Flexibility is a key advantage of using Amazon Web Services; you can obtain resources instantaneously without the headache of owning them. If you no longer need the resource, you release it and only pay for what you have used. This is a very powerful model that has helped many of our customers drive capital expense out of their IT operation. It has helped both enterprises and startups reduce the risk that comes with developing new products and businesses.

While this on-demand flexibility is ideal for a whole range of scenarios, some Amazon EC2 customers who have more predictable workloads have asked us for even greater flexibility in the cost model through the ability to reserve capacity. To address this need we have introduced Amazon EC2 Reserved Instances, which provides customers who have predictable usage patterns with a way to even further reduce costs.

Using Amazon EC2 Reserved Instances is really simple: you make a low one-time payment for each instance you want to reserve and in turn you receive a significant discount on the hourly charges for that instance. Furthermore, you don't pay hourly charges at all during periods when you have the instance turned off. Reserved Instances give customers more flexibility to reduce their IT costs. As these instances work exactly the same as On-Demand Instances, customers have the power to seamlessly extend their reserved base with scalable on-demand capacity.

Many of our customers find levels of predictability in many of their workloads. And not just those with major computational tasks such as HPC and Data mining, but many different types of customers, from enterprises running ERP and CRM applications, to media companies running portals and media streaming, to young businesses serving Web based applications are able to find a predictable base level of usage that can now be served through Amazon EC2 Reserved Instances.

Reserved Instances also give customers who already have an existing infrastructure in place a transition model that is closer to their current strategy, but at significant cost saving. Customers who currently own their own hardware to meet capacity needs have a total cost of ownership that does not only include the server, network equipment, rack space, etc., but also includes operation costs such as power, cooling, system administration, etc. which has to be paid regardless of how much of the capacity is being used. Reserved Instances at first glance appear similar, as you make a single upfront payment to reserve capacity, but the operational cost is only paid if the capacity is indeed used, allowing for the best of worlds, resulting in a significant cost reduction but maintaining the benefits of elastic computing.

For more details see the Amazon EC2 detail page and the AWS Developer Blog.