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How Azure Reserved Instances Work and How They Compare to AWS

Microsoft recently announced Reserved Instances for Azure. The new Azure Reserved Instances have many similarities to AWS Reserved Instances (RIs), but they also have some key differences. On the positive side, Azure RIs can offer higher levels of savings compared to on-demand prices for AWS RIs and they also have additional levels of flexibility. However, there are also some limitations and downsides associated with Azure RIs that you should be aware of.

Payment Terms

Like AWS RIs, Azure RIs are offered in 1-year and 3-year terms. But Azure RIs require full payment upfront. The payment for RIs comes out of the commitment made in your Azure Enterprise Agreement or out of the overages charged when you go beyond the committed level. In contrast, AWS RIs offer three payment options: All Upfront, Partial Upfront, and No Upfront options.

Flexibility

Azure RIs offer quite a bit of flexibility. You can exchange Azure RIs for other RIs like you can with AWS Convertible RIs. However, Azure also offers an option to “cancel” RIs for a 12 percent cancellation fee on the remaining value of the RIs. AWS RIs do not have a cancellation option. You can attempt to resell AWS RIs on the AWS Reserved Instance Marketplace, but many users have found it difficult to find buyers.

For AWS Standard RIs (non-convertible), the ability to make changes is limited. Designating an AWS RI as a regional RI enables you to change instance sizes within an instance family or to change availability zones within a region. However, Standard RIs don’t allow you to change the instance family or region.

Costs

The discounts for Azure RIs range from 8 percent to 47 percent for 1-year RIs and from 13 percent to 72 percent for 3-year RIs. However, it’s important to note that the price for Azure RIs is not additive to your Enterprise Agreement discounted price. Therefore, as compared to your existing RI price, your effective discount for Azure RIs may be lower.

 

AWS Standard RIs

AWS Convertible RIs

Azure RIs

Terms

1 yr and 3 yr

1 yr and 3 yr

1 yr and 3 yr

Payment

No Upfront

Partial Upfront

All Upfront

No Upfront

Partial Upfront

All Upfront

All Upfront

Flexibility

Can’t change region or instance family

Fully exchangeable

 

Fully exchangeable

 

Cancellable?

No – can try to sell on Marketplace

No – can try to sell on Marketplace

Yes - 12% fee

1-Year Discount

22% to 51%

11% to 44%

8% to 47%

3-Year Discount

45% to 72%

31% to 66%

13% to 72%

Allocating RIs

Blended (equal share) or unblended (selected account first, then others)

Blended (equal share) or unblended (selected account first, then others)

Subscription scope (only in one subscription) or shared scope (any account in Enterprise Agreement)

Allocating Reserved Instances

Azure offers two different “scopes” for RIs. If you specify a subscription scope, Azure applies the RIs to VMs within the designated subscription. Azure lets you move RIs to a different subscription if needed. If you specify a shared scope, Azure will apply the RIs to any subscription within your Enterprise Agreement. In both cases, the RIs may apply to any VM within the specified scope.

Both of these scopes are problematic for enterprises that want to buy RIs centrally and allocate costs to different teams or business units. It can be a problem to use the shared scope, because you can’t control which subscriptions or business units get the benefit of the RI. This can make it difficult to allocate the upfront costs of the RIs to the right groups. The subscription scope enables you to control which RIs are allocated to which group, but it does require significant overhead to decide which RIs to purchase on a subscription-by-subscription basis. In addition, as cloud usage changes, you need to closely monitor RI utilization and then move or exchange the RIs if some of your purchased RIs are not being fully utilized. This scenario requires a significant amount of work and oversight.

AWS also offers two different approaches for allocating RI savings  unblended and blended costs. The AWS bill provides both of these options, so you can leverage both options as needed. Unblended costs will apply the benefit first to the account where the RI is purchased. If the RI is not fully used within that account, it will automatically be applied to other accounts under the same AWS Consolidated Billing (Payer) account. This benefit of the unblended costs option is that the RI is much more likely to be fully utilized. The other AWS approach for allocating RI savings is blended costs. In this case, the RI will be shared equally by all instances that match the RI criteria. This “shared equally” model works very well when you want to purchase RIs centrally and share them across a number of groups or business units.

Bottom Line on Reserved Instances

The new Azure RIs offer some interesting benefits compared to AWS RIs. All Azure RIs can be exchanged and they can also be canceled, albeit with a 12 percent fee on the remaining value of the RI. AWS offers similar flexibility to exchange RIs with its Convertible offering, but the ability to find buyers for unneeded AWS RIs through the marketplace is tenuous at best.

Azure RIs fall short of AWS RIs when it comes to payment terms because Azure RIs require full payment upfront. In addition, the method by which Azure RIs are allocated within a subscription or “randomly” across a subscription makes it challenging for large enterprises to appropriately allocate both the upfront costs and the savings. Ultimately though, whether you are using AWS or Azure, purchasing Reserved Instances is a critical component in your cost savings strategy.

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