Optimize Yourself Before You Invest Yourself

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Jesse: Hello, and welcome to AWS Morning Brief: Fridays From the Field. I’m Jesse DeRose.

Amy: I’m Amy Negrette.

Tim: And I’m Tim Banks.

Jesse: This is the podcast within a podcast where we talk about all the ways that we’ve seen AWS used and abused in the wild. Today, we’re going to be talking about the relationship between cost optimization work and investing in reservations or private pricing with AWS. This is kind of a situation conversation. Let’s say you’ve got three months left on your EDP, or maybe your spend is reaching the point where you’re starting to think about investing in, or signing an EDP. But you’ve also got some cost optimization opportunities that you want to work on. How do you prioritize those two ideas?

Tim: I think when we’re talking about this, first it’s important to talk about what goes into an EDP, like, what it is and what it involves. So, EDP for AWS is Enterprise Discount Program, and what it involves is you making a monetary commitment to AWS to spend a certain amount over a certain amount of time. So, a three year EDP, you’re going to spend X amount in one year, X amount the next year, and X amount the third year for a total of whatever you decide on. So, you know, AWS typically going to want 20% year-over-year growth, so you’re going to say—you’re going to spend a million dollars, and then a million dollars plus 20% is something like $1.2 million; then, you know, 20% of that and so forth and 
so on.

And then so your total commit will be somewhere around, like, $3.6, $3.7 million, we’ll say, right? Once you signed the EDP, that’s how much you’re going to get billed for, minimum. So, it’s important to cost optimize before you make that commitment because if AWS is expecting you and you’re on the hook to make 20% year-over-year growth, but then you optimize and you save 20% of your bill, it won’t matter because you’re still going to owe AWS the same amount of money even if you cost-optimize.

Jesse: Yeah, I want to take a step back and talk about EDP—as we mentioned, Enterprise Discount Program—also has—there’s a couple other flavors that give you a variety of different types of discounts. EDP generally focuses on a cross-service discount for a certain annual commit, but there are also private pricing agreements or private pricing addendums, and other private pricing, generally speaking, offered by AWS. All of those basically expect some amount of either spend on a yearly basis or some amount of usage on a yearly basis, in exchange for discounts on that usage. And really, that is something that, broadly speaking, we do recommend you focus on, we do recommend that you invest in those reservations, but it is important to think about that—I agree—I would say after cost optimization work.

Amy: The thing is that AWS also provides discounts that are commandment required, that you don’t need an EDP for, namely in reservations and savings plans. So, you would similarly be on the hook if you decide, “I have this much traffic, and I want to savings plan or reservation for it.” And then suddenly you don’t have that requirement anymore, but you still have to make up that commitment.

Tim: I’ll say, I think too, that also matters when you’re looking at things like reservations. If you’re going to reserve instances, you’re going to get an idea of how many you’re specifically going to need, so that way you’re not reserving too many, and then you optimize, you downsize, and all of a sudden, now you have all these reservations that you’re not going to use.

Jesse: One thing to also call out: when renewing an EDP, or private pricing, or when entering into a new agreement for any kind of private pricing with AWS, they will generally look at the last six months of your usage—either broadly speaking if it’s an EDP, or specifically within a specific AWS service if it’s private pricing for a specific service—and they will double, basically, that spend over the last six months and expect you to continue spending that. So, if you spent a high amount of money over the last six months, they’re going to expect that kind of trend to continue, and if you enter into an agreement with that 12-month spend, essentially, going forward, and then make cost optimization changes, you’re ultimately going to be on the hook for this higher level of spending you’re not spending any more. So, if you focus on that cost 
optimization work first, it will ultimately give you the opportunity to approach AWS with a lower commit level, which may ultimately mean a lower tier of percentage discount, but ultimately, then you’re not on the hook for spend that you wouldn’t otherwise be spending.

Tim: I think one of the main things people see, too, is when they’ve looked at, like, oh, what’s the low hanging fruit for me to get lower the cost? They’ll think, “Oh, well, I can do EDP,” because AWS is going to want you to sign on; they would love to have that guaranteed money, right? And a lot of times, that’s going to be a much easier thing to do, organizationally, than the work of cost optimization because almost always, that involves engineering hours, it involves planning, it involves some changes that are going to have to be made that’s probably going to be harder than just signing a contract. But again, it’s super necessary because you really need to know, have eyes open, when you’re going to go, and figure out what you’re going to commit, whether it’s private pricing agreement, or an EDP, or reservations. You want to go in there and at least decide what you want to do, what it should look like, get as optimized and as lean as you can, then make your commitments. And then once you get to an EDP, that’s when you’re going to want to do your reservation or savings plans purchases and things like that, so you do that with a discount across those.

Jesse: Yeah, that’s another important thing to point out: focus on the cost optimization work first. Get your architecture, your workloads, as optimized as possible, or as optimized as you can within the given timeframe, then focus on the investment because then you’ll be able to have a much better idea of what your growth is going to look like year-over-year for an EDP or any kind of private pricing. And then after that, purchase any reservations, like reserved instances or savings plans because ultimately, then you get not only the discount from the EDP that you just signed, but any upfront payments that you make, or partial upfront payments that you make for those reservations applied towards your first year EDP. So ultimately, not only are you getting a discount on that, but you are also able to...