The real number
Same 9-VM business estate — 2 domain controllers, file server, 2 web servers, SQL, mail, monitoring — 3-year cost:
| 3-year cost | What's included | |
|---|---|---|
| Colocation | $132,600 | Redundant 2-node cluster, SAN, Windows Server Datacenter licensing, firewall, Half Rack (2kW) |
| Azure, pay-as-you-go | $207,250 | Same 9 VMs, Windows licence included, no commitment — the default most businesses actually pay |
| Azure, 1-year Reserved Instance | ≈ $157,400 | ~37% off compute only (Microsoft's published range) |
| Azure, 3-year Reserved/Savings Plan | ≈ $126,500–$153,400 | 40–60% off compute only — Windows-licensed VMs discount less than the 60–72% Microsoft advertises for Linux |
Both sides include Windows Server licensing, so this is a like-for-like comparison — the Azure figures use licence-included pricing rather than assuming licences are brought across from elsewhere.
Colocation beats pay-as-you-go (by 36%), 1-year reserved pricing (by 16%), and most of the 3-year reserved/savings plan range. Only the very best end of that range — a full 3-year commitment achieving the maximum discount — edges ahead of it. SQL Server's own database engine licence isn't priced on either side of this comparison, and would be a real additional cost wherever the SQL workload runs. Configuration and setup labour is excluded on both sides too — deploying either build takes real hours, and neither number here accounts for them.
What the $132,600 actually buys
| Component | Cost (ex GST) |
|---|---|
| 2× server, redundant compute cluster | $29,998 |
| Shared storage array (redundant SAN) | $26,999 |
| Windows Server 2022 Datacenter + CALs | $20,829 |
| Firewall hardware | $4,397 |
| Upfront total | $82,223 |
| Firewall subscription (3 years) | $9,006 |
| Half Rack, 2kW, 36-month term | $41,400 |
Two node failure tolerance, redundant storage controllers, a perimeter firewall, and five years of vendor support — not a single box with a Windows licence slapped on it.
Where the cost difference comes from
| Colocation | Cloud | |
|---|---|---|
| Setup cost | One-off, waived on 36-month terms | $0 shown, migration effort hidden |
| Data egress | Free, unlimited from $255/mo | ~$0.13/GB after 100GB free |
| Support | $180/hr, only when needed | 9%+ of monthly spend, every month |
| Currency exposure | None — fixed in AUD | USD-linked, regardless of discount tier |
| Capital structure | Capex — a depreciable, resellable asset | Pure opex — nothing owned at any point |
| Flexibility | Fixed capacity, lead time to expand | Instant scale up or down |
Beyond one server: DR and multi-client hosting
The same real quote above is close to the right shape for other common builds, at very different price points:
- A disaster recovery secondary site is almost exactly this — two redundant hosts plus shared storage, connected to a primary site over Enterprise Ethernet or dark fibre. The number barely changes; the use case does.
- An MSP hosting multiple clients scales the same building block. The SAN is the expensive, mostly-fixed part — it doesn't need duplicating as more compute nodes are added. A genuinely multi-tenant platform (a few more hosts sharing the array) runs an estimated $110,000–$150,000 upfront, not a quote for a specific build, but anchored on the real bundle above rather than guessed from scratch.
