Before You Buy a Reserved Instance, Read This

Reserved Instances are an enormous investment.

At first glance, that statement might seem counter-intuitive. Reserved Instances (RIs) are widely advertised as the best way to save big on your Amazon Web Service (AWS) cloud compute bill. And in many cases, they are. With Reserved Instances, companies commit to long-term usage by agreeing to rent virtual machines for a set amount of time (typically 1 to 3 years) in exchange for a significantly lower rate than on-demand pricing. When viewed through this lens, they appear to be a vital part of an AWS cost management strategy.

Cost Savings

Take Amazon EC2 as an example. When compared to on-demand pricing, Amazon EC2 RIs offer customers potentially deep discounts — sometimes as much as 75%, per their marketing. While reserving cloud capacity in advance seems like the smart thing to do because it has the potential to deliver a significant amount of savings, the savings promised by RIs often have a dangerous downside — and any missteps can have substantial costs for your company.

The calculations involved in deciding which RI to purchase can be frustratingly complicated. One year or 3 year contract? What about tenancy? Instance size? Region and zone? New or from the marketplace? And don’t forget about the nuance of offering class — do you want your RI standard, convertible or scheduled?

These calculations are difficult, but absolutely vital when committing to a RI. Rather than signing a contract for exactly what you have now (in terms of size, region, and tenancy) and guessing at the length of time that will fit your instance, it’s essential to understand the exact shape of your usage needs. Without that kind of granular insight into your workload, it’s impossible to choose a RI that will be the right fit six months from now, let alone three years in the future.

In the end, many companies buy RI capacity that ends up exceeding their actual needs, because they’re already using capacity that exceeds their needs. Unfortunately, committing to more capacity than you actually need can be very costly over the length of a RI contract. When that happens, the long-term return on investment (ROI) ultimately evaporates.

In addition to the challenges presented by accurately forecasting usage needs, RI contracts also lock companies into an instance’s older technology as innovative (and often less expensive) new instances speed past on their way to market. This is why long-term RI contracts can be especially devastating to startup companies — when your revenue or funding starts to dry up, this is one area of your burn rate that absolutely cannot shrink because you’re legally obligated by your RI contract to pay.

Convertible RIs don’t fix the problem, either. Even though they’re less restrictive and more flexible than standard RIs, you can’t sell them on the marketplace. Worse, the contract you sign for a Convertible RI forces you to stay within the same family of instances you originally bought, meaning you can’t upgrade to new ones or scale down into a different family if your needs shrink over time. In the end, convertible doesn’t mean the same thing as flexible. Your hands are still tied when it comes to upgrading, scaling, and selling.

Rightsizing

Businesses looking to save money on their cloud bill should absolutely make themselves familiar with the cloud cost management opportunities available through RIs — they’re the most significant cost-saving tool that AWS provides. That said, it’s important to rightsize resources before committing to a RI in order to meet capacity needs at the lowest possible cost.

The first step in rightsizing is monitoring and analyzing your current use of services to gain insight into instance performance and usage patterns. Common rightsizing metrics include vCPU utilization, memory utilization, network utilization and ephemeral disk use. We recommend that you monitor performance over a two-week to one-month period to capture the workload and business peak, but that also depends on the seasonality of your business.

While Amazon EC2 both offers a wide selection of instance types and sizes and generates comprehensive usage data, giving customers the necessary flexibility to meet capacity needs and determine how to better rightsize instances to meet the technical requirements of their specific workloads, we only recommend taking the plunge and purchasing RIs if you know what your workloads expect to be for the next year or three. AWS-recommended guidelines, too, are often more conservative (ie: less optimized) than what you might find by using a company whose sole mission is to uncover cost-saving optimization strategies (like Sunshower.io!).

Conclusions

While RIs look good in theory, consider how much savings you could be missing out on by trying to forecast your usage needs across a span of 1-3 years. And even if you’re a wizard at forecasting, if Amazon comes out with a new lower-cost instance type, you’re stuck with what you have until your contract expires. (Or are forced to sell your instances on the marketplace for a fraction of what you paid.)

Unused reserved instances only waste your money. The cloud is aimed at helping keep infrastructure costs down, but only if cloud services are used in a smart manner. Fortunately, Sunshower.io can help with that!

Using the strengths of our optimizer, we offer suggestions on the best fitting instance (or instances) for your different workloads. Sunshower.io’s algorithms can increase your cloud compute savings by analyzing your usage data and generating a plan for cloud cost optimization that leverages all of the available pricing options and instance types. As a result, you never have to worry about the complicated process of buying and managing RIs. Leave that to us. Provided you’re not already locked into a long-term RI contract, there’s significant savings to be had. Agility is the key, and although RIs offer deep discounts, it’s at the expense of the flexibility that you need in order to be truly optimized– not just today, but every day. Optimization is an ongoing, dynamic process that requires consistent monitoring and management.

Leave that to us.