@cloudability

@cloudability

Turning Recommendations into Purchases

@cloudability

1. Understanding Reservations

2. Defining a successful reservation

3. Risk Reduction Strategies

4. Key TakeawaysTodd Meyer

Senior Product Manager

TODAY’S SPEAKER

Introduction

Today’s Topics

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Our SolutionHow It Works

1 2 3

4 5

Spend Management Spending visibility via monthly forecasts, dash-board, budget alerts, and daily email digests.

Cost Analytics Dig into your operating costs with detailed costs by tag, service, and usage type. !

EC2 Usage Analytics Spot under-utilized resources w/ instance level usage metrics. !!

RI Purchase Analytics Understand the exact combination of Reserved Instances that will maximize your savings. !

Enterprise Enablement Organizational group views/filtering/rollups, multi-user access. !

$1B+ of cloud spending under management • 13,000 users

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Poll

Is your company currently purchasing AWS reservations?

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Understanding Reservations

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Anatomy of a Reservation

Why Make Reservations?

1. Lower the cost of resources you are already using Reservations provide substantial cost savings versus “on-demand” pricing.

2. Lock-in future capacity in the same Availability Zone Very useful if you experience bursts/spikes in usage

3. Reserve capacity in another region just in case... Demand spikes could cause a run on capacity. Reservations ensure you get seat at the table.

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Anatomy of a Reservation

What is a Reservation?Reservations allow you to reserve resources/capacity for one or three years in a particular availability zone in exchange for a lower overall unit price.

COMPUTE

Amazon EC2

DATABASE

DynamoDB

RDS

Redshift

Elasticache

CDN

CloudFront

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Anatomy of a Reservation

What Makes Up a ReservationReserve a particular type of infrastructure:

Instance Family Size OS Location

m1 large Linux us-east-1a

r3 8xlarge RHEL us-west-2b

1 year 3 yearOR

light medium heavyOR OR

Instance type

Term

RI type

For a particular time:

With an expected usage level

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Anatomy of a Reservation

How a Reservation is Priced

1. An upfront feePaying to lock in the capacity and a rate lower than the On Demand price

2. The unit priceYou still pay for the usage, but at a lower rate

3. The Term and the RI type influence the above e.g. For a heavy, you pay more upfront for a steeper discount in the unit rate A 3 year term will cost more upfront, but you can lock in your rate for longer.

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Anatomy of a Reservation

Each combination is a different price!

There are 2,000+ different reservation configurations

๏ Each with their own upfront fee

๏ Each with their own unit price

๏ Each with their own “break-even” points.

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Anatomy of a Reservation

Break Even Points

Up front cost

Break Even

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Anatomy of a Reservation

RI Type Break Even Points

m1.xlarge LINUX us-east-1a instance - over 3 years

Annual Utilization Rate Light RI Savings Rate Medium RI Savings Rate Heavy RI Savings Rate

20% 25% -7% -77%

40% 40% 33% 11%

60% 45% 46% 41%

80% 48% 52% 56%

100% 49% 59% 65%

The best RI type is dictated by the expected usage rate of the instance

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Reservations are applied each hour

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Defining a Successful Reservation

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Poll

Biggest cause of RI purchase delay in your company?

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Defining a Successful Reservation

What makes a reservation successful?

๏ Meets the needs of the organization

๏ Saves money

๏ Reserves capacity in the right places

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Defining a Successful Reservation

Define a basis for analysis

๏ Find a period of time that represents “expected usage”

๏ Can you move the newest RI types (e.g. m1 to m3)? If so, how long will that take?

๏ Leverage consolidated billing accounts to combine usage

๏ Make sure you have all AWS accounts

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Defining a Successful Reservation

Analyze the data by hour

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Defining a Successful Reservation

Evaluate the break even and Savings

SavingsBreak Even

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Defining a Successful Reservation

What makes a reservation successful?!

๏ It is an Instance the company needs now and for the period beyond the break even point !

๏ Hourly analysis matches the usage level of the RI (light, medium, heavy) !

