Home / Nerdio Academy / Microsoft Azure / Azure IT Fundamentals: Azure Pricing, Azure Hybrid Usage and Reserved Instances

Azure IT Fundamentals: Azure Pricing, Azure Hybrid Usage and Reserved Instances

0 commentsApril 21, 2019Videos

Joseph Landes
In this session, you will learn more about Azure pricing. As an MSP, it is important to really get your arms around the various pricing options for Microsoft Azure, including two of the more important ways to increase your margins, Azure Hybrid Usage and Reserved Instances. Demystifying the topic of pricing is critical to help you build a profitable cloud practice in Microsoft Azure.

Vadim Vladimirskiy
The way virtual machines work in Azure is that there are two components that you pay for or rent from Microsoft when you spin up a virtual machine. You pay for what’s called base compute or base instance, which is the physical infrastructure necessary to run that VM. And then you’re also paying for the operating system that’s running on top of it. So if you imagine that you have a VM that’s a Linux machine, it will be priced lower when it’s listed on the Azure website than it will be if it’s a Windows server. To illustrate what I mean, let’s go into this page which we looked at yesterday. And you’ll see here I have certain prices. Let’s just say, here’s our monthly prices. And here’s a $36 for a B2BS, and I have Windows OS selected. If I change this to a Linux OS … I’ll just select any version of Linux … what you’ll notice is that that B2BS VM will now be a little bit cheaper.

Vadim Vladimirskiy
And the differential in the price of this VM is this cost of the operating system that that you are renting. So it’s important to keep these two components together. That when you pay per VM, you’re paying for both of these things at the same time. So let’s talk about Azure Hybrid Usage first. Okay, so Azure Hybrid Usage or Hybrid Benefit … there used to be Hybrid Usage Benefit … there’s all different terms. But anytime you hear something about hybrid benefits, it’s referring to this concept that addresses the cost of the operating system on the VM that you’re getting from Azure. Okay? So if you have an existing version of Windows server, for instance, that you’ve purchased. And it could have been purchased in one of two ways. It could have been purchased through what’s called a service subscription, which is a subscription you can buy for one of three years through the CSP program. Or you could own a version of Windows server with software assurance on it.

Vadim Vladimirskiy
In both of those cases, what you can do is you can tell Azure that you don’t want to rent Windows alongside with the actual VM because you already own a version of that. If you go up into the pricing and we change this to Windows OS again … okay, and go back into monthly price. So you’ll see a few things. And we’ll talk about what reserving means. But let’s compare, let’s compare the three-year reserved cost of VM to a three-year reserved cost by using Azure Hybrid Usage. And again, you see there’s a pretty big difference in price. And the difference grows the bigger the VM gets. But the point is you can own the Windows Operating System before renting the VM and you specify that you want it to have Hybrid Usage enabled.

Vadim Vladimirskiy
The next thing then we’ll talk about is Reserved instances, right? So again in this diagram, the operating system we’ve covered, now we’re dealing with Base Compute. Base Compute is when you’re paying Microsoft for the infrastructure to run this VM. And you can run it in in one of three ways. You can either … and I guess it would be easiest to look at this screen here. You can either go with what’s called Pay-As-You-Go or On Demand Pricing. On Demand Pricing means you have no commitment, not even monthly. You kind of build on a either a minute or second increments, whatever that unit is. But if you turn the machine off, or in this case, you stop it and de-provision it, de-allocate it, you’re going to stop being billed for it. As soon as you start, you start being built for it.

Vadim Vladimirskiy
And this is your Pay-As-You-Go price. As you can see the Pay-As-You-Go price is the highest price because inside of this Pay-As-You-Go price, you are paying for Base Compute and the Windows OS. There is also a Pay-As-You-Go price that does not include the Windows OS, but it’s just not listed here. It will be too many variations. That’s why they name only, listed kind of the most popular ones. So that’s Pay-As-You-Go or On Demand pricing. The other option you have is called the One Year Reservation or a Three Year Reservation. And those are really the two options of reservations available. You can do an 18 months or 24 months. There’s only either 12 months or 36 months reservation. This is where you tell Microsoft, “I’m going to prepay in advance for a particular set of either VMs or number of cores in the particular VM family.”

