Amazon Reserved Instances (RIs) is an EC2 pricing mechanism that lowers the cost of using Amazon Elastic Compute Cloud (EC2), in exchange for a long term commitment to a compute instance for a term of one or three years. Reserved Instances grant a discount of up to 72% compared to on-demand instance rates.
When you purchase a Reserved Instance, you can set properties such as instance type, platform, tenancy, region, and Availability Zone (AZ). You can apply the Reserved Instance discount to existing on-demand compute instances in your Amazon account, or create a new instance and apply the Reserved Instance discount to it.
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In Amazon EC2, a Reserved Instance is a property you can apply to existing on-demand compute instances running in your AWS account. In other words, you “convert” existing on-demand instances to Reserved Instances.
You select RI properties as follows:
If you define an RI that matches an existing on-demand instance, the discount will be applied to it, and the on-demand instance will be converted to an RI.
It is also possible to define an RI that does match any existing on-demand instance. In that case the system will wait, and as soon as an on-demand instance is created that matches the criteria, the discount will be applied to it. This is illustrated in the following diagram:
Image Source: AWS
Related content: Read our guide to EC2 instance pricing
Reserved Instances have helped enterprises save billions of dollars, but some companies still prefer more flexible payment options. Initially, AWS only offered two RI options (per year or three years) without shorter timeframes. Many organizations found themselves paying for idle RIs when they upgraded or removed their infrastructure.
In response to the demand for greater flexibility, AWS launched the RI Marketplace to allow users to buy and sell Standard Reserved Instances. By opening up the marketplace, AWS enabled companies to sell their idle instances or buy available RIs from a third party for periods as short as one month.
However, there are some requirements for selling on the AWS RI Marketplace. Organizations must register as sellers (using a US bank account). RI sales are limited to $50,000 annual value or 5000 instances, and only EC2 Standard Reserved Instances are eligible for sale. For each successful sale, AWS retains 12% of the upfront cost of the RIs.
Furthermore, given the unpredictability of the market and changing demands, there is no guarantee that an organization will find a buyer for all its RIs. Once the seller lists the price of the RI, it is not possible to modify the listing (only to cancel/deactivate it).
Several key variables determine the pricing for Reserved Instances.
Each Reserved Instance contains four attributes determining its price:
Reserved Instances are available for one-year and three-year commitments (the latter offering a significant discount). The one-year option covers 365 days or 31536000 seconds, while the three-year term covers 1095 days or 94608000 seconds.
AWS does not automatically renew Reserved Instances when they expire. You can continue using EC2 instances after the commitment period without interruption but must pay on-demand instance costs. To avoid paying on-demand rates, your organization must terminate the RIs or purchase new ones with the same attributes.
AWS offers the following payment options for Reserved Instances:
Upfront payments generally allow you to save more money, giving you less flexibility. In some cases, third parties may sell Reserved Instances on the AWS Marketplace for shorter commitment periods or lower rates.
When your computing requirements change, you can often exchange or modify your RIs depending on the instance class:
Once you’ve purchased a Reserved Instance, it is not possible to cancel the purchase. However, you can sometimes exchange, modify, or sell Reserved Instances when your needs change.
A common alternative to reserved instances is Savings Plans. Read our guide to AWS Savings Plans
Here are some ways you can formulate an effective Reserved Instance strategy to ensure you get the best instances for your budget.
Enabling Cost Explorer allows you to receive automatic recommendations to help optimize your RI costs. It generates recommendations by identifying your on-demand instance usage patterns, grouping your usage based on RI eligibility, simulating RI combinations, and determining the appropriate type and number of instances.
Resource utilization reports help you identify the EC2 instances you can downsize, terminate, modify, or schedule. The organization should perform regular right-size analyses and implement adjustments to reduce costs. Right-sizing helps you choose the most efficient on-demand options to avoid paying for resources you don’t use.
Identify the instance families your teams use to determine which instances you should update or replace. A new instance family tends to be cheaper and offers improved performance. You can run a utilization analysis to check if your organization uses the right instances for each workload. Your needs may change quickly, so you need to consider this. In some cases, convertible instances are more cost-effective despite their higher price per instance because you don’t have to pay for unused instances.
It is not always possible to know your actual long-term RI needs, so you should avoid paying for full coverage in the beginning. You can always add more instances later on. Starting with approximately 50% coverage is a good way to gauge your needs before purchasing all the instances. Another way to reduce the risk of overspending is to choose the convertible offering. Continuous review and modification after purchasing Reserved Instances helps you ensure the most cost-effective purchase options.
AWS Reserved Instances are a great way to reduce cloud costs, but they have inherent challenges. RIs create financial lock-in for 1 or 3 years, and if not fully utilized can end up wasting money instead of saving it.
Spot by NetApp addresses this challenge, allowing you to enjoy the long-term pricing of RIs without the risks of long-term commitment.
Key features of Spot by NetApp’s cloud financial management suite include:
Learn more about Spot by NetApp’s cloud financial management solutions
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