Microsoft Azure is a world-leading public cloud platform which provides a robust, scalable, and flexible Infrastructure as a Service (IaaS) offering.
The Azure IaaS platform gives you the ability to create Virtual Machines (VMs) in seconds from a set of predefined images which have been created by Microsoft and other parties. This VM solution offers true flexibility to choose from a variety of workloads offering support for a range of operating systems from Microsoft Server 2008 R2 to various flavors of Linux.
Azure VMs on IaaS make cloud migrations easier
Organizations looking to migrate their on-premise workloads to the cloud often choose to deploy these onto the IaaS platform due to the minimal impact it has on the existing IT operational environment. This is because migrating systems to Platform as a Service (PaaS) requires some form of re-architecture. This extra step in the migration process is needed to resolve incompatibility issues which arise when migrating applications from on-premise servers to the PaaS platform. A migration to IaaS, on the other hand, is much simpler and easier to accomplish as no re-architecture is required.
IaaS is expensive, but there is a solution
The cost of running a solution on IaaS VMs is significantly higher than running the same re-architected solution on PaaS. Microsoft has acknowledged this concern and has created a new Azure VM offering in the form of Azure Reserved Virtual Machine Instances. This new offering makes the decision of migrating to the cloud that much simpler. Due to the significant cost savings this new model has to offer, organizations can fast-track their migration on an IaaS platform and then take the time to re-architect their applications for PaaS if they so wish.
What are Azure Reserved Virtual Machine Instances?
Azure Reserved Virtual Machine Instances, or as they are often referred to, Azure Reserved Instances (RI), are essentially VMs which have been reserved on Microsoft Azure’s Public IaaS cloud for dedicated use on a one-year or three-year basis.
It is important to note that Azure RIs are not a new VM technology. They are VMs running on the same technology and providing the same performance as any other Azure VM. The difference, however, comes in their pricing. Azure RIs cost 72% less than standard on-demand, pay-per-use Azure VM instances, and are great for applications and workloads that have steady or predictable usage patterns.
Azure Reserved Instances benefits
High-cost savings
As discussed, the primary benefit of choosing to deploy Azure Reserved Instances is the cost savings of running your VM on this pricing model. However, if you are an existing Windows Server customer with Software Assurance, you can combine Azure RI with Azure Hybrid Benefit and save as much as 82% on VM running costs.
No contract lock-in
The additional benefit that Azure RIs offer is even though there is an upfront commitment of either one or three years, you can cancel the reservation and Microsoft will refund the prorated balance. There is, however, a termination fee of 12% and currently, you can only terminate reservations of less than $50,000 a year. As Microsoft rolls out this new contract pricing model to other countries, these limits may change over time.
Operational flexibility
Azure RIs also offer some contract flexibility in that you can exchange RIs across any region and any series as your workload or application needs change. This benefit means you can swap out one Azure RI for another without paying the termination fee. In this case, you use the prorated refund you receive for the remaining term of the existing RI toward the new RI you are deploying.
Easier budgeting and forecasting
Based on these benefits, Azure RIs are not only a cost-effective way to get VMs commissioned; they are ideal for organizations who need to accurately predict their future cloud spend as the locked-in upfront amount remains unchanged for the duration of the Azure RI period.
Azure Reserved Instances restrictions
Azure RIs are not available for all VM sizes. The entry-level A-series and A_v2 series and the high-end memory and storage optimized G-series are excluded. Also, Azure RI is not available to partners operating in every Microsoft territory. At present, partners in the US, Canada, Australia, and the primary European and Asian markets can take advantage of this opportunity.
Azure Reserved Instances caveats
Azure RIs are a great contract model for organizations who want significant cost savings on their Azure VM instances. There are, however, a few caveats which you need to be aware of before signing up. These include the upfront cost and the limited flexibility if you need to scale unexpectedly.
Upfront payment
If you chose to commission an Azure RI, the commitment is paid up front for either a one-year or three-year period. If you have a Microsoft Enterprise Agreement (EA), you can apply your Azure Monetary Commitment to this purchase. However, if you have already used your Azure Monetary Commitment for other Azure services, the Azure RI will be invoiced on your next bill. If you do not have an EA, RIs can be purchased through your Azure account, and Microsoft will charge you the complete upfront cost. Depending on the VM type and commitment period, this upfront cost could be significant and detrimentally impact your cash flow.
Unexpected scalability can be costly
Azure RIs are purchased in quantity over a set period. This model, unfortunately, means they are not as easy to scale as standard VM instances. If your workload requirements remain steady, there is no issue. However, should you need to increase your VMs resources for any reason, you will need to pay more using Pay-As-You-Go. This breaks the predictable billing which makes this model so attractive for budgeting purposes. To leverage the full benefits of this model, you need to be able to predict your future needs and requirements with some level of accuracy.
How to Resell Azure Reserved Instances
Azure RIs offer a high growth opportunity and unparalleled customer value which Azure Cloud Solution Providers (CSPs) can leverage to drive sales.
Engage with customers who want to extend their servers to Azure
CSPs who wish to take advantage of the sales opportunities Azure Reserved Instances has to offer should engage with customers who are exploring the option of extending their server farm to Azure. The cost savings Azure RI provides in addition to the Azure Hybrid Benefit makes this a compelling proposition. This is especially true where the customer can forecast their future needs and requirements with some level of accuracy and already own Windows Server licenses.
Azure RI benefits can be extended to existing VMs already on Azure
Even if customers are already using Azure to run full-time workloads on a Pay-As-You-Go basis, Azure RIs offer significant cost savings when customers commit to the upfront payment. Customers can apply the Azure Reserved Instances model and its discounted price to an existing VM that it already runs on the Azure public cloud. However, the VM must be in the same region, and of the same type or size as the requested RI.
Azure RI can help create higher customer LTV
As a CSP, your success is measured by the success of your customers. Azure RI offers a simple, partner-friendly model and a strong anchor point to grow profitability. This model gives CSPs a platform to power higher-margin solutions and services, incentives which enhance their cloud practice profitability, and long-term commitments by customers to advance higher customer Life Time Value (LTV). All of this while ensuring the customer leverages the benefit of running their VMs on the most cost-effective public cloud for their Windows Server workloads.
