The Financial Benefits of Reserved Instances

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Not all clouds are created equal—one of our mottos—and this holds especially true when thinking about cost. Without spend optimization processes (as discussed under #2 in our blog about five common cloud strategy mistakes), you could end up paying more than you budgeted for, and potentially receiving fewer features.

While most cloud providers offer various levels of service, understanding the right choice for your business Reserved Instances may be a complicated decision. Some factors to take into account are:
  • What is your required bandwidth?
  • How will this cloud system be used?
  • Is this a mission-critical system, and if so, what disaster recovery options do you require?
  • Are there security and compliance regulations?

Once you have the answers to these questions, you can begin the process of choosing the best cloud offering for your unique needs. If you know what level of resourcing and capacity you require, Reserved instances can save you up to a 75% discount when compared to on-demand services. Currently, Amazon Web Services is the only cloud provider to offer Reserved Instances.

Reserved Instances are contracted reservations for cloud services, for one or three-year terms. Customers have several payment options, including no upfront payment, partial upfront payment, and full upfront payment, which allows for budgetary flexibility. However, it’s important to note that once the purchase is made, no cancellations are allowed—you will be required to pay for the entire term, even if you choose not to use it. This system of “reserving” cloud services allows Amazon to offer RIs at a significant discount.

RIs also are offered in three different types: Standard, Convertible, and Scheduled.
  1. Standard RIs are meant for steady usage with little to no fluctuation and offer the highest discount (up to 75% off the cost of On-Demand). Our sales engineer, Don Mackenzie, says: “In terms of appropriate use-cases, standard RI’s are ideal for workloads that run 24 x 7 x 365 such as virtual firewalls or monitoring platforms. Planning is key to realizing the maximum ROI for reserved instances.”
  2. Convertible RIs allow you to change specific attributes of the instance, like “instance family, OS, or tenancy associated with their RI” (Amazon Press Release, 2016), and provide up to 45% discount from On-Demand.
  3. Scheduled RIs are reserved and made available within specific time windows, enabling you to reserve capacity on a predictable schedule for a set amount of time.

Cost is not the only factor when considering a cloud solution. For maximum flexibility of usage, while still gaining cost savings, you might consider pairing a Reserved Instance with On-Demand—this will allow you to account for fluctuations that might occur.

One thing to note: when it comes time to renew, Reserved Instances don’t auto-renew. Instead, they convert to On-Demand pricing. Want to discuss Reserved Instances or other cloud needs for your business? Email or call us and we’ll be happy to help.

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