02 - EC2 Fundamentals

EC2 Purchasing Options

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Overview

EC2 Purchasing Options
├── On-Demand ─────────────── Pay per second, no commitment
├── Reserved Instances ────── 1-3 year commitment, up to 72% off
├── Savings Plans ─────────── Commit $/hour, up to 72% off
├── Spot Instances ────────── Up to 90% off, can be interrupted
├── Dedicated Hosts ───────── Physical server, BYOL
├── Dedicated Instances ───── Single-tenant hardware
└── Capacity Reservations ─── Reserve capacity, no discount

1. On-Demand Instances

Maximum Flexibility

Pay for what you use with no long-term commitment.

Feature Details
Billing Per second (Linux/Windows), per hour (other OS)
Minimum 60 seconds
Commitment None
Discount None (baseline price)

Best For:

  • Short-term, irregular workloads
  • Applications being developed/tested
  • Workloads that cannot be interrupted
  • First-time applications with unpredictable usage
On-Demand Pricing Example (m4.large, us-east-1):
$0.10 per hour = $72/month (running 24/7)

2. Reserved Instances

Predictable Workloads

Commit to specific instance configuration for 1-3 years.

Discount Levels

Term Payment Discount
1 Year No Upfront ~36%
1 Year Partial Upfront ~42%
1 Year All Upfront ~43%
3 Year No Upfront ~56%
3 Year Partial Upfront ~66%
3 Year All Upfront Up to 72%

What You Reserve

  • Instance Type (e.g., m5.large)
  • Region
  • Tenancy (default/dedicated)
  • Operating System

Standard vs Convertible

Type Discount Flexibility
Standard Up to 72% Cannot change instance type
Convertible Up to 66% Can change instance type, family, OS, tenancy

Best For:

  • Steady-state applications
  • Databases
  • Applications with predictable usage
Reserved Instance Marketplace

You can buy/sell unused Reserved Instances in the marketplace.

3. Savings Plans

Modern Alternative to Reserved

Commit to a dollar amount per hour instead of specific instance type.

Types

Plan Flexibility Discount
Compute Savings Plan Any instance family, region, OS, tenancy Up to 66%
EC2 Instance Savings Plan Specific instance family in a region Up to 72%

How It Works

Commitment: $10/hour for 1 year

Usage Scenarios:
├── Use $8/hour  → Pay $8 at discounted rate
├── Use $10/hour → Pay $10 at discounted rate
└── Use $15/hour → Pay $10 discounted + $5 On-Demand

Flexibility:

  • ✅ Change instance size (m5.large → m5.xlarge)
  • ✅ Change OS (Linux → Windows)
  • ✅ Change tenancy
  • ❌ Locked to instance family (m5) and region

Best For:

  • Long-term workloads with flexible instance needs
  • Organizations wanting simpler commitment model

A $10/hour Savings Plan at three usage levels

commitment $10/hour $8/hour discounted $10/hour discounted $15/hour discounted $5 On-Demand
Usage above the commitment is billed at On-Demand rates.

4. Spot Instances

Can Be Interrupted

Highest discount but instances can be reclaimed with 2-minute warning.

Pricing

  • Up to 90% discount compared to On-Demand
  • Price fluctuates based on supply/demand
  • You set a max price you're willing to pay
Spot Pricing Mechanism:
┌─────────────────────────────────────────┐
│  $0.10 ─ ─ ─ On-Demand Price ─ ─ ─ ─   │
│                                         │
│  $0.04 ════ Your Max Price ════════════ │
│         ╱╲    ╱╲                        │
│  $0.03 ╱  ╲  ╱  ╲   Spot Price         │
│       ╱    ╲╱    ╲                      │
│                                         │
│  When Spot > Max: 2 min to stop/term    │
└─────────────────────────────────────────┘

Interruption Behavior

When spot price exceeds your max price:

  • 2-minute warning before interruption
  • Options: Stop or Terminate

Spot Request Types

Type Behavior
One-time Request fulfilled once, then done
Persistent Automatically restarts when price allows
Terminating Persistent Spot
  1. First cancel the spot request
  2. Then terminate the instances

If you terminate first, persistent request will relaunch instances!

Best For:

  • Batch processing
  • Data analysis
  • Image processing
  • Distributed workloads
  • Flexible start/end time jobs

NOT For:

  • ❌ Critical jobs
  • ❌ Databases
  • ❌ Anything that can't handle interruption

5. Spot Fleets

Smart Spot Management

Automatically request Spot Instances from multiple pools.

