You migrated to Azure. The datacenter lease ended, the hardware is offline, and your VMs are running in the cloud. Mission accomplished, right?
Not quite. You moved your infrastructure, but you also moved your technical debt, your manual patching routines, and your Saturday morning maintenance windows. Lift-and-shift (rehosting) to Azure IaaS gets your workloads off aging hardware, but it doesn’t unlock the operational savings or performance gains that justify the cloud spend.
This guide examines when and how to move beyond rehosting. You’ll learn which workloads benefit most from modernization, how to calculate ROI for PaaS adoption, and which Azure features reduce costs without requiring application rewrites.
The Financial Case for Modernization
Before deciding which workloads to modernize, understand the ROI difference between rehosting and replatforming. The research is clear: modernization pays back faster than running lifted-and-shifted VMs indefinitely.
| Migration Strategy | 3-Year ROI | Payback Period | Primary Benefit |
|---|---|---|---|
| Rehost (IaaS only) | ~180% | 18-24 months | Datacenter exit, reduced CapEx |
| Replatform (PaaS) | 228-391% | 12-15 months | Operational automation, reduced management overhead |
| Refactor (containers/serverless) | 350%+ | 15-18 months | Developer velocity, scalability |
Sources: Forrester TEI on Azure App Innovation, IDC Business Value of Azure. Figures are illustrative ranges compiled from multiple studies.
Replatforming—migrating to Azure’s managed platform services like Azure SQL Managed Instance or Azure App Service—delivers a 228% ROI over three years with a 15-month payback. The difference isn’t the infrastructure cost itself but the elimination of operational toil: patching, backup management, high availability configuration, and capacity planning all shift to Microsoft.
Key Insight: The cost of lift-and-shift isn’t just the Azure bill—it’s the ongoing labor to maintain VMs that you no longer have to run on-premises.
Rehosting to IaaS reduces capital expenditure by eliminating hardware purchases. Modernizing to PaaS reduces operational expenditure by offloading management tasks. The latter delivers faster payback because you’re not just replacing infrastructure—you’re eliminating work.
When Lift-and-Shift Makes Sense
Modernization isn’t always the right choice. Some workloads belong on IaaS VMs, at least initially.
Rehost when:
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Time constraints exist. Your datacenter lease expires in 90 days and you don’t have time to refactor applications.
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Legacy dependencies block modernization. The application requires specific OS configurations, kernel modules, or third-party software that PaaS doesn’t support.
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Code isn’t accessible. Vendor-provided applications without source code availability can’t be refactored or repackaged.
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Compliance requires dedicated compute. Some regulatory frameworks mandate dedicated infrastructure, making shared PaaS environments unsuitable.
Lift-and-shift isn’t failure—it’s a tactical move that establishes a cloud footprint. The key is treating it as phase one, not the destination. Once workloads run in Azure, you gain Azure Migrate’s assessment capabilities and visibility into actual resource utilization, which informs future modernization decisions.
Workload-Specific Modernization Paths
Not all applications modernize the same way. The ROI of PaaS adoption depends on matching the workload to the appropriate Azure service.
SQL Server Databases
Running SQL Server on Azure VMs replicates your on-premises experience—manual patching, backup management, and high availability configuration included. Migrating to Azure SQL Managed Instance eliminates those tasks.
Azure SQL Managed Instance provides:
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Near 100% compatibility with SQL Server Enterprise Edition, including cross-database queries, SQL Agent, and CLR support
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Automated backups with point-in-time restore up to 35 days
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Built-in high availability (99.99% SLA) without clustering configuration — no more 3 AM calls because the failover cluster decided to disagree with itself
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Automated patching and version updates without downtime (yes, really — no maintenance windows)
When to use Managed Instance over VMs:
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Applications use cross-database queries (not supported in Azure SQL Database)
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You want to eliminate patching and backup management
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High availability matters more than granular VM control
Cost optimization: Applying Azure Hybrid Benefit to Managed Instance reduces costs by up to 55% compared to pay-as-you-go pricing. When combined with Reserved Capacity, savings reach up to 80%.
The tradeoff: Managed Instance costs more per month than a SQL VM with equivalent compute, but labor savings from eliminated maintenance outweigh the higher service cost. If your database administrators spend eight hours per month per SQL instance on patching, backup verification, and failover testing, Managed Instance eliminates that work entirely.
Web Applications
Running ASP.NET or Java web applications on Azure VMs means you own OS patching, load balancer configuration, and scaling automation. Azure App Service handles these tasks automatically.
