Azure Hybrid Benefits (AHB) is the second most important way to reduce your costs in Azure (reservations being the most important one). A main challenge when using Azure Hybrid Benefits (AHB) has been to ensure compliance and a time-effective way to manage assigned licenses, without risking non-compliance.

Microsoft just introduced scope-level management of Azure Hybrid Benefit. For SQL-servers now but hint at expanding to other areas later. The capability allows for centralized management of AHB and removes the most common excuse for not applying AHB for SQL workload.

Why is AHB important for me?

Azure Hybrid Benefits (AHB) reduces your costs in Azure in several ways:

  • You can leverage licenses you already own – and have active Software Assurance (SA) on – in Azure.
  • You can procure additional licenses on your existing EA, EAS, SCE, or CSP agreements, often at a substantial discount compared to the prices paid in Azure Pay-As-You-Go.
  • For Windows Server or Core Infrastructure Suite datacenter you have dual use rights, where you can use the license on-prem and in the cloud at the same time. For other license types, it’s either or.
  • Windows server licenses are cheaper to buy or rent, than purchase as pay-as-you-go licenses directly in Azure. You save anywhere from 76% to 96% after the cost of the license.

AHB is the second most important price reduction mechanism in Azure after reservations and one you must apply if cost matters, and you do not like to overpay Microsoft for their services.

Why is scope level AHB important news?

Until now AHB had to be assigned at resource level, ie. each individual server, managed instance. This meant that typically the developers should assign the license by indicating AHB during configuration.

The main issues with managing AHB at resource level are:

  • It’s a manual process and responsibility is unclear
  • Difficult to get a fast answer whether there are available licenses to use for AHB
  • It is easy to end up in a non-compliance scenario.

With Scope-level management, you can now essentially state how many excess licenses are available for AHB to use. Scope level management allows you to assign a pool of licenses within a specified billing scope, ie. account or subscription level. You no longer need to assign each license to a specific resource.

It will in essence work just like a reservation.

Hence, the team responsible for licenses only need to manage how many licenses are available for AHB, and Azure assigns the licenses on an hourly basis to the resources, and discounts the costs. Different resources can be covered each hour.

Scope level AHB will make the lives of developers and license managers much simpler.

Who should use scope level AHB?

Scope level AHB is currently in preview with enterprise customers on most SQL resources (at the time of writing: SQL Databases, SQL Managed Instances, SQL Elastic Pools, SQL Server on Azure VMs). You can read this article about which agreement types and resources the scope-level AHB applies to.

Our recommendation would be that you take a closer look at this if you:

  • Have excess SQL Server Licenses today
  • Are not leveraging SQL AHB today
  • Have good, negotiated discounts on your SQL Servers + SA
  • Struggle with getting a robust and fast license overview in Azure

If you are a Microsoft Software Asset Manager, you will appreciate this new feature. If you are in your DevOps team you want to let your SAM know that this feature is available, so you don’t have to worry about this anymore.

What should we be aware of with scope level AHB?

Also, only SQL workload registered as such can be covered. This is automatically done for PaaS SQL services, or VMs deployed from a standardized SQL image. But for VMs with a SQL Server instance that you install, it must be flagged. This can be done using Azure’s management agent, or manually.

The one thing you must consider is how your chargeback/showback will be impacted. We know that Azure will assign licenses on an hourly basis. The method is not described in the documentation.

However, you will likely experience that the same resources will vary in hourly price – depending on whether a license has been assigned the specific resource or not. This may lead to some of the internal customers seeing varying costs – even in a stable environment. And this may lead to wasted time explaining the variations.

If you have not used AHB for SQL server before you will additionally see that the Azure price is going down – and the true software cost is sitting in a different budget.

The showback/chargeback issues can be dealt with by using blended rates, ie. fixed rates for a resource type. These are not calculated by Microsoft, but it is one of the services we offer.

How do we get started with scope level AHB?

If you are the DYI type a great place to start is this article from Microsoft:

We will discuss the options as part of Kostner’s Cloud Cost Management service, so if you are an existing customer, we will discuss this on the next decision meeting and set up implementation workshops if relevant.

Deltag i vores kursus: Microsoft licenser i Azure!

Kurset giver dig et klart overblik over:

… derudover har vi masser af tricks til, hvordan du gør det så nemt som muligt for dig selv.

With Microsoft moving from being a classical perpetual software provider to an “as-a-service” provider with Microsoft 365 subscriptions and Azure as the pivot of their growth strategies you need to adapt to a drastically new reality when negotiating your next deal.

If you are in doubt … just think of the announced increase in price from 32$ to 36$ per user per month for M365 E3 with around 20% on top if you want it as a monthly subscription and not a pre-paid annual subscription. In effect this is a 35% increase in price.

In this blogpost we will examine Microsoft’s strategies and why getting the largest discount possible might be very expensive. Our goal is that whether you are from procurement or IT, by the end of this post you will see the next renegotiation in a new perspective …

What can you expect from Microsoft?

