I'm playing with the pricing page on AWS for EC2 instances. My understanding is you have "on-demand" which is pay as you go and then you have reserved instances where you pre pay. So coming from a VPS setup, am i correct in assuming that a reserved instances in AWS terminology is equivalent to a VPS plan? Granted I have to pay a year ahead but I wasn't sure if I'm missing anything else?
closed as not a real question by Michael Hampton♦, EEAA, Ward, Brent Pabst, dunxd Dec 12 '12 at 15:35
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First, let's clarify some terminology. VPS is an acronym for "Virtual Private Server". "VPS Plan" is meaningless. EC2 instances are VPSes. So not only are you "coming from" a VPS setup, but you're "going to" a VPS setup as well.
So to get to your question: the only difference between on-demand and reserved is how they are billed. On-demand pricing is higher due to the fact that Amazon needs to keep a certain amount of free capacity around to fulfill requests for on-demand instances. Idle capacity is (quite obviously) not making Amazon any money when it's not being used, so they assign a higher cost to on-demand instances to subsidize this idle capacity.
Reserved instances are cheaper due to the fact that you're reserving capacity and in doing so, are giving Amazon some forewarning that you are going to use this capacity for the term of the reservation.