L15. AWS Pricing Models: On-Demand, Reserved, Spot, and Savings Plans

AWS Pricing Fundamentals

AWS uses three fundamental pricing models that apply across most services:

1. Pay as you go: no long-term contracts; pay for what you use
2. Save when you reserve: commit to usage volume and duration for significant discounts
3. Pay less by using more: volume discounts as usage increases

Free Tier: AWS offers a free tier for many services including 12 months free for new accounts (EC2 t2.micro, S3 5GB, etc.) and always-free tiers (Lambda 1M requests/month, DynamoDB 25GB).

EC2 Purchasing Options

On-Demand: pay per second (Linux) or per hour (Windows) with no commitment. Highest price, maximum flexibility. Best for: unpredictable workloads, short-term projects, testing. Reserved Instances (RI): 1 or 3-year commitment to a specific instance type in a specific Region. Up to 72% savings vs. On-Demand.

• *Standard RI:* less flexible (can't change instance type) but highest discount
• *Convertible RI:* can change instance family and type; smaller discount
• *Scheduled RI:* reserve capacity for specific time windows (deprecated)

Savings Plans: flexible pricing model offering 1 or 3-year commitment to a consistent amount of compute usage ($/hour).

• *Compute Savings Plans:* apply to EC2, Lambda, and Fargate; most flexible
• *EC2 Instance Savings Plans:* apply to specific instance family in a Region; larger discount

Spot Instances: use AWS's unused capacity at up to 90% discount. AWS can interrupt with 2-minute warning. Best for: fault-tolerant batch processing, big data, CI/CD workloads. Dedicated Hosts: physical EC2 servers dedicated to your organization. Required for: BYOL (bring your own license), compliance requirements (some regulations require dedicated hardware). Dedicated Instances: instances run on hardware dedicated to your account but may share it with other instances in your account.

AWS Free Tier Categories

S3 Pricing Factors

S3 costs vary by: storage amount, storage class, requests/retrievals, data transfer out, and replication. Free: data transfer IN to S3. Charged: data transfer OUT. Exam tip: Spot Instances are the cheapest but can be interrupted. Reserved Instances offer the most savings for predictable workloads. Savings Plans are more flexible than RIs.