, 20,000,000 dollars, $25,000,000 a year in AWS.
Max: 07:15 As they rearchitect and optimize their platforms, they start looking at spending threshold and spending shortfalls in their EDP and their PPA that becomes crippling to their ability to actually make those changes. So now you have an engineering team who is doing a good job and is changing and radically decreasing your cloud consumption and your and and in increasing the efficiency of your environment, but now you’re stuck. You know, what’s the first thing that happens under those those situations? We start looking at, well, what money can we spend in order to meet this threshold so you’re not just, so you’re not just writing this check and not seeing anything out of it. Well, what’s common in those cases?
Max: 07:58 Well, a lot of times, we’ll see, a Google Cloud component where, that company has a machine learning or big big data data warehousing pipeline that is in Google Cloud. They’re they’ve been using Bigtable and BigQuery and what’s common. So if you’re spending, you know, $18,000,000 here in Amazon, maybe you’re spending $2,000,000 a year on your data warehouse now inside of GCP because you could get, you know, fixed capacity, fixed slot on BigQuery and have predictable costs. Right? Great product, great service.
Max: 08:30 But now all of a sudden, you have a $2,000,000, threshold or shortfall inside of AWS or it might even be higher. What do you do? Well, you’ve gotta cancel. Tell your teams, okay. So spending time building this product, I need now need you to cancel what you’re doing and terminate this GCP environment and move that entire pipeline back over to AWS because we you know, we’re just wasting money at this point.
Max: 08:52 What’s the other thing that we’ll end up doing? AWS market marketplace. What are we spending money on that we have direct relationships and direct contracts on that also exist in the AWS marketplace? How how can we creatively shove more purchasing leverage into this AWS environment? So, the EDP also is scary in the sense that it becomes a little bit like heroin for an organization.
Max: 09:13 Once you’ve signed a contract and you’re used to, you know, this this cross service discount, you know, once you have a team that starts projecting and budgeting based on that top line number of we’re getting an 11% discount off a list and not actually looking at the bottom number in the actual real world AWS consumption, that’s really scary because if you were to come to this and say, hey. We wanted off of this EDP, and we were gonna lose our discount. What would that mean for us? Well, you know, let’s just say that you had you had, you know, year 3 had to spend commitment here, and let’s put a $7,000,000 number in. Let’s actually we’ll just use $7,000,000, and, I’ll just copy all these fields right down here.
Max: 10:00 We’ll do this live. Yeah. I’m not surprised it didn’t like that. If you can get rid of that column. You know?
Max: 10:07 So, again, we’re not hopping from this number to this number. We’d be hopping from 7,500,000 sorry. 8,500,000 down to 7,200,000. So these numbers get associated though and assumed of, like, oh, if we get rid of our EDP, you know, we’re gonna increase from 6,400,000 to 7,200,000 in this situation. Well, you’re actually not.
Max: 10:28 You’re really going from 8,500,000 to 7,200,000. So that’s a really good deal for you. And by the way, you can evaluate whether or not you’re keeping, enterprise support, or if you wanna go to a partner led support model, and there’s really good options with, AWS ecosystem partners that’ll get you almost all of enterprise support. By the way, most enterprise support is like you’re sending an email into a ticketing system. So, like, what are you actually getting for it?
Max: 10:55 But then you can start looking at savings plans. You can look at RIs. You can look at actual applications. You can talk about hybrid environments. You can go back and use your GCP again.
Max: 11:04 So, it’s it the the EDP now, by the way, this EDP example that I showed you is actually particularly bad because they didn’t negotiate a flat rate of enterprise support. So, you know, you should be looking at this and say, hey. We’re not gonna pay you tiered support. We should just pay you a flat rate of x percent, you know, and and do that. There’s also a lot of additional, levers that you can pull in a PPA.
Max: 11:29 You know, what are you paying for bandwidth egress? What are you paying for your direct connects? What are you paying for CDN? You know, all of these things, you’re not you’re you’re you shouldn’t just look at this from a standpoint of we’re gonna negotiate just what a discount is. You wanna negotiate every single little thing that you can inside of that PPA that you’re being billed for.
Max: 11:45 You know? How much are you getting charged for NAT gateways? Can you negotiate that? Does it make sense for you to pull those levers as well? And, you know, and those are significant.
Max: 11:53 You know? If you’re paying if you’re paying 5¢ per gig for egress and you have a, you know, any let’s say it’s real volume. You’re pushing more than 10 petabytes. You know, a 10% discount on that egress bandwidth, you’re gonna pay $4.50 per, you know, per gig in egress. Well, you can have a PPA at 2 and a half cents.
Max: 12:12 You know? You have a 50% discount on your egress rate and not just a cross service discount. So so a lot of this, you know, when you’re going through an EDP process, you really wanna be working with somebody that negotiates and sees a lot of these EDPs because you wanna know, you know, what based on what tiers you’re at, what are the actual price ranges and discounts that you can achieve? That’s a big thing to understand. And and, you know, in this case, this this company didn’t negotiate a PPA for their egress, and they’re they they’re they were taken to the cleaner as a result of it.
Max: 12:43 Now they think they got a good deal because they got these discounts. So, hey. We negotiated a 12% discount, but this 12% good discount, you know, the spin commitment is gonna burn them. It’s just gonna crush them, you know, in in a couple years. So, anyways, you know, EDPs are the devil, and, and and understand, you know, that you’re doing business with the devil.
Max: 13:05 So before you go and and sign that EDP, what are you signing? Why are you signing it? How how how committed are you that your spend is going to increase over the lifetime of that EEP? And, again, if your spend is not going up, if there’s any scenario that your spends flatlines or could potentially decrease, you wanna be looking at different mechanisms to be saving money, in your AWS environment against the e versus an EDP. I hate having this conversation after the fact.
Max: 13:35 I really it’s it’s brutal to, you know, really talk about this with somebody that you know? And, hey. How do we save money on our AWS bill? And and you look at them and you say, do you have an EDP? And and the answer is yes.
Max: 13:46 You say, let’s look at your EDP. And the answer is you can’t save money here because we can decrease your spend on your AWS environment. But guess what? You’re still committed to pay them that 8 and a half $1,000,000. And I can get this bill down to $5,000,000, but you’re gonna be writing them a check for that 3 and a half million extra.
Max: 14:03 So, like, we can do the work in advance of the EDP expiring. So that way when the EDP expires, we can do something. Or, you know, you you know, towards the end of year 2, we can go back and we can start renegotiating EDP. And, again, you’re gonna kick this can down the road. So, you know, renegotiate EDP.
Max: 14:18 You’re gonna lengthen that EDP cycle. You have to commit to other things. What’s your actual, you know, there’s a lot of situations where maybe that’s a good idea for you. But in a lot of other situations, I’ve seen a lot of companies get into a lot of problems and a lot of trouble with, with an AWS EDP, and the EDP ends up becoming an albatross around their engineering teams where they just can’t do the things that they wanna do or that they need to do for the business, and the business gets stuck. So don’t get stuck, and, you’ll be much better off.
