Why are you not using Azure Hybrid Use Benefit?

As many of you may know, I work for a CSP distributor so I deal with licensing A LOT. This is something most people hate and really don’t understand very well which is where CSP providers can really add value and expertise. Azure Hybrid Use Benefit is something that has been around for years but is something that’s very misunderstood or simply deemed to be “too complicated” and ignored.

There’s been some recent license changes as of October 2022 that make this worth looking at again as it’s really not that complex once you understand how it works and the financial benefits are potentially substantial.

What is Azure Hybrid Use Benefit?

Azure Hybrid Use Benefit, that’s quite a long phrase so I will refer to this as AHUB for the rest of this blog post but what exactly is it?

Essentially, this means bringing your own licenses for Windows Server or Microsoft SQL Server and re-using those licenses for your Azure workloads. This seems like a good idea, right? I mean if you’ve already purchased those licenses why should you have to pay again just because you are now hosting in Azure?

Ah, but there’s a catch. You are only entitled to re-purpose these licenses if you had purchased them along with a software assurance agreement. Furthermore, this 2 year agreement must still be active, i.e. it cannot have expired. If you do not have an active software agreement then you’re out of luck because this is not something that can be purchased afterwards and in many cases, especially for smaller organisations, this was not purchased with the licenses.

Fear not however, as there is another option and one which has recently become even more attractive to businesses both small and large and that is to purchase your licenses via a CSP software subscription.

Let’s get into how this works.

Windows Server licensing

I will focus primarily on Windows Server in this post as this is where the really big savings can be made.

There’s a lot of misconceptions out there and a lack of clarity around AHUB and how it works but really it’s quite simple and once you take the time to understand it then you will quickly realise the savings that you can make.

Let’s break down the requirements:

• Windows Server license subscriptions are sold in packs of 8 cores
• You must commit to a 1 year or 3 year term
• You have a 7 day cancellation window, after that you are locked in with no cancellation permitted
• You must assign a minimum of 8 cores per Virtual Machine
• You must purchase a minimum of 2 packs (16 cores) for the customer
  ***UPDATE*** This requirement was removed in April 2023
  You must assign licenses in blocks of 8 cores
  ***UPDATE*** This requirement was removed in April 2023

As there is a minimum purchase of 16 cores, this entitles you to license a maximum of two virtual machines of up to 8 vCPU each. The following would be a typical list of what is possible to licenses with the minimum purchase of 16 cores.

Any one of the following items:

• Two x 1 vCPU VMs
• Two x 2 vCPU VMs
• Two x 4 vCPU VMs
• Two x 8 vCPU VMs
• One x 16 vCPU VM

Now you may be thinking, well if I only use smaller virtual machines like 2 and 4 vCPU sizes then I am wasting the majority of these 16 cores so why would I do this?

It may surprise you to learn that even licensing Two x 1 vCPU VMs can be substantially cheaper via a software subscription.

The following table shows how much cheaper a 1 year Windows Server subscription is compared to Pay-as-you-go license pricing. This is based on a D/E_v3/4/5 series virtual machine running 730 hours per month in the North Europe region.

• Two x 1 vCPU VMs – 47% cheaper
• Two x 2 vCPU VMs – 74% cheaper
• Two x 4 vCPU VMs – 87% cheaper
• Two x 8 vCPU VMs – 93% cheaper
• One x 16 vCPU VM – 93% cheaper

Don’t believe me? Let’s take a look at the current Windows Server PAYG pricing for licensing two x 8 vCPU VMs for one month.

Then if we take a look at the current list price for Windows Server 2022 Standard – 8 Core License Pack 1 Year. We can see it’s currently $213.36 per 8 core pack.

Reference: https://www.microsoftpartnercommunity.com/t5/General-News-Updates/Price-list-changes-for-CSP-SQL-Server-Standard-and-Enterprise/td-p/81056

So let’s do the maths.

I need to purchase 2 x 8-core packs (16 cores) subscriptions so that will be 2 x 213.36 = $426.72 for the full 1 year term.

versus

$537.28 per month on PAYG.

So that’s $426.72 per year for the license subscription versus $6,447.36 per year on PAYG.

This is a saving of $6,020.64 over the year – a saving of 93%!

New monthly option for 1 year subscriptions

There’s more good news here. As of October 2022, you can now pay for the 1 year subscriptions on a monthly basis. You are still committed to a 1 year term but instead you pay for this in monthly instalments at 1/12th of the list price each month. This is particularly good news to those who might struggle with cashflow or for service providers who want to charge a monthly price model as it means they don’t have to make that full upfront payment for an annual term.

