When you’re optimizing cloud costs you have two choices. Reduce what you’re using or reduce the rate you’re paying. We focus on using AWS Reserved Instances and Savings Plan “commitments” to reduce the rate you pay. 

With up to 24 commitment options to cover a particular resource, each with its own pros and cons,  it can be difficult to know which to use and when. We’ll explore these options to help you understand how to make the most of the pros and limit the impact of the cons as we describe:

• the basics of commitment-based discounts.
• the challenge of balancing the risks and rewards before introducing.
• the detail of the different types so you can manage the risks.

The basics 

Commitments are made to use or spend a defined level of particular services/resources. The more specific the definition of the services/resources covered by the commitment, the longer its term (1 or 3 years) and the more you’re prepared to pay upfront (nothing, some or all) the greater the discount. 

Risk and rewards

Risk and reward go hand in hand. With commitment based discounts of over 70% available,  the rewards are clear but the risks are often difficult to manage. We find that this means people often avoid commiting and miss out on the rewards because it is hard to predict the future and manage the risk.

AWS applies commitments on a continuous, hourly basis through the term of the commitment. If there is no appropriate cloud usage to which the commitment can be applied in any hour it becomes less effective as a way of providing overall savings. This “utilization” of the commitment is an important metric to understand as it is possible for it to decrease to the point where its overall effect is to waste, rather than save, money.

Utilization is impacted when the way you use a resource or indeed whether you continue to use it at all changes. The fear of being “locked in” to a particular usage pattern and the resulting underutilization wastage often stops organizations using commitment discounts efficiently. The result being that they are effectively paying a high price for usage flexibility they may never need to use.

Traditional commitment recommendation tools are great at identifying savings opportunities. They aren’t very good at helping you assess the flexibility you actually need and therefore whether making a commitment is a good idea. When it is a good idea they do not help you understand what type of commitment gives you the balance you need between risk and reward.

Comparing commitment types 

The greatest range of commitment types is offered for those covering compute usage (EC2, Fargate and Lambda). We will focus on these types to highlight the key characteristics as you can then easily transfer this understanding to the subset available for other committable services. 

We categorize the different commitment types in terms of:

• discount is dependent on the instance type, location and software included. Each type will then vary in a similar way based on term length and amount paid upfront.
• technical flexibility determines to what extent you can change the resources it applies to. 
• spend flexibility shows how much freedom you have to adjust what you’re spending.

Standard Reserved Instances

• Discount: High
• Technical flexibility: Low
• Spend flexibility: Medium

Standard Reserved Instances  provide a high discount, but have low technical flexibility. The instance type, region and license (Operating System) type are fixed at the point of purchase. The size is also fixed for instances with a license attached.

They have some flexibility on their spend, as they can be sold on the AWS Reserved Instance marketplace. If you have a US bank account and there happens to be someone who needs the specific resources you are selling this helps avoid costs from underutilized/wasting commitments. This marketplace also provides a source of commitments with shorter remaining terms than AWS provides directly.

 EC2 Savings Plans

• Discount: High
• Technical flexibility: Medium
• Spend flexibility: Low

EC2 Savings Plans (EC2SPs) have the same discount as standard Reserved Instances, and have a higher technical flexibility as they can be applied to any usage within an EC2 family and region. For example, M6a in EU-W2 (London) automatically adjusts and covers any size and license type using a M6a instance within the London region. Savings plans are purchased based on $ spend rather than the number of instances, which provides additional flexibility around how they are purchased. They are particularly useful for RHEL or Windows EC2 instances as they do not need to be for specific instance size. However, they cannot be traded, canceled or changed after they are purchased so they have a low spend flexibility. 

Convertible Reserved Instance

• Discount: Medium
• Technical flexibility: Medium
• Spend flexibility: High

Convertible Reserved Instances have a lower discount than standard Reserved Instances but they are more flexible technically as they can, as the name suggests, be manually converted from one instance type to another, and from one license and size type to another. They are region specific, so they do not have the complete flexibility of Compute Savings Plans. 

Convertible Reserved Instances can be combined and changed provided their value and term do not decrease. This means they can be expanded to cover a larger number of instances for the remaining term or can be merged with a new instance to cover a smaller number of instances for a longer time. In this way they establish a route for high spend flexibility and to avoid over-commitment.

Compute Saving Plan

• Discount: Medium
• Technical flexibility: High
• Spend flexibility: Low

Compute Saving Plans have the same discount as convertible Reserved Instances and have complete technical flexibility to automatically provide a discount to any EC2 resource in any region. They can also provide a discount to Fargate and Lambda resources, which gives them the highest technical flexibility of all the commitment types.

However they cannot be traded, canceled or changed after purchase so they have a low spend flexibility.

Summary

The details above provide a guide to the variety of commitment types available. In addition to this, you have to  consider whether to purchase 1 or 3 year term commitments and whether to pay upfront or not, which are additional, and not trivial, considerations. At Strategic Blue, we use all of the commitment types, to build a layered, adaptive approach. By building this layered approach, and managing it on a daily basis across our customer portfolio, we blend the different commitments into a coherent strategy to provide you with a very high commitment coverage. We enable you to unlock the high discount of standard Reserved Instances, the high flexibility and coverage of Compute Savings Plans and the high spend flexibility of convertible Reserved Instances. To find out how Strategic Blue’s approach can benefit you and your business, register here.