Upcoming specific new AWS regulations will significantly impact how businesses handle their AWS operations. Starting from January 15, 2024, AWS will no longer permit the resale of discounted Reserved Instances (RIs) bought from the Amazon EC2 Reserved Instance Marketplace. This update aligns with AWS’s service terms, particularly Section 5.5, which explicitly prohibits the resale of discounted RIs.
What implications can AWS customers expect, and how can Anodot help with solutions to this new change?
Let’s dive deeper and find out.
What are Amazon EC2 Reserved Instances?
Amazon EC2 Reserved Instances offer a cost-effective solution for businesses to save money in the cloud. Typically, when businesses utilize Amazon’s cloud for programs and data storage, they are charged based on usage.
But if you know you’ll need that computer power for a while, you can opt to “reserve” it. This means you can use a specific amount of Amazon’s computer power for a set period (1 or 3 years), and in return, Amazon gives you a discount.
Current policy allowing the resale of Reserved Instances in the marketplace
- The current policy allows Amazon Web Services (AWS) customers to resell their RIs in the Reserved Instance virtual Marketplace without restrictions.
Changes in the New AWS Policy Update
In the past few weeks, specific customer types have been informed that starting January 2024, they will be unable to sell Standard RIs on the marketplace. These customers can sell their RIs until the end of December 2024.
Who does this rule apply to?
It applies to customers who have qualified for the following discount programs. Because they are receiving a discount on consumption (including RI purchases), AWS does not allow RIs to be sold on the marketplace.
You’ll be affected if any of the following criteria apply to you:
- RI Volume Discounts
When the value of RI purchases reaches $500k per year, customers are eligible for an RI Volume discount of 5% on any future RI purchase. This discount increases to 10% when the value of all purchases reaches $1m per year.
- Enterprise Discount Program (EDP)
Customers under an Enterprise Discount Program have committed to a specific yearly spend and receive a flat discount on their usage for most services, including RI purchases).
- Specific Customers
Members of the Solution Provider Program, APN partners, and MSPs who receive a discount on consumption from AWS.
How the new policy change impacts AWS customers
Previously, AWS customers could sell unused Standard RIs or buy Standard RIs from others. However, the new policy update will prohibit the resale of Discounted RIs. According to the update, customers retain ownership of the RIs until expiration.
Potential repercussions include:
Reduced Flexibility: Customers who don’t need the full reservation term cannot recoup the funds spent on those RIs. This could make RIs less appealing to some users, especially those uncertain about long-term computing needs.
Decision Making: Customers may need to be more cautious and precise in purchasing RIs, understanding that they’re making a more binding commitment without the fallback option of reselling.
Potential Shift to Savings Plans: As a response, businesses might gravitate more towards AWS Savings Plans, which offer similar cost-saving benefits but with greater flexibility. (Which we’ll cover in the next section.)
What are AWS Savings Plans?
AWS Savings Plans offer discounted prices on AWS usage (such as EC2, Fargate, and Lambda) in exchange for a committed amount of usage (measured in $/hour) over 1 or 3 years.
Types of Saving Plans
Savings Plans provide more flexibility than Reserved Instances (RIs) and come in two types:
Compute Savings Plans: Provide the most flexibility and apply to any EC2 instance regardless of region, instance family, operating system, or tenancy. They can also apply to AWS Fargate and AWS Lambda usage.
EC2 Instance Savings Plans: Similar to traditional RIs, these plans apply to a specific instance family within a region and offer slightly higher savings.
With the restrictions coming to the RI marketplace, Saving Plans are a more attractive option for AWS customers to save money in the cloud.
Comparing Reservation Options with Savings Plans
Customers may be advised to move to Convertible Reservations to lower cloud costs. However, it is important to evaluate if it aligns with your cloud operations and requirements before diving into this option. Let’s take a closer look at the advantages and disadvantages of the Convertible Reservation.
Examples of AWS EC2 Plans, Payment Models and Savings
Convertible Reservation – Pros and Cons
Customers may consider convertible Reservations as an alternative to Standard RIs.
Pros: Ability to change the size, operating system, family, and server generation. Along with the option to update the purchase and increase its value without extending the end date.
Let’s pretend that we need to cover a C5.XLARGE Linux server in N. Virginia.
Below is the pricing for c5.xlarge, Linux, N. Virginia
On-demand = $0.17/hr
3 yr Convertible = $0.082 (52% savings)
3 yr Compute Savings Plan = $0.082 (52% savings)
We purchase a 3-year No Upfront purchase on January 1st, 2024 for 3 years.
Start Date = 1/1/2024
End Date = 1/1/2027
Purchase = $0.082/hr
Now we have a scenario where on January 1st, 2025, we no longer need this C5.XLARGE server and need to replace it with 2 M5.XLARGE servers ($0.192/hr/server), Linux, N. Virginia. Below would be the scenario for both models (savings will be the same)
On January 1st, 2025, we convert the c5.xlarge to 2 m5. xlarge, Linux, N. Virginia.
Value of the purchase has increased from $0.082/hr to $0.194
New Value = $0.194
End Date = January 1st, 2027
COMPUTE SAVINGS PLANS
On January 1st, 2025 we will have to add a new purchase to cover the difference ($0.194-$0.082=$0.112). This purchase will expire on January 1st, 2028, NOT 2027.
We will now have two purchases with two different end dates:
Value = $0.082
End Date = 1/1/2027
Value = $0.112
End Date = 1/1/2028
- Region is not flexible – In the example above, we are stuck if the m5.xlarge servers that need to replace the c5.xlarge are in Ireland. Savings Plans are region-flexible.
- Requires manual or programmatic change – AWS does not convert it for you – Converting the RI requires going into AWS and manually or programmatically changing the c5.xlarge to m5.xlarge.
- Savings Plans detect new instance types and change the coverage without intervention. This reduces the chance of waste since no intervention is required – AWS is taking care of it for you.
We recommend purchasing a 3-year Compute Savings Plan for safety and maximum savings.
Successful companies will increase Cloud consumption as their business grows, requiring flexible purchases for changing architecture. Additionally, a 3-year commitment to AWS is not a significant risk if the company foresees continued usage.
Keep in Mind:
Don’t assume everything will be fine with your RI purchases. Take the time to review what you’ve bought and ensure no architecture changes will leave you with unused RIs.
Suppose you want to replace all RIs with a 3-year Savings Plans purchase, approach AWS, and request migration from RIs to a 3-year SP purchase. They may agree if the value of SP purchases matches or exceeds that of RIs.
AWS Savings Plans and Anodot
Customers who used to depend on RIs will seek a solution to set up the perfect Saving Plan that suits their needs.
Anodot can help you get a handle on your AWS usage patterns to make informed decisions about which Saving Plans to obtain. For instance, if Anodot notices that you’re consistently using a specific service, you might want to jump on a Saving Plan for that service to cut costs.