๏ Analysis predicts a savings

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Risk Reduction Strategies

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Common Fears๏My usage will change and I will be stuck in a contract

๏AWS pricing is dropping so fast I shouldn’t lock in pricing right now

๏3 year RIs will result in over-paying in the future

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My usage will change and I will be stuck in a contract

FEAR ONE:

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My usage will change and I will be stuck in a contract

What could change in a Year?!

๏ Could move to new technology or instance types

๏ Customers could dramatically change how they use the product

๏ Could be locked in to instances that we don’t want to use

@cloudability

My usage will change and I will be stuck in a contract

What you need to know!

๏ How fast do things change in your business, week to week, or does it take months?

๏ Is your technical operations team planning to move to new instance types?

๏ How will usage likely change?

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My usage will change and I will be stuck in a contract

Analyze and understand break even points for RIs

Break even

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My usage will change and I will be stuck in a contract

Reducing Instance families can improve economies of scale

M1 M2 M3 C1 C3 R3 i2 t2

small medium large xlarge

xlarge 2xlarge 4xlarge

medium large xlarge 2xlarge

medium xlarge

large xlarge 2xlarge 4xlarge 8xlarge

large xlarge 2xlarge 4xlarge 8xlarge

xlarge 2xlarge 4xlarge 8xlarge

micro small medium

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My usage will change and I will be stuck in a contract

Maximize use of Modifications

!

Modify existing RIs into different sizes and AZs

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My usage will change and I will be stuck in a contract

Purchase Strategies

๏ Understand RI break even points to use to your advantage

๏ Reduce the number of instance families to maximize flexibility.

๏ Analyze usage often to maximize modifications

@cloudability

AWS pricing is dropping so fast I shouldn’t lock in pricing right now

FEAR TWO:

@cloudability

AWS pricing is dropping so fast I shouldn’t lock in pricing right now

How the press portrays cloud prices

$0.00

$0.25

$0.50

$0.75

$1.00

3/1/09 12/1/09 9/1/10 6/1/11 3/1/12 12/1/12 9/1/13 6/1/14

1 Year RI 3 Year RI On Demand

@cloudability

AWS pricing is dropping so fast I shouldn’t lock in pricing right now

Actual AWS price history:

$0.00

$0.25

$0.50

$0.75

$1.00

3/1/09 12/1/09 9/1/10 6/1/11 3/1/12 12/1/12 9/1/13 6/1/14

1 Year RI 3 Year RI On Demand

On Demand Still higher than RIs

@cloudability

AWS pricing is dropping so fast I shouldn’t lock in pricing right now

Analyze the worse caseWhat if we bought an RI the day before a price change?

Old Price New Price Change

On Demand $0.26 $0.208 20%

1 Year RI $0.096 $0.084 13%

• February 2013 price change (m1.large medium RI 80% usage):

Total Cost

1 Year RI before change $1145

On Demand after change $1226

• Total cost before and after New On Demand price still higher than old RI price

@cloudability

AWS pricing is dropping so fast I shouldn’t lock in pricing right now

Cost of waiting for a changeWhat if you wait for the next price drop (estimate 4 month wait)

Old Price New Price Change

On Demand $0.26 $0.208 20%

1 Year RI $0.096 $0.084 13%

• February 2013 price change:

Total Cost

Extra cost for 4 months of OD $424

Savings from locking in new price $313

• If you spent 4 months paying On-Demand before the price drop:

$111=

@cloudability

AWS pricing is dropping so fast I shouldn’t lock in pricing right now

Purchase Strategies

๏ History shows that AWS is changing pricing rationally

๏ Even RIs bought very close to AWS price drops can result in savings for your company

๏ Don’t chase price drops, it could cost you more

@cloudability

3 year RIs will result in over-paying in the future

FEAR THREE:

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3 year RIs will result in over-paying in the future

3 Year Reservations don’t require 3 years of use

m1.large us-east-1a

Break even

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3 year RIs will result in over-paying in the future

Historical Analysis

Type OS Zone purchase date usage

m1.large Linux US-east July 2011 90%

Assumptions:

Analysis:Scenario Cost

On Demand for 3 year $5,724

3 consecutive 1-year RIs $4,933

Single 3-year RI $4241

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3 year RIs will result in over-paying in the future

