The challenge

Every leading cloud provider offers flexible pricing and discount structures that help organizations optimize rates while using their services. Purchasing these commitment-based discounts is one of the most effective ways to optimize yourcloud spend. Many organizations get caught up in the complexity of managing commitment-based discounts due to the number of options available and the limited resources at their disposal for optimization. This challenge is compoundedby the fact that each cloud provider has different offerings and their own rules to receive a benefit.

What are commitment-based discounts?

In the simplest of terms, if you commit to using a certain amount of a cloud provider’s services or to spending a certain amount of money on services,the cloud provider will give you a discounted rate on those services.

AWS Reserved Instances 

Amazon Web Services (AWS) was first to offer commitment-based discounts,announcing Amazon Elastic Compute Cloud (EC2) Reserved Instances (RIs) back in 2009. At first, commitments had to be made for an EC2 instance in a specific family and region, and offered up to 72 percent off on-demand prices. In 2016,Amazon introduced Convertible EC2 RIs, which are more flexible than the Standard version. Convertible EC2 RIs can be exchanged for a different family,OS or tenancy, and still offer up to 66 percent off on-demand prices.

AWS customers can now purchase reservations for a variety of services,including Amazon Relational Database Service (RDS), Amazon ElastiCache,Amazon OpenSearch Service, Amazon Redshift, and Amazon DynamoDB.Flexible payment terms are also available, with greater discounts on three-year commitments (compared to one-year commitments) and when more money is paid upfront. (AWS offers all upfront, partial upfront, and no upfront payment options.)

AWS Savings Plans

AWS introduced Savings Plans at the end of 2019, bringing a simpler cost savings offer into the mix. Savings Plans provide more flexibility while offering the same cost savings as RIs. Because of this, some speculated that RIs would phase out and be replaced by Savings Plans. However, AWS Savings Plans are currently only available for compute services (including EC2, AWS Fargate, and AWS Lambda), they can’t be sold on a marketplace if unused, and there are no capacity guarantees. So, while Savings Plans have become extremely popular,RIs are not dead, and they aren’t going away any time soon.

Azure Reservations

Microsoft Azure also offers commitment-based discounts called Azure Reservations. Azure Reserved Virtual Machine (VM) Instances have an estimated cost savings of up to 72 percent (82 percent when combined with the Azure Hybrid Benefit). Azure RIs are available with a Microsoft Enterprise Agreement or pay as you go. They can be paid for in full upfront or in monthly installments. Azure Reservations can cover a single resource group, a single subscription, or shared. Azure Reservations can be modified, and Azure even allows you to return their reservations at any time during the term for an adjusted refund. Azure also offers reservations for Azure Storage, Azure Cosmos DB, Azure SQL Database, MySQL servers, PostgreSQL, and Redis cache. CloudHealth® can provide asset reporting on all reservable services for Azure as well as optimizations.

Google Cloud Platform committed and sustained use discounts

Google Cloud Platform (GCP) committed use discounts (CUDs) and sustained use discounts (SUDs) offer similar deals to those who not only commit to a certain level of spend or usage in advance, but also those who are able to continuously use GCP services. CUDs can be gained through commitments to a specific number of resources or money spent. Resource-based CUDs are only available for Google Compute Engine (GCE) and can earn discounts up to 70 percent for memory-optimized machine types. Spend-based CUDs generally increase with longer time commitments and can be purchased for several services, including Google Cloud SQL, Google Cloud VMware Engine,Google Cloud Run, and Google Kubernetes Engine. CUDs are not to be confused with SUDs, which are automatic discounts calculated by Google and received on incremental usage after continuously running GCE resources for a significant portion of a billing month. While these only apply if you have already achieved a required level of sustained use, they can also apply to overages on your CUDs.

The CloudHealth Convertible RI Exchanger makes it easy for us to take advantage of Convertible RI exchanges within our AWS environment. With CloudHealth, not only are we able to benefit from considerable cost and resource savings, but we are more efficient and effective as an organization.
— Charmaine Honeycutt Senior Director of Operations Ziff Davis

How CloudHealth can help

CloudHealth takes the complexity out of commitment-based discount management by providing the purchase modeling, optimization and amortization capabilities needed to help you confidently make commitments that will benefit you. The platform provides recommendations for Amazon EC2 and Amazon RDS RIs, and Azure Reserved VM Instances. It also supports cost reporting and asset management.

With CloudHealth, you can:

  • Easily break down your purchases into smaller groups, such as account/subscription, region, or instance family/machine series, so you can understand how the savings impact your lines of business.
  • Save time modeling purchases with the CloudHealth RI Optimizer and Compute Savings Plan Recommendations, which outline your potential savings and,more importantly, the payback period.
  • Leverage amortization reports to see how the one-time upfront cost is distributed over the life of the RI.
  • Perform chargeback or showback with discounts allocated to the correct groups, looking at either the account/group that made the purchase or the one that received the actual discount benefit.
  • Analyze utilization to ensure you save as much as you can by covering all your consistent usage with discounts, or to ensure you aren’t overcommitting.
  • Maximize your ROI by exchanging Amazon EC2 Convertible RIs for instances that better meet your needs.
  • Compare the impact of different payment terms and durations on your savings,coverage and critical business key performance indicators (KPIs).
  • Determine the right mix of AWS Reserved Instances and Savings Plans for your organization.
  • Create automated policies for modifying and purchasing commitment-based discounts directly from the CloudHealth platform.

Purchasing commitment-based discounts makes sense for organizations who have a level of consistency in their cloud resource usage. Understanding how much to commit and what mix of commitment-based discounts is best for your organization can be challenging. CloudHealth has numerous tools to help you confidently choose and manage these savings opportunities.

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Why use CloudHealth?

  • Determine what commitments to make
  • Analyze discount usage and coverage over time
  • Exchange and optimize purchases
  • Plan for future commitments