AWS Reserved Instances: A Primer

One of the biggest challenges of migrating to the cloud from your data center is that old skool rules don’t apply. In the data center, you added as much computing power as you could in order to accommodate your busiest times. In the Amazon cloud, you can increase capacity as you need to and reduce it for slow periods. One way to manage this and keep your costs under control is to use a Reserved Instance (RI). RIs are a great option if you know your computing needs ahead of time and can commit to using a certain amount of software over a period of time.

What Is a Reservation?

A Reserved Instance is a reservation of resources and capacity. RIs are not physical instances, but rather a billing discount applied to the use of On-Demand Instances in your account.

You can make a reservation for a term of one or three years, choosing an Availability Zone within a region. RIs are available for Amazon EC2 and Amazon RDS. When you purchase a reservation, you commit to paying for all of the hours of the term at a significantly lower hourly rate. Also, when you purchase a reservation, you’re reserving the capacity for that particular Availability Zone. By using reserved capacity, your company can minimize risks and manage budgets more predictably. Having capacity reserved in a specific Availability Zone can be useful if your infrastructure uses auto-scaling and frequently experiences usage spikes.

Aside from cost savings and service quality, businesses occasionally reserve capacity in other regions just in case. Having an RI can help if demand caused a spike in a particular Availability Zone.

Save Money and Maintain Flexibility

With Reserved Instances, you can save up to 75% over equivalent on-demand capacity. When you buy Reserved Instances, the larger the upfront payment, the greater the discount. Reserved Instances are available in 3 options:

All up-front (AURI)

You pay in full at the start of the term, with no other costs or additional hourly charges incurred for the remainder of the term, regardless of hours used.

Partial up-front (PURI)

You pay a portion of the cost upfront and the remaining hours in the term are billed at a discounted hourly rate, regardless of whether the Reserved Instance is being used.

No upfront payments (NURI)

You are billed a discounted hourly rate for every hour within the term, regardless of whether the Reserved Instance is being used. No upfront payment is required.

AWS Reserved Instances vs. Scheduling On-Demand Instances

Buying Reserved Instances entails making a huge investment. Rightsizing, the most effective way to control cloud costs, requires regular analysis of performance and usage. Because your resource needs always change, rightsizing must become an ongoing process to optimize costs.

Scheduling On Demand instances and using Reserved Instances (RIs) are both useful ways to manage costs. As defined above, RIs can provide a capacity reservation for that instance type and a pricing discount that can help you save money. To be clear, the goal of using RIs is to get a better price for EC2 or RDS instances running all the time. The goal of scheduling On Demand instances is to reduce costs by turning off instances when they’re not in use. Knowing which path to follow can be a difficult choice since the savings from scheduling typically exceeds the savings from a Reserved Instance.

Reserved Instance Pricing

Pricing for a Reserved Instance has six factors:

Instance type

The computing resources (e.g., t3.large or db.m4.large).

Region

The Region where the Reserved Instance is purchased (e.g. US East – N. Virginia)

Platform

The operating system (e.g., Windows or Linux/Unix).

Tenancy

Whether your instance runs on shared (default) or single-tenant (dedicated) hardware.

Term Commitment

As already mentioned, you can purchase a Reserved Instance for a one-year or three-year commitment.

Payment Commitment

As already outlined, you can pay for a Reserved Instance

• All Upfront
• Partial Upfront
• No Upfront

Additional Financial Considerations for Reserved Instances

Renewals

Reserved Instances do not renew automatically; when they expire, you can continue using the EC2 instance without interruption, but you are charged On-Demand rates.

Savings Plans

AWS introduced Savings Plans to address the complexity around RIs. Rather than committing to a specific instance type, you commit to an hourly spend that will be applied to On Demand usage not already addressed by RIs. Savings Plans can be much more flexible than RIs and can even be applied to Lambda functions if no On-Demand usage would otherwise apply. Service Providers need to be able to deallocate discounts in order to charge full price and keep the profits.

Reserved Instance Marketplace

There is a Reserved Instance Marketplace, which is a platform that supports selling third-party and AWS customers’ unused Standard Reserved Instances of varied term lengths and pricing.