The Economics of Cloud Commitments: Why Savings Plans Exist and When They Actually Make Sense

Cloud savings plans, often perceived as cost optimization tools, are primarily risk transfer mechanisms that benefit cloud providers by ensuring predictable revenue streams. These plans, including AWS Savings Plans, Azure Reserved Instances, and Google Cloud Committed Use Discounts, offer discounts in exchange for commitment, transferring the risk of underutilization from providers to customers. While they provide immediate budget relief and executive optics, they don't address underlying inefficiencies like overprovisioning. Savings plans make sense for stable and predictable workloads, mature capacity planning, and when there is clear visibility into future demand. However, they can be risky for rapidly growing, architecturally changing, or poorly understood workloads. Effective cloud cost management requires understanding usage patterns, reducing variability, and optimizing before committing to avoid prepaying for inefficiencies. Ultimately, true cost optimization aligns infrastructure spending with business value, emphasizing control, predictability, and economic alignment over mere cost reduction.