Following a no-cost test period, Microsoft on Feb. 1 will begin charging customers for its pay-per-use Windows Azure cloud services.

Microsoft unveiled Azure at its PDC conference in Oct. 2008, and since then it has been preparing the on-demand computing service for commercial availability. For the past month, Microsoft let customers use Azure for free in order to get experience with the service and a sense of how usage will translate into cost. On Feb. 1, the meter starts running.

Developer and IT departments can choose from two basic pricing models: a pay-as-you-go "consumption" option based on resource usage, and a "commitment" option that provides discounts for a six-month obligation. At standard rates, a virtualized Windows Server ranges from 12 cents to 96 cents per hour, depending on CPU and related resources. Storage starts at 15 cents per GB per month, plus one cent for every 10,000 transactions. Microsoft's SQL Server costs $9.99 per month for a 1 GB Web database.

Azure represents a new, and unproven, business model for both Microsoft and its customers. Developers and other IT professionals need to assess Azure's reliability, security, and cost compared to running Windows servers in their own data centers. Microsoft is providing TCO and ROI calculators to help with that cost comparison, but the company makes "no warranties" on the results those tools deliver.

Will Microsoft's cloud be cheaper than on-premises Windows servers? Every scenario is different, but many customers do stand to save money by moving certain IT workloads from their own hardware and facilities to Azure, says Tim O'Brien, Microsoft's senior director of platform strategy. Early adopters such as Kelley Blue Book and Domino's Pizza are saving "millions," O'Brien says. He admits, however, that Microsoft's cloud services may actually cost more than on-premises IT in some cases.

Microsoft continues to get many questions from industry analysts on how it will make money in cloud services, given its 30-year history of selling software licenses at high margins. O'Brien says the answer is that Microsoft stands to gain a higher percentage of a company's overall IT spend, rather than just the money that went toward software licensing.

In other words, IT spending that formerly went toward servers, network switches, electricity, and building leases can now be funneled into Microsoft's Azure cloud. For Microsoft, that may mean "lower margins, but the volume of dollars can be bigger over time," O'Brien says. "The way you do that is deliver at scale." O'Brien says software licensing accounts for about 10% of a typical IT department's overall budget; Microsoft envisions pulling in 50% of companies' IT spend as they decommission servers and plug into its cloud.