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If I have a single 1gb database it costs $10 per month. If I set up federations, so for example I have 5 federations, is it still $10 per month or does each federation cost $10 ($50 total) ?
If it is the former that is better as I can just have a single federation per tenant (client) and increase the database size as more clients sign up.
With Federations, you can scale your application out across multiple federation members. Each federation member is a SQL Azure database and can be controlled as you can do with your databases today in terms of max size and SKU (web/business). You can choose to scale out to lots of small 1 GB databases, or fewer 10 GB databases for example.
In SQL Azure, you get billed on the collection of all databases you use in the system prorated to a day. In the case of federations, the same logic apply; the cost of the federation is the collection of its federation members (+ the root database which can be any normal database).