E05: Mitigate Risk with Committed Use and Committed Spend Programs

Nick and Jason dig into the differences between committed use and committed spend savings programs and the risks involved with each. Savings plans are preferred because of their simplicity but, to truly unlock deep savings, companies can explore other vehicles and utilize the ones that benefit their environment best. There are also ways to buy and sell shorter-term RI plans, as well as convertible RIs for lower discounts.

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Show Notes

Hey, what's up everybody? This is Nick from tenacity cloud.com with my co-host Jason, and you're listening to the Cloud Cost optimization podcast. Today we're gonna dive into commitment based discounts and what they mean from the various providers. We're gonna keep this at a high level because, you know, over the course of the show, we'll, we'll take apart committed use discount strategies.

Go into some of the nuance of selecting different plans or how to, you know, use different types of plans together to maximize your benefit or to mitigate your risk depending on the sort of environment that you're running. But today we're gonna keep it at kind of a high level educational really helping those who maybe new to this or are using maybe only one type of vehicle help understand what the benefits are of the different type of vehicles.

So, Jason, I guess to dive into the, Kind of at a high level where do you see, you know, across not just our customer base, but also, you know, and when they come to us and start using our [00:01:00] platform. But, but when we do consulting work, what, what is the most common type of, you know, Commitment based discount strategy you are seeing out of people you know really in aws, Azure, Google, et cetera.

Yeah, I mean, well they, you know, Azure makes it simple because they only offer reserved instances, but or reserve reservation based commitments. But I mean, you know, I think what we see for the most. AWS offers savings plans and reserved instances. Savings plans are pretty, you know, widely used because they're pretty easy to subscribe to.

It's a brilliant sales tactic from from aws, right? Because, you know, you're just saying you're looking at your past usage. You know, you're gonna use this much, Hey, if you commit to using, spending this. On this set of infrastructure, we'll give you a discount on it, and it's the discount they want to give you, right?

It's just enough to make you happy and just enough to keep you satisfied and continuing to use aws. So it's great you save a little bit of money, but, [00:02:00] and it's very easy to procure those, right? But you know, you, you can unlock a higher level of, of savings potential by a strategy that incorporat. Both, or, you know, if, if your usage patterns align with, said, align with the commitment of usage based versus spend.

Yeah, I, I think I, I think that's important to understand is that there are a number of different strategies. There are tools out there that will help in sort of the acquisition or analyzing, you know, what type of plan to use. Many of 'em really only adopt one philosophy or one strategy. You know, what, what sort of plan or what sort of strategy you should adopt, especially in the second generation of, of cloud cost optimization tools.

But, but there are a number of 'em you can adopt based on your usage pattern, your needs you know, the way your environment's configured it. It's important to kind of think through. Well also, you know, your tolerance for risk and your tolerance for upfront capital costs. Yeah. You know, payments that.

You know, can really save a lot of money over the long run. So it's, it's important to kind of understand the, the nuances, the in and out. And like I said, we'll, we'll cover off on that in you know, throughout the life of, of this podcast hopefully for the, the many, many years to come here. But I want to dive into sort of just, you know, at the, at a high.

You know, what are, what are the differences in these plans? Because I think this is a place where people get confused. When we start talking about commitment based discounts. And I think, I think the most, I think the, the first place to start is what's the difference between, say, reserve business and savings plans, Or more generically, if you're looking across all of the, the cloud providers.

This would be including Google because they have the same kind of concept here as AWS is. There are committed use types of discounts where I'm committing to a specific type of resource use. And there's committed spend type of discount programs where I'm committing to spend a certain amount of money.

And so it's really kind of approaching this, this commitment or commitment based discount from, from two different [00:04:00] sides. So, and, and I think Jason, as you mentioned, we see a lot of folks who opt for kind of the easy road of, I'm just gonna commit for kind of a low level savings plan that I know is gonna work.

I'm gonna get a little discount and I'm just basically gonna keep renewing that annually. Mm-hmm. , I might adjust it. If it's making a recommendation, then I should do a little more. And I think that's kind of an, that's, that's an easy path, right? That's an easy way to get a a That's the easy button. Yeah.

To get a small discount. Yeah. Yeah. But there are advantages to thinking about some other tactics that can potentially have a deeper, a deeper type of discount. , have you seen customers leveraging before, you know, before they're on platform or, or as we engage with them, have you seen it be common that customers are using deep discount strategies typically, and if so, kind of what are they doing to do that?

The more sophisticated ones and they're using, you know, we're, we're applicable using a combination of spend and, and usage base. And so, you know, [00:05:00] I think one of the things that's most important to remember is that one, you know, pretty much all of these vehicles. And maybe not all of 'em, but most of them are focused.

Most, if not all of them are focused on compute spend only, right? So, you know, with savings plans, you know, you're looking at SageMaker, E two Lambda and Fargate potentially what they cover, but just the compute portion of that, so you're not getting covered on EBS volumes and things like, those are all on demand.

And those are, you know, you're gonna be com you know, you're gonna take a look at what your compute spend is across. Those different types of services and make a, you know, if you, and it'll take a look at what your spend is, we'll give you some recommendations and then you'll commit to that amount of spend, to use that amount of stuff and you get, you know, a discount on those services.

It's debatable how much you get, you know, I think the. Some will say 38%, maybe I don't, you know, it just depends on what, what you choose and how much your, your usage is. And then if you're looking at reserved [00:06:00] instances, that's gonna be where you're reserving usage based, right? So you're gonna be procuring that.

