Summary
Do you still need licenses in Azure
Yes, you do. No matter what you might have heard: if you are running any vendor's products who sold you licenses for your pre-cloud IT environment, you will still have to buy licenses for your workloads in the cloud. The only exception to this is if you overhaul your IT and move entirely to Open Source platforms like Linux, Kubernetes - and even in there you may require licenses if you want enterprise support; RedHat or SUSE being prominent examples for this.
Cloud platforms do not eliminate licensing obligations. In most cases, they simply shift how and where licenses are charged.
Some cloud services "bake in" the license into their price. Azure SQL Databases or Windows-based App Service Plans are examples of these. You still pay for their license as part of their hourly cost. "Baked in licenses" will resurface in the BYOL / BYOS section where they can cause a massive problem for you.
Why you often need more licenses in Azure
Azure no longer allows you to configure your VMs at will: the platform forces vCPU-to-RAM ratios upon your IT teams, which are distributed over multiple different VM Series, introducing complexity. We see many times that organizations default to using the General Purpose series (which gives you 4GB RAM for every vCPU, often way less than you could get on-prem). That leads to a sharp increase in vCPU count across your IT landscape and thus to an equally sharp increase in your license demand.
We have also seen vendors be really reluctant to allow you bringing on-prem "all you can eat" license deals into the cloud. It's a pay per use world we live in, and going to the cloud is the opportunity a lot of vendors have been looking for.
How to calculate your license need
In Azure, you need to provide every single server with these numbers of licenses:
Windows Server: 8 or vCPU count, whatever is higher, unless you are using "License included" - then it's the vCPU count, but you will be paying that directly to Azure.
SQL Server: 4 or vCPU count, whatever is higher. Even if you are using "License included", you will always be charged the minimum of 4 licenses.
How to reduce your license need
The two most impactful changes to reducing your license need are to reduce the numbers of vCPUs per server and to reintroduce shared server farms.
You can reduce the vCPUs by looking into VM Series that give you a better RAM to vCPU ratio than the general purpose D-Series VMs we see being used in the majority of cases. These give you 4GB RAM per vCPU; if your database needs 128 GB RAM, you have to select a D-Series VM with 32 vCPUs, for which you need to assign 32 Windows and SQL Server licenses. If you don't need the CPU power, an E-Series VM gives you 8 GB RAM per vCPU, reducing your vCPU and thus license count to 16. You can go even further with vCPU-constrained E-Series or by leveraging the FX-Series which give you 21GB RAM per vCPU.
Sounds too much? We are happy to help you with the analysis and oversee a workload rightsizing project, incluing daily savings reports to show your wins.
🖐 Identify licensing-driven overprovisioning and reduce Azure VM costs. Learn more: Microsoft Azure Cloud Cost Optimisation.
What are BYOL or BYOS
Azure allows you to Bring Your Own License / Subscription. You need to check your respective license agreements if the licenses you own comply with the AHUB terms and conditions; in a nutshell, if you are buying Windows Server Subscription licenses or you have perpetual licenses under Software Assurance, you may use these for AHUB.
Many cloud services with "baked in" licenses do not provide an option to BYOL; a notable exception to this are the vCore-based Azure SQL Databases which actually allow you to bring your (eligible) SQL Server licenses and thus often are a cheaper alternative to the (still dominant in our experience) DTU-based SKUs. Not your Windows Server licenses though.
Where you cannot BYOL or BYOS
If you are using cloud services like Azure SQL Database (the DTU model, the core-based model actually allows you to BYOL), Windows App Service Plans or a variety of other services... often you do not have the option to declare "I already own licenses" and benefit from the Azure Hybrid Use Benefit. You are forced to pay the "License included" price, albeit hidden in a product price that is significantly higher than its Linux counterpart.
Many Azure PaaS services do not support Azure Hybrid Use Benefit. The cost of Windows licensing is embedded in the service price and cannot be offset by existing licences.
Feel free to check this out on the Azure Pricing Calculator: select "App Service Plan", "Premium V3" and then flip between Windows and Linux as Operating System. Watch the price change for the same size - that's the Windows Server license surcharge you are paying.
Example savings from using BYOL on Windows Server
The average list price for Windows Server Standard subscription licenses is around USD 21 per month for 8 cores on a 1-year term. If we compare this to the "License included" option of a Windows Server VM with 8 vCPUs in the Azure Pricing Calculator, we see that the "License included" fee is about USD 270 per month. That's an order of magnitude higher than the CSP licenses. Should you benefit from an even better deal, the difference you are paying for the lazy option can be as high as 20x times what you would have paid for the BYO variant. Please note that with SQL, the story is more nuanced. You really have to check your license price list; we have seen cases where "License included" was even a few percent cheaper than doing BYOL, with the added benefit of having basically no term (the moment you stop and deallocate a VM using "License included", you also stop paying for its license).
🖐 Validate whether BYOL or license-included pricing is cheaper for your workloads. Learn more: Pricing Research and Pricing Metrics.
Why it does not always happen
We see a variety of reasons when talking with IT professionals who are using "License included" in their Windows environment. Here are some examples:
We did not know if we had licenses that cover these workloads. True concern, you have to be compliant. Please check with your SAM / ITAM team to remedy that situation.
This workload is only temporary. Ok... but once it has been up for a month, its license bill likely is already higher than what a 1-year license pack would have cost you. Plus you can use that license pack on a different VM once the temporary one is decommissioned: every AHUB-eligible license has mobility rights, it can "wander over" to the next VM when the old one is no longer running.
This VM is only up a few hours per day. Same argument as above: if it's up more than 1-2 hours per day, BYOL may already be cheaper and you can use it to cover more than one VM that is up only a few hours per day, as long as their uptimes are during different times of the day.
I am not a licensing expert. Most IT Ops or Dev professionals are not. That's why FinOps is a team effort.
How to check for it in your environment
Ask the person responsible for your Azure costs to check for charges for VMs with "Windows" in the Charge Description. These are unreserved VMs with "License included": two optimization opportunities for you right there.
Recommendation
If your workload is mostly 24/7, institute a policy that all Windows Server VMs are to be built with Azure Hybrid Use Benefit enabled. Build a regular report counting your license requirements in Azure to keep your SAM / ITAM team informed (so they can ensure your company remains compliant) – or use ours. We have it ready for Windows Server, SQL Server, RedHat, SUSE and IBM.
Standard vs. Enterprise Edition in Azure
Outside of Azure, there are significant differences between these two editions; we have plenty of blogs as well as training videos on Youtube explaining them. On Azure however, Microsoft removed this: for a Virtual Machine in Azure, you can use a Windows Server Standard license to run any Windows Server image, including the Datacenter edition one.
With the Standard Edition being several times cheaper than the Enterprise Edition, consider divesting your Enterprise Editions* – as even just paying Software Assurance on your perpetual licenses is more expensive than a Windows Server Standard Subscription. Even if you are using the "dual use" feature that allows you to cover an 8-core VM on-prem and an 8-core VM in Azure with 8 Windows Server Datacenter Edition licenses, the Standard Edition subscription is still the cheaper option.
* Please check with your IT Ops and ITAM professionals before taking drastic action. You may still have requirements for Enterprise Edition licenses outside of Azure**, forcing you to keep at least some of them around.
** Please definitely check with them if you are using Azure Dedicated Hosts. You may benefit from unlimited licensing on ADHs in a way that makes Enterprise Edition preferable - but we see very few dedicated hosts being used, so this is a fringe case.