AWS Reserved Instances are Futures Contracts

Written by Ben Gawiser


Okay, so you’re an accounting or finance person responsible keeping your cloud hosting costs under control. It seems like every month your operations folks are asking for more money. Your spend is growing out of control. Moving to the cloud was supposed make everything easier, now it is just a complicated mix of acronyms and ever-increasing costs. Before moving to the cloud you had severs that were capital assets that depreciated over three years. You had predictability. Sure, there were times you had to order a few more servers in a quarter than expected, but even then it didn’t hit your op-ex budget. There has to be a better way to think about this.

Luckily there is. A couple of centuries ago, farmers might have had to take their crops to multiple markets to try and get the best prices. They didn’t know what they were going to get paid until they showed up and sometimes they went to a second (or third) market in search of better prices while their wares spoiled. This wasn’t a good system and both sides of the transaction suffered. With the invention of futures contracts farmers could know how much they were going to get paid to deliver their crops and buyers knew where, when, and the cost to purchases commodities.

In many ways the market for computing today resembles the early days of commodity trading. AWS offers standard contracts for the use of specific types of computing instances. As a finance person, you can think of these as merely futures contracts for computing. What AWS is promising is that you will get a specific type of computing power available to you every day for the next one or three years (depending on your contract). Yes, this is a little different than a traditional futures contract in that there isn’t a single delivery day (you can think of it as there being a delivery each day for the term of the contract) but the concept is the same.

If you’re in a business that utilizes commodities as raw materials you have the opportunity to hedge against price fluctuations by purchasing futures contracts. In the computing world, the instances really are your raw materials. Use Reserved Instances to hedge against your exposure here and reduce the overall variability of your AWS spend.

With a standard futures contract you’re locked in to receiving a specific commodity at a specific location on a specific day. Yes, there can be some small changes (e.g. higher grades can be substituted for lesser grades), but mostly the terms are fixed. With the advent of Convertible Reserved Instances (cRIs) from AWS the fixed nature of these contracts has been thrown out the window. With cRIs you can exchange one type of computing instance for another. This is the equivalent of being able to trade your soybeans contract for pork bellies. This level of flexibility ensures that you’re able to meet all of your computing needs and lower your overall costs. With this flexibility comes a lot of complexity. While it is possible to manage all of this yourself, it is advisable to get some help. Luckily, the folks at Cloudwiry stand ready to assist. They will optimize your usage of cRIs to minimize your cloud cost without impacting your operations. With their shared savings model, Cloudwiry only gets paid if you save, so there is really no risk to you. Check them out today at www.cloudwiry.com.

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