The Benefits Of Convertible vs. Standard Reserved Instances

04.11.19
CloudHealth Tech Staff

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A comparison of Convertible vs. Standard Reserved Instances demonstrates that, although Standard Reserved Instances can save businesses money when they are utilized effectively, the flexibility of Convertible Reserved Instances can help businesses further reduce costs when utilized intelligently.

In March 2009, Amazon Web Services (AWS) launched Amazon EC2 Reserved Instances—providing the opportunity to pay upfront for a one year or three year capacity reservation in order to obtain a discount against On-Demand EC2 prices. Since then, Reserved Instances have changed significantly.

There are now three three payment options (All Upfront, Partial Upfront, or No Upfront), the choice of making Regional or Zonal purchases, and modifying the Availability Zone, scope, network platform, and instance size within the same family—not only for EC2 Instances, but also for RDS Instances.

Then in 2016, AWS announced Convertible Reserved Instances—a new type of Reserved Instance that can be exchanged for new instance types, new tenancies, and new operating systems as circumstances change. Convertible Reserved Instances can also be merged, split, and modified to ensure you get the best possible match when they are exchanged.

 
The Benefits of Convertible vs. Standard Reserved Instances

If you have stable workloads that you know will remain stable for up to three years, your best option is to purchase Standard Reserved Instances in order to maximize the discount you are eligible for.

Standard Reserved Instances are Still the Cheaper Option

With Convertible Reserved Instances, what you gain in flexibility, you lose in discount. Whereas Standard Reserved Instances offer discounts of up to 75% against On-Demand pricing, the maximum amount of discount you can expect when purchasing a Convertible Reserved Instance is around 55%.

Convertible vs. Standard Reserved Instances Price Comparison for an m5.xlarge EC2 Instance

STANDARD 1-YEAR TERM

Payment Option

Upfront

Monthly

Effective Hourly

Discount

No Upfront

$0.00

$89.79

$0.12

36%

Partial Upfront

$512.00

$42.34

$0.12

39%

All Upfront

$1,003.00

$0.00

$0.11

40%

CONVERTIBLE 1-YEAR TERM

Payment Option

Upfront

Monthly

Effective Hourly

Discount

No Upfront

$0.00

$102.93

$0.14

27%

Partial Upfront

$588.00

$48.91

$0.13

30%

All Upfront

$1,153.00

$0.00

$0.13

31%

STANDARD 3-YEAR TERM

Payment Option

Upfront

Monthly

Effective Hourly

Discount

No Upfront

$0.00

$62.05

$0.09

56%

Partial Upfront

$1,030.00

$28.47

$0.08

59%

All Upfront

$1,937.00

$0.00

$0.07

62%

CONVERTIBLE 3-YEAR TERM

Payment Option

Upfront

Monthly

Effective Hourly

Discount

No Upfront

$0.00

$70.81

$0.10

49%

Partial Upfront

$1,185.00

$32.85

$0.09

53%

All Upfront

$2,322.00

$0.00

$0.09

54%

The key to obtaining the most benefit from Standard Reserved Instances is to have total visibility of your assets, rightsize what you can, and see what you have left that would fit the criteria for a Standard Reserved Instance purchase. If you feel this might take a considerable amount of time and effort considering the number of variables there are, read this article about the CloudHealth RI Optimizer.

The Advantages of Reserving Convertible Reserved Instances

When AWS reduces its On-Demand pricing or brings out a newer, better performing instance type, if you have Convertible Reserved Instances you have the opportunity to exchange the resources assigned to the reservation in order to take advantage of the cheaper prices or higher performance.

Merging, splitting, modifying, and exchanging Convertible Reserved Instances is not that difficult, but there are a few rules you have to follow; for example, you can’t exchange Convertible RIs on a Partial Upfront payment structure for Convertible RIs on a monthly payment structure. We have compiled an article about the process for exchanging Convertible RIs and the limitations you may encounter.

Although you cannot reduce the value of your commitment (or get a refund if you have paid for a Convertible Reserved Instance All Upfront), if the prices have gone down, the price reduction means you can assign more resources to the same reservation for the same cost or a minimal “true up”.  The difficulty comes with trying to calculate the best configuration for your Convertible Reserved Instances.

Calculating the Best Configuration for Convertible RIs

The reason why calculating the best configuration for Convertible RIs is difficult is because the calculations concern more than the assets currently in your RI portfolio. You may have several hundred instances for which you are paying On-Demand prices and do not fit the criteria for a Standard Reserved Instance purchase, but might fit the criteria for a Convertible Reserved Instance purchase.    

In her article “Amazon Convertible Reserved Instance Exchanges Made Easy”, Rachel Dines—our Senior Director of Product Marketing—explains how the CloudHealth Convertible RI Exchanger analyzes all of a business’s instances ahead of a Convertible RI purchase or exchange, and makes recommendations about the optimum purchases and exchanges, and what assets should be assigned to each RI.

The CloudHealth Convertible RI Exchanger not only saves you hours every week studying complex spreadsheets, but can also save you a considerable amount of money on top of what you save by purchasing Standard Reserved Instances. In her example—conducted on our own RI portfolio—Rachel saved more than $200,000 over the lifetime of the RIs with a true up cost of just $466.

Convertible vs. Standard Reserved Instances

The conclusion of our Convertible vs. Standard Reserved Instances comparison is that if you have stable workloads that you know will remain stable for up to three years, your best option is to purchase Standard Reserved Instances in order to maximize the discount you are eligible for.

If, however, your AWS environment is constantly changing, the best option is to purchase Convertible Reserved Instances to benefit from price discounts and flexibility, and let the CloudHealth Convertible RI Exchanger make recommendations about how your assets should be divided.