Azure Cloud Cost Explained: Pricing Models & Savings

Cloud computing has revolutionised the way organisations manage their applications and infrastructure. Microsoft Azure stands out as a frontrunner in the cloud computing arena, offering a pay-as-you-go pricing model that promotes adaptability, scalability, and a wealth of usage options. However, this adaptability comes with a caveat; understanding Azure cloud costs is essential. Many businesses are unaware of how quickly expenses can escalate. Often, cost-effective cloud solutions may lead to subpar performance, misconfigurations, or a lack of a proper governance framework to control expenditures.

In this guide, we will explore the Azure pricing structure, evaluate key elements influencing Azure costs, and present actionable strategies for optimising your expenses.

Understanding Azure Pricing Structure

Microsoft Azure’s approach to pricing revolves around three primary models:

• Pay-As-You-Go: Ideal for fluctuating workloads, allowing you to avoid upfront commitments and pay only for what you use.
• Reserved Instances (RI): By committing for 1-3 years, you can benefit from discounts of up to 72%. Note that RIs can be exchanged or cancelled (for a fee).
• Spot Pricing: Provides the opportunity to purchase idle computing resources at up to 90% off; however, workloads may be interrupted when demand rises.

How Azure Cloud Pricing Functions

It’s important to note that Azure’s pricing isn’t a flat monthly fee; instead, each service has distinct billing metrics, ranging from virtual machines to databases to storage solutions. For instance, while virtual machines (VMs) incur charges per second, storage is billed per gigabyte each month, and outbound network data transfer is also charged accordingly.

The pay-as-you-go model offers flexibility and is especially beneficial for workloads still in trial phases or those operating intermittently. However, this approach can quickly become costly for applications running continuously.

To mitigate long-term costs, Azure’s Reserved Instances can be advantageous: by committing to a resource/VM for one to three years, significant savings (up to 72%) are possible compared to pay-as-you-go rates. Alternatively, spot VMs offer steep discounts (up to 90%) but come with eviction risks when needed resources arise.

For predictable workloads, combining Azure RI with the Azure Hybrid Benefit allows organisations to utilise existing Windows Server or SQL Server licenses efficiently, significantly reducing expenses. Azure has also introduced Savings Plans, which provide greater flexibility than RIs and cater to a wider range of services, appealing to companies that prefer not to lock into a specific VM type.

Key Factors Influencing Azure Cloud Costs

Azure pricing can be broadly categorised into compute, storage, networking, and additional services such as monitoring or databases. Among these, compute services often account for the largest portion of an organisation’s cloud budget.

Compute Costs

Virtual Machines (VMs) are the cornerstone of Azure’s compute offerings. Costs vary based on vCPU, memory, and geographic region. Windows VMs typically incur higher costs due to licensing fees, although the Hybrid Benefit allows businesses to offset these costs if they already own licenses.

Other compute options include Application Services and Kubernetes clusters (AKS). Notably, while the Kubernetes control plane is free, the worker nodes are billed as VMs. For lighter applications, serverless options like Azure Functions can lead to substantial savings, as you are charged only for actual executions, rather than idle time.

Storage Costs

Storage pricing is tiered, influenced by the storage level, redundancy (LRS/ZRS/GRS), and data operations. For enterprises managing vast quantities of infrequently accessed data, moving less critical data to Cool or Archive tiers can reduce storage costs by 50-70%. Keep in mind, SSD (Premium) storage is significantly more expensive than HDD (Standard); use HDD only when high read/write performance is critical.

Networking Costs

Networking costs often catch organisations by surprise. Inbound data transfer to Azure is free, while outbound (egress) data incurs charges by the gigabyte. The first 5 GB per month is complimentary, but costs begin at over $0.087 per GB after that for up to 5 TB. Entities needing to transfer large volumes of data globally should prepare accordingly.

To minimise networking expenses, consider leveraging Azure CDN or ExpressRoute. ExpressRoute offers a private, dedicated connection to Azure, enhancing performance and providing more predictable pricing for substantial data movements.

Additional Pricing Considerations

As organisations leverage more advanced features or specialised tools, additional costs may arise from services like databases, security measures, and monitoring. For example, Azure SQL Database starts at approximately $0.008 per hour for basic tiers, with prices escalating significantly for higher tiers offering improved performance. Moreover, utilisation of Azure Monitor and Application Insights incurs a fee of around $2.76 per GB of data ingested, which can add up when monitoring multiple services.

Managing Azure Costs Effectively

Azure provides the Azure Cost Management + Billing tool, an invaluable resource for enterprises eager to track and understand their bills. This service highlights the sources of costs down to subscription, resource group, and tagging level, aiding visibility into expenditure.

Within this tool, you can set budgets and alerts to monitor your spending. For instance, if you’ve allocated a monthly budget of £1,000 for a project, you can establish a notification to alert you when you approach 80% of that limit.
Azure Cost Management collaborates with Azure Advisor to evaluate your environment and offer recommendations for savings. For instance, if a specific VM is found to be operating at only 10% CPU utilisation, it may suggest downsizing to a more economical instance type.

Best Practices for Cutting Azure Costs

Reducing Azure costs is not a one-size-fits-all solution; rather, it necessitates a comprehensive approach incorporating monitoring, automation, and strategic resource planning.

A straightforward method to save is right-sizing your VMs. Many organisations provision VMs larger than necessary, leading to unnecessary capacity waste. Azure Monitor helps you track CPU and memory utilisation; if consistently low, consider opting for smaller instance types.

