[VIDEO] AWS’ New Reserved Instances: What They Are and How You Benefit

December 5 2014 | by Vittaly Tavor AWS, aws cloud optimization, aws cost optimization, reserved instances

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Around 5 years ago, Amazon introduced Reserved Instances (RI). This created a way for Amazon to increase capacity while achieving longer customer commitment. It seemed like a win-win situation. Amazon provided significant usage discounts ranging between 25-35% of the cost of on-demand instance prices in exchange for varying levels of commitment with only one type of reserved offering. Then, two years ago, Amazon introduced two additional RI plans and left it up to DevOps to select a suitable reservation. For certain types of instances, 30-70% usage called for a Light RI plan; 70-80% called for a Medium RI; and a Heavy RI did the trick for 80% usage and above.

RI Purchasing Is the CFO’s Decision

Selecting a suitable type of reservation was considered a DevOps task because it was tightly tied to instance usage. However, Amazon’s newest modification transfers the decision making power into CFOs’ hands, where purchasing decisions belong. Amazon has provided CFOs with the financial flexibility they need. For example, the “No Upfront” option offers a one-year RI usage commitment that supports cash flow management, and offers 28-31% savings with no upfront costs; the “Partial Upfront” option offers around 38-40% savings; and the “All Upfront” option offers 39-41% savings.

All, Partial, and No Upfront

Looking a bit closer, two of Amazon’s new RI options may seem familiar. The “Partial Upfront” option is actually the same as the previously mentioned Heavy RI plan, and the “All Upfront” option is almost equivalent to what used to be called the “Fixed Price” plan, which was cheaper than ordinary RIs and was only available to Amazon’s largest customers. The game changer here is the “No Upfront” option, which is still a reserved instance where capacity is reserved and requires a commitment.

Strengthening the Commitment

The new RI plan announcement has been in the making since Amazon’s most recent price drop in April this year. Before April, the Light RI plan required customers to commit for one year. However, if customers utilized all of their capacity credits within the first two to three months, they would break even and be free from the annual commitment. Amazon didn’t end up benefiting from this plan because Reserved Instances were intended to gain customer commitment.

This price drop applied to all RI plans, with the exception of the Light RI plan. The Light RI plan then became financially irrelevant because it was higher than the on-demand price, as demonstrated in the chart below. As noted on their RI pricing page, Amazon announced that both the Light RI and Medium RI plans would no longer be available as of Feb 2nd, 2015, probably due to the same reason.

Amazon’s RI modification changed the commitment game as well. All new RIs have a one year payment plan, where you pay whether an instance is running or not. AWS customers now have additional options according to what best suits their financial needs.

Another interesting point to mention, is that about 8 months ago, Google introduced their sustained use discounts where customers aren’t required to agree to any long-term commitments or pay any upfront fees. A discount is provided if a given threshold is surpassed at the end of the month. As the market leader, Amazon stood by their approach, claiming that their customers have absolutely no qualms about committing in advance to their terms of use. In exchange for this commitment, AWS provides financial flexibility with the no upfront RI plan.

What Are the Benefits?

In the image below, we use the m3.large instance to demonstrate the savings and benefits that AWS customers gain from the variety of RI plans. As you can see, the difference between the “Partial Upfront” and the “All Upfront” options is minor.

AWS New Reserved Instances

We strongly encourage you to check out the following video to learn much more about this new AWS reservation offering:

We are proud to say that Cloudyn already supports Amazon’s new RI plans. Our customers can benefit from the analytics that are part of our cloud management platform, both for the old and new AWS instance pricing models, supporting the most suitable plan for their AWS usage.

If you still haven’t registered to Cloudyn, start a free trial now.

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