Vadim Vladimirskiy
Remember the B series and the S and the D series are each an independent family. And you tell them what region you’re going to prepay in. Region is that physical location we talked about. And then you give them the money up front. And they give you the right to run that VM or that many cores of a particular VM family for either 12 or 36 months. And then when you look at your invoice at the end of the month that shows you the consumption for any VMs that you prepaid, there is going to be a credit that’s going to basically offset any of those charges. Okay? So the concept is you’re paying in advance. And as a result, why would you do that? The reason you would do it is because it gives you significant discount. So what’s let’s take D series, which are very popular one.

Vadim Vladimirskiy
So let’s say we prepay or we use a Reserved Instance for D series for one year. We’re going to save 21% on average. We go with three years. We’re going to save 31%. And then if we do a three year reserve and we bring our own operating system, we’re going to be 80% savings. So kind of look at this. We have a two core eight gig of RAM VM, which is decently sized machine. If we are off the street paying out of pocket for everything and then on a minute by minute basis we’re going to pay $137, but if we bring our own Windows and we prepay for three years, we’re going to get that rate. Right? This … it’s obviously a fifth of that. That’s a huge discount. Now, why would someone want to do these reservations, and in what situation would they want to do that?

Vadim Vladimirskiy
The answer is obviously the savings is the reason you would want to do it. You lose a little bit of flexibility, but you get some significant amount of savings. And the situation where you’d want to do it is when you have a predictable workload where you are going to be running something that doesn’t need to be turned on and off on a ongoing basis. A lot of applications may need to scale in and out or up and down. And those VMs may be shut down and turned on kind of throughout the day. But for most IT workloads … imagine your domain controllers and file servers and database servers. Those things just run. Right? They don’t need to be off and on throughout the day. So in that case, you are basically going to be reserving an instance and paying for it up front. Now why does Microsoft want to do it?

Vadim Vladimirskiy
What’s the incentive to them to give such a significant discount? And that really falls into two categories. Number one, they get somebody to commit for a longer period of time. So there’s … that’s worth something. But the other component is they … by you reserving a certain amount of capacity in a certain region allows them to properly invest in size into their infrastructure. So today they may have 50 or 60 different, or 50 some different locations, throughout the world. It’s very difficult to know where to make investments in terms of additional compute capacity. And this reservations and Reserved Instances are a way for the market to signal to them where the demand is going to be into the future. So far, I think for those primary two reasons, they provide a pretty significant discount. There are a couple of important things to keep in mind about Reserved Instances.

Vadim Vladimirskiy
When you prepay for a Reserved Instance, you have the option of exchanging it or returning it. When you exchange it, that means … let’s say you decided you’re going to buy a Reserved Instance for the D family and now you want to go into the B family or into the F family, whatever family of VMs you want. Or you want to switch from one region into another. So you want to make an exchange for the full remaining value of the Reserved Instance to either another family or another region or both. There is no penalty for that. So you can take whatever is left on your Reserved Instance in one place and and trade it in for another Reserved Instance in another place. Okay, that’s one thing. The other thing is if you want to return your instance. Let’s say your customer canceled or the need for the Reserved Instance or the VM has gone away, you can return the instance and get a refund.

Vadim Vladimirskiy
But there is a penalty for doing that. I don’t remember exactly what that penalty is. It’s not, it’s not huge, but it’s not insignificant either. So it’s not flexible in the sense that you can save money by not running it on a day to day or month to month basis. But if you … if something significant changes where you need to change locations, families, or cancel altogether, there is a way to get that money back. So if you think about Reserved Instances and the concept of all the scaling that we didn’t really look at that in detail … but again, the concept is simple. It turns things up and down and on and off based on the needs for the compute and Reserved Instances make that kind of obsolete.

Vadim Vladimirskiy
So for things that are cheaper to do with the Reserved Instances, auto scaling them makes no sense because you’re not really saving any additional money because we’ve already committed to that particular VM. And for things that auto-scaling is cheaper, it doesn’t make sense to buy Reserved Instance because you can get as good of a price on average and retain all the flexibility by using auto-scaling as opposed to Reserved Instances. So those two things are generally mutually exclusive. Although you can have a situation where some of your VMs are stable, consistent, then reserved and your other VMs are flexible. In which case, the first set would be reserved, and the second set would be auto-scaled.

Videos in the series