Amazon EC2 Reserved Instances (RIs) are a great way to save money on AWS, particularly since they require no engineering work to implement. But for some customers the analysis and selection process is not well understood and can prevent them from making a decision that could save them money. In this session, Cloudability CCO J.R. Storment walks you through the most common scenarios for RIs, shows you how to make the best possible decisions for RI purchases, and how to significantly reduce the time needed to make those decisions.

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The Science of Choosing
Reserved Instances
J.R. Storment
Chief Customer Officer
Cloudability

2. Introduction
• Purchasing Pitfalls
• Understanding Reservations
• How to Calculate RIs
• Recommended RI Purchase Approach

3. WARNING: Math ahead.

5. Cloud Infrastructure Analytics
Nearly $1B in tracked cloud costs. 12,000+ Users

6. Our Solution

7. Purchasing Pitfalls

8. Is your company currently
purchasing AWS reservations?

9. What we’ve learned
• Most companies oversimplify reservation
purchasing

11. How frequently are you
purchasing reservations?

12. Go all in on 1 or 2 large buys each year

13. Result: Large cliffs in
reservation levels

14. Understanding Reservations

15. What is a reservation?
Reservations allow you to reserve resources/capacity for one or
three years in a particular availability zone in exchange for a lower
overall unit price.
There are 2,000+ different reservation types each with their own
“break-even” points.
m1.xlarge | LINUX | us-east-1a | 3 years

16. Reservation Type Upfront Fee Hourly Usage Fee Minimum Usage
Light Yes Yes
No
If the instance is not
used during the hour,
there is no charge.
Medium Yes Yes
No
If the instance is not
used during the hour,
there is no charge.
Heavy Yes Yes
Yes
Billed a full month’s
worth of hours at the
start of each month.
Reserved Instance Pricing Components

17. Annual Utilization
Rate
Light RI Savings Medium RI Savings Heavy RI Savings
20% 25% -7% -77%
40% 40% 33% 11%
60% 45% 46% 41%
80% 48% 52% 56%
100% 49% 59% 65%
RI Cost Savings vs. On-Demand

18. Why are you purchasing
reserved instances?

19. Why make reservations?
1. Lower the cost of resources you are
already using

20. Why make reservations?
1. Lower the cost of resources you are
already using
2. Lock-in future capacity in the same
Availability Zone

21. Why make reservations?
1. Lower the cost of resources you are already
using
2. Lock-in future capacity in the same Availability
Zone
3. Reserve capacity in another region just in case...

22. How are reservations applied?
• Purchased for an instance type (m1.xlarge) with a specified OS (LINUX)
in a particular Availability Zone (us-east-1a)
• Reservations are applied each hour
• In a consolidated billing account, cost savings from reservations can be
shared between linked accounts
• Capacity reservation stays with the purchasing account

23. Reservations in Linked Accounts

24. Reservations in Linked Accounts

25. Reservations in Linked Accounts

26. Reservations in Linked Accounts

27. Reservations in Linked Accounts

28. Reservations in Linked Accounts

29. Reservations in Linked Accounts

30. Reservation Modifications
• Transfer a reservation from one Availability
Zone to another
• Trade in reservations for a different size in
the same family

31. 1 xlarge g 2 large 1 large g 4 small
Changing Instance Type
Instance Size Normalization Factor
small 1
medium 2
large 4
xlarge 8
2xlarge 16
4xlarge 32
8xlarge 64

32. Instance types without a family
• t1.micro
• cc1.4xlarge
• cc2.8xlarge
• cg1.8xlarge
• cr1.8xlarge
• hi1.4xlarge
• hs1.8xlarge

33. The fine print
• Transfers do not happen
automatically
• Transfers are not guaranteed and
are based on available capacity
• Transfers must share the same
expiration date

34. A Simplied RI Calculation

35. Overall utilization can be misleading

36. m1.large linux us-east-1a
A tale of three instances
30% 30% 30%
30% is greater than the break even point for a light reservation
1 2 3
3 Light

37. When were the instances running?
A tale of three instances
Remember: Reservations are applied every hour

38. Instances running at the same time
If the instances are running at the same time you need multiple RIs
Sun Mon Tue Wed Thu Fri Sat
1 2 3 4 5 6 7
8 9 10 11 12 13 14
15 16 17 18 19 20 21
22 23 24 26 27 28 29
30
A tale of three instances

39. 3 Light reservations cost savings
A tale of three instances
On-demand hourly cost $0.240
RI hourly cost $0.136
RI upfront fee $243
Effective hourly rate @ 30% utilization $0.228
Hourly Savings $0.011
Total Savings for this example $90.93

40. 4.8%
SAVINGS RATE

41. Instances running at different times
Sun Mon Tue Wed Thu Fri Sat
1 2 3 4 5 6 7
8 9 10 11 12 13 14
15 16 17 18 19 20 21
22 23 24 26 27 28 29
30
A tale of three instances

42. Instances running at different times
A tale of three instances
Collectively the 3 instances cover 90% of the hours of the month
2
1
3
1 Heavy

43. 1 Heavy reservation cost savings
A tale of three instances
On-demand hourly cost $0.240
RI upfront fee $676
RI hourly cost $0.056
Effective hourly rate @ 90% utilization $0.141
Hourly Savings $0.098
Total Savings for this example $774.65

44. 41%
SAVINGS RATE

45. 1 Heavy vs. 3 Lights
A tale of three instances
1 Heavy 3 Lights
Total Savings $774.65 $90.93
Total upfront fees $676 $729
Buying 3 lights would have wasted $486 in upfront fees

46. You have to understand how many
instances are running each hour to
know how many RIs to purchase
Applying what we’ve learned:

47. Histogram of Hourly Instance Levels

48. Histogram of Hourly Instance Levels

49. Histogram of Hourly Instance Levels

50. Histogram of Hourly Instance Levels

51. Histogram of Hourly Instance Levels

52. Histogram of Hourly Instance Levels

53. Histogram of Hourly Instance Levels

54. Histogram of Hourly Instance Levels

55. Putting it into practice!
(DEMO TIME)

58. Recommendation
Recommendation is based on 17 instances
running 83.18% of the hours in the report period
which is higher than 1-year break even point of
63.12% for a m1.large LINUX in eu-west-1b.

60. Action Items
Purchase
Purchase 9 m1.large heavy reservations in eu-west-1b
Transfer
Transfer 8 m1.large heavy reservations from eu-west-1a to eu-west-1b
Transfer 8 m1.large heavy reservations from eu-west-1c to eu-west-1b
Trade-in
Convert 1 m1.xlarge heavy reservation to 2 m1.large RIs in eu-west-1b

62. Purchasing Recommendations

63. Implications for savings
• Base purchase decisions on hourly instance counts
• Frequent reservation purchases help maximize cost efficiency
• Don’t over purchase heavy reservations. Utilize Light and
Medium reservations to handle volatility
• Utilize light reservations to hold capacity in other Availability
Zones
• Don’t be afraid of 3 year reservations

64. Stop by our booth or 7pm AWS meetup
cloudability.com / Twitter @cloudability