Total Cost by Usage m1.Large medium bought in July 2011

$0

$1,750

$3,500

$5,250

$7,000

10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

3 1-year RI 3-year RI On Demand

On Demand cheaper below this usage level

@cloudability

3 year RIs will result in over-paying in the future

Total Cost by Usage m1.Large Heavy bought in April 2013

$0

$1,500

$3,000

$4,500

$6,000

10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

3 1-year RI 3-year RI On Demand

On Demand cheaper below this usage level

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3 year RIs will result in over-paying in the future

3 year cost for each month since 2009

0

2500

5000

7500

10000

3/1/2009 1/1/2010 11/1/2010 9/1/2011 7/1/2012 5/1/2013 3/1/2014

1 year RIs 3 Year RIs On Demand

Based on 80% usage rate

@cloudability

3 year RIs will result in over-paying in the future

Purchase Strategies

๏ Understand the break even period of 3-year RIs

๏ AWS 3-year pricing has shown to provide significant savings in the long term despite price changes over time

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Summary of Strategies

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Summary

Take Aways๏ History shows that AWS has rational price drops that continue

savings to costumers already with reservations (Don’t chase price drops, it could cost you more)

๏ Reduce the number of instance families to maximize flexibility.

๏ Analyze usage often to maximize modifications

๏ Understand RI break even points to use to your advantage even for instances that might not need the whole reservation term

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Thank You

For more info

Or contact me

cloudability.com

todd@cloudability.com

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1. A Simplified RI Calculation

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1. A tale of three instances

1. 30% 1. 30% 1. 30%

1. 30% is greater than the break even point for a light reservation

1 2 3

1. 3 Light

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1. A tale of three instances

1. Remember: Reservations are applied every hour

@cloudability 1. If the instances are running at the same time you need multiple RIs

Sun Mon Tue Wed Thu Fri Sat

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1. A tale of three instances

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1. A tale of three instances

On-demand hourly cost $0.240

RI hourly cost $0.136

RI upfront fee $243

Effective hourly rate @ 30% utilization $0.228

Hourly Savings $0.011

Total Savings for this example $90.93

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1. 4.8%1. SAVINGS RATE

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Sun Mon Tue Wed Thu Fri Sat

1 2 3 4 5 6 7

8 9 10 11 12 13 14

15 16 17 18 19 20 21

22 23 24 26 27 28 29

30

1. A tale of three instances

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1. A tale of three instances

1. Collectively the 3 instances cover 90% of the hours of the month

1. 21. 1

1. 3

1. Hea

vy

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1. A tale of three instances

On-demand hourly cost $0.240

RI upfront fee $676

RI hourly cost $0.056

Effective hourly rate @ 90% utilization $0.141

Hourly Savings $0.098

Total Savings for this example $774.65

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1. 41%1. SAVINGS RATE

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1. A tale of three instances

1 Heavy 3 Lights

Total Savings $774.65 $90.93

Total upfront fees $676 $729

1. Buying 3 lights would have wasted $486 in upfront fees

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1. Applying what we’ve learned:

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1. What we’ve learned:

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RESULT: RI purchases misalign to your needs reducing ROI

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Go all in on 1 or 2 large buys each year

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Result: Large cliffs in reservation levels

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How frequently are you purchasing reservations?

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Why are you purchasing reserved instances?

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๏ Amazon allows companies to apply to modify a reservation to change:

๏ Instance type (within family)

๏ Availability Zone (within region)

๏ Network (VPC or Classic)

1. Understanding Reservations

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Instance Size Normalization Factor

small 1

medium 2

large 4

xlarge 8

2xlarge 16

4xlarge 32

8xlarge 64

1. Understanding Reservations

1. 1 xlarge g 2 large 1 large g 4 small

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๏ t1.micro !

๏ cc1.4xlarge !

๏ cc2.8xlarge !

๏ cg1.8xlarge !

1. Understanding Reservations

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๏ Modifications do not happen automatically

๏ Modifications are not guaranteed and are based on available capacity

1. Understanding Reservations

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