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Choosing the Right EC2 Instances to Optimize Your Cloud
Cost Optimization

Reserved Instances 2018 Update: What Changed Over the Past Year

By J.R. Storment on January 22, 2018

It’s almost the 9th anniversary of AWS Reserved Instances and each year there continue to be updates to the model to make them more flexible. 2017 in particular was a big year for changes: not only did AWS introduce entirely new RI types (e.g., one year convertibles) and billing models (e.g., per-second billing) but Microsoft also launched their first version of the appropriately named Azure Reserved Virtual Machine Instances.

At last year’s AWS re:Invent, I gave a talk with one of the world’s experts on cost optimization, Mike Fuller from Atlassian. While we covered the whole gamut of both reducing usage and reducing rates, the majority of questions we received were on the topic of Reserved Instances. This blog aims to cover the common questions and also the significant recent changes to RIs we covered.

What Stayed the Same in 2017 with AWS Reserved Instances

Before we get into the fun stuff, let’s talk about the fundamentals that still hold true as of January 2018:

What has Changed with AWS Reserved Instances?

A lot changed in 2017 that can affect your strategy. Here are the things you should be aware of:

For a refresher on breakeven points, check out this post of Reserved Instance Breakeven points.

Cloudability’s RI Planner lets you compare the various Reserved Instance options, their savings and cashflow breakeven points so you can generate the plan that’s right for you.

Azure Launches Reserved Virtual Machine Instances

Long rumored and widely expected, Microsoft finally joined the Reserved Instance party. The offering is surprisingly flexible that is aimed at matching many of the 2017 AWS RI improvements, with some caveats. Here are the basics on how Azure RIs function:

Given These Changes, What Reserved Instances Should I Buy?

The answer is that it depends. In Azure choices are still limited so the main decision point is about how long you expect to run compute resources. Complicating the decision is whether you plan to use HUB which enables you to apply available on-premise Windows licenses to Azure VMs. Azure VMs by default run Linux. To add Windows you can either pay an hourly fee (similar to AWS’s model) or take advantage of HUB to use Microsoft licenses you already own.

In AWS, the answer is there are more factors to consider.

If you are committed to EC2 long term but want flexibility to change machine types (or are planning to make a major change to your infrastructure like moving to containers) the three-year convertible RIs offer significant savings (40%+) and future-proofing. The downside is the longer commitment but keep in mind that breakeven point for a three-year RI may be closer to 12-16 months, and three-six months for a one-year RI.

Cloudability’s Cash Flow Comparison chart in the RI Planner lets you see just how quickly a three-year RI could breakeven.

Conversely, if you need to preserve cash and fear a longer term commitment to EC2 then the no-upfront one-year convertible RIs are the obvious choice. For sophisticated and scaled AWS customers, the right answer is a diversified portfolio of RIs based on the business needs of various applications. A company may opt to have the majority of their coverage in three-year all upfront convertibles because they know they will be using the same amount or more of EC2 in the next one-two years. (I like to think of this type of RI as much like an enterprise commitment discount but with a savings rate north of 40%.) They may own a small collection of three-year standard RIs for parts of their infrastructure they expect to be around for longer than the one-two year breakeven point (i.e. infrastructure that won’t change EC2 family). Finally, they may choose to sprinkle in some one-year no-upfront convertible RIs to cover the balance of their usage where they are less confident about long term use but want to knock 30% off on-demand.

Want to Keep Talking?

If RIs will play a big role in your cloud strategy for this year, we’re here to help you make sure you make the best decisions for your situation. Reach out today to ask questions, keep the conversation going or get a demo to see your data in Cloudability.

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