AWS Savings Plans or Reserved Instances? What's the best solution to reduce your compute cost?

What Are AWS Discount Instruments?

AWS discount instruments are financial tools provided by Amazon Web Services (AWS) that enable customers to reduce their cloud computing costs. These instruments require a commitment to use a specific amount of resources over a set period, in exchange for a significant discount. Essentially, you commit to using certain AWS services, such as EC2 instances, for one or three years, and in return, AWS offers you a reduced rate. Discount instruments can be applied to 10 AWS services typically making up 50% of an organisation's bill. In this article, we will specifically focus on the 4 discount instruments that can be applied to compute spend in AWS, EC2 Savings Plans, Compute Savings Plans, Reserved Instances and Convertible Reserved Instances.

Why care about Discount Instruments?

Discount instruments play a crucial role in cloud cost management and typically account for 35% of savings generated from an effective FinOps strategy. As cloud usage scales, so do the associated costs. By leveraging discount instruments like Savings Plans or Reserved Instances, organisations can significantly reduce their expenses, freeing up budget for other critical areas.

Types of AWS Savings Plans

AWS offers two main types of Savings Plans:

1. EC2 Savings Plans: These are specifically designed to cover EC2 instance usage. EC2 Instance Savings Plans provide the lowest prices, offering savings up to 72% in exchange for commitment to usage of individual instance families in a Region (e.g. M5 usage in N. Virginia). This automatically reduces your cost on the selected instance family in that region regardless of AZ, size, OS or tenancy. EC2 Instance Savings Plans give you the flexibility to change your usage between instances within a family in that region. For example, you can move from c5.xlarge running Windows to c5.2xlarge running Linux and automatically benefit from the Savings Plan prices.

   
   

2. Compute Savings Plans: These are broader and apply not only to EC2 instances but also to AWS Lambda and AWS Fargate usage. Compute Savings Plans provide the most flexibility and help to reduce your costs by up to 66%. These plans automatically apply to EC2 instance usage regardless of instance family, size, AZ, Region, OS or tenancy, and also apply to Fargate or Lambda usage. For example, with Compute Savings Plans, you can change from C4 to M5 instances, shift a workload from EU (Ireland) to EU (London), or move a workload from EC2 to Fargate or Lambda at any time and automatically continue to pay the Savings Plans price.

   
   

Types of AWS Reserved Instances

AWS Reserved Instances (RIs) come in two main varieties:

1. Standard Reserved Instances: These offer the most significant discounts (up to 72% off on-demand), and are ideal for steady-state workloads where your usage patterns are predictable. They require a long-term commitment to a specific instance type, region, and operating system. Shorter term commitments can be accessed through the RI marketplace.

   
   

2. Convertible Reserved Instances: These offer slightly lower savings than Standard RIs but provide the flexibility to change instance types, operating systems, or tenancies during the term of the contract. This flexibility makes them more adaptable to changing business needs, however without an automated system managing a fleet of convertible reserved instances can become a complex task at the best of times. Shorter terms can be obtained during the converting process.

   
   

AWS Savings Plans vs Reserved Instances

When choosing between AWS discount instruments, it's essential to consider the specific needs of your environment. Generally speaking, it is a trade-off between flexibility and savings, the less flexibility the discounts instrument offers the higher the savings rates you will achieve. There are however a variety of different techniques that can be used to introduce additional flexibility to your discount instrument strategy. It's also worth noting that most organisations leverage a blend of discount instruments to achieve the best cost management outcomes.

1. Standard Reserved Instances (RIs): Standard RIs are ideal for workloads with predictable usage patterns. They offer the deepest discounts, up to 72% off on-demand prices, making them a strong choice for stable, long-term workloads. For those who need more flexibility, the Reserved Instance marketplace allows for acquiring RIs with shorter-term commitments, providing an opportunity to adjust as usage needs evolve.

2. Convertible Reserved Instances: Convertible RIs offer less savings compared to Standard RIs but come with the flexibility to change instance types, operating systems, or tenancies. However, managing Convertible RIs can be complex without an automated system. For organisations without such a solution, the increased management effort often outweighs the benefits, leading to less frequent use of Convertible RIs.

3. EC2 Savings Plans: EC2 Savings Plans provide significant savings up to 72% and are best suited for users with consistent usage of specific instance families within a region. These plans are flexible within the chosen instance family and region, allowing for changes in instance sizes or operating systems while maintaining the discounted rate.

4. Compute Savings Plans: Although Compute Savings Plans generally offer lower savings compared to EC2 Savings Plans, they excel in environments with a mix of AWS services. They apply to EC2 instances, AWS Lambda, and AWS Fargate, making them a valuable choice for organistions with diverse compute needs. Compute Savings Plans distribute savings across these services, ensuring that the commitment aligns with whatever generates the most cost savings.

How Morfless Can Maximise Your AWS Savings

The Challenge of Managing AWS Discount Instruments

Managing AWS Savings Plans and Reserved Instances effectively requires a deep understanding of your organisation's usage patterns and future needs. It also involves continuous monitoring to ensure you're not leaving money on the table. For many organisations, this task can be daunting, leading to suboptimal utilisation of these discount instruments and, ultimately, higher costs.

Introducing Morfless: Automated Discount Management

This is where Morfless comes in. Morfless is an automated discount management solution designed to help organisations optimise their use of AWS discount instruments. By leveraging advanced algorithms and real-time data, Morfless ensures that you are always using the most cost-effective option available, whether that’s a Savings Plan, Reserved Instance, or a combination of both.

What sets Morfless apart is its ability to achieve savings rates typically reserved for three-year commitments on contracts as short as three months. This flexibility allows your organisation to benefit from significant cost reductions without the need to commit long-term or lock in specific configurations. Morfless continuously monitors your usage and adjusts your discount instruments accordingly, so you’re always getting the best possible deal.

Case Studies: Real-world Savings with Morfless

Consider the example of a mid-sized tech company that was struggling to manage multiple Reserved Instances across different regions. By adopting Morfless, they were able to simplify their discount management and increase their overall savings. Another case involves a financial services firm that used Morfless to transition from a fragmented mix of Savings Plans and Reserved Instances to a more cohesive strategy, resulting in a 40% increase in savings over the first year. The graph below illustrates their daily savings increasing over time.

These examples highlight how Morfless can transform your approach to AWS cost management, ensuring you achieve maximum savings with minimal effort.

Summary of Key Points

Choosing between AWS Savings Plans and Reserved Instances depends on several factors, including your organisation's flexibility needs, budget, and commitment duration. Savings Plans offer greater flexibility and are easier to manage, making them suitable for organisations with variable workloads. In contrast, Reserved Instances can provide higher savings but require more careful planning.

Register for your free Morfless account and start your AWS cost optimisation today.