AWS Marketplace is a digital catalog of software solutions from independent software vendors (ISVs) that offer a variety of pricing options, including SaaS contracts, hourly billing, annual licenses, and private offers for their software products. Almost half of these AMI products offer annual subscription options, so customers often ask me how to know when it’s best to purchase an annual license.

In certain cases, using annual licenses to procure AMI products in AWS Marketplace can be a significant cost-saving mechanism for your business. However, it is important to understand the annual pricing model and the various factors that need to be considered before you make the jump. In this post, I will offer an approach for determining when it’s best to buy annual licenses for products in AWS Marketplace.

How do annual licenses work for software products in AWS Marketplace?

Certain software products in AWS Marketplace offer an annual subscription pricing model. An annual license enables you to make a one-time, upfront payment for the following year on a per-instance basis. For each annual license you purchase, you don’t pay any hourly usage fees for the next year for a single Amazon Elastic Compute Cloud (Amazon EC2) instance with the associated instance type. However, note that an annual license applies only to that single instance; any additional instances launched for that AWS Marketplace software product will be billed hourly.

Please note that the annual license costs discussed are related to AWS Marketplace software only. The AWS infrastructure costs associated with the products you launch are billed separately. You can utilize Amazon Reserved Instances for further cost savings; I describe how to do that in the Additional cost savings section towards the end of this post.

Annual licenses with Consolidated Billing for AWS Organizations

A vast majority of enterprises using AWS products prefer to use an AWS Organizations setup to maintain account structure and receive consolidated billing benefits. The following are key points that will help you understand how annual licenses and consolidated billing work together for different use cases in AWS Marketplace:

    Annual license tied to EC2 instance type
– Annual license pricing is tied to an EC2 instance type and billed upfront.

Annual license with multiple accounts
– The annual license(s) can be used by any account in the consolidated billing family, provided they have Identity and Access Management (IAM) permissions to use the products in AWS Marketplace, for the given duration of the subscription.

    Annual license benefit allocation
–  AWS Marketplace will try to apply the annual pricing to the account owning the annual license first.
If the owner account does not have a running EC2 instance with the product from AWS      Marketplace, annual pricing is applied to a running EC2 instance in one of the other accounts in your AWS Organization.
–  Additionally, a discounted price is applied to as many concurrent instances with the associated instance type as the number of annual licenses purchased, launched across availability zones and regions. This will help you maximize your annual license usage in your consolidated billing family if you have a multi-region setup.

Note: If your AWS Organizations has multiple organizational units (OUs), it’s important to consider that you cannot restrict annual license benefits to a particular OU in your organization.

In the diagram…..