Microsoft Decreases Some Cloud Prices – Is That Good for You?

Author: Scott Braden

As expected, cloud computing is entering a price war phase, with Amazon and now Microsoft dropping prices recently.

In this case, MSFT lowered prices for Office365 and for Azure only online storage costs.  This marketplace has all the indicators of a classic technology cycle.  Every week we are seeing press releases about new cloud capacity coming on-line; and suppliers of all categories are striving full speed to embrace this model in some way.

What’s justifying all of this investment?  A large part is the prospect of increasing customer lock-in.  While CFO’s are enticed with the idea of variable cost structures, the cloud suppliers are carefully writing contracts that make real-world year over year spend reductions impossible, difficult or unpleasant.  It could be said that many suppliers are “blowing smoke” about the flexibility of cloud solutions.

For their part, the suppliers love this business model because it helps them consolidate more of a customer’s spend – Microsoft, for example, with Office365, takes your licensing spend, keeps that, converts it from assets to subscriptions, and also gets more revenue due to the hosting component of the services.

So, the build-out / price war can almost be viewed as an early phase market share grab; suppliers are most willing to price low and offer terms concessions during this phase, when they are hungry for revenue to cover the enormous capital costs of building their cloud infrastructure.

The question is: are customers able to capitalize on this phase?

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