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Understanding Azure Cost Reduction with Azure Hybrid Use Benefit

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The typical way to pay for your Azure Virtual Machines is to pay for every hour that they operate. For a virtual machine running Windows Server, this hourly change covers both the Virtual Machine License and the Compute (Cores and Memory). This model is ideal for workloads that might need to scale up and down or not run continuously, because you only pay for what you use. This is called consumption based pricing.

However, if the workload is stable and needs to run all the time, typical in Cloud Datacenter model, Microsoft offers substantial discounts for pre-paying for the licenses and resources. As mentioned before, the consumption based model for Windows VM has two components; License and Compute. And both can be discounted but with different methods. Please note that almost all virtual machines will also use other components such as IP Addresses, Bandwidth, storage and backup, but these do not qualify for these type of discounts.

Licensing – Azure Hybrid User Benefit (AHUB)

The standard windows server images on Azure have the software per hour component included by default. However, it can be turned off, either during the deployment or after, reducing the per hour cost of the machine. A single 16 core Windows Server Standard License allows you to run two VMs in Azure with up to 8 cores each. Note that if you use it this way, you cannot use the license on premises at the same time. Windows Server Datacenter grants the same rights but allows you to run two VMs on Azure while continuing to run your Datacenter with infinite virtualization grants on premises.

However, not all software licensing offers AHUB, so it is important to understand if you are eligible for this benefit. Typically, software that is under contract qualifies, such as Open with SA, EA and CSP Software qualifies while Open without SA, retail or OEM licenses do not.

Reserved Instances (RI)

To get a discount on the Compute part of the Virtual Machine cost is reserved instances can be used. These are prepaid commitments to run a certain size Azure server. Contracts are 1 and 3 years, and when this is applied to a Azure VM, there is no Compute consumption billed during that period. Reserved instances are also are available for some databases as a service, including Microsoft SQL Databases.

A attentive reader will notice that using both AHUB and RI eliminates monthly consumption billing for Virtual Machines completely.

As an example, we can look at a four-server solution. If you ran the virtual machines with the default consumption method, you would expect to pay around $536 for a typical month for the servers. That translates into $6,432 for a year and $19,296 over 3 years.

If you use RI and AHUB through CSP on a three-year contract, it would cost $6,972 (a 63% cost reduction), but you would have to pay it at the beginning of the three-year period. As a compromise, the RI and AHUB can be purchased yearly, in which case the cost would be $3,596, paid at the beginning of each year.

Month 1 Year 3 Year
Consumption Based $536 $6,432 $19,296
1 Year RI and CSP $300 $3,596 $10,788
3 Year RI and CSP $194 $2,324 $6,972

If you have any questions about Azure or Azure Hybrid Use Benefit, please reach out to one of our Azure experts on hand.

This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.

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