Many companies experience that cloud costs grow faster than anticipated. As a result, this slows down cloud adoption and/or creates budget overrun.
A frequent reason for cost surprises is not taking full advantage of all the options for savings available in Azure and assumed in the original business case.
So, we will take a practical, financial approach. You will benefit from reading this even if you do not have a technical background.
If you are an experienced cloud cost manager, you will know the concepts. Still, you might learn a thing or two from the real-world examples and how to get it done. This includes a list of free tools like Azure Pricing Calculator, Cost Management Service, and Advisor.
Savings option #1: Azure Reservations
What are Azure Reservations?
We know, we know, you already know about reservations. Yet, even our best customers would benefit from using even more reservations.
Buying Azure Reservations (Azure Reserved Instances) is committing to purchasing a service for a one- or three-year period. Doing so will give substantial discounts, typically 60%+.
Moreover, you can exchange reservations within each of the 19 categories. So it is not like buying a specific piece of hardware. In some situations, you can even get an unused reservation refunded.
With this level of flexibility, it is essential to approach reservations in the right way. Ask not “Will this VM, Database, Disk, be running in 2 years”. Instead, ask “Will my use of ALL compute on Azure (VMs, Functions, Containers, etc.), be even just 2/3rds of what it is today in 2 years?”. If so, buy the reservation and balance them often.
It is also worth noting that the reservations now do not need to be paid upfront, so it is not a problem from a cashflow perspective.
You can read more about reservations in a recent blog post.
Reservations in the real world
Every company we have worked with uses reservations to some degree, but no one leverages the full potential:
- There are a total of 19 categories of reservations, each with multiple different reservation types.
- Every quarter new reservation-types are added or changed.
Add to this a few “tricks” you must know to master reservations, and you understand why.
A very cost-focused client exercised great discipline and always bought the right-sized VM, which unfortunately could not be reserved. However, a cheaper solution was to upgrade to a more expensive VM type and then get the 65% reservation discount, delivering a 45% saving compared to the cheaper, less performing VM.
A large enterprise client was shutting down servers every weekend to save costs. However, buying reservations and keeping the servers running saved them 20%.
While these examples are not hard to understand the nevertheless illustrate that your task when managing cloud costs is managing a very large number of combinations. The real challenge is not understanding what needs to be done – rather it is finding the needle in the haystack which delivers the the largest savings.
Savings option #2: Azure Hybrid Benefits
Another way to get significant savings in Azure is Azure Hybrid Benefits (AHB). This is a strategic move from Microsoft to get on-prem clients to move workload to Azure by allowing the same kind of licenses to be used on-prem in the cloud. So, this means you can leverage existing licenses with active SA. You can also benefit from renting or buying new licenses.
These savings are huge, in some instances close to 90%! Hence, understanding and leveraging this option is another must-do.
The implementation is straight forward – it is simply a checkmark in the server configuration that you are bringing your own license. Again, do make sure you own that license or rent or buy new ones before setting the checkmark.
AHB in the real world
Managing AHB is quite complex because you need a detailed understanding of licensing types and options. We often see results of non-compliance or deferred decisions.
A cloud-native startup had no on-prem licenses and thought that AHB was not an option for them. They were not aware that they could rent the server licenses from their cloud service provider and use them for AHB. This saved them 92%.
A large, global enterprise customer was leveraging AHB systematically. Based on external advice, they were about to purchase Windows Server Enterprise licenses for AHB, where Windows Server Standard would suffice. Buying the Standard edition meant a saving of 84%.
Whether you are a startup or a global enterprise customer make sure that you get external advice on licensing – and make sure it is from an independent expert who is not directly or indirectly making money on your Microsoft spend.
Savings option #3: Azure Elastic Database Pools
This is the third of the must-do savings types because the potential savings are significant, 60%+.
Nearly all customers use SQL Server in Azure. And for most customers, it’s one of the top 5 expenses.
Azure has the problem that frequently, the minimum size of the database you can buy is too big for the workload you want to run. The answer to this problem (and quite a few other problems) is elastic pools.
We will not go into the technical details here, but it is a way for you to get economies of scale and only pay for what you use.
Elastic Pools in the Real World
Elastic pools is the most important way to get some economies of scale in the cloud – make sure you understand all the options here.
