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Microsoft Exec Talks Azure Pricing, Cloud Economics

Microsoft is committed to keeping pace with Amazon Web Services (AWS) in the cloud price wars, reiterated Scott Guthrie, executive vice president of the Cloud and Enterprise Group at Microsoft.

Speaking at the Citi Global Technology Conference on Wednesday, Guthrie gave an overview of how the Microsoft Azure platform has grown and how Microsoft is aiming to differentiate it from other cloud platforms, particularly those from Google and Amazon.

Regarding the ongoing price battle between Microsoft and Amazon, which has seen the two companies repeatedly exchanging price cuts at a particularly accelerated rate in recent years, Guthrie said that the lower cloud prices are determined by both enterprise market demand and Microsoft's own practice of matching AWS prices, usually within a few days' notice.

"If you want to go after enterprises...you need to be in the infrastructure business and be able to offer those types of services. Those prices will -- not always, but I think in many cases -- be commodity-driven. That doesn't mean they're not sophisticated or important, but the price will be set by the market," Guthrie said. "And we've made a decision with Azure [that] we will match commodity prices with Amazon. So if they cut price, usually within 48 hours, we cut it."

According to Guthrie, the price cuts have led to Microsoft having the lowest-priced cloud services in some areas.

"For some things like storage, in particular, we're probably under the price of what anyone else in the market can offer," he said.

Maintaining profitability amid falling cloud prices was also an issue that came up during the talk. In its second-quarter 2014 financials, Amazon reported lower-than-expected earnings. While AWS use grew by 90 percent year over year, CFO Tom Szkutak acknowledged that the repeated price cuts may have had a hand in the disappointing quarter.

"We're not quantifying the impact of the price changes on our Q2 and Q3, but it is fair to say that it certainly did impact our Q2 results in a meaningful way. And that's reflected in the results that you're seeing," Szkutak said during the July earnings call (transcript here).

Guthrie suggested that the complementary relationship between Microsoft's software licensing business and Azure will help it sustain profits.

"Versus Amazon and Google, on the infrastructure side, we're also in a slightly unique position in that we don't just monetize raw compute and storage -- we also monetize the licensed software running in that VM [virtual machine]," Guthrie said. "So whenever Amazon sells a Windows VM, we make a decent amount of money from it. Likewise, on Azure, when you sell a VM running Windows, we make also a decent amount from it."

Guthrie also described how Azure's scale has contributed to Microsoft's ability to price its cloud services competitively. Repeating a few statistics announced at this summer's Microsoft Worldwide Partner Conference, Guthrie said Azure currently has 17 regions worldwide, with each housing up to 16 massive datacenters and capable of running 600,000 servers.

"This is more than two times the number of regions that AWS has opened around the world today, and it's more than five times the number of regions that the Google cloud has," Guthrie said.

The sheer scale of Azure's global footprint enables significant economies of scale, he said. "We can basically continually cut our prices for customers and run an operation that is cheaper than pretty much everyone else on the planet."

A recording of Guthrie's talk is available here.

About the Author

Gladys Rama is the senior site producer for Redmondmag.com, RCPmag.com and MCPmag.com.

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