Whether running in a VM on Azure, AWS, or locally, a VM is just a VM. You're responsible for your database backups the same way across all of them. The VM backup will allow you to recover the databases on the VM, but only if you recover all of them at the same time. It won't allow for individual recovery. Personally, while I'd use it, I wouldn't count on it for my database backups. I'd still do standard full/differential/log backups on those so that I can meet individual Recovery Point Objectives and Recovery Time Objectives. Further, it makes testing recovery, a must, easier to do.
So, both. The VM backup because you can recover everything, the database backups because you're much more likely to need discrete recovery.