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Is AWS trying to get out of its complex pricing model with “Savings Plans”?

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A decade ago, AWS launched Reserved Instances (RIs), and the AWS customers have saved billions of $$. RIs makes you commit to usage of a specific instance type, and OS provisioned in a particular AWS region. With RIs, you must have experienced specific enhancement: the regional benefits (ability to apply RIs across all AZs in a specific region), convertible RIs (switching the operating system or instance type at any time), and instance size flexibility. This time AWS launched Savings Plan.

But why to introduce Savings Plan?

RI model can help you avail the discount of up to 72%, but it lies on the complex side, as mentioned by Jeff Brar. The decade-old model requires customers to harmonize their RI purchases and exchanges to save on the usage, which is subjected to change over time. Savings Plan is launched with the intent to provide discounts to the user with minimum manual effort.

What is a Savings Plan?

It is a new flexible pricing model that helps you save up to 72% on EC2 and Fargate usage. AWS customers simply commit to a consistent amount of usage (e.g., $10/hour) over 1 or 3 years, and in exchange, they will receive a discount for that usage.

How does Savings Plan work?

Every type of compute usage has an On-Demand rate and a Savings Plans price. If a customer commits to $10/hour of compute usage, then they will get Savings Plans prices on all usage up to $10. Any usage beyond the commitment will be charged at regular On-Demand rates.

Savings Plan is like a Loyalty Card

You can think of a Savings Plan like a loyalty card offered by AWS to its customers. Just for the analogy, it’s like you get a card, and you commit to AWS services for a specified period. When you go shopping at AWS, the loyalty card helps you save money in exchange for the value it holds. Once the card exhausts, the amount for further shopping will be without discount i.e., list price.

So, the value that your loyalty card holds depends on the usage that you are committing to AWS. Higher the usage commitment, higher the discount.

Types of Savings Plan

Savings Plan Comparison
Source: docs.aws.amazon.com

EC2 Instance Savings Plan

Provide the deepest discounts, up to 72% (same as Standard RIs) on the selected instance family (e.g., c5 or m5), in a specific AWS region.

Flexible across:

  • Size: eg. Move from m5.xl to m5.4xl
  • OS: e.g., change from m5.xl Windows to m5.xl Linux
  • Tenancy: e.g., modify m5.xl Dedicated to m5.xl Default tenancy

The EC2 Savings Plan gives you more flexibility than Standard RIs while offering the same discount.

Compute Savings Plan

Offer the most considerable flexibility, up to 66% discounts (same discounts as Convertible RIs).

Flexible across:

  • Instance family: e.g., move from c5 to m5.
  • Region: e.g., change from EU (Ireland) to EU (London)
  • OS: e.g., Windows to Linux
  • Tenancy: e.g., switch Dedicated tenancy to Default tenancy
  • Compute options: e.g., move from EC2 to Fargate.

The Compute Savings Plan gives you more flexibility than Convertible RIs while offering the same discount.

Why will ‘Compute Savings Plan’ be the most popular choice for the majority of customers?

  1. The sudden move to containers and microservices is costly, but the Compute Savings Plan will allow you to receive a discount while keep using the compute platform (options are always better). Earlier there were not any provisions to get a discount on Fargate, but commit now with this Savings Plan and get a discount transfer to Fargate; if you opt to use that.
  2. With Compute Savings Plan, you can make an hourly dollar commitment that will apply to all EC2 and Fargate usage in any available regions. This helps in shifting workloads to different regions that may tackle latency issues for customers. This is helpful for companies providing services over the cloud globally. They can invest according to region, for example, larger commitments in the primary regions and smaller commitments in smaller regional footprints.

Suggested Read: Reserved Instance Planner: Why, When and How to use your RIs?

What other things do you need to consider when going for Savings Plan?

The new pricing models always create confusion on how to use it in your favor. We have listed down the essential aspects that you need to focus on to adequately understand the Savings Plan.

  1. The hourly discount that you commit is applied as a “post-dollars discount“. AWS applies this post-dollars discount to the instances with the highest discount first. In other words, AWS will give you the highest discount possible even if you are unable to figure out the right amount of usage to commit.
  2. Managing Savings Plan will require extra efforts. How? Just for the fact, you will still be purchasing RIs even if you go for Savings Plan. The driving factor in buying the Savings Plan will most likely depend on instance usage changes.
    For instance, if your EC2 and Fargate are scaling, you might buy $0.8/hr for 1 year today, another $1.8/hr for 1 year in the next month, different Saving Plan in the month after that, etc. So, you will end up with various Savings Plan with various overlapping periods. To manage this will require extra efforts in determining the exact usage or even if not exact at least close.
  3. Currently, there is no option to upgrade RIs to Savings Plan. First, your existing RIs need to expire before going for Savings Plan (you can purchase both at the same time also if you have loads of money). The reason for not providing an upgrade option seems logical as AWS would take huge revenue hit if everybody upgraded their RIs to Savings Plan. This shows how AWS has gone for a long game but with a practical balance. Perfect.
  4. You can purchase Savings Plans with All, Partial, and No Upfront payment options. (Note: pre-paying will help you get slightly extra discounts)
  5. You can purchase Savings Plans in AWS Console (in the Cost Explorer) and also via API.
  6. For now, AWS released Savings Plans for EC2 and Fargate only, but they will surely release Storage, Database Savings Plans, etc. over time.

Why can you still consider RIs or the mix of RIs and Savings Plan?

  1. As with most of the things, you lose control if you go for simplicity. The same applies to Savings Plan; it simplifies getting a discount but will require extra efforts in projecting exact usage. On the other hand, Convertible RIs give you control over upgrading from 1 to 3 years, upgrading from No Upfront to Partial Upfront, exchange options when prices drop, etc. Convertible RIs still prove worthy of a pie of your spend.
  2. For a shorter period, you can find Standard RIs in the RI marketplace, for example, for three months. Standard RIs are still the only option to transfer by selling it on RI Marketplace, whereas, if you go for Savings Plan, you are stuck with it.

Suggested Read: 13 Best Cost Optimization Practices to follow Before and After Cloud Migration

We have jotted down every critical point around Savings Plan to help you make informed decisions. If you find it helpful, share it with your peers on your social media handles by tagging CMI (we are present on all the major platforms).

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Cloud Evangelist
Cloud Evangelist
Cloud Evangelists are CMI's in house ambassadors for the entire Cloud ecosystem. They are responsible for propagating the doctrine of cloud computing and help community members make informed decisions.

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