Not every workload is a server
Static websites, serverless functions, and managed platform services aren't part of this comparison at all — for those, cloud is the obvious, cheap choice with no colocation equivalent:
| Workload | Typical cost | Colocation equivalent |
|---|---|---|
| Static website, no backend | Free–$9/month | None sensible |
| Serverless functions | Pay per invocation, often near $0 | A server costs the same idle or busy |
| Managed database, low-traffic app | Patching/backup/failover bundled in | Requires ongoing DBA time to replicate |
Sweating the asset: what happens past year 3
Every number above stops at three years, which flatters cloud more than colocation. Colocation's biggest cost is the one-time hardware purchase — once it's paid off, running the same hardware for another year or two costs only the rack and the firewall subscription, about $16,800/year. Cloud has no such year: the reserved rate (or pay-as-you-go, or a fresh commitment) keeps costing the same every single year, indefinitely. Running the same 2-node cluster for 5 or 7 years — common practice, and within the 5-year vendor support already included in this quote — changes the comparison:
| Horizon | Colocation | Cloud, best-case reserved pricing |
|---|---|---|
| 3 years | $132,600 | $126,500 |
| 5 years | $166,200 | $210,900 |
| 7 years | $199,800 | $295,300 |
Cloud's cheapest tier is marginally ahead at exactly three years. By year four — the point at which a 3-year reserved commitment would need renewing anyway — colocation has already overtaken it, and the gap widens every year after. Buying hardware is a bad idea for anyone planning to walk away in three years. It's a good one for anyone planning to still be running the same estate in five.
Why colocation still makes sense even where the numbers are close
- Currency: colocation is fixed in AUD for the contract term. Every cloud row above, including the cheapest, is still a USD-linked commitment — AUD/USD moved 13% in the past 12 months.
- Ownership: after 3 years, colocation leaves you owning the hardware. Cloud leaves you re-negotiating from scratch, at whatever pricing and exchange rate apply then.
- Redundancy: the colocation figure already includes a fully redundant 2-node cluster and dual-controller storage. Matching that resilience level in any of the Azure rows above costs more than shown, since none of them price a second copy of the estate.
- Execution risk: the cheapest cloud figure above already assumes a full three-year commitment locked in on day one, at the maximum discount. Azure Hybrid Benefit could cut it further, but it isn't priced in any row here — it means buying Windows Server licences with Software Assurance (the same purchase the colocation build already makes), then applying them correctly and staying compliant for the full term. Miss any of that and colocation is the cheaper, simpler outcome.
Where cloud wins outright, even for server-shaped workloads
Spiky or unpredictable traffic, new applications with unknown sizing, dev/test environments. Provisioning owned hardware for a peak that hits once a year means paying for idle capacity the rest of it — that's the problem cloud elasticity actually solves.
Bottom line
Within a single 3-year term, the very best end of the cloud range — a full three-year commitment achieving the maximum discount — can still edge out colocation on raw cost, and Azure Hybrid Benefit would push it lower again if you buy the Windows Server licences to enable it. That advantage doesn't survive past year three — colocation overtakes it by year four and pulls further ahead every year the hardware keeps running. Short of that narrow window, colocation wins outright against pay-as-you-go, 1-year reserved, and most of the reserved/savings plan range most businesses would actually negotiate. Run steady infrastructure on owned hardware, especially anything expected to run more than three years; keep spiky or unproven workloads in cloud, connected privately rather than over the public internet.
Book a tour or call 1300 229 638 — we'll run the real numbers on your workload.
Hardware, storage, and Windows Server Datacenter licensing: real Caznet supplier quotes (2025–2026). SQL Server's own database engine licence, and configuration/setup labour for either build, are excluded from this comparison on both sides. Rack pricing: Caznet's real published rate for a Half Rack, 2kW power tier — sized for the two servers plus storage array, not a Quarter Rack. Azure pay-as-you-go: a real Microsoft Azure estimate. Azure Reserved Instance and Savings Plan figures: modelled using Microsoft's own published discount ranges (1-year ~35–38%, 3-year ~40–72% depending on OS and licensing) — not a specific quote, and Windows-licensed VMs discount less than the headline Linux examples Microsoft advertises. Azure Hybrid Benefit is discussed but not priced in any row above: every Azure figure here uses licence-included pricing. Full breakdown on request. The 5- and 7-year figures assume the same hardware keeps running (realistic within its 5-year vendor support term) and that cloud's cheapest reserved rate is simply extended year over year — real-world pricing and FX would drift in practice, in either direction.