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Azure Spot Pricing is a discounted compute model that leverages unused Azure capacity. It offers deeply reduced rates compared to pay-as-you-go pricing by selling spare resources. Pricing fluctuates based on current supply and demand for compute capacity. Customers can choose to deploy Spot VMs or Spot instances in Virtual Machine Scale Sets (VMSS) and Compute Fleet.
Spot instances deliver significant cost benefits, often up to 90% savings over standard VM rates. You pay only for the time your instance runs and incur no charges after eviction. Use the Azure pricing calculator or CLI to estimate Spot rates and forecast expenses. Automated scaling in VMSS can help adjust capacity dynamically. Discounts apply per minute, making Spot ideal for short-lived or scalable workloads.
A key consideration of Spot Pricing is the risk of interruption or eviction when Azure needs capacity. Evictions happen when price exceeds your maximum or capacity is reclaimed. Strong architectural design is required to handle unexpected terminations. Implement features like checkpointing, automated redeployment, and eviction policies to mitigate downtime. Integrate eviction notifications via the Azure metadata service to gracefully shut down workloads.
Spot Pricing is best suited for non-critical, flexible workloads that can tolerate interruptions. Common use cases include batch processing and data analytics, development and testing environments, high-performance computing (HPC) and large-scale simulations, and stateless web applications. By combining Spot VMs with standard instances, you can optimize cost while maintaining reliability for critical components.
Pay-As-You-Go is a cloud pricing model where you are billed based on your actual consumption of Azure resources. With this model, there are no upfront commitments, and you only pay for the services and compute time you use. You receive a monthly invoice that details each resource's usage and cost. This approach makes it easy to start or stop services at any time without penalties.
Using Pay-As-You-Go, you gain flexibility in how you manage your cloud spending. Key benefits include no minimums or commitments, competitive pricing, pay only for what you use, and cancel anytime. These features ensure that you can quickly scale resources up or down in response to changes in demand without having to forecast long-term usage.
Azure provides built-in cost management tools to help you keep track of your Pay-As-You-Go charges. Cost data is refreshed every four hours so you can monitor spending in near real-time. At month close, billed charges are typically available within 72 hours after the invoice is issued. You can also download detailed usage files and set budgets or alerts to avoid unexpected costs.
This pricing model is most advantageous in scenarios such as short-term projects or testing environments, startups and small businesses with variable workloads, development and staging environments, and new Azure adopters who want to explore services without long-term contracts. By leveraging Pay-As-You-Go, you optimize costs, maintain full control over resource usage, and only pay for the exact infrastructure you consume.
Reserved Instances in Azure are a pricing model where you commit to using a specific virtual machine or service capacity for a one- or three-year term in exchange for a discount compared to pay-as-you-go rates. With this model, you select the resource type, region, and term length, then purchase the reservation up front or pay monthly over the term. Reserved Instances apply to many Azure services, including Virtual Machines, Azure SQL Database, and more. They help organizations plan for and optimize predictable, long-term workloads.
One of the primary benefits of Reserved Instances is cost savings, which can range up to 72% compared to pay-as-you-go pricing. By paying ahead of time or committing to a multi-year term, you lock in a lower rate and reduce your overall cloud expenditure. This model also enhances cost predictability by providing a fixed fee for the reserved resources, making budgeting and forecasting easier. Moreover, reserved pricing can combine with other benefits like the Azure Hybrid Benefit to increase overall savings.
Organizations typically use Reserved Instances for stable and continuous workloads that run 24/7 or serve as baseline capacity. Examples include production web servers, database servers, and development/test environments. When demand is steady, reserved instances ensure you have the capacity you need without unexpected cost spikes.
Azure offers flexibility in managing Reserved Instances through features designed to adapt to changing requirements. You can choose from options such as scope sharing to share reservations across subscriptions, exchange to switch reservations to a different resource type, and refund to cancel a reservation for a prorated refund. These options help align reservations with evolving business needs, avoid waste, and maintain cost efficiency.
Azure Hybrid Use Benefit (AHUB) is a cost-saving licensing model that allows you to reuse existing on-premises software licenses when you move workloads to Azure. By switching from the default Pay-As-You-Go (PAYG) pricing to your own licenses, you pay only for compute and infrastructure. This benefit applies to popular products like Windows Server, SQL Server, and supported Linux distributions, helping organizations reduce overall cloud expenses.
To qualify for AHUB, you need active Software Assurance or equivalent subscription rights for your on-premises licenses. You can bring your own license (BYOL) for both Red Hat Enterprise Linux (RHEL) and SUSE Linux Enterprise Server (SLES). Key license types include RHEL_BYOS, RHEL_BASE, RHEL_EUS, RHEL_SAPAPPS, RHEL_SAPHA, RHEL_BASESAPAPPS, RHEL_BASESAPHA, SLES_BYOS, SLES_STANDARD, SLES_SAP, and SLES_HPC.
You enable Hybrid Use Benefit on a virtual machine by installing the Azure Hybrid Benefit extension and updating its license information. Use the Azure CLI commands az vm extension set to install the AHUB extension and az vm update --license-type to switch to BYOS or PAYG. After updating, confirm the benefit with az vm get-instance-view --query instanceView.extensions or the PowerShell Get-AzVM -Status cmdlet.
Applying AHUB is particularly beneficial when you already own licenses and plan to run long-term workloads in Azure. Common scenarios include migrating SQL Server databases, running enterprise Linux applications, or standardizing Windows Server environments. By leveraging this benefit, organizations can optimize cloud expenditure and achieve cost savings of up to 40–50% on compute licensing.
