Why Long-Term Cloud Relationships are Not So Scary

July 20 2012 | by Zev Schonberg AWS, Cloud Cost Management, reserved instances

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People are generally hesitant to enter into any long-term relationship or agreement unless they are 100% certain it’s to their benefit. Commitment connotes a significant loss of freedom and flexibility – and for many folks that’s a tough pill to swallow.

But let’s imagine a long-term relationship where you retain your freedom and independence all while enjoying the benefits and upside of a committed partner. Sounds intriguing, right?

While this might not work in other areas of your life, AWS’ Reserved Instances, if selected properly, can deliver this exact scenario with all the benefits described, plus incredible cost savings too. Let’s take a look at how this plays out.

Cloud Flexibility vs. Savings – I’ll Take Two of Both!

Before we dive in and see how Reserved Instances can provide the best of both worlds, here are some quick definitions of the AWS offerings we will be discussing in this post:

  • On-Demand Instances allow you to pay-as-you-go (by hourly usage) for any of AWS’ instance types, without an upfront fee or commitment.
  • Reserved Instances allow you to reserve any AWS instance types for 1-3 years, with options for Light, Medium or Heavy Utilization packages. The Light and Medium Utilizations require a one-time upfront fee, plus a discounted hourly rate (for actual hours used). For Heavy Utilization you pay a higher upfront fee and a very heavily discounted hourly rate which you pay regardless of whether or not you use the instance(s).

As in any long-term or multi-year deal, pricing for reservations is seriously discounted in comparison to on-demand. AWS clearly pitches this by highlighting how you can save anywhere between 42% and 71% with Reserved Instances instead of On-Demand Instances.

These savings represent a break-even utilization with ROI often achieved early into the term of a Reserved Instance. Of course, once ROI is realized, you have the freedom and flexibility to pursue other pricing plans – truly an ideal long-term relationship.

Who’s Winning the Reservation vs. On-Demand Popularity Contest?

Despite the huge savings and flexibility that reservations provide, our monitoring of around 1 million AWS instances has shown that less than 50% of cloud consumers opt for reserved instances.

From conversations with clients and peers in the industry, it emerges that the perceived loss of cloud flexibility, i.e. being locked-in with specific instances, is the primary reason companies shy away from long-term, cloud commitment.

We also uncovered – thanks to answers and comments we received from the vibrant cloud community on Quora – that there is some confusion regarding maintenance of reserved instances. A misconception exists that if you mess up a reserved instance, a lot of engineering work is required to get things back in order. However, the reality is, as one Quora member quoted from AWS’ site, that “in the event of a hardware issue, you can re-launch your instance immediately without additional costs”. Just like you could with On-Demand instances.

In our next blog post, we will explore more deeply, how Reserved Instances generally offer more flexibility, freedom and of course, more significant savings, than On-Demand Instances do. We will also discuss the real obstacles that must be overcome to truly benefit from Reserved Instances.

To discover how you can have your cloud cake and eat it too – try Cloudyn’s 20-day free trial now!

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