Azure cost surface: reservations, hybrid benefit, deallocate-vs-stop

Outcome

By the end of this lesson, you will be able to distinguish Azure’s three primary cost levers (Reservations, Hybrid Benefit, Spot) and recognize the deallocate-vs-stop trap.


Tier	Operator
JTBD	”Stop paying for stopped Azure VMs.”
Personas	FinOps Analyst · Platform Engineer · Finance Partner
Prerequisites	M0.1, M0.4
Time	10 minutes
Bloom verb	Distinguish (Analyze) and Recognize (Understand)

1. Concept

Azure’s bill resembles the other two, with two mechanics that catch people out.

The first is that stopping a virtual machine and deallocating one are different actions, and only one of them stops the compute charge. The second is a discount for customers who already own Windows or SQL Server licences.

There is a third, the cost-column trap covered in M0.4 L3, which is important enough to have its own lesson.

RANK  SERVICE                          TYPICAL %  NOTES
─────────────────────────────────────────────────────────────────────
 1    Virtual Machines                 30-50%    Equivalent of EC2
 2    Azure SQL / Cosmos DB            10-20%    Managed databases
 3    Azure Storage (Blob / Disks)      5-15%    Like S3 + EBS combined
 4    AKS                               5-15%    Kubernetes
 5    Network                           5-10%    Egress, ExpressRoute, NAT
 6    Application Gateway / Load Bal.   1-5%     LB equivalents
 7    Azure Monitor / Log Analytics     2-8%     CloudWatch equivalent
 8    Functions                         1-4%     Serverless
 9    Databricks                        2-10%    On Azure
10    Sentinel / Defender               1-5%     Security

The deallocate-vs-stop trap

Azure VMs have two off-states. Most teams discover the difference the hard way.

“Stopped” (from inside the OS or “Stop” in the Azure portal under certain paths). The VM is powered off. The compute is still allocated. You continue to be billed for the VM compute. This is rare in Azure-native control surfaces but happens when teams shut down via the OS without using the Azure platform’s stop command.

“Stopped (deallocated)”. The VM is powered off and the compute allocation is released. You stop paying for compute. Storage (the OS disk and data disks) continues to bill at its per-GB rate.

Net: in Azure, “stop the VM” needs to mean “deallocate.” Any tool or human action that stops without deallocating leaves compute billing.

STATE                          COMPUTE BILL   STORAGE BILL
─────────────────────────────────────────────────────────
Running                            $X            $Y
Stopped (allocated)                $X            $Y     ← TRAP
Stopped (deallocated)               $0            $Y     ← correct
Deleted                             $0           $Y if managed disks remain, else $0

ZopNight’s Azure scheduler uses deallocate for VMs. Any team writing their own scheduling needs to verify the API call is Deallocate, not Stop. (See the FEATURES.md reference for the Azure-specific implementation note.)

Azure Reservations

Azure Reservations are roughly equivalent to AWS Reserved Instances:

1-year or 3-year terms
Apply to one specific machine model (a SKU, Azure’s word for a particular size and generation, such as D8s_v3) in a specific region, or across all of them if you set the scope to shared
Upfront, partial-upfront, or monthly payment options
Up to ~40% discount on the rate card for 3-year, ~25% for 1-year
Exchange / cancel options available with restrictions

The amortized-cost behaviour from M0.4 L3 is the critical reading nuance: ActualCost at subscription scope returns $0 for reserved resources, AmortizedCost is the right column for per-resource reporting.

Azure Hybrid Benefit (AHB)

A discount the other two clouds have no equivalent of.

If your company already owns Windows Server or SQL Server licences for its own data centre, and keeps them under Software Assurance (Microsoft’s paid support and upgrade plan), you can carry those licences over to Azure. The machine still costs what the hardware costs; the licence part of the bill goes away.

WORKLOAD                                  HYBRID BENEFIT IMPACT
─────────────────────────────────────────────────────────────────────
Windows Server VM (Standard_D8s_v3)        ~36% discount on VM rate
SQL Server VM (any size)                   ~55% discount on the SQL portion
SQL Managed Instance                       ~55% discount

AHB is opt-in per resource. A team migrating from on-prem with existing licenses can capture significant savings. A team that does not check whether AHB applies leaves money on the table.

Azure Spot

Equivalent of AWS Spot or GCP Spot. Up to ~90% discount on rate card. Eviction is on a per-VM basis with a 30-second warning. Spot VMs cannot be live-migrated.

Network specifics

Bandwidth within a single Availability Zone (same region): free.
Bandwidth between zones in same region: $0.01 per GB each direction, the same as GCP and AWS (all three charge for cross-zone traffic; only same-zone traffic is free).
Internet egress: tiered, starting at ~$0.087 per GB (first 100 GB per month free).
ExpressRoute: dedicated private connection, separate pricing model, can dramatically reduce egress cost for high-bandwidth flows.