Microsoft is very transparent about their strategies:

  • They want you to move to a bigger M365 bundle, so if you are currently on E3 they want you to move to E5.
  • They want you to move as much infrastructure to Azure as possible – with a monetary commitment.

So far nothing surprising.

However, you will experience a significantly toughened climate for negotiating discounts.

For example, you should expect quite small discounts on Azure – and even if you increase your commitments, you can only expect marginally improved volume discounts. Microsoft has some valid arguments for that, particularly that other discount options provide significant savings.

Before we move on let us quickly examine what successful cost management looks like in Microsoft’s “as-a-service” universe.

How do I save the most? Welcome to FinOps

The fundamental equation that is governing IT service cost management aka. FinOps is

cost-efficient cloud Spend management

When you negotiate a discount this obviously affects “Price”, but almost always also put some constraints on “Quantity” through some sort of commitment – or even on “Total Cost” when you make a monetary commit. And this is where you should exercise caution.

In Azure, we see an optimization potential by leveraging reservations, licensing options, and other price discounts, typically reducing costs with 15-25%. Another 10-30% comes from shutting down services (ie. reducing quantity). Hence an optimized Azure environment is 50% cheaper to run than a non-optimized environment.

We tend to see that early in the Azure journey the focus is on moving new areas into Azure and only later the focus shifts to a FinOps responsibility applied consistently. You need to know how much untapped savings potential there is to not overcommit in total spend.

FinOps for Microsoft 365

Similarly in your Microsoft 365 environment there will most likely be significant cost reduction opportunities you need to factor in. One example is inactive users. Undoubtedly, your IT department has full control over employees joining and leaving the company, but what about external consultants and temps? In the companies we work with typically 10-15% of the total licenses assigned are to inactive users.

This comes as a big surprise to all our customers!

The other area in Microsoft 365 you need to understand is if you can do with cheaper licensing options than today, ie. by having some employees work with smaller bundles or downgrading churned employees.

This takes longer to implement but makes it even more important to not commit to E3 or E5 bundles for all employees if there is a major potential here. The last few percentages in discount can be very expensive.

The main take away here is that in the future you will save more money on your ongoing cost optimization than what discounts you can negotiate.

So, in light of this what is the framework for renegotiation?

How do I negotiate the best deal for my company?

In a world where you will save more money on the ongoing cost management than what you can get at the negotiation table … how does the best possible deal look like?

The key here is to understand what you can commit to, and where you need flexibility.

How much can you save on Azure? Make sure not to commit more than your current spending minus savings and protect your right to the annual true-up. We have seen too many examples where a three-year monetary commitment was not used – because IT-projects do tend to take longer than planned!

Similarly, you need to be able to answer how many inactive users you have, and if there are options to serve some user groups with cheaper bundles.

With this in mind, your four steps to the perfect deal are:

  1. Understand untapped optimization potential
  2. Define your maximum commitments in main categories
  3. Negotiate the best possible deal
  4. Work professionally with FinOps driving down total costs – getting the benefits of the flexibility you negotiated

Having worked with the largest private companies and public organisations, and all types of organisations the one question that is the hardest to get a firm answer to is “What is our untapped optimization potential?” – particularly in a project which is demanding in itself and with short deadlines.

So how do you do that?

The secret sauce to the perfect deal…

If you want to understand where to find future cost savings, you can equip yourself with an army of consultants with Excel and a thorough knowledge of Microsoft prices, discounts and terms & conditions.

Or you can look for a standardized solution.

When you think of it: Your problem is identical to many other companies, and all data to solve your problem is available in standard format in your portal (Azure, M365).

So, you should be able to find a solution that:

  • Takes no time to implement
  • Is reasonably priced
  • Will provide you with the information you need to understand your commitments and need for flexibility

So, everybody is doing this, right …?

The elephant in the room

Having worked with all types of large organisations and analyzed billions of IT spend we see that only the most advanced organisations are understanding the new rules of the game – before, during, and after the enterprise agreement (EA) renegotiation.

Too many organisations measure procurement on negotiated discounts. No wonder, this leads procurement towards maximum commitments and discounts, despite this will be costly in the three-year period.

Very few organizations have a professional FinOps approach nor measurements of price optimization or a process to avoid waste.

Working with the new way to manage IT service costs is a team effort and everyone needs to be on the same page. While IT and procurement try their best, the leadership teams must also embrace this way to manage IT services costs – just as they have already taken the consumption of IT services as Azure and M365 fully on board.

Once, FinOps is implemented it makes perfect sense. Just as we are getting speed and agility into developing new services, we are getting speed and agility into managing costs as well.

If you only remember one thing, this should be this…

In the future you will save more in the ongoing cost management than in your Microsoft renegotiation! Make sure you do not over-commit to Microsoft and maintain the flexibility you need in your FinOps team.