Azure offers several support plans that vary in cost and the level of service they provide. The support plan you choose affects response times for technical issues, access to specialized services, and overall cloud management costs. Basic support is included with all Azure accounts and provides access to documentation and community resources. For businesses that need faster response times and direct access to Azure engineers, paid plans like Developer, Professional Direct, and Premier offer escalating levels of support. The Premier plan includes dedicated support teams, architectural guidance, and proactive monitoring. Choosing the right support plan depends on how critical your Azure workloads are and how much assistance your team needs.
Several key factors drive Azure service costs and must be considered when planning your cloud budget. Resource type significantly impacts pricing because different services like virtual machines, storage, and databases have different price points. Geographic region also matters since Azure data centers in different locations have varying operational costs, which translate to different pricing for the same service. Outbound data transfer costs accumulate when data leaves Azure data centers, while inbound data transfer is typically free. The support plan you select adds another layer of cost on top of your resource usage. Understanding these factors helps you make informed decisions about where to deploy resources and how to optimize spending.
The Azure Pricing Calculator is a tool that helps you estimate the cost of Azure services before you deploy them. You select the resources you plan to use, specify their configuration details such as size and region, and the calculator provides an estimated monthly cost. This tool allows you to model different scenarios by adjusting variables like usage patterns, data transfer volumes, and pricing models. By inputting your expected workload characteristics, you can compare costs across different resource types and configurations. Using the pricing calculator during planning helps prevent unexpected bills and ensures your cloud spending aligns with your budget.
Azure offers a free account that provides new users with credits to explore Azure services without immediate cost. These credits are typically valid for 30 days and can be used across any Azure service. In addition to the free account, Azure provides perpetually free services that remain available at no charge as long as you stay within specified limits. These include certain levels of storage, bandwidth, and core compute resources. Some services are free for a limited time only, after which standard pricing applies. Understanding what is free and for how long helps you maximize the value of your Azure free account while learning the platform.
Total Cost of Ownership (TCO) is a framework that helps compare the overall expenses of cloud solutions, including initial investments, operational costs, and long-term savings. By evaluating TCO, organizations can make informed decisions about which pricing model best fits their budget and workload requirements. TCO analysis goes beyond just hourly rates; it includes costs like support, management, and potential downtime. Ultimately, it guides decision-making by highlighting the most cost-effective options over the lifecycle of a cloud deployment.
Cloud providers like Azure offer several pricing models, each with different cost structures and commitments. Common models include Free which offers limited services at no charge for a trial period or with usage caps, Pay as you go which has no upfront commitment and charges based solely on actual usage, Enterprise Agreement (EA) which requires up-front prepayment or spending commitment in exchange for reduced rates, and Cloud Solution Provider (CSP) which is managed by partners who can bundle services and adjust pricing, terms, and billing. Each model influences your TCO by affecting initial outlay, discount opportunities, and billing automation.
Estimating TCO requires the use of Azure tools to forecast and track expenses over time. The Azure Pricing Calculator lets you configure services and see cost estimates before deployment. Azure Migrate assesses on-premises workloads, recommends VM sizing, and provides a projected cost to run in Azure. After deployment, features like budgets, alerts, and cost analysis reports in Azure Cost Management help monitor actual spending and compare it against your forecasts.
To optimize TCO, organizations apply several strategies to lower both upfront and ongoing expenses. They can purchase Azure Reservations or Savings Plans for predictable compute workloads to lock in discounted rates. They organize resources with management groups, subscriptions, and resource tags to allocate and attribute costs accurately. They set up budget alerts and scheduled alerts to identify and respond to spending anomalies. They review and adjust resource sizing and automation to eliminate wasted capacity. These practices ensure that your cloud expenditure aligns with the expected TCO and delivers the best value over time.
Prepare and test your skills
Prepare and test your skills
Azure Spot Pricing sells unused Azure compute capacity at discounts of up to 90% compared to standard pay-as-you-go rates, with pricing fluctuating based on supply and demand. It is best suited for flexible, non-critical workloads that can tolerate unexpected interruptions and evictions, such as batch processing, data analytics, high-performance computing, and development or testing environments. Instances incur no charges after eviction and allow organizations to optimize costs when paired with eviction policies and automated scaling.
Azure Reserved Instances provide cost savings of up to 72% over pay-as-you-go rates by committing to a specific virtual machine or service capacity for a one- or three-year term. They deliver fixed pricing and budget predictability for continuous, baseline workloads that run 24/7. Organizations can manage these commitments flexibly using features such as scope sharing across subscriptions, exchanges for different resource types, and prorated refunds.
Azure Hybrid Use Benefit (AHUB) is a licensing option that allows organizations to reuse existing on-premises licenses in Azure, saving up to 40 to 50 percent on compute licensing costs. To qualify, customers must have active Software Assurance or equivalent subscription rights for their on-premises licenses. The benefit applies to Windows Server, SQL Server, and supported Red Hat Enterprise Linux and SUSE Linux Enterprise Server distributions.
Azure Pay-As-You-Go is a consumption-based pricing model where organizations pay only for the exact compute time and services used, with no upfront commitments or cancellation penalties. Cost data is refreshed every four hours to enable near real-time tracking, with billed charges typically available within 72 hours of month-close invoicing. This model is best suited for variable workloads, short-term projects, testing environments, and organizations exploring Azure services.
An organization plans to migrate several on-premises Windows Server and SQL Server workloads to Azure Virtual Machines.
The company currently holds active Software Assurance on its existing on-premises licenses and wants to maximize cost savings by reusing those licenses in the cloud rather than paying full pay-as-you-go licensing fees.
Which pricing option should the organization use to reduce their compute costs in Azure?
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