Other Azure cost notes

Disk caching tier matters: Premium SSD (P-series) vs Standard SSD vs Standard HDD all have different per-GB-month rates and IOPS characteristics. Default Premium SSD on a dev VM is overspend.
Backup vaults charge per protected instance + per GB stored. Cleanup of orphaned backup vaults is a common audit finding.
Log Analytics has a daily cap (configurable) that prevents runaway ingestion. Use it.
Bandwidth between Azure regions ($0.02 per GB) is significantly cheaper than internet egress.

2. Demo

A real (anonymized) Azure breakdown showing AHB impact and the deallocate trap:

SCENARIO 1: Without AHB
  10× Windows D8s_v3 VMs, 24/7              $4,800/month

SCENARIO 2: With AHB (licenses available)
  Same 10× VMs                              $3,072/month (-36%)

SCENARIO 3: Same 10 VMs, 5 of them were "Stopped" not "Deallocated"
  Compute keeps billing for the 5 stopped   $4,800/month
  (no discount because they are not "off")

SCENARIO 4: Correct configuration: AHB + Deallocate 5 nightly
  AHB applies, deallocate frees compute      $2,250/month (-53%)

Same starting workload. The right combination of two Azure-specific levers (AHB + deallocate) returns 53% of the original cost. Missing either gives back 0-36% of the available savings.

3. Hands-on (7 min)

If your organization runs Azure:

1. List your stopped Azure VMs:
   az vm list -d --query "[?powerState=='VM stopped']"

   These are still billing for compute. Any in this list should be
   deallocated or deleted.

2. List your deallocated VMs:
   az vm list -d --query "[?powerState=='VM deallocated']"

   These are correctly off. Storage still bills.

3. Check Hybrid Benefit eligibility:
   az vm list --query "[?licenseType=='Windows_Server']"

   These have AHB applied.

   az vm list --query "[?osProfile.windowsConfiguration && licenseType==null]"

   These are Windows VMs WITHOUT AHB. Check if licenses are available.

4. Pull your reservation utilization report from the Azure Portal
   (Cost Management → Reservations). Look for any reservation with
   <85% utilization: these are over-commitment in progress.

4. Knowledge check

Q1

A team reports: “We stopped our Azure VMs but the bill did not drop.” Most likely cause:

A. Azure bills with a 30-day lag
B. The team simply stopped the wrong set of VMs altogether there
C. Azure raised prices
D. The VMs are “Stopped” but not “Deallocated.” Compute keeps billing

Show answer

Correct: D. Use the Deallocate operation to fully release the compute allocation. This is the canonical Azure trap. Stop without Deallocate keeps the compute allocation, which keeps billing.

Q2

A team has on-prem Windows Server licenses with Software Assurance. They have not opted in to Azure Hybrid Benefit on their Windows VMs. The defensible savings opportunity:

A. ~36% off Windows VM costs (and ~55% off SQL Server portions)
B. Roughly 5% off the Windows VM costs every single month
C. None
D. ~85% off everything

Show answer

Correct: A. AHB is a substantial discount that requires opt-in per resource. Worth the effort.

Q3

A reservation utilization report shows 62% utilization on a 3-year Azure Reservation. The defensible action:

A. Buy more reservations to bring the utilization figure up again next term
B. Investigate: 62% utilization means 38% of the committed capacity is unused
C. Cancel and refund
D. Wait for term expiry

Show answer

Correct: B. The reservation may need to be exchanged for a different SKU, scope, or term. Use the exchange option before more capacity erodes. 62% utilization is below break-even on a 3-yr reservation. Azure allows exchanging reservations (with restrictions): investigate whether the workload moved to a different SKU and the reservation can be re-scoped.

5. Apply

ZopNight’s Azure integration handles:

Discovery via Resource Graph (101 resource types)
Billing sync via Azure Cost Management with AmortizedCost (the right column: see M0.4 L3)
Scheduling uses Deallocate (not Stop) for VMs: the correct call
Activity logs via Azure Activity Log for the “Recent Activity” tab

Azure-specific rules in the 450+ rule library include AHB-eligible-VMs-without-AHB, allocated-but-stopped detection, reservation under-utilization, and the deallocate-vs-stop check.

Glossary terms touched

Deallocate · Azure Hybrid Benefit · Azure Reservation · Software Assurance · ExpressRoute

Outcome

1. Concept

The top 10 Azure services by typical spend share

The deallocate-vs-stop trap

Azure Reservations

Azure Hybrid Benefit (AHB)

Azure Spot

Network specifics

Other Azure cost notes

2. Demo

3. Hands-on (7 min)

4. Knowledge check

Q1

Q2

Q3

5. Apply

Related lessons

Glossary terms touched

Start with the bill.