Microsoft can't afford to raise Azure prices

Posted by Ron Miller on Jul 9, 2015 1:04:25 PM

4152919570_3acdefc13e_zFor the longest time, it seemed like cloud pricing was on a rapid race to zero, but word leaked recently that Microsoft intends to raise Azure prices for customers in some zones.

While some people believe it's just a currency fluctuation, there was also speculation it was about increasing revenue as much as adjusting for local currency shifts. And given the week Microsoft has had, who could blame them for wanting a little extra cash.

Just yesterday, Microsoft announced it was taking a $7.6 billion write-down on its purchase of Nokia. That's more than the $7.2 billion it paid for Nokia's Windows phone business. It also announced it was laying off 7,800 employees. Not surprisingly, many of those layoffs came from the floundering phone division.

The question is, can Microsoft afford to take any risks with its cloud business, where it seems that new CEO Satya Nadella has placed a good many of his bets on the future of the company.

Microsoft once ruled the desktop world. Seas would rise when it gave the word. In fact, Microsoft embodied the Coldplay song, Viva La Vida. It made billions selling Windows and Office. It felt the fear in its enemies eyes. It was all good Microsoft, that is, until the world started to shift.


The center of the world is no longer on a fixed desktop or a physical server. Today, the focus has moved to the cloud, and Microsoft has been gamely trying to make the transition, even as revolutionaries wait for it's head on a silver plate.

Lots of Competitive Pressure

Yet, Microsoft is not alone in its quest to make that transition to a cloud and become a mobile-focused company. IBM, HP, and Oracle are doing it too, and they have to compete with all those born-in-the-cloud companies like Amazon Web Services and Google Cloud. Oracle has let it be known it's all-in on the cloud (after dismissing it for so many years), and even smaller players like Digital Ocean, which announced $83 million in funding this week, are nipping at the heels of the market leaders.

What matters most is what AWS is doing because it's the clear market leader in infrastructure services. As long as AWS continues to keep prices down, it really forces everyone else to match up with the leader or risk losing more market share. Price isn't the only factor in a purchase decision, but if all things are equal (or close to it), most companies are going to go with the most economical option—and who can blame them.

Perhaps Microsoft is realizing that it's harder to make those big fat profits in the cloud than it was when it ruled the desktop world. It might believe it simply can't afford to play that pricing game with AWS and Google, but the real question is can it afford not to.

Times have changed. Now the old king is dead, long live the king.


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Photo Credit: epSos .de on Flickr. Used under CC by 2.0 license.

Topics: Cloud Trends

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