Amazon Web Services (AWS) EC2 just made a major change to its reserved instance pricing: the potential to eliminate up-front costs. Reserved instances provide a lower price for agreeing to utilize a certain amount of capacity for years. Previously, reserved instances had hefty up-front costs which could cost more than purchasing and setting up similar or faster hardware in a datacenter. The elimination of these up-front fees while also providing significant (in the AWS context) discounts is going to be a great benefit for companies. In fact, we have already started to help companies re-evaluate their AWS EC2-based cloud offerings based on the announcement.
From the updated Amazon EC2 Pricing page:
Reserved Instances provide you with a significant discount (up to 75%) compared to On-Demand Instance pricing. In addition, Reserved Instances provide you with a capacity reservation, so you can have confidence that you will be able to launch the instances you have reserved when you need them.
You can choose between three payment options when you purchase a Reserved Instance. With the All Upfront option, you pay for the entire Reserved Instance with one upfront payment. This option provides you with the largest discount compared to On-Demand Instance pricing. With the Partial Upfront option, you make a low upfront payment and are then charged a discounted hourly rate for the instance for the duration of the Reserved Instance term. The No Upfront option does not require any upfront payment and provides a discounted hourly rate for the duration of the term.
If your needs change after you have purchased a Reserved Instance, you can request to move your Reserved Instance to another Availability Zone within the same region, change its Network Platform or, for Linux/UNIX RIs, modify the instance type of your reservation to another type in the same instance family, at no additional cost.
This is important for always-on applications such as primary database servers, load balancers, mail servers and similar applications that are inelastic in nature.
The All Upfront option, users do get a nice discount that exceeds many company’s return on assets in their treasury functions so it may be an attractive offering. One caution here is that Amazon has updated its EC2 instance types and continues to do so. Therefore reserving capacity for three years means that it is likely that newer instances will be significantly less expensive.
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