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Reviewing Reserved Instance Pricing

Reserved instance pricing goes by different names, depending on the cloud service provider you choose. AWS calls it Reserved Instances, Azure calls it Reserved VMs and at Google Cloud it goes by Committed Use.

Rightscale (Flexera) publishes an annual State of Cloud Report, reporting on usage patterns and trends over multiple cloud service platforms. Here, you can see that reserved instance usage is 47% for AWS, 23% for Azure and 10% of GCP. Take into account that reserved instances are presold, thus constituting a predictable source of revenue for these companies. It also allows for planning to allow a match between supply and demand. As an incentive, all of these companies offer hefty scalable discounts for pre-purchasing reserved instances, as high as 80%, since it probably makes up a large chunk of their bottom line.

Upon closer inspection, though, we saw that real discount levels are between 30% and 50%. In order to achieve greater discounts, consumers have to jump through a few hoops, including signing 3-year agreements, restrict their usage to certain regions and OS types and sign up to spend millions of dollars. That’s a tall order for most companies, even when they’re likely to save in the long run.

Some programs allow you to re-sell some types of instances to other users at a penalty, or to convert some types of instances to other types, all at a penalty. Azure charges a penalty of 12% for this, while GCP does not allow this type of transaction at all.

Managing cloud expenditure and eliminating cloud waste is a daunting and thankless task. In order to match your cloud purchases with your company’s needs, you need to have an in-depth understanding of your past, current and potential future usage. In the fast-changing landscape that is Cloud, this is increasingly complicated. Some companies use in-house analytics teams and tools to assist in this, while others look to consultants to do the calculations for them. Most companies opt to automate this process as far as possible. Mistakes are common in this highly complicated arena, but the payoff for accurate calculations is enormous.

The type of cloud usage model you need depends on your business model and your company’s specific needs – that varies greatly between organizations. Reserved instances may constitute a portion of that for some companies. It is well worth understanding the trade-offs and potential savings or losses involved before signing up.

CloudSnooze can simplify this process. Contact us today for a free trial.

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