Note, the 3 year subscription does not have a monthly payment option.

Standard Edition vs Datacenter Edition

You may have spotted that I have quoted Windows Server Standard Edition above and thought “wait a second, Azure virtual machines come with Datacenter Edition”. This is the wrong license”. Not the case. You can use Standard Edition to license your Azure virtual machines even if they are running Datacenter Edition on the operating system.

The benefits of using Datacenter Edition licensing are that you can use these same licenses simultaneously for both on premises virtual machines and Azure virtual machines so if you have a hybrid compute model then this might be cost effective for you. Datacenter Edition is also required if you want to use subscription licenses for a dedicated host in Azure.

Otherwise, Standard Edition is just fine to use for Azure virtual machines and if you are in the process of migrating from on premises to Azure then you can even use Standard Edition subscriptions for up to 180 days to licenses both your on premises virtual machines and your Azure virtual machines as you complete your migration project.

All in all, it’s a pretty great deal.

Backwards / forwards compatibility

A quick note on this. You will see the product name is always the latest edition of Windows Server. At the time of writing, that would be Windows Server 2022. Does that mean I can use this subscription to license an older version of Windows Server? The answer to that is yes, it is backwards compatible.

The good news is that it is also forwards compatible. So for example, if you were to purchase a 3 year subscription for Windows Server 2022, you would also be entitled to use this subscription to license a newer edition of Windows Server.

How to enable this benefit

For the license purchase, you will need to contact your license provider. As long as the CSP licenses are assigned to the customer tenant and you meet the requirements mentioned earlier then you are covered from a licensing perspective. The only additional step is to make sure to enable AHUB on your virtual machines where you want to use this benefit. If you do not complete this step then you will still be charged for Windows Server licensing at the PAYG rate. So you are effectively paying twice for the licenses.

This is enabled through the configuration section of the virtual machine resource as shown below. Don’t forget to click the save button.

Why would I not use AHUB for Windows Server?

This seems like a “no brainer”, right? Why would you not do this?

Well, there’s a few reasons where it may actually not be cost effective but really it comes down to your particular use case and your future requirements. Unfortunately, this means you will have to do some calculations yourself to decide if it’s beneficial for you or not and I believe this is why most people don’t use AHUB because it takes a little effort. A little effort can offer a big reward however.

Here’s some situations where AHUB may not be useful:

1. Remember, it’s a license commitment. You will be locked in for at least 1 year. If you are expecting to decommission some of your virtual machines in the coming months then it may be more cost effective to continue to license on a PAYG model as there is no commitment with this, you pay for what you use. Having said that, using a 1 year subscription can often work out cheaper after only a few months of use so you will need to do the maths.
   
   
2. Burstable virtual machines. The Bs virtual machine family has a different licensing model. As you are only using a portion of the compute cores you are therefore not charged the standard “per core” license costs on the PAYG model. For instance, the B2s virtual machine may only cost around $6 per month for Windows Server licensing. In other words, it’s cheaper to use the PAYG model here. In fact, it’s only when you use a B8ms size or larger where it will be beneficial to use AHUB.
   
   
3. Deallocating virtual machines. As you probably know, by deallocating a virtual machine in Azure you stop paying compute costs when it’s deallocated but also the licensing costs stop as well. Therefore, if you are running virtual machines at reduced hours it may also be cheaper to stick with PAYG licensing. Again, you will need to do the maths on this to confirm but in a lot of cases using the benefit of AHUB can still be a cheaper alternative.

What about SQL Server?

Yes, I did mention SQL Server licensing is another option for AHUB. The rules are slightly different with SQL Server. You instead purchase in packs of 2 cores and there is a minimum requirement of 4 cores per virtual machine for both Standard and Enterprise Edition.

Unfortunately, the savings are nowhere near as big here. Depending on your usage and transaction currency you might save a few percent over a 1 year term but over a 3 year term there is a slightly bigger saving.

However, you won’t really see the benefit of the savings until close to the end of the term. All in all, you might end up getting a month or two licensing for free on a 3 year subscription term versus the PAYG pricing so in my opinion it’s usually not worth the commitment lock in of the subscription term over the flexibility of PAYG pricing.

In conclusion

Hopefully this post has simplified how AHUB works. I believe the new monthly payment option for the 1 year term really helps, particularly for those providing a managed service or a packaged offering as it ties up nicely with other pricing models such as Microsoft 365.

The savings can be massive here, all it takes is a little bit of effort and admin work but at the end of the day it’s just another license so it should be something IT providers and IT professionals are well used to.