This blog post was written by Ben Schaechter, Co-Founder & CEO of Vantage. Ben previously worked on the technical product management team for container services at AWS and the product management team for compute at DigitalOcean. All of the information in the blog post is based upon publicly available information and no confidential information.
There is a lot of chatter popping up around some recent updates that AWS is beginning to sunset the transfer of specific reserved instances (RIs). In an uncharacteristic AWS move, there is no formal announcement posted on this but AWS has begun emailing customers informing them of this upcoming enforcement. This blog post attempts to explain this situation formally as a resource for both the greater FinOps community and Vantage customers, and provide the backstory of what presumably led to this action.
Initial Definitions: What is a Discounted RI vs a RI?
As an initial primer for the remainder of this blog post, it’s important to understand the distinction between a discounted RI and a standard RI. Beginning on January 15th, 2024, AWS is specifically disallowing the transfer of discounted RIs.
Discounted RIs are specifically RIs where there is an additional, customer-specific discount applied above and beyond the standard discount rate of an RI. To take an example with data from ec2instances.info, let’s look at an r7g.large instance in us-east-1:
- The on-demand rate for this instance is $0.1071
- The standard 3 year, no upfront discount reserved instance is $0.0486, a 55% discount rate.
- A discounted reserved instance might be $0.0400, which is a rate that an individual customer has negotiated with Amazon based on usage minimums, and is not available to all customers
Every customer has access to a standard reserved instance but not every customer at AWS has exposure to a discounted RI. AWS’s communications are specifically targeting this third scenario of discounted RIs. When an AWS customer with a bespoke discount rate assigned to their account purchases an RI, it is automatically transformed into a discounted reserved instance. This RI is now free to live in this account and, until recently, be transferred across the EC2 marketplace to other customers.
To put it directly, it’s probably an oversight or error on the AWS side that transferring discounted RIs was ever technically allowed or possible, since it’s always been explicitly against the Terms of Service. This scenario being possible has the potential for discount leakage…which we’ll discuss more below.
AWS EC2 Marketplace, Bad Actors & Reserved Instance Contagion
In 2021, I was personally investigating listings in the AWS Marketplace when I found a reserved instance that was listed with a rate lower than the standard reserved instance discount. At the time, I was confused over how this was possible. It confused me so much that I actually set up a call with a representative at AWS. We were told we would get an answer on how that was possible and get a response but unfortunately we never did. I didn’t think too much of it at the time until recently.
If you aren’t familiar, AWS operates a marketplace for EC2 reserved instance contracts. It’s what the vast majority of RI vendors in the space use to transfer commitments from one account to another. The majority of these vendors also have their entire business models built around charging a percentage of savings realized on behalf of the customer. In certain cases, these vendors charge egregiously high fees that can range from 15% to 40% of savings realized.
Now, imagine a scenario for a moment where you’re one of these vendors and you’re behind on revenue. You discover if you initiate an RI purchase in a customer’s account that has discounted RIs, then immediately transfer that to another customer, you not only save your entire pool of customers more money but your revenue, which is based on a percent of savings, also goes up accordingly. To remove a shadow of doubt, Vantage never engaged in this behavior but if you follow the breadcrumbs, there are certain vendors in the space that likely made this part of their strategy.
The net effect of this is that a single customer’s bespoke discount could have leaked out en masse across the broader ecosystem, seemingly perpetuated by certain RI vendors. This whole situation is likely why AWS quietly began implementing RI transfer limits as a first step and is introducing this new policy of denying the transfer of discounted RIs as a follow up.
What does the future of RIs at AWS look like?
Based upon nothing other than industry trends and the recent updates from AWS, it seems like AWS is likely heading in the direction of deprecating EC2 Reserved Instances over the long run. Savings Plans have always been heralded as the modern option for compute savings and are ultimately more flexible to the customer despite the fact that there is no transfer-ability or “undo button” when initiating the commitment.
Suffice to say, vendors that have their entire business model based upon a percentage of savings tied to EC2 Reserved Instances may increasingly be in an unstable spot.
Impact to Vantage
Vantage is a complete FinOps platform and the vast majority of our revenue comes from our core subscriptions for reporting and visibility - so even if the decision is made to have RIs gone for good, our business is more than stable. While we do have an optional feature named Autopilot (that charges the lowest rate in the industry of 5% of savings realized) we have never and will never engage in exploiting our customer’s discounts in the manner discussed above. We have also audited our customer base for any impact and our customer success team is engaged with any impacted party: the majority of which have been customers that have transitioned to Vantage from another RI vendor that may have been engaging in this behavior.
Vantage has also always been a strong proponent of customers leveraging Savings Plans. This is why Vantage launched Savings Planner, our modeling and planning tool for Savings Plans, and actively advise our customer base to heavily leverage Savings Plans whenever possible and “fill in the gaps” with any RI considerations. In addition, we have a suite of other tools like cost reporting, Kubernetes cost visibility, cost allocation and dashboarding tools available in addition to managed optimization.
We felt with the amount of misinformation floating around generally it was important to write this blog post for the community’s knowledge. Lastly, if you are a customer at Vantage and need assistance, please contact your customer success manager at firstname.lastname@example.org or email me directly at email@example.com. In addition, if you’re a customer impacted by this situation at another RI vendor and are unhappy with how it’s being handled, we are happy to help.