If you're willing to reserve the instance for 3 years, the average monthly cost becomes only $656. That's quite a good deal.
The only problem with reserving that instance for 3 years is that better hardware always comes along, especially with the cost of SSDs coming down significantly every year. Usually if you're in the big-data space, your hardware is likely retired after 24 months (12 months if you're well funded) so locking yourself in for 36 months might be a bad investment.
Has Amazon ever bumped the specs on existing hardware types? Or do they just create new hardware types? e.g. is it possible that if you get a 3-year reservation for an h1.xlarge, by 2015 h1.xlarge might have newer specs?
I had thought that EC2 reservations were upgradeable, but a quick check on the forums shows you're right, they're not. Of course, you can play your own "tiered usage" game, like laptops in IT departments, where the old h1.xlarge becomes cheap enough to use as a second-tier machine and you go reserve the h1.xxlarge for Cassandra.
If you sign up for a reservation, you seem to be able to send support a message in order to have them cancel it so that you can change to the new hotness. We had to do this for our three-year reservations when high usage reservations came out. We were getting shafted because our previous generic "Reservations" were converted to medium use, whereas we were using them as high use.
So it does at least appear that in some cases, they'll let you out of your reservation so that you may sign up for something similar. Or at least they let us do that.
The only problem with reserving that instance for 3 years is that better hardware always comes along, especially with the cost of SSDs coming down significantly every year. Usually if you're in the big-data space, your hardware is likely retired after 24 months (12 months if you're well funded) so locking yourself in for 36 months might be a bad investment.