A small Software-as-a-Service customer was spinning up a SQL Database for each new customer who ordered a trial. With the smallest standard database cost of €12.4 per month, that adds up. However, none of these customers use the performance available even in this, the smallest instance, and most are very rarely accessed at all. Creating a small vCore Elastic Pool saved them more than 75% of their Azure SQL Database cost and allowed them to keep adding customers with nearly 0 marginal costs.
Other Ways to Save in Azure
There are many other ways to save. To mention a few:
- Use the newest version of a service. This is how Microsoft introduces lower prices. New versions are cheaper than the versions they replace.
- Use Azure discounts for test and development servers. If you have Visual Studio Subscriptions for your developers, set up a Test/Dev subscription and avoid paying for Microsoft products.
- Find the right model for paying for data egress (that is, data you pull out of the cloud).
And we have not even moved into how you can save by reducing how much you buy. If you are interested in diving a bit deeper into this subject, you can read our article on Finops.
The bulk of savings are made from the top three categories. Therefore, our advice is clear and simple:
“Make sure you master Azure Reservations, Hybrid Benefits, and Database Elastic Pools, and make quarterly systematic reviews of these”
What about pausing resources? Or rightsizing?
One of the intuitively great ways of savings in Azure is the ability to shut down resources when they are not in use. And there are a number of tools out there that promises you to do it without hassle.
The reasons why we do not recommend you to start here are multiple:
- Of the three largest categories only virtual machines can be paused. Storage and Databases do not offer this option.
- The business case is not strong because when you pause a VM your pricing is “pay-as-you-go”. Hence you need to pause the VM more than 12 hours per workday and the entire weekend to compete with a typical reservation
- Pausing workloads would require sign-off from the business. The time spent having this dialogue and the management of pausing VMs must be built into your business case.
How to get savings done?
It should be clear that there are substantial savings opportunities in Azure, but you probably recognize one or more of these challenges:
- Time and Priority: Your focus is delivering and operating cloud services, not managing costs.
- Complexity and Changes: It is hard to get a complete overview of the options and new services and savings opportunities.
- Knowledge: Even when you set aside enough time to identify savings, you frequently run into a question you would like to get answered before implementing it.
If so, you are not alone.
Azure tools can help you with some of the savings
Azure offers a comprehensive suite of tools that can help you to get the job done.
- Azure Pricing Calculator can help you estimate the costs of a service you consider setting up. Remember to include things like Storage and Back-Up (these are not included by default)
- Azure Cost Management and Billing can help you understand your utilization and cost in your environment. We haven’t touched on the benefits of saving on how much you use of each service in this blog, but it can be substantial.
- A note on Azure Advisor. While this tool is supposed to include cost optimization recommendations, we find it often actually increases costs. Be careful when following the advice for cost recommendations.
- Cloudyn is now free for your Azure spend, and you can get it to cover your AWS, and Google Cloud spend as a paid service.
No tool will deliver savings
… just like your bathroom scale in itself doesn’t lose you any weight.
If you google azure savings, cloud cost management, finops, or other keywords related to saving on Azure and other public clouds, you will find an endless list of tools. You will find Apptio, CloudHealth, Densify, and many more. They are all great tools!
Even if you stick to the free Azure tools it is clear that the problem is not getting data points, ideas, and recommendations.
The problem is that you don’t have the time to properly understand the recommendations or filter through the multitudes of options to find the ones that make the most sense.
So then, how do you do that?
Well, consider this. What if you were getting a service where you quarterly scheduled a couple of hours in your calendar to go through a finite list of material savings recommendations with a guide that can answer any questions or concerns, you might have? You know, like the Kostner Cloud Cost Management Service.
Final Reflection: Managing Azure Cost is just one of a New Trend
If you look around your company, you buy more and more technology “as-a-service”. There are good reasons for this, but it introduces a new paradigm for cost management that matters for everything you buy as a service. If you want to read more on this, please download our whitepaper on “Digital Transformation: Everything-as-a-Service”.
For each of these new services you are buying you will be left with the choice: Should you do it yourself or get external assistance.
Surely, you could do it yourself, but with more and more services, is managing costs really what you should be spending your time on?