Netflix used their internal spot market to save 92% on video encoding costs. The story of how is told by Dave Hahn in his now annual A Day in the Life of a Netflix Engineer. Netflix first talked about their spot market in a pair of articles published in 2015: Creating Your Own EC2 Spot Market Part 1 and Part 2.

The idea is simple:

• Netflix runs out of three AWS regions and uses hundreds of thousands of EC2 instances; many are underutilized at various parts in the day.

• Video encoding is 70% of Netflix’s computing needs, running on 300,000 CPUs in over 1000 different autoscaling groups.

• So why not create a spot market out of their own underutilized reserved instances to process video encoding?

Before proceeding let's define what a spot market is:

Spot Instances enable you to request unused EC2 instances, which can lower your Amazon EC2 costs significantly. The hourly price for a Spot Instance (of each instance type in each Availability Zone) is set by Amazon EC2, and adjusted gradually based on the long-term supply of and demand for Spot Instances. Your Spot Instance runs whenever capacity is available and the maximum price per hour for your request exceeds the Spot price.

At any point in time AWS has a lot of underutilized instances. It turns out so does Netflix. To understand why creating an internal spot market helped Netflix so much, we'll first need to understand how they encode video.

How Netflix Encodes Video