Components

  • Set of Spot Instances + optional On-Demand
  • Multiple launch pools (instance types, AZs, OS)
  • Target capacity (instances, vCPUs, or memory)

Allocation Strategies

Strategy Description Best For
lowestPrice Launch from cheapest pool Short workloads, max savings
diversified Spread across all pools Long workloads, availability
capacityOptimized Pool with most capacity Reducing interruptions
priceCapacityOptimized Best capacity + lowest price Most workloads (recommended) 
Spot Fleet Example:
├── Pool 1: c5.large in us-east-1a
├── Pool 2: c5.large in us-east-1b
├── Pool 3: m5.large in us-east-1a
└── Pool 4: m5.large in us-east-1b

Strategy: lowestPrice
Result: Fleet launches from cheapest available pool

6. Dedicated Hosts

Physical Server Access

Book an entire physical server for your exclusive use.

Features

  • Access to physical server
  • Visibility into sockets, cores, host ID
  • Control over instance placement
  • Can be purchased On-Demand or Reserved

Use Cases

  • BYOL (Bring Your Own License) - per-socket, per-core licensing
  • Compliance requirements - dedicated hardware
  • Regulatory requirements - physical isolation

Pricing

  • Most expensive option
  • On-Demand: Pay per second
  • Reserved: 1-3 year commitment for discount

7. Dedicated Instances

Feature Dedicated Instance Dedicated Host
Hardware Dedicated to you Dedicated to you
Physical server visibility ❌ No ✅ Yes
Instance placement control ❌ No ✅ Yes
Socket/core visibility ❌ No ✅ Yes
BYOL support Limited ✅ Full

Use Case: Compliance requiring dedicated hardware without needing physical server access.

8. Capacity Reservations

Guaranteed Capacity

Reserve capacity in specific AZ without commitment.

Features

  • Reserve On-Demand capacity in specific AZ
  • No time commitment (cancel anytime)
  • No billing discount
  • Charged On-Demand rate whether used or not

Use Cases

  • Short-term, uninterrupted workloads in specific AZ
  • Disaster recovery capacity
  • Planned events requiring guaranteed capacity
Combine for Discounts

Combine Capacity Reservations with Reserved Instances or Savings Plans to get both guaranteed capacity AND discounts.

Comparison Summary

Option Discount Commitment Interruption Best For
On-Demand 0% None No Short-term, unpredictable
Reserved Up to 72% 1-3 years No Steady-state, databases
Savings Plans Up to 72% 1-3 years No Flexible long-term
Spot Up to 90% None Yes Fault-tolerant batch
Dedicated Host Varies Optional No BYOL, compliance
Dedicated Instance Varies None No Compliance
Capacity Reservation 0% None No Guaranteed capacity

Discount against commitment

On-Demandno commitment0%Capacity Reservationno commitment, no discount0%Spotno commitment, can be interruptedup to 90%Savings Plans1-3 years, $/hourup to 72%Reserved1-3 years, fixed configup to 72%
The biggest discounts need a 1-3 year commitment (Reserved, Savings Plans) or accepting interruption (Spot).

Hotel Analogy

Option Hotel Analogy
On-Demand Walk in, pay full price
Reserved Book for 1-3 years, get discount
Savings Plans Commit to spend $X/month, flexible room type
Spot Last-minute discount, can be kicked out
Dedicated Host Book entire building
Capacity Reservation Book room, pay whether you stay or not

Questions & Answers

Q1: What's the maximum discount for Reserved Instances?

Answer:

Up to 72% with 3-year term, all upfront payment, standard Reserved Instance.

Q2: When would you use Spot Instances?

Answer:

Use Spot for workloads that:

  • Can tolerate interruptions
  • Have flexible start/end times
  • Are fault-tolerant

Examples: Batch processing, data analysis, CI/CD, image processing.

Never use for: Databases, critical applications.

Q3: What's the difference between Savings Plans and Reserved Instances?

Answer:

  • Reserved Instances: Commit to specific instance type, region, OS
  • Savings Plans: Commit to $/hour spend, flexible on instance size/OS

Savings Plans are more flexible and the modern approach.

Q4: How do you properly terminate persistent Spot Instances?

Answer:

  1. First cancel the Spot Request
  2. Then terminate the instances

If you terminate first, the persistent request will automatically launch new instances.

Q5: When would you use Dedicated Hosts?

Answer:

  • BYOL (Bring Your Own License) with per-socket/per-core licensing
  • Compliance requirements needing physical server isolation
  • Regulatory requirements

Most expensive option - only use when specifically required.

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