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AWS, Microsoft and Google all offer discounts to public cloud customers that reserve VMs for future deployment. While all three options overlap, there are important differences among them.
Reserved instances sit in the middle tier of the cloud providers' pricing and commitment options -- cheaper than on-demand VMs and more expensive than spot pricing. The cloud vendor offers predictable discounts and provides capacity guarantees to guard against platform-wide resource shortages.
By comparison, on-demand pricing is the most expensive choice, but it provides the greatest level of flexibility with no commitment from the customer. Organizations can use spot pricing to buy a cloud provider's unused compute resources at discounts of up to 90%, but those instances can be terminated by the cloud provider with as little as 30 seconds' notice.
Reserved instances pricing is typically 30% to 60% cheaper than on-demand instances. Cloud providers claim discounts of up to 80% -- but only in rare cases. To achieve that level of discount, an enterprise would need to commit to three-year contracts, select from a few specific instance sizes in certain regions, run the right OSes and have a budget of more than $4 million.
Nonetheless, these reserved instances contracts save companies money when they expect to run workloads on static schedules, without much flux in capacity and workload needs. Let's look closer at how reserved instances pricing plays out on AWS, Microsoft Azure and Google Cloud Platform.
Amazon Reserved Instances
AWS pioneered this concept with EC2 Reserved Instances, a product modeled after lease agreements that are common with real estate. The program has since expanded to other services. Enterprises request a particular instance type and receive a discount based on factors such as length of commitment, amount of prepayment and OS.
Organizations that make the greatest upfront commitment -- in years and payment -- will receive the greatest discounts. For example, at time of publication, a t3.medium instance in a U.S. East region costs $0.0416 per hour on demand, but that price can drop to $0.016 per hour with full prepayment and a three-year commitment with a standard Reserved Instance -- a 62% savings. Enterprises can prepay in full, make an initial partial payment or start with no prepayment. Discounts for that same instance type start at 37% with a one-year contract and no upfront payment.
Amazon's Reserved Instances can be scoped to a region or availability zone. Scoping to a region locks in the reserved instances pricing when workloads move across availability zones but AWS does not guarantee the capacity. This scenario could arise in response to traffic spikes or when too many loads move at the same time.
Enterprises have some flexibility with standard Reserved Instances. They can switch between regional and availability zone scope, move to a different availability zone or switch between EC2-Classic and EC2-VPC (Virtual Private Cloud). It's also possible to split or merge instance sizes in the same family.
Convertible Reserved Instances is a newer pricing model on AWS. It provides more flexibility for a lower discount -- up to 55% for a three-year commitment. The convertible program enables enterprises to exchange instance types across families, OSes and instance sizes, as long as the newer service costs more.
Enterprises cannot cancel Reserved Instances contracts, but they can pay a 12% service fee to resell them. Alternatively, for no penalty, the customer can shift Reserved Instances to another linked account.
Azure Reserved VM Instances
Azure Reserved VM Instances is the most flexible of the three reserved instances pricing programs.
Like AWS, Microsoft offers one- and three-year commitment terms. Enterprises must pay for the commitment upfront, but they can cancel at any time with a 12% penalty against unused service.
Enterprises can exchange Reserved VM Instances across regions, switch them across departments and change OSes or instance types.
Organizations that migrate workloads to Azure can use the Azure Hybrid Benefit program to reuse existing Windows Server licenses. Use of that program in conjunction with reserved instances could bring the total discount up to 80% compared to on-demand pricing.
The discounts vary widely based on OS. For example, on a general computing Ubuntu Linux, VMs range from 40% to 42% for a one-year commitment and 62% to 65% for a three-year commitment. Use Red Hat Linux, and the discounts drop to between 6% and 39% for one year and 9% and 59% for three years. Discounts on the B-series general-purpose Windows VMs range from 30% to 38% for one year, 45% to 57% for three years and 66% to 73% for three years with Hybrid Benefit.
The Azure Reserved VM Instances pricing for SQL Database Elastic Pool with a Gen 4 CPU saves an estimated 21% for a one-year commitment, 33% for a three-year commitment and 73% for a three-year commitment with Azure Hybrid Benefit.
Google committed use
Google's committed use program is the least malleable in terms of commitment. There is no way to cancel or resell unneeded capacity or shift it to another department on a linked bill.
However, resources are less rigid with Google committed use than AWS' and Azure's reserved instances. Enterprises must only select a certain number of virtual CPUs (vCPUs) and memory, which can be assigned to a variety of applications. Users can also create custom machine types with unique configurations of vCPUs and memory.
The commitments apply on a regional basis. Also, the vendor does not yet offer these discounts for Google Cloud SQL.
No prepayment is required, but the enterprise must have a billing history to apply for reserved instances pricing. The discounts on vCPUs and memory are about 27% for a one-year commitment and 65% for a three-year commitment.
Google also offers sustained use discounts that provide comparable savings for running workloads for most of a monthly billing cycle. These range from a 20% discount when you run a workload for a quarter or half of the month to a 60% discount when you run a workload for more than three-quarters of the month. Sustained use is a good alternative for enterprises that have concerns about getting locked into a long-term commitment but want to take advantage of cost breaks.
Caveats about reserved instances pricing comparisons
Just because one cloud provider offers a better discount on reserved instances, it doesn't necessarily mean it will be cheaper to run applications there. Base prices of these offerings vary, and many factors go into the ultimate cost to run workloads on a given cloud platform. Identify workloads with a consistent history on a particular cloud, and then identify the appropriate discount program to help trim costs, rather than try to fit new apps into a discount program.