What are reserved instances in cloud computing?

Reserved instances (RIs) in cloud computing are a pricing model that allows users to commit to using a specific amount of compute capacity over a fixed term—typically one or three years—in exchange for a significant discount compared to on-demand pricing. They are designed for workloads with predictable, long-term usage, such as databases, enterprise applications, or services running 24/7. For example, AWS EC2 Reserved Instances, Azure Reserved VM Instances, and Google Cloud Committed Use Discounts all offer cost savings of up to 70% compared to pay-as-you-go rates. RIs require upfront payment (full or partial) or a monthly commitment, and they apply to specific instance types in designated regions. This model provides budget predictability while ensuring capacity is available when needed.

RIs are most effective for stable, non-fluctuating workloads. For instance, a company running a production database that requires consistent CPU and memory usage could lock in a three-year RI to reduce costs. Unlike spot instances (which are cheaper but interruptible) or on-demand instances (flexible but expensive), RIs balance cost and reliability. Providers often offer flexibility in payment options: AWS lets users choose between all upfront, partial upfront, or no upfront payments, with discounts increasing for longer commitments. However, RIs are not a technical reservation—they don’t guarantee physical hardware availability. Instead, they are a billing construct. If usage drops below the reserved capacity, the unused portion is still billed, so accurate capacity planning is critical.

Key considerations when using RIs include workload predictability, commitment duration, and provider-specific terms. For example, AWS allows users to modify or sell unused RIs in its Reserved Instance Marketplace, while Azure offers exchange policies for changing instance types or regions. Developers should analyze historical usage data (using tools like AWS Cost Explorer or Azure Cost Management) to avoid overcommitting. Hybrid approaches—combining RIs with on-demand or spot instances for variable workloads—can optimize savings. Additionally, some providers offer convertible RIs (e.g., AWS) that allow upgrading instance types mid-term, adding flexibility. Ultimately, RIs are a financial tool, not a capacity reservation, making them ideal for organizations with steady infrastructure needs willing to trade flexibility for cost efficiency.