Cloud costs can be difficult to keep under control at the best of times; 83% of CIOs are spending an average of 30% more on cloud infrastructure than they anticipated.
Now, at least for AWS customers, that issue may be further compounded, as the cloud provider is getting stricter with its Reserved Instances (RIs) and Savings Plans (SPs). As of June 1, RIs and SPs may only be used by a single end customer. This means AWS partners will no longer be allowed to buy discounted cloud capacity through these programs and resell or share it across customers; instances purchased must be used by the buyer.
“Buyers need to know that flexibility is being eliminated,” said Ed Barrow, CEO of data center investment firm Cloud Capital. “This isn’t just a cleanup, it’s a hard reset on how cloud economics work.”
AWS getting more disciplined about capital
Amazon elastic compute cloud RIs and SPs provide savings for long-term steady state (consistent and predictable) AWS use. RIs allow enterprises to reserve instances in advance in a specific availability zone so capacity is available for their workloads when necessary. SPs offer lower prices than on-demand in exchange for specific usage commitments (measured in $/hour). According to AWS, both programs provide a discount of up to 72% compared to on-demand pricing.
However, Barrow explained, vendors have exploited the flexibility afforded by both programs for years, pooling and redistributing commitments and shifting spend across sub-accounts, allowing customers to lock in discounts without absorbing risk.
Sellers benefited because they could offer discounts with escape hatches; buyers, particularly startups and mid-market firms, got the “upside of savings without the downside of commitment,” he said. However, that disrupted AWS’ planning model. The company now needs commitments to be “real, durable, and customer-specific.”
As of June 1, AWS will no longer allow sub-account transfers or new commitments to be pooled and reallocated across customers. Barrow says the shift is happening because AWS is investing billions in new data centers to meet demand from AI and hyperscale workloads. “That infrastructure requires long-term planning and capital discipline,” he said.
Phil Brunkard, executive counselor at Info-Tech Research Group UK, emphasized that AWS isn’t killing RIs or SPs, “it’s just closing a loophole.”
“This stops MSPs from bulk‑buying a giant commitment, carving it up across dozens of tenants, and effectively reselling discounted EC2 hours,” he said. “Basically, AWS just tilted the field toward direct negotiations and cleaner billing.”
What IT buyers should do now
For enterprises that sourced discounted cloud resources through a broker or value-added reseller (VAR), the arbitrage window shuts, Brunkard noted. Enterprises should expect a “modest price bump” on steady‑state workloads and a “brief scramble” to unwind pooled commitments.
If original discounts were broker‑sourced, “budget for a small uptick,” he said.
On the other hand, companies that buy their own RIs or SPs, or negotiate volume deals through AWS’s Enterprise Discount Program (EDP), shouldn’t be impacted, he said. Nothing changes except that pricing is now baselined.
To get ahead of the change, organizations should audit their exposure and ask their managed service providers (MSPs) what commitments are pooled and when they renew, Brunkard advised.
“Then, they can shift any future purchases to direct or per‑tenant commitments that sit under the master payer account or in a ring‑fenced customer sub‑account,” he said. When they need to renew or add capacity, enterprises can take aggregate spend to their EDP negotiations; AWS will typically match or beat blended rates received through brokers.
He added that it’s also a good time to look at FinOps. “Once pooled arbitrage disappears, the next area of savings will come from automated rightsizing, better instance scheduling, and greater use of spot capacity,” said Brunkard.
Barrow agreed that auditing is paramount, and also suggested:
- Analyzing model downside scenarios: Consider what might happen if usage drops or plans shift.
- Challenging vendors: If their models depend on pooling or reallocation, what happens beginning June 1?
- Restructuring procurement: Build flexibility through shorter commitments, layered usage tiers, and finance-aligned terms.
- Identifying partners that are a better fit: Consider working with those who absorb risk, and haven’t just been reselling AWS at a margin.
Ultimately, enterprises that have relied on vendor flexibility to manage overcommitment could face hits to gross margins, budget overruns, and a spike in “finance-engineering misalignment,” Barrow said.
Those whose vendor models are based on RI and SP reallocation tactics will see their risk profile “changed overnight,” he said. New commitments will now essentially be non-cancellable financial obligations, and if cloud usage dips or pivots, they will be exposed. Many vendors won’t be able to offer protection as they have in the past.
“Many vendors built their business on AWS tolerance for rule-bending,” said Barrow. “With that tolerance gone, those models may collapse.”
He noted that many CFOs he works with are looking at this as a financial restructuring. “This is more than a policy change; it’s a market correction,” he said.
Source:: Network World