Amazon EC2 Reserved Instances – Why I’m not a Fan (but use them anyway)

Business by on May 4, 2009 at 10:39 pm

Amazon announced their first EC2 price reduction since EC2 was launched in August 2006.

Amazon’s price reductions take the form of EC2 ‘Reserved’ Instances. Users can opt to ‘reserve’ an instance for an up front cost. Reserved Instances then have a lower rate for each instance-hour use afterwards. For example, a Small instance normally costs $.10 /hour. A 1-yr Reserved Small Instance costs $325 up front and then $.03/hour. That works out to a 33% discount if you use it for a full year. A 3-yr Reserved Instance ($500 up front), results in a 50% discount over the 3 years.

The discounts are the same across the spectrum of EC2 Instance types. If you use your servers full-time, the 3-yr Reserved Instance is the better deal compared to the 1-yr instance if you use the instance for longer than 12 months:

What’s wrong with discounts?

Don’t get me wrong, the Reserved Instances will save BrandVerity a lot of money. I completely understand why these long-termish commitments make sense for Amazon, but some of the magic of EC2 just disappeared:

  • Moore’s Law Violations: EC2 is nearing 3yrs old and Amazon hasn’t lowered prices (or increased capabilities) of its basic compute unit. They’ve introduced a ton of different configurations, but core prices haven’t budged. Committing to 3-yr usage and prices gives me the feeling that we aren’t on a pricing slope that parallels Moore’s Law.
  • Oh, The Democracy!: Capital suddenly matters. Nothing costs more for the boot-strapped startup, but the company with capital can build a significantly lower cost-basis.
  • Scale Flexibility: Committing to specific instance types increases the cost of moving between different EC2 types. UnReserved Surge capacity is now much more expensive vis-a-vis Reserved every-day servers.

Of course, Amazon isn’t bound by many of the assumptions I made above. Their next pricing update could address some of those issues - even for customers that have already purchased a reserved instance.


  1. Joshua Warchol — August 25, 2009 @ 8:27 pm

    What do you think now that Amazon has reduced the reserve cost by 30%?

  2. Dave Naffziger — August 25, 2009 @ 8:43 pm

    Good question. I think this is their way of keeping prices reasonable
    vis-a-vis other cloud services and web hosts. However, I'd rather see
    a reduction of their core instance pricing.

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