Amazon Web Services Inc. raised a few eyebrows at its re:Invent conference last month when it didn’t announce any more price cuts. Now we know why that is – Rather than just slash prices blindly once again, it’s being a bit smarter with its discounts by offering two new billing tiers for its Reserved Instances (pre-paid virtual servers).

Whereas before AWS used to offer different levels of discounts based on how often the reserved instances were used, it’s now offering a single type of discount. Under the new model, the size of the discount will depend on whether customers choose to pay for all reserved capacity upfront, for partial capacity, or simply pay when they use it.

AWS says customers can reserve virtual servers for between one and three years, with savings ranging from 30 percent to 75 percent depending on the instance’s specs and the length of time its reserved for.

Here’s an explanation of the new model from AWS Chief Evangelist Jeff Barr:

All Upfront – Customers pay for the whole reserved Instance term of one year or three years through one upfront payment to get the maximum discount on the hourly price.

Partial Upfront – Customers make a partial payment upfront, and then pay for the remainder over the course of the one or three year term.

No Upfront – Customers don’t need to pay anything upfront but commit to pay for the reserved instance over the course of the reserved instance term. This option is available with one year term payments and offers 30% discount on hourly pricing.

In short, the more money you cough up now, the bigger your discount will be. According to Barr, customers who investing in a three year term will typically get up to 63% discount when compared to On-Demand prices.

AWS’ rivals have slightly different discount schemes in place. Instead of discounting reserved instances, Google offers what it calls a “sustained use” discount. This discount is applied automatically as soon as a customer runs an instance over 25 percent of a billing cycle, which means if the instance is used throughout that cycle they’re entitled to a 30 percent discount.

As for Microsoft Azure, it used to offer discounted commitment plans but cancelled that offer earlier this year. The discount of 20 to 30 percent is still given to customers who subscribed before the plan was nixed, but newer customers won’t get anything.

For those wondering if AWS reserved instances make it an even cheaper option than Google Compute Engine in light of the latter’s recent price cuts, SaaS-based cloud computing firm RightScale Inc. has written a detailed comparison of the two.

RightScale says it decided to compare Amazon’s reserved instance discounts with Google’s sustained use discounts, although we’re warned to “Keep in mind that this is a straight price comparison of similar instances. The specific performance of each instance type may vary.”

Here’s RightScale’s breakdown of the varying costs for each type of instance:

Image credit: RightScale Inc.

So there you have it – Google is still the cheapest option across the board, but it doesn’t necessarily mean AWS is going to lose. As SVP Any Jassy stressed back at AWS Re:invent a few weeks ago, agility is the key driver of cloud adoption, and in that respect few will disagree that Amazon comes out way on top.

Given Google’s (and Microsoft’s) extremely deep pockets, it makes sense for Amazon not to focus too much on price. And offering discounts on reserved instances is a smartway to tempt long-term users. The big appeal for these customers is they won’t have to invest heavily in their own hardware – instead they can just use AWS’s infrastructure when it’s needed and only pay for what they use.

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