App Service provides:
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Managed OS patching and framework updates
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Integrated CI/CD with GitHub Actions, Azure DevOps, and Bitbucket — push to main and it deploys, no Jenkins babysitting required
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Built-in autoscaling based on HTTP traffic or schedules
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Native support for staging slots (blue-green deployments)
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Integration with Azure Key Vault for secrets management
When to use App Service over VMs:
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Applications follow 12-factor principles (stateless, config via environment variables)
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You want deployment pipelines without managing Jenkins or CI infrastructure
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Traffic patterns vary and autoscaling matters
When VMs still make sense:
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Applications require custom OS-level software or specific runtime versions not supported by App Service
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You need persistent local disk storage between deployments
Organizations running .NET applications on Azure VMs have reduced infrastructure costs by migrating to App Service, eliminating VM management overhead while streamlining CI/CD pipelines and improving security through Key Vault integration.
Container Workloads
If your application already runs in Docker containers on VMs, migrating to Azure Kubernetes Service (AKS) or Azure Container Apps removes cluster management burden.
AKS provides:
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Managed Kubernetes control plane (free — you pay only for worker nodes, which is one of the better deals in Azure)
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Integrated monitoring with Azure Monitor and Container Insights
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Native integration with Microsoft Entra ID for role-based access control
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Automated node upgrades and scaling
Container Apps provides:
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Serverless container execution with per-second billing
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Built-in ingress and service discovery without drowning in Kubernetes YAML
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Automatic scale-to-zero for idle workloads — your dev environment costs nothing at 2 AM
When to use AKS:
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You need full Kubernetes API access for custom operators or advanced scheduling
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Multi-tenancy and namespace isolation matter
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Existing Kubernetes knowledge and tooling justify the operational overhead
When to use Container Apps:
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You want container benefits without learning Kubernetes
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Workloads have variable traffic and scale-to-zero saves money
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Event-driven processing (queue-based scaling) fits your architecture
Reality Check: Kubernetes isn’t simpler than VMs—it’s different complexity. Choose AKS when you need its specific capabilities, not because “everyone’s doing containers.”
Cost Optimization Without Code Changes
Even if you keep workloads on IaaS, two licensing levers reduce Azure spend significantly.
Azure Hybrid Benefit
Azure Hybrid Benefit (AHB) lets you apply existing Windows Server and SQL Server licenses with active Software Assurance to Azure resources. Instead of paying for both compute and the Windows/SQL license in Azure’s hourly rate, AHB removes the license cost—you pay only for the base compute.
Savings:
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Windows Server VMs: up to 40% reduction
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SQL Server (VM, Managed Instance, Database): up to 55% reduction
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When combined with Reserved Instances: up to 80% total savings
Eligibility:
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Windows Server or SQL Server licenses with active Software Assurance
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Or subscription licenses like Windows Server or SQL Server Subscription
You apply AHB when creating the Azure resource or enable it on existing resources retroactively. No code changes, no downtime—just a configuration toggle that reduces your monthly bill.
Reserved Instances and Savings Plans
Azure Reserved VM Instances discount compute costs by up to 72% compared to pay-as-you-go pricing in exchange for a one-year or three-year commitment.
How reservations work:
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You commit to a specific VM series (e.g., D-series), size, and region for one or three years
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Azure applies the discount automatically to matching running VMs
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Unused reservation hours don’t roll over—if the VM isn’t running, you lose that hour’s discount
When reservations make sense:
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Workloads run 24/7 or on predictable schedules
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You’ve validated the VM size after migration (don’t commit before right-sizing)
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The application will remain in Azure for at least one year
When Savings Plans make more sense:
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Azure Savings Plans for Compute offer up to 65% savings with greater flexibility
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Instead of committing to a specific VM series and region, you commit to a fixed hourly spend (e.g., $10/hour) across any compute service (VMs, App Service, Azure Functions) in any region
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The discount is slightly lower than Reserved Instances, but the flexibility matters when workloads evolve
If you’re confident in the VM size and region, use Reserved Instances. If workload requirements might shift, use Savings Plans. Don’t commit until you’ve run workloads in Azure long enough to understand actual utilization—the Azure Migrate assessment tool helps with this.
Using Azure Migrate to Plan Modernization
Azure Migrate isn’t just a data transfer tool—it’s a discovery and assessment platform that informs migration strategy.
