Getting the most out of Convertible Reserved Instances

One way to let company growth drive IT growth — while reining in costs

Aditya Datta

Challenge: Increasing IT demand in the face of smaller budgets

Your highest IT budget priorities might be business processes, security, more customers, or bigger customers — but reducing IT costs remains a top priority. Meanwhile, ever-improving technology and the evolving needs of your company can quickly render your cloud resources useless or obsolete.

Solution: Making the most of Convertible Reserved Instances (RIs)

If you lease cloud computing, you already have the key to adding and updating your technology while spending less. Pricing models for cloud computing allow you to exchange underutilized, unused, and outdated computing capacity — daily — for capacity that fits your needs and gets the latest discounts.

The only catch is the complexity of your changing requirements and evolving technology. Cloudwiry solves this by automatically discovering underperforming capacity, and then trading it in for you. Previously purchased contracts are replaced with computing resources that meet current needs. At the least, you regain value from otherwise sunk costs. Better yet, you can meet your growing IT demand without spending as much — and sometimes with no additional spending.

How they work

Amazon Elastic Compute Cloud (Amazon EC2) provides scalable computing capacity in the Amazon Web Services (AWS) cloud. These virtual computing environments are called instances. Reserved Instances (RIs) provide a pricing discount, and Convertible Reserved Instances can be exchanged for others.

You can use convertible RIs to lease virtual instances by the minute with different payment plans. You can exchange them as your technology needs change, better technology becomes available, or new discounts are offered. Longer contracts typically have better discounts.

When you purchase a Convertible RI, the capacity and pricing are allocated to your account. You can exchange it for one or more RIs of equal value (or greater value, by paying the additional cost).

cloudwiry

Driving growth

To visualize how Convertible RIs work, consider a company that needs to rent a fleet of cars. Renting the cars is like leasing virtual instances from AWS. This ecoservices company wants to rent 10 Teslas for executive team use, and it benefits from a discount offered for a one-year commitment:

Retail day rate 10 Teslas at $200/day each ($2000 per day)
Discounted 1-year contract 10 Teslas at $180/day each ($1800 per day)

Savings: $200 per day

After a few months, the company added 100 Fiestas to the fleet for the field team. It did not want to commit to another contract, but the one-year discount on these cars would be substantial:

Retail day rate 100 Fiestas at $30/day each ($3000 per day)
Discounted 1-year contract 100 Fiestas at $18/day each ($1800 per day)

Unrealized Savings: $200 per day

This car rental model is like a Convertible RI: The eco-services company can exchange its $1800/day Tesla contract for one of equal value, greatly reducing the net cost, as shown below.

Before After
10 Teslas at $180/day each ($1800 per day, contract discount) 10 Teslas at $200/day each ($2000 per day, retail, $200 increase to daily rate)
100 Fiestas at $30/day each ($3000 per day, total retail cost) 100 Fiestas at $18/day each ( $1800 per day, contract discount, saving $1200)
Total: $4800 per day Total: $3800 per day

Savings: $1000 per day

Over 30 days, that’s $30,000 saved by exchanging the $1800 Tesla contract for the Fiestas. Alternatively, the company could get five more Teslas at the $200 day rate without spending more money.

Convertible RIs in action

In this example, a company stopped using a Convertible RI because a larger customer updated its technology requirements. The remaining contract value on the instance was approximately $52,000:

1 Windows SQL Enterprise 1 Year All Upfront @ 8% Discount r4.8xlarge

The company exchanged it for the following smaller Convertible RIs based on the number and variety of servers they needed over the coming months:

38 Linux 1 Year All Upfront @ 35% discount m4.large
6 Windows 1 Year All Upfront r4.2xlarge
22 Windows 1 Year All Upfront c4.large
246 Linux 1 Year All Upfront t2.nano
1 Windows SQL Standard 1 Year All Upfront r4.4xlarge

Savings: $52,000 for the year

The combined contract value for the new instances was nearly $52,000. Without spending any additional money, the conversion met many of the company’s needs at a time of growth. New technology requirements drove the need, and a new 35% discount enabled the trade at no extra cost.

Follow-through and results

Unraveling your computing requirements, cloud technology advancements, and new discounts can be time-consuming and expensive. Then, more time is spent making the needed updates.

Cloudwiry solves both problems. It finds waste in your leased virtual instances and then exchanges them for valuable resources — daily or weekly. There is no cost unless money is saved.

Results:

  • Get more computing power without spending more, or at much lower additional cost.
  • Always have the latest technology — without losing current technology investments.