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Microsoft Exec: Azure and AWS No Longer Competing on Price

The period of intense price-based competition between Microsoft Azure and Amazon Web Services Inc. (AWS) is effectively over, according to Microsoft's top cloud executive.

Speaking at the Deutsche Bank Technology Conference in Las Vegas on Tuesday, Scott Guthrie, head of Microsoft's Cloud and Enterprise group, gave a wide-ranging talk that included his company's perspective on the current cloud market, as well as the "two-horse race," as he called it, between market leader AWS and second-place Azure.

For a number of years, AWS and Azure had been locked in an ongoing price battle; an announcement of price cuts by one vendor would inevitably be countered days later by the other. Guthrie himself has acknowledged that this was part of Microsoft's strategy to compete with AWS.

"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," Guthrie said at an industry conference two years ago.

Nowadays, though, it's a different market. Guthrie noted at the Deutsche Bank Technology Conference that price is no longer the differentiator it once was.

"For the most part, we're not competing on price," he told moderator and senior Deutsche Bank research analyst Karl Keirstead. "I don't think [it's] either one of us versus each other. It's typically we're competing more on value, I'd say at this point, which is a difference versus, say, two or three years ago where I think it was actually more about cost per VM or cost per storage."

Guthrie argued that finding ways to stretch the value of already low-cost cloud services -- for instance, by enabling greater scalability -- is more cost-effective for customers than simply cutting prices.

Naturally, Guthrie touted a number of ways in which he says Microsoft's cloud compares favorably against AWS. "We focused on a couple of things with Azure to try to differentiate," he said. "We're No. 2 and aspire to be No. 1."

One example he gave is Microsoft's recent investments in Internet of Things (IoT), business intelligence (BI) and security management. Another is Azure's hybrid capabilities.

"The ability to go to an organization and say, 'You can build apps and run it not just in our cloud but also in your datacenter, or even across the street in AWS' datacenter, and have that hybrid flexibility,' tends to really, really resonate," he said. "We're very different in that category. And that appeals, I think, to the crowd and the customer target, which is enterprises and the ISVs targeting enterprises."

Guthrie also talked up Azure's scale compared to AWS and other hyperscale cloud vendors. Microsoft's investments in building out its cloud footprint have given it a current total of 34 datacenter regions, he pointed out, more than the combined total of AWS (which claims 13 regions) and Google (five). It should be noted, however, that the definition of a "region" differs from one provider to the next.

"This kind of scale at that global level is something we fundamentally believe really very few companies in the world are going to be able to provide," he said.

Guthrie argued that Azure's geographic scope also gives it an edge in the areas of data sovereignty and privacy.

"We don't just have broad coverage of regions, but also meet unique data residency promises that no other cloud vendor delivers," he said. "Whether those are in China, whether that's in Germany, whether that's for the U.S. government and Department of Defense."

By most measures, AWS and Azure are the runaway leaders in the cloud market, a fact noted by both Guthrie and Keirstead. When asked by Keirstead what it would take for other cloud vendors to become hyperscale, Guthrie said that the barriers to entry are very high, and include billions of dollars in capital expenditures and armies of engineers. Google, he said, has the potential to break into the market but currently lacks the scale to do so.

"The challenge I think they're going to have is the lack of enterprise capability and even the way they've built their infrastructure historically. It's really been optimized for search," Guthrie said.

A video 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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