Key capabilities:
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Agentless discovery: Deploys a lightweight appliance that collects configuration and performance data from up to 10,000 servers — no agent installations, no change management tickets, no “can we get a maintenance window?” conversations
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Dependency mapping: Visualizes network traffic between servers to identify application tiers and ensure multi-tier apps migrate together
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Business case analysis: Calculates on-premises TCO and compares it to projected Azure costs based on actual utilization data (not just allocated capacity)
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SQL assessment: Identifies SQL Server instances and recommends whether to migrate to Azure SQL VM, Managed Instance, or Database based on feature compatibility
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App containerization: Repackages ASP.NET and Java web apps into Docker containers for deployment to AKS or App Service without code changes
The assessment tool collects performance data over a specified period (typically 7-30 days) and sizes Azure resources based on actual CPU, memory, and disk utilization percentiles. On-premises VMs are often overprovisioned—allocating 16 GB of RAM doesn’t mean the application uses 16 GB. Azure Migrate’s performance-based sizing right-sizes resources, preventing unnecessary cloud spend.
Wave planning groups workloads into migration phases based on dependencies and complexity. Instead of moving everything at once, you migrate dev/test environments first, validate assumptions, then proceed to production waves. This reduces risk and allows you to iterate on automation scripts before migrating critical workloads.
ROI Calculation Framework
Before committing to modernization, quantify the expected return. ROI isn’t just cost reduction—it includes labor savings, risk mitigation, and business velocity improvements.
ROI formula:
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ROI = (Total Benefits - Total Costs) / Total Costs × 100
Costs:
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Migration labor (assessment, testing, cutover)
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Training for new Azure services
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Parallel run period (on-premises and Azure running simultaneously)
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Azure subscription fees
Benefits:
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Infrastructure savings (decommissioned hardware, eliminated colocation costs)
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Labor productivity (hours saved on patching, backups, capacity planning)
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Risk mitigation (reduced downtime, improved disaster recovery)
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Revenue impact (faster deployments enable faster feature releases)
A Forrester study found that PaaS modernization delivered a 228% ROI over three years with a 15-month payback. The key drivers: 50% faster development cycles and 40% less time babysitting infrastructure. That’s not a rounding error — that’s half your sprint velocity back. For a 10-person operations team spending 30% of their time on maintenance tasks, PaaS adoption frees 3 full-time equivalents for higher-value work.
Calculate your baseline: How many hours per month do your teams spend on VM patching, backup verification, capacity planning, and failover testing? Multiply that by your loaded labor cost. If PaaS eliminates 80% of that work, the savings compound annually.
Choosing Your Modernization Strategy
Not every workload needs immediate modernization. The Azure Cloud Adoption Framework defines five rationalization strategies — the “5 Rs”:
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Rehost: Lift-and-shift to IaaS VMs (fastest, lowest initial ROI)
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Replatform: Migrate to PaaS with minimal code changes (best ROI-to-effort ratio)
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Refactor: Repackage into containers or serverless (higher effort, better scalability)
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Rearchitect: Rebuild as cloud-native microservices (highest effort and risk, maximum long-term agility)
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Retire: Decommission unused applications
Decision criteria:
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Time-sensitive datacenter exit: Rehost everything, modernize later
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Database-heavy workloads: Replatform to SQL Managed Instance
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Web applications with frequent deployments: Replatform to App Service or refactor to Container Apps
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Applications requiring custom OS configurations: Rehost to VMs
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Vendor applications without source code: Rehost to VMs
Start with low-risk workloads. Migrate a non-production SQL database to Managed Instance, validate the automated backup and patching experience, then move production databases. Run parallel environments during the validation period—keep the on-premises instance running until you’ve confirmed the Azure deployment meets performance and functionality requirements.
The research consistently shows modernization pays back within 12-18 months. The question isn’t whether to modernize—it’s which workloads to prioritize and how to sequence the migration to minimize risk while maximizing ROI.
Stop Running a Cloud-Hosted Datacenter
Lift-and-shift establishes your cloud footprint but doesn’t unlock the operational savings that justify cloud spend. Modernizing to PaaS delivers faster ROI by eliminating management overhead—automated patching, backups, and high availability reduce the labor required to run applications.
Use Azure Migrate to assess actual resource utilization, identify dependencies, and calculate on-premises TCO versus projected Azure costs. Don’t size Azure resources based on allocated capacity—right-size based on actual utilization to avoid overspending.
Apply Azure Hybrid Benefit and Reserved Instances to workloads that remain on IaaS—you can reduce costs by up to 80% without code changes. But understand that cost optimization levers don’t replace the operational gains from PaaS adoption.
Sequence your modernization by starting with low-risk workloads, validating the PaaS experience, then moving production systems. The 15-month payback period for PaaS modernization means every quarter you delay is compounding operational cost you could have eliminated.
You migrated to Azure. Now decide whether you want to run a cloud-hosted datacenter or actually operate in the cloud.
