Cloud Users Embracing Reserved Instances to Optimize Costs

The ongoing global COVID-19 pandemic has had a profound impact on cloud computing, driving overall usage upward and changing some adoption patterns.

Among the organizations that have had a front row seat in the transformation of how cloud has been used over the past year is CloudHealth by VMware, which provides cloud optimization capabilities to organizations. In a 29-page report published on Jan. 21, CloudHealth outlined how usage of the cloud changed in 2020.

Growth in cloud usage is something that has been publicly observed by the public cloud vendors themselves, with Amazon Web Services (AWS), Microsoft and Google all reporting large revenue gains. What the CloudHealth report revealed, however, is that there was a surge in committed use programs. Those are programs such as reserved instances, whereby organizations commit to a certain amount of usage for a period of time and get a pricing discount.

Joe Kinsella, CTO of CloudHealth by VMware, told ITPro Today that when he made his first reserved instance purchase with AWS 10 years ago, it was the only prepayment cost-saving mechanism available from a public cloud provider.

"Today there are many mechanisms available from cloud providers, from enterprise discounts, volume discounts, multiple types of reservations to savings plans," he said. "Today’s cloud customer needs to look at the options available almost like the different asset classes in financial markets."

At the same time that there has been a notable increase in cloud spending due to the pandemic, organizations have also increasingly been looking into cost savings and thinking differently about their purchases, Kinsella noted. More deliberate cost optimization measures to eliminate unnecessary expenses drove a spike in the use of reserved instances/committed use programs, which are growing at a rapid pace, he said. In fact, enterprise organizations showed a 186% increase in purchases via committed use programs, such as reserved instances or AWS Savings Plans, between April and May 2020.

"Since these programs offer substantial discounts, and the remote workforce is going to be more commonplace moving forward, even post-pandemic, we expect to see many organizations continue to embrace these options to reduce compute costs," Kinsella said.

How the Pandemic Changed Cloud Cost Management

According to Kinsella, businesses are making long-term changes and investments in the cloud. Specifically, CloudHealth has seen a steady increase in customers that are realizing that the increased complexity of managing costs in the cloud can no longer be solved by people alone, he said.

"2020 was the year of the Cloud Center of Excellence, where organizations realized you cannot scale by pushing out more reports, more dashboards and more recommendations to your stakeholders and cloud consumers," he said. "Instead, you need to put in place the right people, products and processes to allow you to treat cost and usage optimization as a continuous process."