Bill Lynch - September 29, 2016

What to know and how to get started with AWS Reserved Instances

AWS’s new Convertible Reserved Instances and the Regional Benefit feature deliver a whole new level of flexibility to RI planning and the potential to save on cloud spending. Read on to understand what AWS has changed, how the changes affect planning and cost savings, the best way to get started, and how to get key reports to begin making sense of these big changes.

Answering your burning questions

AWS users all over the world are probably wondering why these changes were made and how they affect their AWS bills. We’ve ordered this article by these important questions to help you get the right information, right away:

What did AWS release?

There are now two new options for AWS customers looking to save with Reserved Instances:

Convertible RIs are a new RI type that balances flexibility with savings to optimize your costs as your compute environment changes over time.

The Regional Benefit feature makes it easier to apply an RI inside of an entire region, and not just within an AZ.

Get the official details from the AWS Blog.

What is a Regional Benefit and when would I use it?

Using the Regional Benefit allows you to run the instance in any Availability Zone (AZ) within a Region with the RI discount automatically applied.

As a recap, AWS isolates its services into Regions and AZs. Regions are top-level geographic areas, like “US East (us-east)” or “Asia Pacific – Sydney (ap-southeast)”. Inside of a Region are multiple Availability Zones, each of which have several physical datacenters. When you launch an EC2 instance, you do so by specifying the AZ. So, when you buy an RI, you specify the same AZ to apply the discounted hourly rate to your active instance.

That works for the simple cases, but often, AWS users launch instances in multiple AZ’s for a number of reasons, such as providing redundancy or load balancing. For users managing hundreds of instances or more, Cloudability can help you automatically modify your RIs to match the AZ where their respective instances are located. But now, the new “Regional Benefit” feature makes RIs AZ-agnostic, applying the discounted hourly rate to any instance within a specified region.

With these new changes in play, we believe that you should buy an RI with the Regional Benefit enabled for most use cases. In practice, we expect this to be the new default.

However, there’s an important exception to this rule: a regional benefit RI does not have a capacity guarantee. To date, RI’s have been a savings technique and a way to guarantee that you can get an instance when you need it. If capacity is important to you then make sure to buy an RI without Regional Benefit.

When should I use Convertible RI’s?

Let’s start by recapping the factors that go into a Standard RI purchase. Typically, you start by examining the type of compute you’ve used or plan to use. For example, you can use Cloudability to determine whether you use a lot of C4 compute-optimized instances across multiple accounts.

You can drive your effective hourly rate down by buying the appropriately-sized C4’s. Next, you decide how consistently you’ll be using those instances over the next few years. If you want to hedge your bets, aiming for a 1-year commitment grants savings and a some flexibility. If you’re driven to maximize your savings, choose a 3-year commitment.

Three year commitments can be daunting, especially if you’re not sure you’ll use the same type of compute over time. For example, what happens if AWS releases a C5 instance?

Convertible RIs grant you the flexibility to change which instance that the RI can cover, at the trade off of a slightly lower savings rate. In the example above, you could buy a bunch of C4 convertible RI’s for three years, and then exchange them after two years for the latest compute family (e.g. C5 for example, assuming that happens).

To prepare for convertible RIs, start by ranking your business priorities. Are savings the priority? Are one year cash outlays preferable over three? To what extent do you want to be agile, while being cost-conscious? Note, there is no singular right answer and it might vary by account, service, department, or app. Using Cloudability to monitor cloud costs and usage over time to generate operational insights is key here.

One quick tip: AWS’s pricing page shows you the cost savings versus on-demand pricing. For example, the AWS announcement blog post indicates 45% of savings using Convertible RIs versus the on-demand rate. However, consider the cost of flexibility to make the decision between standard and convertible. For example: one of the latest beasts of an instance is the m4.16xlarge. For all-upfront commitments, a three-year standard RI is $37,549 and a convertible RI is $52,148. The Convertible RI is 39% more expensive, or $14,599. So, the business question to consider is: is it worth spending 39% more in exchange for more flexibility? We will be releasing support for convertible RI’s to help model these types of scenarios to help you make the best data-backed cloud compute decisions possible.

How do I modify a Convertible RI?

In short, you don’t…well, kind of.

Convertible RIs are exchanged, which means you swap out one RI for another during its three-year term. The catch is the new RI has to be of equal or greater value. Okay, so in essence, this is a modification – you can exchange as many times as you want.

Let’s illustrate what this might look like:

Note: this is just an example and we’re not implying a m4.2xlarge is an equivalent value of a c4.2xlarge. This just illustrates that the criteria of the initial purchase changed after two years, and shows the value for a new RI inside of the same three-year term.

The right way to think about exchanges is to look at the value involved, and not compute family. For example, if your RI costs $1000, at any time, you can convert it to another RI that costs exactly or at least $1000. If the cost is higher, then you “true up” the costs at the time of exchange.

Which class of RI will give me the best savings rate?

There are a few use cases when Standard RIs are the better choice. You could buy a three-year Standard D2 RI to cover a long-lived database instance, or you might want to cover a temporary dev/test set of workloads with a one-year Standard RI. (Remember, you only have three-year options for Convertible RIs.)

So, if you look at it strictly in terms of savings, or long-running compute, Standard RI’s will save you the most money. However, don’t forget that it’s possible to waste an RI if you don’t modify it. Of course, using Cloudability helps prevent this problem, but let’s dive in to an example to illustrate the point. Again, consider the new massive m4.16xlarge:

Yikes! Let’s say you bought a three-year, all-upfront Standard RI, but in the third year, you let it lapse (which results in 33% waste). That would drive the cost up beyond the Convertible RI hourly cost ($2.133/hr vs $1.985/hr). So, even while the list price of the Convertible RI is more expensive, you have to balance it with actual usage to achieve meaningful savings.

Should I wait to make my upcoming RI buy?

Given the nature of how dynamic cloud compute requirements can be from business to business, it depends. If you’re confident about your long-term AWS usage (especially with EC2), we recommend you consider the new three-year Convertible RIs in your next purchase. If, however, you’re not sure of your long-term usage of AWS—or need a capacity reservation specifically—then the one-year Standard RI is going to be your best choice to save money.

For our customers: see these changes in action now

Today, we added several new reports that can help you determine where you might benefit from these new RIs. If you’re a customer of Cloudability, email for help with your Convertible RI strategy.

What tools will Cloudability offer and when will they be available?

We’ll be adding more recommendation and planning tools soon to help you make the best RI purchases possible for your AWS environment. If you’d like to get updates about these new features, register for our newsletter at the bottom of this post. Our experts are ready to answer any questions you might have about these new AWS RI changes as well– just use the questions box in the blog sidebar and we’ll get back to you as soon as we can.

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