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Amazon EC2 Dedicated Server Offering Addresses GRC Niche: Page 2 of 3

He added that firms such as AT&T, which have a significant legacy dedicated non-virtualized business, make money from it because it provides physical-level security and isolation, as well as the flexibility of the capital expense of leasing vs. buying the dedicated equipment. "That said, there is a legitimate requirement for physical isolation, and for so long as customers are willing to pay the amazingly modest surcharge, Amazon now provides it."

Analyst Judith Hurwitz, president and CEO, Hurwitz & Associates, says Amazon EC2 is indeed innovative in the way it provides quick and relatively inexpensive access to virtual images, allowing developers to get access to resources in an on-demand way. "They have truly commercialized this model. However, in exchange for the price and speed, you give up the ability to have dedicated resources and a predictable level of service. The Amazon EC2 model is predicated on what you see is what you get. The company makes no promises that you will be able to use the same resource that you started with. Nor do they promise that there will be consistent and predictable performance."

She says that makes Amazon best usage for opportunistic situations where there are spikes in demand for short durations. "Companies that are asking for dedicated resources are, in essence, asking Amazon.com to change its foundational business model. In the long run, they may come to a decision to provide some more dedicated services. I think they do offer a virtual private network."

There are several reasons why customers want dedicated resources, says Hurwitz. First, they need them for compliance purposes. Second, they are looking to be able to manage the quality of service so that they need to have consistency and predictability that requires dedicated resources. "For Amazon to change to a new model would require a different pricing and different business model. Companies that offer managed services based on a guaranteed level of service are a different breed of company with a different business model."

Mahowald sees the need for dedicated instances/servers as primarily a governance, risk and compliance (GRC) requirement. "The incremental cost of reserved instances on dedicated physical machines is quite low here, so it may presumably afford customers a reason to opt for dedicated servers when they don't absolutely have a good reason to. It's all part of Amazon's scale model, and it makes an even more compelling argument that probably less than 0.01 percent of businesses have the sophistication to build to this level of cost efficiency as Amazon."