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Microsoft: Fine! We'll match Amazon - by hiking cloud prices

Reassuringly expensive Redmond ramps rivalry

What's the difference between Windows Azure and Amazon Web Services? Very little – or so says Microsoft, which has made a new commitment to match the web bazaar's pricing for basic cloud services.

The price-matching announcement was made by Microsoft on Tuesday, alongside news that Redmond thinks its infrastructure-as-a-service cloud is now ready for general consumption.

To deal with the threat posed by market leader Amazon, Microsoft is raising prices for all of its on-demand Windows instances1, reducing Linux prices, and creating a new class of reserved instance that gives you a discount if you pay Microsoft a big wedge up front.

For example, up until 1 June, a medium Windows on-demand instance (two 1.6GHz CPUs, 3.5GB of RAM), will cost you $0.16 per hour. From 1 June, it will cost $0.18, matching Amazon's Windows on-demand price of $0.182. An equivalent Linux instance which used to cost $0.16 will now cost $0.12, lining up with Amazon's $0.12 for Linux/UNIX usage.

Microsoft's statement means Redmond will peg its prices to those set by Amazon Web Services, and this combined with equivalent hints by Google means that cloud computing really is starting to behave like a utility market. This is great for punters, but less so for the companies, which will now need to race each other to the bottom on prices.

From today, Microsoft will match Amazon Web Services on virtual machines and cloud services pricing, Bill Hilf, a general manager for Windows Azure, wrote in a blog post. Redmond will do this by reducing prices for its cloud services and VMs by between 21 and 33 per cent.

"What we're trying to do is make it that price is not a deciding factor," Mike Neil, another Microsoft general manager for Windows Azure, told The Register. "We want to make it clear to customers that we're going to be aggressive on price."

All bets are off on reserved instances

This pricing sees Microsoft match Amazon's on-demand pricing, but Bezos & Co.'s big yellow cloud continues to offer seemingly cheaper cloud services via its reserved instance pricing model, which can get you a medium instance (two elastic compute units, 3.75GB of RAM) for $0.042 per hour2, compared with Microsoft's $0.08-$0.10 and Google's $0.115.

We asked Microsoft whether it would match Amazon on reserved pricing as well. "Our commitment on the pricing is on the pay-as-you-go model," Neil told us, and pointed out that companies wishing to get further discounts can sign up for a Microsoft Enterprise Agreement and enter into negotiations with Redmond from there. But Microsoft isn't promising to go head-to-head with Amazon on these pricing tiers.

These agreements mean customers that spend between $500 and $14,999 a month can get 20 to 22.5 per cent off the sticker price of their cloud services, ranging up to a 27 to 32 per cent discount for those that spend over $40,000 per month.

Alongside the price reduction, Microsoft also announced that it had 200,000 customers for Azure – but this figure doesn't distinguish between paying customers and ones trying out the cloud for free. Microsoft does not break out revenues for Azure.

Redmond also added new high-memory rentable virtual machines to its cloud for workloads that require a ton of memory. The machines have 28GB of RAM and four compute cores, or 56GB of RAM and eight cores.

Microsoft sought to remind punters that Azure does more than basic infrastructure services, and did so by floating a new slogan: "The power of And3" in Hilf's blog post. This slogan was used by Hilf to stress that with cloud "it's not only about Infrastructure as a Service (IaaS) or Platform as a Service (PaaS), it's about Infrastructure Services and Platform Services and hybrid scenarios."

Microsoft does have an edge here, with its products ranging from the Windows OS up to private clouds via Windows Server and System Center, and then into IaaS and PaaS (Azure) and SaaS (Office365, et cetera), giving it a breadth and depth of offerings that its competitors don't have.

By comparison, enterprises that wish to hook their on-premises apps into Amazon Web Services need to do so by pairing Eucalyptus's private cloud control freak with AWS via a Storage Gateway, while VMware shops need to plonk their apps into a cloud hosted by one of VMware's cloud partners. Google customers don't have on-premise options, and are unlikely to do so anytime soon.

The new Windows Azure pricing kicks in on 1 June. How long Microsoft can stomach competing with Amazon on price is unknown. This Vulture observes that although there are a lot of supermarkets in the developed Western world, there's only one with the scale and reach of Walmart. Is this a coincidence, or the outcome of a multi-decade war of pricing attrition with other market incumbents? We think the latter, and wonder what it will take for one of these cloud providers – Google, Microsoft, Amazon – to tire out its rivals.

Whatever happens, the relentless downward pressure on cloud prices is depressing margins for everyone, and making IaaS a less and less tantalizing option for the typical margin-loving enterprises of old. Anyone want to take a bet on how Oracle will price up its cloud? ®


1 Microsoft had kept its instance prices artificially low during Azure's trial period as a way of enticing customers. It had always hinted that Azure prices were going to go up, rather than down. Although the price change puts Azure on an even level with Amazon, we are curious as to why Microsoft did not maintain the price advantage it already had.

2 This factors the upfront fee of $277 into the hourly price and assumes full utilization for one year.

3 This slogan stems more from the fact Microsoft operates multiple product lines threatened by rapid-scale adoption of public cloud services than reality, we reckon. It reminds us of HP's briefly trialled "Make IT matter" slogan, which came out last year as the company struggled to make its servers sexy in a market flooded by white-label commodity hardware.

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