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Azure Savings Plans vs. Reserved Instances

In October of 2022 Microsoft announced a new, more flexible way to save money on the monthly compute charges for Azure virtual machines, Savings Plans.  These were introduced in addition to the existing program of Reserved Instances which are also offered to save on compute charges for virtual machines in Azure. Both are commitments of a certain amount of usage or capacity, but this new program of Savings Plans is different from RIs in the way it works, which workloads can be included, the amount of savings you can expect and the recommended scenarios for use.  

With an Azure savings plan customers can choose any Azure compute service, such as virtual machines, container instances, app services, or function apps, and commit to a certain amount of spend per hour for one or three years. This commit will get a discount of up to 72% on compute usage, regardless of the size, region, OS, or family of the compute service.  

Alternatively, with Reserved instances, customers choose a specific virtual machine size, region, OS, and family, and commit to a certain amount of capacity for one or three years. This will secure a discount of up to 80% on your virtual machine compute usage, but you will be limited to the parameters you selected. Resizing virtual machines within the same family or instance size flexibility group will not trigger a requirement to exchange or cancel an RI, the RI will automatically be applied to the VM still, but the amount of utilization of the RI will adjust accordingly. 

A year after the introduction of Savings Plans, Microsoft announced changes to the ability customers will have to exchange RIs, presumably to draw more customers to use SPs. The changes to the Reserved Instances were in effect on January 1, 2024, starting a 6-month grace period before the changes will be impactful on July 1, 2024.  Any RIs purchased after that date will no longer be eligible for exchanges.  Active RIs purchased before that date will be allowed to be exchanged one time.  What Microsoft is encouraging customers to do in place of exchanging RIs, is flipping RIs into Savings Plans.  That is allowed with no charges or maximum amounts, the only requirement is to select a Saving Plan with at least as much value as the RI being cancelled.  The right to cancel RIs is still in place and as of the date I’m writing this without any charges, but the 12% cancellation fee could be reintroduced at any time.  Customers can cancel up to $50,000 USD of RIs each 12-month rolling period with no cancellation penalties or fees.  

Since Reserved Instances offer a higher percentage of cost savings than Savings Plans do, it is recommended to utilize RIs where possible as the first choice, then look to Savings Plans. What are some scenarios where Savings Plan should be chosen over Reserved Instances?  Here are some suggestions: 

  • Uncertain or variable usage of VMs.   
  • A newer environment that could potentially be changed in the future may want to start with a one-year Savings Plan to still see some savings on the compute while not locking into a specific virtual machine. 
  • A customer utilizing datacenters in different regions that schedule VMs to be on only for certain hours could spread a Savings Plan over VMs in separate global regions as SPs are not specific to location like RIs are.   
  • An A series VM, as those are not eligible for RIs, but they are for SPs. 
  • A server already covered with an RI that needs to be resized outside of it’s RI Family, and the 12 month total of cancellation is over the limit. This is would an appropriate situation for turning the reserved instance into a savings plan. 

Something interesting of note, newer versions of similar sized VMs would have a higher percentage of savings than an older version.  Here is an example to highlight what that looks like from a pricing stand point: 

D2v2 – Savings Plan for a one year term would achieve 13% savings on compute 

D2v5 – Savings Plan for a one year term would achieve 32% savings on compute 

In conclusion, Azure savings plan and reserved instance are both great ways to save money on your Azure costs, but they have different trade-offs. You should consider your compute needs, future lifecycle plans of your workloads, and flexibility needs before choosing the best option for you.  If you have any questions, the Invero team of licensing and technical Azure specialists is here to support you! Please reach out to us using the contact form below.

The content for this post comes from an episode of The Invero Show that was hosted by Invero’s own Stephanie Yackimec, our Licensing Practice Lead. You can watch the full episode for free to learn more great tips like the ones above.