AWS has introduced Savings Plans, a new pricing model to manage AWS usage costs. We wanted to give you our take on this offering and provide guidance on how to best utilize them as part of your cost optimization strategy for AWS.
Every EC2 instance now has an On Demand price and a (lower) Savings Plan price. When you commit to a specific dollar amount of compute usage per hour, over a 1-year or 3-year period, all usage up to that amount will be covered by the Savings Plan. Anything past it will be billed at the On Demand rate. The Savings Plan discounts will apply to any on demand usage that is not covered by the RIs you may own.
AWS Savings Plans come in two flavors:
Compute Savings Plan (CSP) – This can be applied to any instance in any region regardless of OS. The pricing for these is identical to convertible RIs. AWS has, in effect, modified convertible RIs to be used in any region and you no longer have to actually do the conversion. While this a big improvement, the pricing is still the same.
EC2 Instance Savings Plan (ISP) – This is region and class (e.g. m5) specific, but OS is irrelevant. These instances receive standard RI pricing.
Advantages of Savings Plans:
- Savings Plans are simpler and easier to manage than RIs. The complexity of RIs often scared off customers from using them. The new plans are intended to provide a less complex incentive to optimize usage costs.
- Savings Plans offer cost reduction opportunity for AWS Fargate serverless compute engine for containers. There were no savings tools for AWS Fargate before.
Limitations of Savings Plans:
- At this time, Savings Plans can only be purchased via AWS Cost Explorer on the console. There is no API access, which may be available in the future. You must have access to Cost Explorer to take advantage of this offering.
- Savings Plans cannot be resold via the AWS Marketplace. This prevents customers from moving up to newer instance types for better performance and savings. Particularly for the ISP plan, customers will be locked into that class for the duration, even after new instance types come out. This makes a 3 year commitment much less attractive.
- Usage is blended. In our view, this is the most critical drawback, and one that isn’t readily apparent in the literature. Instead of the discount being applied in a specified order (e.g. biggest discount to smallest discount), the discount is applied to everyone on a dollar-weighted basis.
- For mixed use deployments, the impact can be substantial. As an example, for a customer that runs 10 x m5.large Linux and 5 x c5.large Windows, the Windows instances represent 33% of the unit usage, but account for 48% of the dollar usage. This means that they’ll attract 48% of the CSP plan commitment. An m5.large Linux gets a 36% discount but the c5.large Windows only gets an 18% discount.
- Blended usage is going to impact utilization of SQL Server as it has a high hourly, on-demand cost and a very low discount.
- For customers who run Linux almost exclusively, blended usage is not as relevant.
- For the ISP plans, AWS has applied the flexible aspect of RIs beyond Linux to every OS. This may be misleading. The $ discount on each instance type with a standard RI is the same regardless of the OS. If you buy an m5.large RI in Virginia, you’ll save $306.60 over the year, whether you buy Linux, Red Hat or SQL Server Enterprise. The new plans do not really offer a bigger discount.
- Large enterprise customers don’t get the benefit of RI volume discounts. Currently customers can receive between 5%-10% on their total EC2 RI value between $500,000 to $10million. These discounts will not be available under the Savings Plans.
- Savings Plans only apply to EC2 services, and therefore not available for RDS and ElastiCache, both of which can be optimized by RIs for substantial savings.
What Do You Do If You Own Reserved Instances?
Reservations are part of the AWS offering for the foreseeable future. If your usage qualifies for both Reserved Instances and a Savings Plan, AWS will apply the Reservation first to lock in your savings. It will then apply the Savings Plan discounts.
Our solution has Savings Plans integrated into its algorithm. We ensure that you get the maximum utilization rate and savings by applying the optimum mix of Reservations and Savings Plans, based on your usage needs and workloads.
While Savings Plans have simplified the process of cost optimization, it is not a silver bullet to your cost management needs.
Savings Plans are simply another arrow in a cost saving quiver. While they provide a real improvement over RIs, which require constant monitoring and management, there are some drawbacks, mainly, less flexibility. As a result, Savings Plans won’t be the answer to every AWS workload. Instead, they will work best as part of a broader cost savings strategy as illustrated below.
We see Savings Plans providing a solid base for existing workloads much like Reserved Instances did. However, Savings plans commit users to a specific spend instead of reserving compute usage with RIs. Because Savings Plans have 1 and 3 year terms and can not be modified nor sold, we recommend to start with a conservative Savings Plans spend and then layer RIs on top. This approach provides the best of both worlds: Simplified cost savings, with increased flexibility to match your workload needs.
Additionally, Parquantix assumes the risk of unused RIs. Since the 1 or 3 year commitment with the new Savings Plans does not provide the same ability to sell unused RIs in the marketplace, customers will not get the benefit of our risk mitigation with Savings Plans alone. Our solution will calculate the optimal mix of RIs and Savings Plans to give your business maximum flexibility, based on your usage and long term growth objectives.
And lastly, we think that the 1-year CSP plan which uses convertible RI pricing will provide the best benefits. The pricing difference between convertible and standard RI is substantial, generally 25-32%. A customer who is using RIs now and switches to the CSP plan will have to make a much larger commitment in order to get the same savings.
We will closely monitor how the solution evolves. In the meantime, we will continue to optimize your AWS deployment with the latest offerings built into our solution in real-time.
If you would like to discuss how we can optimize the cost of your AWS, contact us.