Reserved Instances

What are Reserved Instances(RIs)?

Reserved Instances are savings plans which offer a way for cloud consumers to commit to a specified amount of compute capacity within a cloud provider’s infrastructure for a set term. This commitment usually involves an upfront payment or periodic payments during the term, granting users significantly lower rates than on-demand services. Reserved Instances are designed to provide predictable expenses and reliable resource availability, which are crucial for long-term budgeting and planning.

Types of RIs

RIs come in two main types: Standard and Convertible. Each type offers different levels of flexibility and potential savings, catering to various business needs and strategies.

Standard Reserved Instances

Standard Reserved Instances are the most common type of RI, designed to provide significant savings over On-Demand pricing in exchange for a commitment to a specific instance type, region, and term length (typically one or three years).

Key features:

• High Savings: Standard RIs offer the highest potential savings, often up to 75% compared to On-Demand prices.
• Fixed Configuration: Once you commit to a specific instance type, family, and region, you cannot change them. This makes them ideal for stable and predictable workloads.
• Resell Options: Standard RIs can be sold on the Reserved Instance Marketplace if your requirements change before the term ends, providing some flexibility.

Ideal use cases

• Workloads with steady-state or predictable usage patterns.
• Long-term projects where the configuration is unlikely to change.
• Applications where cost savings are prioritized over flexibility.

Convertible Reserved Instances

Convertible Reserved Instances offer more flexibility than Standard RIs, allowing you to change the instance type, family, and operating system within the same region during the term of the reservation.

Key features

• Moderate Savings: Convertible RIs typically offer savings up to 54% compared to On-Demand prices, which is lower than Standard RIs but still substantial.
• Flexible Configuration: You can exchange your Convertible RIs for others with different configurations, making them suitable for dynamic and evolving workloads.
• Long-Term Commitment: Like Standard RIs, Convertible RIs require a one or three-year commitment, balancing flexibility with long-term planning.

Ideal use cases for Convertible RIs:

• Workloads with fluctuating requirements or evolving resource needs.
• Projects where instance configuration might change over time due to scaling or optimization.
• Scenarios where a balance between cost savings and flexibility is necessary.

Advantages of using RIs

• Cost Efficiency: They provide substantial savings over on-demand pricing, suitable for predictable usage patterns.
• Budget Control: Fixed terms facilitate easier and more accurate budget management.
• Resource Guarantee: Ensures that necessary compute resources are available when needed.
• Strategic Planning: Aids in the effective long-term planning and allocation of IT resources.

Disadvantages of using RIs

• Upfront Investment: They often require a significant initial financial outlay.
• Reduced Flexibility: Commitments to specific resource types and capacities limit responsiveness to change.
• Risk of Underutilization: Potential for paying for unused resources if demands decrease.

How to Buy and Sell Reserved Instances (AWS)

Buying Reserved Instances

1. Analyze Your Needs
   • Usage Patterns: Review historical usage to identify steady-state workloads.
2. Choose Your Term and Payment Option
   • Term Length: Decide between a one-year or three-year term for higher discounts.
   • Payment Options: Select All Upfront, Partial Upfront, or No Upfront based on your financial strategy.
3. Purchase RIs
   • AWS Example:
     • Go to the EC2 Dashboard in the AWS Management Console.
     • Select “Reserved Instances” and click “Purchase Reserved Instances.”
     • Choose the instance type, term length, and payment option, then proceed with the purchase.
4. Instance Types: Determine the specific instance types and sizes required.

Selling Reserved Instances

If your needs change and you have unused RIs, you can sell them in the RI Marketplace.

1. List Your RIs
   • AWS Example:
     • In the EC2 Dashboard, select “Reserved Instances” and then “Sell Reserved Instances.”
     • Choose the RIs to sell, set a competitive price based on the remaining term and market conditions.
2. Monitor Your Listings
   • Tracking: Monitor your listings and adjust the price if needed.
   • Notifications: AWS notifies you when your RIs are sold.
3. Complete the Sale
   • Transaction: Upon purchase by a buyer, the transaction is completed automatically, and your account is credited.

Restrictions on Selling RIs in the AWS Marketplace

While the AWS Reserved Instance Marketplace provides a platform for selling unused Reserved Instances, there are specific restrictions and conditions that sellers must adhere to:

1. Account Requirements:
   • Only organizations with active AWS accounts can sell RIs in the Marketplace. Personal accounts are typically not eligible for selling.
2. Instance Type:
   • Only Standard Reserved Instances can be sold in the Marketplace. Convertible RIs are not eligible for resale, as their flexible nature does not fit the fixed-term resale model.
3. Region Limitation:
   • Reserved Instances must be sold within the same AWS region they were purchased. Cross-region sales are not allowed.
4. Minimum Term:
   • To sell an RI, there must be at least one month remaining on the term. Instances with less than one month remaining cannot be listed for sale.
5. Pricing Restrictions:
   • The pricing for listed RIs is determined by the seller, but AWS imposes a minimum price that can be set. This ensures that RIs are not sold at an unreasonably low price, which could disrupt the market.
6. Transaction Fees:
   • AWS charges a 12% service fee on the total upfront price of the RI when it is sold. Sellers need to account for this fee when setting their prices.
7. Payment Process:
   • Payments for sold RIs are typically processed within 1-3 days after the transaction is completed, and the proceeds are credited to the seller’s AWS account.
8. Compliance and Validation:
   • AWS conducts compliance checks to ensure that RIs listed for sale meet all the required criteria. Any non-compliance can result in the removal of the listing.

These restrictions are designed to maintain a fair and stable marketplace for all participants. By understanding and adhering to these rules, sellers can effectively manage their unused Reserved Instances, optimizing their cloud investment strategy.

How to Manage RIs Effectively

• Monitor Usage: Continually assess whether Reserved Instances align with actual demand.
• Adjust Reservations: Update reservations as needed to adapt to changing business needs and workload requirements.
• Utilize Flexible Options: Employ instance size flexibility and convertible features where available to fine-tune resources.
• Manage Expirations: Keep track of expiration dates and plan for renewals or adjustments to avoid disruptions or financial inefficiencies.

Challenges in Managing RIs

Effective management of Reserved Instances requires addressing several challenges:

• Accurate Demand Forecasting: Difficulty in predicting future computing needs can lead to suboptimal purchase decisions.
• Balancing Costs and Flexibility: Navigating the trade-off between cost efficiency and operational flexibility. Learn more about managing these trade-offs with Gartner’s analysis on cloud cost management.
• Complex Contract Terms: Dealing with the complexities of different cloud providers’ RI terms and conditions.
• Scalability Concerns: Aligning RI purchases with growth strategies without overcommitting resources.

Reserved Instances can significantly reduce cloud computing costs for predictable workloads. With proper management, they provide a strategic advantage by aligning cloud spending with business goals.