Reserved Instances (RIs) in Azure
Reserved Instances (RIs) in Azure
One of the common objections we hear about to moving to Azure is customers being uncertain about transitioning to a PAYG consumption-based pricing model. Many end customers see this as too much of a change from the traditional fixed CAPEX costs of on-premise hardware to the variable monthly PAYG OPEX costs on offer through Azure.
Reserved Instances (RIs) are one of the Microsoft offerings which allows you to stabilise this monthly cost and develop a more predictable pricing model for you and your customer. They can be applied from initial setup or retrospectively to VMs when you have had time to evaluate the live requirements.
How does a Reserved Instance work?
RIs are available on Virtual Machines (VMs) within Azure and offer savings on a specific VM size, in a specific region in exchange for either a 1-year or 3-year commitment. Depending on the combination of these 3 variables, this can reduce the price of the VM by 20% to 72% when compared to PAYG prices. The RI cost saving covers the base compute aspect of the VM, meaning the License (Windows or SQL) and any attached storage accounts are still paid for separately.
The price of a Reserved Instance is available to pay as an upfront cost (i.e., the whole amount in one payment) or as a monthly cost broken down over the 12 or 36 months. This allows further flexibility to provide a monthly bill for customers but still enjoy the cost savings available. There is no additional premium applied for paying on a monthly basis, but the monthly amount will be affected by foreign exchange rates, so can vary month to month.
Example Savings
The following is an example of how much a Reserved Instance could reduce different VM costs on a monthly basis:
*prices are based on Azure Plan PAYG & RI CSP prices from February 2021. Both are affected by foreign exchange rates on a monthly basis
As you can see from the table above, RIs offer you the chance to secure the same resources for a significantly reduced and predictable price point. With the savings realised through the use of Reserved Instances, a CSP partner can use this to optimise the customer’s expenditure, their own margin or a combination of both.
FAQs:
Can I move a Reserved Instance to another sized Virtual Machine or region?
Yes. RIs can be exchanged without any penalty or fees. Any unused value of the RI can be applied as credit towards the purchase of a new RI in a different family, region or both, (as long as the value of the new RI is more than the credit value)
Example: You have reserved a D-Series VM for 12 months for ￡1000 and need to upgrade it to an E-Series VM after 3 months. You will get a 75% credit of the original RI (￡750) towards the purchase of the E-Series VM RI.
What if I need to cancel a Reserved Instance?
It is possible to cancel an RI, but there is a cancellation fee* which equates to 12% of the remaining reservation. In many cases, dependant on the duration remaining on the RI, there is still an overall cost saving realised when cancelling. The only limit on cancelling is a $50,000 limit on total cancellation value in 12 months
Example: You have reserved a VM for ￡1,000 for 12 month and need to cancel after 6 months, you would be refunded ￡500 minus the 12% charge, leaving you with a ￡440 refund.
* Microsoft are not currently enforcing the RI cancellation fee for, but this may change at any time
How do I choose/change which VM is assigned to the Reserved Instance?
RIs are automatically applied to a VM or VMs that match the size, region and scope for the RI. The scope determines if the RI is applicable across a subscription or a resource group, depending on where you are happy for the discount to be applied. This can be useful for keeping savings within set departments/environments or allowing it to be applied to any matching resource in the company wide subscription.
If you have multiple VMs from the same family, Azure can manage the allocation of the RI to maximise the cost savings through an option called “Instance Size Flexibility”. This will ensure that your RI is allocated to the most cost effective VM(s) and can be applied at a subscription or resource group level. The colaculations on which VMs are allocated to the RI is based on the number of cores within the VMs.
Example: You have purchased an RI for a D4s v3 VM and enabled ‘Instance Size Flexibility. This can be applied to one D4s v3 VM or two D2s v3 VMs within the same scope. Azure will automatically assess and apply this to the VMs which offer the most cost saving.