Additionally, utilising auto-scaling features can optimise compute costs. This functionality enables Azure to automatically adjust resources based on demand. For example, while you may need additional VMs during peak hours, overnight or over weekends may see minimal requirements, thus allowing the system to downscale.

For development and testing scenarios, enabling automatic shutdowns for VMs outside of production hours can yield savings of up to 60% by avoiding unnecessary resource usage during inactive periods.

To further cut storage expenses, implement lifecycle management policies to automatically transfer less-frequently accessed files to more economical tiers, such as Cool or Archive. Additionally, eliminate unused managed disks, snapshots, or backups to streamline costs.

Transitioning to a serverless architecture, such as Azure Functions or Logic Apps, means you incur charges only when your function is active and not during idle times.

For a more integrated solution covering areas that Azure’s native tools miss, consider third-party options such as Turbo360’s Cost Analyzer. This tool provides in-depth cost analysis across subscriptions and teams, enabling enhanced spending optimisation and waste reduction. With features like cost saving schedules and insightful alerts, it offers a more efficient alternative for enterprises compared to Azure’s limitations.

Turbo360 is an outstanding FinOps tool that simplifies Azure cost analysis and optimisation. – James Reed, West Coast Cloud

Conclusion

In summary, although Azure is incredibly versatile, effectively managing costs requires the right tools, awareness, and proactive strategies. Understanding pricing variables, utilising the Azure Pricing Calculator and Cost Management + Billing tools, and optimising your expenditure through right-sizing, Reserved Instances, and lifecycle storage policies are essential steps in ensuring you maintain budgetary control while achieving peak performance.

Whether you’re a nascent startup exploring new ventures or a well-established enterprise with critical operations, budgeting should always be an integral part of your cloud framework. While Azure can satisfactorily accommodate projects of all scales and budgets, a lack of visibility and control can lead to unexpected overspending.

FAQs

1) What is the Azure free tier?

• Azure offers a free tier enabling companies to try a variety of services without charge.
• 12 Months of Free Services with Limits on Usage (e.g., 750 hours of a Windows VM)
• $200 Credit for Any Azure Services during the First 30 Days
• Many Services Always Free with Usage Limits (e.g., 1M Free Requests on Azure Functions)

2) Which services are available for free for 12 months?

Azure offers numerous services that are free for the initial 12 months, including:

Compute: Linux VMs, Windows VMs.

• Storage: Azure Managed Disks, Azure Blob Storage, Azure Files.
• Databases: Azure SQL Database, Cosmos DB.
• AI & Analytics: Computer Vision, Text Analytics, Translator, Personalizer, Language Understanding.

3) What occurs after the Azure free trial?

Once the 12-month trial ends or the $200 credit is exhausted, any usage above the free tier will be charged to your credit card at pay-as-you-go rates. Only services explicitly marked as “always free” will remain free.

4) Which Azure services are perpetually free?

The following Azure services feature a permanent free tier:

• Serverless & Containers: Azure Functions (up to 1M requests/month), Azure Kubernetes Service (AKS), Azure Container Instances.
• Networking: Virtual Networks (VNets), unlimited inbound data transfer, outbound data (up to 15 GB).
• Development Tools: App Service, DevTest Labs, Azure DevOps.
• Others: Azure Advisor, Active Directory B2C, Event Grid, Load Balancer, Azure Automation.
• NOTE: Charges may still accrue for dependent resources (e.g., AKS VMs) even when the primary service is free.

5) What is the Azure Hybrid Benefit?

The Azure Hybrid Benefit allows users to apply their Windows Server or SQL Server licenses (BYOL) to workloads running on Azure, potentially providing savings of up to 85% when combined with Reserved Instances.

6) How are Azure cloud costs computed?

Azure cloud costs are calculated based on resource usage patterns and consumption. For instance, Virtual Machines are billed per second, and storage is charged by the gigabyte per month. Additional fees apply for egress traffic, database transactions, and monitoring tools. Thus, it’s beneficial to evaluate usage consistently using the Azure Pricing Calculator. Although it may not provide a complete picture, it offers a foundational understanding before deployment.

7) What’s the most affordable way to operate Azure virtual machines?

The most cost-effective method to operate Azure virtual machines is by utilising the Azure Hybrid Benefit alongside Reserved Instances. By prepaying for Azure usage through either one or three-year commitments, users can save up to 72% compared to pay-as-you-go rates. For workloads that are not critical, Spot VMs can provide discounts of up to 90%; however, be aware that these resources may be taken back by Microsoft Azure when required elsewhere.

8) How can I reduce my Azure cloud bill?

To decrease your Azure cloud bill, ensure your virtual machines are appropriately sized and activate auto-scaling. Additionally, decommission non-essential resources during inactive periods such as overnight or during off-peak hours. For rarely-accessed data, utilise the Cool or Archive tiers, and wherever feasible, adopt serverless services like Azure Functions. Finally, utilise the available cost management tools and routinely check on your expenditures.

9) Is Azure more affordable than AWS or Google Cloud?

Azure tends to be more economical for Windows-based workloads due to the option of bringing existing Windows Server and SQL Server licenses to Azure through the Azure Hybrid Benefit.

10) What is the Azure Pricing Calculator and why should it be utilised?

The Azure Pricing Calculator is Microsoft’s official tool for estimating monthly costs based on the services you wish to utilise in Azure. You can specify factors like latency, region, and required resources (e.g., VMs, databases, and storage needs) to gain an insight into potential costs, which is essential for effective budgeting and avoiding surprises during deployment.