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Instant Analysis: Microsoft Corporation Cuts Cloud Pricing

By Evan Niu, CFA - Jan 14, 2016 at 3:30PM

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The cloud pricing war continues, as the Redmond giant responds to Amazon.

What happened?
Software giant Microsoft (MSFT 0.71%) has announced a round of price cuts in its Azure cloud-computing business. The move comes shortly after (AMZN -1.13%) rang in the New Year with similar price reductions in its booming Amazon Web Services division.

Microsoft specifically notes that its goal is to make its prices for commodity services comparable to Amazon's. Some prices are falling by as much as 17%, depending on the type of virtual machine or operating system being used, and the new prices will be effective as of early February.

The company also notes that it offers a few advantages over AWS, such as including load-balancing and auto-scaling at no additional charge. Microsoft also only bills usage by the minute, while it says that AWS bills by the hour even if customers only use a few minutes of computing.

Does it matter?
CEO Satya Nadella has made his vision of a "mobile-first, cloud-first" Microsoft abundantly clear, and he has continued to execute upon that strategy to the delight of investors. It's no coincidence that Nadella was previously an executive in charge of Microsoft's Azure cloud segment.

AWS remains incredible important to Amazon as a key driver of profitability, and AWS remains the industry leader by a large margin. But Microsoft is committed to the cloud in the long term and has the financial wherewithal to compete.

These types of price cuts from the larger players are putting significant pressure on the little guys that only offer commodity services. Microsoft and Amazon use aggressive pricing of commodity services to attract and retain enterprise customers, while selling higher-margin value-added services like analytics on top.

Evan Niu, CFA has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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