There's a handful of services that are covered, but you know, most of what people use them for are for compute instances, because that is where. By far the most of your money goes in cloud, right? Like 65% of AWS's revenue is compute based. So reservations unlike savings plans where you're committing to using a specific thing, maybe even in a specific, a specific thing in a specific region for a specific period of time.

So, you know, as an example, I'm gonna. This type, you know, 10 of these types, EC two instances for the next year with some sort of pattern of usage that I can predict that's gonna be there. And so you're committing on that usage in that particular instance class. In that particular region in a lot of cases for a certain period of time.

So that's why it's just easier cuz spend is, you know, just kind of generic and it just kind of [00:07:00] goes into a whole bucket. And with a, with preserved instances, you know, you have your databases, you have your VMs or your e c two instances and you have some other ancillary services. So understanding.

What you should buy based on your usage pattern is pretty difficult to do or can be difficult to do. And then understanding what combination of those things makes the most sense with committing to a spending discount as well as how you unlock and achieve the highest savings possible. Yeah. Yeah. I think, you know, there, there's some important nuance in I think you, you just covered off on, on a bunch of it.

You know, there's important nu nuance around flexibility within these plans as well. When we think in terms of savings plans, you have a little more flexibility, right? Because your spend can apply to in a, in E C two instant savings plan. Your spank can apply across that instance family. So if, if you're using M five s and you have a bunch of, you know, M five larges speaking specifically about AWS here, right?

Yeah, you know, it can apply to that. But if you stop using some of those and you wanna use some M five extra larges will that, that spend [00:08:00] commitment will apply to those as well. So, you know, it stays within the family. When you look at an actual compute savings plan, well then it gets even more flexible.

You don't have to pick a family. It actually can extend outside of. That compute spend can go across, you know, more buckets in the environment. But the downside to, or the risk in com, you know, into in savings plans and why you have to be careful in calculating what your spend is actually coming to be and predicting it.

Looking ahead is that you, you can't get out of it once you're in the contract. Once you're in the one year or three year contract, you're in it. There's no settl. Good point. Right? There's no great point. Reduc. There's no selling it. There's no exchanging it. What I think Azure calls it, exchanging yeah, absolutely.

You're absolutely right. You're committed for that entire period of time, so you have to be pretty confident about what your spend is gonna be. That's right. Over the next 12 months. Yep. And so when we look at reserved instances, and you know, there's two types of reserved in plans inside Abdu, aws broadly standard and convertible.

You know, standard reserved instance plans in AWS are the most restrictive in that you have to select the family and the size among [00:09:00] a, a few other things. But that's the important factors right here is you have to. You know, M five and I wanna run M five larges, I'm gonna run five of them. And so you're gonna commit to, you're gonna commit to that plan and commit to that use.

But with standard ROIs, they are actually sellable on the AWS ROI marketplace. Mm-hmm. . So there is the ability to get out of them and recoup some of those upfront costs. In. In, in Theri marketplace, which also means that you can go buy shorter term, shorter duration resurgence plans on Theri marketplace.

So that becomes an opportunity as well, especially if you have a, a need where for foresee like, Hey, I'm gonna need a certain set of instances only for the next six months or for this special project, and I just wanna buy a plan that gets me through that. There you go. There, there's a way to do that.

Mm-hmm. . So there's, there's little, there's actually kind of hidden flexibility inside of that kind of strict structure. And then there's the convertible side, the, you know, convertible ROIs, little less discount. Anything that's, that's a little more flexible is a little less discount. So convertibles and compute savings plans have a lower discount level.

But convertible ROIs you can, as long as you stay within the family, you can actually convert those. You can say, [00:10:00] Well, I, I'm gonna commit to five and five larges, but now I, now I don't want to use this anymore. As long as you commit to using something that is equal to or greater cost, you can convert that, that and get the discount.

So, there is some power in there. You, you can't sell convertibles, but you know, the nice thing about a plan, But they are convertible. Yeah. So the nice thing about using them is, is that if you're fairly certain on kind of your environment's still growing and you, and you're gonna continue. To leverage instances in sort of a, you know, in, in, in a certain family.

And five is a good example there. Then you, you, you know, you can have comfort around acquiring a convertible plan, at least at a low yield. Get yourself some, some type of discount and depending on the level of risk you're willing to take on Up your commitment and actually drive some pretty steep discounts if you're willing to pay upfront, if you're willing to commit over a longer period of time.

So that, that's sort of a high level I haven't covered, You know, we haven't dove into really the nuance of, of all the things you have to select and all the opportunities and all the risks and all the kind of benefits of. Of the various types of plans, and of course we will really deep in [00:11:00] aws. So yeah, so, we know that really, really well and we'll cover off on all the providers and, and, and what's going on inside of each of them.

But I, I think, you know, this, this is a topic that's gonna be ongoing because I think this is a topic where, you know, we see certainly our professional lives a need for more education, more understanding of how to build and develop a really solid, you know, cloud spending strategy in a.

Commitment based discount strategy around it. So Jason, any parting thoughts before we close off the show? None today. All right, man. Cool. All right. Well that's it for today, folks. Tune in next time for, you know, even more deep dive into, into cloud spending and cloud cost optimization. For more information, you know, hit us up to nasty cloud.com to nest ar you can find us both out on LinkedIn.

We're always willing to connect. Have a chat. Willing to dive into any of these topics and we'll always give you a little bit of our time. So that's it. Thanks folks. See you next time.