Understanding the Amazon Reserved Instance Marketplace

Everyone is very familiar with Amazon’s marketplace of everyday goods, but did you know Amazon Web Services also has a marketplace? While not as popular, AWS’s reserved instance (RI) marketplace provides startups with cost savings up to 60% on their AWS bill. And while it is no secret that this reserved instance market exists, there is however not much usage given how it could be complex to navigate through. In this article, you will learn how to better navigate this complex marketplace.

All AWS services such as EC2, RDS, and OpenSearch offer reserved instances, but EC2 is the only service that has a way to sell reserved instances or to purchase from anyone around the world. When it comes to AWS EC2, for instance, a company might realize in the middle of their contract that through their reserved instance term they no longer need as much capacity as they initially thought. Instead of incurring unnecessary costs for unused resources, they can list their surplus reserved instances on the RI Marketplace. This allows other businesses to purchase these instances at a potentially lower price than directly from AWS, leading to significant savings. Furthermore, for startups especially, the ability to sell unused reserved instances can be a financial lifeline, freeing up capital that can be invested back into core business activities such as hiring, marketing, product development or something else.

Key Things about the Amazon Reserved Instance Marketplace

• The Reserved Instance Marketplace is not as Liquid: At any given time the liquidity on this marketplace varies, which means that availability can be unpredictable. However, this unpredictability can work in favor of those who are flexible with their resource needs. Buyers can often find deeply discounted rates on the RI Marketplace as sellers aim to recoup some of their initial investment. It's important for buyers to be vigilant and check listings regularly to take advantage of these deals.

• The Reserved Instance Marketplace is Complex: For those interested in selling on the AWS RI Marketplace, it's crucial to understand the pricing dynamics and how to make your listings the most attractive they can be to potential buyers. Sellers should set competitive prices and provide clear, detailed descriptions of their reserved instances. This includes specifying the instance type, term length, and pricing. Additionally, AWS imposes certain criteria and restrictions on selling reserved instances, which must be adhered to. For example, AWS charges a 12% Fee per transaction to the marketplace. Here’s what you need to know in terms of AWS cracking down on the marketplace.

• The Reserved Instance Marketplace Changes Daily: Thousands of reserved instances are listed on any given day, though the quantity and types of instances can fluctuate, reflecting the ever-changing demands of AWS customers. The marketplace sees a varying degree of transaction volume, though exact figures aren't publicly disclosed by AWS. The volume can be indicative of both the current demand for certain instance types and the number of users who are aware of and utilizing the marketplace.

• The Reserved Instance Marketplace Requires Verification: Seller’s registration to prevent money laundering Marketplace, sellers must initially register and go through a verification process to ensure compliance with AWS policies, including anti-money laundering regulations. This step is critical to maintain the integrity and trust within the marketplace. Once approved, sellers can list their reserved instances, setting their own prices within the parameters of current market conditions. For buyers, it is recommended to perform due diligence before purchasing on the RI Marketplace. They should review the specifications of the reserved instances thoroughly to ensure they meet their requirements. Additionally, buyers should monitor the marketplace for price trends and availability to identify the best times to make a purchase.

Best Practices to Optimize Your Reserved Instance

Managing your Reserved Instances effectively is key to maximizing savings, optimizing costs, planning resources effectively, and improving infrastructure for scalability. To optimize your Reserved Instance (RI) usage and get the most out of the AWS RI Marketplace, consider the following best practices:

• Regularly Review and Adjust Your Reserved Instance Portfolio: As your business evolves, so do your cloud computing needs. Periodically assess your RI portfolio to ensure it aligns with current usage patterns and operational requirements. This may involve selling unneeded Reserved Instances (RIs) or purchasing additional ones to match increased demand. **Utilize AWS Cost Management Tools:** AWS offers several tools to help manage and optimize costs. The AWS Cost Explorer, for instance, can provide insights into your Reserved Instance utilization and recommendations for potential savings. These tools can also help you identify underutilized instances that could be sold on the marketplace.

• Considerations for Converting or Modifying Reserved Instance: If your needs change, AWS offers the flexibility to modify or convert your Reserved Instances to better match your new usage patterns. This can be a valuable tool in maintaining cost efficiency. However, it's important to note that not all Reserved Instances are eligible for modification, and there are specific rules that govern these processes. Before attempting to modify an RI, check the AWS documentation to understand the limitations and possibilities.

• Stay Informed About the Marketplace and AWS Policies: AWS policies and the dynamics of the RI Marketplace can change. Staying informed about these changes can help you make better decisions when buying or selling Reserved Instances. Subscribe to AWS updates or join forums and user groups to stay connected with the community.

• Use Pump to Cut Your AWS Bill by 60%: Consider utilizing Pump to save up to 60% off AWS for early-stage startups, and for completely free (yes, that's right). Pump is the only company with AI automated savings on 12 AWS services built in, including MediaLive. Have questions? Go to Pump’s website to learn more.

Case Study: A viral generative AI startup combats the cloud cost of virality

Imagine a Generative AI startup is facing escalating AWS costs as their app becomes viral.  They haven’t spent any money on marketing, yet are seeing incredibly high growth thanks to word of mouth. But this growth is causing computing demands to increase exponentially. Since they just expanded into new markets and onboarded more users, they found their AWS costs rapidly increasing. They realized that these costs are not sustainable in the long run and threatened their ability to invest in Research & Development.

They previously were on hundreds of GPUs - g5.XLarge which was costing them $1/hr and as their number of users went 100x, they now are paying an AWS bill that would be 100x to what they were paying before.

By purchasing a 3 years Reserved Instances, they now are looking at $0.4/hr for the very same Reserved Instance. By purchasing a Reserved Instance their engineering team needn’t do anything special to make their infra more robust. Instant 60% savings but the problem is that the user bump might not last for the entire 3 years and this is where the flexibility of the RI Marketplace becomes invaluable for the startup. Given the uncertainty of their user growth sustainability, the startup wisely decides to purchase Reserved Instances to secure immediate cost savings but also to keep an eye on the RI Marketplace as a potential exit strategy for their commitment. If their user growth stabilizes or declines, they can sell their excess Reserved Instances on the marketplace, thus mitigating the risk of being locked into a long-term commitment that no longer aligns with their usage patterns.

Their proactive approach to cost management demonstrates a strategic understanding of how to leverage AWS's pricing models to their advantage. By monitoring their usage closely and being willing to adjust their strategy as needed, they can maintain the delicate balance between cost efficiency and scalability. As they continued to grow, their engineers didn’t have the time to purchase these. Instead, they joined Pump.co, which does all of the AWS cost optimization for them, allowing their engineers to focus more on the future of their generative AI product.

Conclusion

Understanding and leveraging the RI Marketplace is essential for AWS users looking to optimize their cloud spending. With the potential for significant discounts and increased flexibility, the RI Marketplace is an invaluable tool for managing cloud costs effectively. The ability to trade Reserved Instances on this marketplace not only offers a path to reduce expenses but also provides the adaptability needed in a dynamic cloud environment. By staying informed and adopting best practices, you can navigate the RI Marketplace with confidence and achieve a more cost-efficient cloud infrastructure.