Understanding the new AWS Reserved Instance model
Amazon Web Services announced a significant change to their Reserved Instance model this morning.
Effective immediately, AWS has introduced new Reserved Instance offerings that are meant to replace the old Light, Medium, and Heavy model (which you can still buy for up to 60 days). The new RI options are:
- All Upfront: Pay for the entire reservation term in one upfront payment. This payment option offers the highest savings rate.
- Partial Upfront: Pay for part of the reservation term in an upfront payment, and pay the remainder in monthly installments. This option costs more than All Upfront, but less than No Upfront.
- No Upfront: Pay for the reservation in monthly installments throughout the term’s duration. This payment offers the lowest savings rate.
These new RI options are still meant to provide substantial cost savings and capacity reservations for EC2 users.
Users’ existing Reserved Instances will not be affected by this change, and will continue to function as planned for the duration of their reservation term.
How are the new Reserved Instances different?
You may recognize these “new” Reserved Instances—they’ll function as Heavy reservations have. In fact, the new Partial Upfront RI is effectively the same as the old Heavy reservation. What has changed is that Lights and Mediums have been replaced with the No Upfront option, whose economics land right between those of Light and Medium. And in addition, AWS added the ability to pay All Upfront for companies that prefer to do so.
This announcement features one substantial implication. From now on, no matter what reservation you buy, you are committing to pay for all of the hours of the 1- or 3-year term, regardless of whether you use them or not.
Why did AWS make this change?
Prior to this announcement, buying RIs was complicated by the fact that the individual RI offerings worked different ways. Sometimes, in the case of Heavies, it meant committing to an entire month’s worth of usage, versus Light and Medium offerings that were designed with a pay-as-you-go model. Choosing from so many Reserved Instance variables was very difficult, and by eliminating the Light and Medium options, AWS has simplified the decision significantly.
In fact, across all the Reserved Instances that we track for customers, only 14% are Lights and Mediums.
In addition, another issue that customers have when purchasing RIs is the complex accounting that can go along with partial upfront payments and monthly billing. While the All Upfront option only offers a sliver more savings than Partial Upfront, we’ve heard from many of our biggest customers that the ability to pay for the entire reservation upfront would simplify the buying process significantly.
What hasn’t changed?
With all of these changes, there are still some things about RIs that remain the same:
- They still offer significant savings over on-demand
- They still provide a capacity reservation
- They can still be modified according to the same parameters as before
- They still come in 12- and 36-month terms
- They’re still specific to the instance family for which they were purchased
Finally, the cost savings of a Reserved Instance is still dependent on your utilization rate. You’ll still need to calculate your utilization rates on an ongoing basis to see which portions of your infrastructure will benefit from RIs. As always, a tool like Cloudability will help you do so.
If you would like to speak with us about the changes, please get in touch. We remain, as always, committed to ensuring visible, controlled, and optimized cloud spending for our customers.