Scott Guthrie - Executive Vice President, Cloud and Enterprise, Microsoft
Microsoft has revealed plans to reduce Azure virtual machine (VM) prices by up to 50 per cent, as the vendor chases a bigger chunk of cloud market share.
Seemingly going against plans to fight market leader Amazon Web Services (AWS) on price, Redmond has ramped up its efforts through an opening round of cuts ranging from 11-50 per cent.
“As part of our continued commitment to deliver Azure to customers at the best possible prices… we are lowering prices on many of our most popular virtual machines (VMs),” Microsoft corporate vice president of cloud and enterprise, Takeshi Numoto, wrote in an official blog post.
Effective October 1, Numoto said the prices of Microsoft’s Dv2 series VMs will be reduced by up to 15 per cent, with price cuts also impacting A1 and A2 Basic VMs by up to 50 per cent.
In compute optimised instances, F series prices will be reduced by up to 11 per cent, with Redmond set to introduce new A series virtual machines (Av2) in November, with prices up to 36 per cent lower than the A series Standard VM prices available today.
“In case you’re not familiar with our VM categories, A series VMs are our entry-level compute tier,” Numoto explained.
“Dv2 series VMs are our general-purpose tier, with more memory and local SSD storage than A series.
“F series VMs provide an even higher CPU-to-memory ratio with a lower price than the Dv2 series.”
Built around the notion of no upfront costs or termination fees - in a pay-as-you-go per minute billing model - Numoto said in addition to reduced prices, customers deploying Windows Server with Software Assurance will see a 41 per cent price drop as a result of a Microsoft Azure Hybrid Use Benefit.
Price war
The cuts come weeks after Microsoft executive vice president of cloud and enterprise, Scott Guthrie, insisted that the vendor’s long-running price war with AWS was nearing an end.
“For the most part, we aren’t competing on price,” said Guthrie, when speaking at a Deutsche Bank technology conference in September.
“It’s typically we’re competing more in value, I would say at this point. Which is a difference versus, say, two or three years ago, where I think it was more about cost per VM (virtual machine) or cost per storage.
“We’re not seeing press releases saying ‘We’re cutting 10 per cent across the board.’ That kind of craziness seems to have slowed down.”
Yet irrespective of the tactics deployed by Microsoft, the cuts follow another strong quarter of growth for the vendor within the cloud, with revenue up seven per cent to $US6.7 billion.
Spanning Azure services and on-premises server software, Azure compute usage more than double year-over-year.
Despite paling into insignificance compared to the $US7.88 billion generated by AWS in the fourth quarter of 2015, looking ahead, Morgan Stanley predicts Microsoft cloud products will be 30 per cent of revenue by 2018.
"Only two companies are setting the tone of enterprise computing, Microsoft Azure and Amazon AWS," Global Equities Research managing director, Trip Chowdhry, told Reuters.
“These are the only two initiators in the whole enterprise space that are going to see growth in excess of 80 percent year-over-year for at least two or three years.”
Fresh from Google stamping its authority on the trans-Tasman and worldwide cloud markets - through the launch of Sydney-based cloud zones - Microsoft has also upped the ante at a global level with plans to open new data centres in France.
In looking at the bigger picture however, will price cuts and greater global reach be enough for Microsoft to threaten the dominance of AWS?
Perhaps it’s a case of first mover advantage for AWS, with the vendor continuing to dominate the cloud infrastructure services market, achieving a worldwide market share of over 31 per cent at the start of 2016.
Synergy Research Group findings suggest that while Microsoft and Google have by far the highest growth rates among the market leaders, both are “making little impact” on AWS, which continues to grow strongly and to increase its market share.
Meanwhile, IBM continues to lead within the private and hybrid services segment.
According to research, the four top-ranked companies all grew more strongly than the market as a whole and in aggregate account for over half of the worldwide market, with AWS ahead (31 per cent), followed by Microsoft (nine per cent), IBM (seven per cent), Google (four per cent) and Salesforce (four per cent).
“The big four cloud operators are continuing to run away with the market,” Synergy Research Group chief analyst, John Dinsdale, said.
As explained by Dinsdale, the second tier of cloud vendors includes Salesforce, Rackspace, Oracle, NTT, Fujitsu, Alibaba and Hewlett Packard Enterprise.
“The second tier of operators are either niche players, generalist IT service providers, or companies lacking the scale, focus and investment capabilities required to truly challenge the top four hyper-scale cloud providers,” he added.
Despite AWS’ standing as a mature provider, it remains agile enough to create a broad impact across a range of IT markets.
“It has the richest array of IaaS and PaaS capabilities,” Gartner analyst, Lydia Leong, said.
“It provides the deepest capabilities for governing a large number of users and resources.
“Although AWS will not be the ideal fit for every need, it has become the "safe choice" in this market, appealing to customers who desire the broadest range of capabilities and long-term market leadership.”
