back to article Microsoft slices Azure prices just days after Amazon's cloud shave

The infrastructure-as-a-service industry behaves like a topsy-turvy oligopoly, where far from keeping prices high, the major corporations are grinding prices into the dirt. Now Microsoft has just announced a price cut to its Azure cloud's block, blob and disk storage services. Microsoft declared last year that it would price …

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Wobbly Wheel

I know MS is an easy target for jokes and commentary, but the fact of the matter is they've always done well in their primary task of making money. To me, it seems like MS has gotten into something without having a clear idea of where they want to go with it.

I say that because competing head-to-head on price is amateur hour, lemonade stand business. It doesn't leave room for growth and it means the market won't support a decent size field of competitors. Regardless of what a lot of people think, no business wants a monopoly. It's really, really bad for business.

It's very worrisome from a customer perspective too. At least it should be. You can screw around like this when you're flush with cash and sales are good. But when you've got a really bad quarter or a less than stellar year, the low/no/negative margin things are the first things to be jettisoned. Are you going to wake up one morning and find you've got 24hrs to collect your data and migrate all your applications? Maybe...

Finally, this is the important part, it is an absolute universal constant that if a company known for its aggressive business practices, as much as for its products, is playing race to the bottom there's an angle there, and it won't be a positive one for customers.

You better dig deep and identify that angle, for certain, before you buy in. The angle is guaranteed to be there and if your assessment of it is wrong it's going to be expensive.

As a general rule it doesn't matter, from my perspective, what software/systems/IT anything a company uses as long as it works for them. Hell, I'm a pretty big fan of MS stuff. But Azure has big 'Danger' placards all over it. I don't even see it as a manageable risk and I'm prone to risky business behavior. This is like buying your infant daughter a SCUBA setup and a knife then setting her loose in the Sahara. Dumb. It's just going to end in tears.

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JC_

Re: Wobbly Wheel

You can screw around like this when you're flush with cash and sales are good.

Odd that this line of reasoning makes you worry about MS - $6.56bn in profit in the last quarter - rather than Amazon with its negative profit margin (-0.24%).

I'd be much more concerned about the ability of any of the smaller hosting providers to survive when competing against Amazon, MS & Google. All 3 of those require vast server farms for their own needs and benefit from economies of scale; they'll be creating and renting out extra capacity as long as they are around.

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Re: Wobbly Wheel

You can't make comparisons of wholly dissimilar things like that. That's how people who choose to self-manage their retirement funds end up bagging groceries at 79 years old. Incidentally, it's also why you can't compare say, Apple to Samsung beyond a couple of phones or RedHat and MS beyond that they both make operating systems. The businesses couldn't be more dissimilar really.

Your error is in not understanding what those P/L figures mean. Amazon isn't 'losing' money, they are investing in aggressive expansion. That is what keeps those revenue figure growing. Only a fool would stop that process before potential for growth had stopped. Amazon is incredibly capex heavy and investing now in operational economies that can be streamlined later is what will keep them in business after growth has plateaued. Profitability is a known point and can be attained in any quarter if that was required.

MS is, and always has been, exceptionally light on capex and high on margins. That's the upside of software. The downside is that if something goes really wrong those kinds of companies tend to collapse in big piles because there's no physical assets to move around/reconfigure (or even sell).

But both have the same goal, it's just they have two completely different roads to get to the money. One model has no superiority over the other. Both are extremely proved and validated methods, the person in charge is the key element, are they compatible with existing strategy?

Your last point is way, waaay off though. Managed infrastructure was never a suitable path for small entities. It's like Finland having nuclear weapons, insanely expensive, absolutely pointless and insanely risky with no reward. You only draw attention to yourself and pay mega dollars to be someone else's pawn, who they can squash in a second if you get uppity.

There simply aren't very many medium and larger businesses that actually make a good fit for hands off infrastructure. The risks are too great to lose control of your core infrastructure. There are very, very few of those businesses that actually have business models that actually include making money. Everybody is still waiting to see how that pans out. What I'm getting at, is that the only real money to be made in infrastructure services is going after small operations that have the talent to develop scalable offerings but lack the financial resources to maintain the requisite 3rd wheel of big IT that is support and physical plant (equipment).

Don't get me wrong, there's a lot of money to be made in addressing that market. Trouble is, that market, by default, can see only limited advantages from the economies of scale that are the sole advantage of offering scalable infrastructure services. The needs of the market are too widely varied for a big 'blaaargh' One-Size offering. You end up with a truly massive customer base where no two customers, even direct competitors, have the same needs.

The only way to crack that nut is to be huge. Just massive so that you can spread the inevitable losses around in the most effective, for the moment, way. The upfront and continuously growing investments are simply too large for anyone who doesn't already have the required funds and the intensely complex structure in place to play $1 Billion per hand 'go fish' with the stock traders and bank analysts.

Rackspace might end up being the infrastructure equivalent of those weird one-off mobile phone companies every big city seems to have. The ones in the dodgy parts of town where you go to by crack, assassins and prostitutes. Maybe the Radio Shack of consumer electronics retail. But they simply don't have the resources to compete.

Corporate finances are structured so that it's usually not readily apparent, but buried under the buzzword bingo metrics everybody likes to toss around, is their actual costs of making a dollar. It's normally a stunningly large figure if you can manage a peek behind the GAAP voodoo. If it costs you .96 to make $1.00 then your real estate agent probably plays golf with the guy who sold you your yacht and is married to the daughter of the helicopter conversion company that turned your Sea King into a hovering platform of GDP scale capitalism. That's petroleum or Apple money. For most successful businesses you're closer to .98 per $1. For mass scale utility infrastructure yore at .999998889+ per $1.

Funding just the accounting software to make such a thing possible is solely the domain of the stupendously wealthy. The kind of company you join early in your textile design career and 50 years later as a successful submarine designer you find out that every job you've ever had was with a company ultimately owned by the same people you designed Autumn season women's fabrics for 50 years earlier.

I guess that's a too long way to say there is not, and never has been room for small infrastructure providers who are more than flashes in the pan. It simply costs too much money to make money in that game.

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JC_

Re: Wobbly Wheel

I guess that's a too long way to say there is not, and never has been room for small infrastructure providers who are more than flashes in the pan. It simply costs too much money to make money in that game.

MS is the exact opposite of a small infrastructure provider; they host a search engine, Office 365, endless websites and all of the glue that make it work together. Amazon are much the same, but with a smaller cash pile. Why exactly would you be worried about MS disappearing?

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Re: Wobbly Wheel

Im not sure you understand. MS isn't going to disappear, Azure might though. MS has a larger stockpile of cash because they are, and have always been, a high margin company. They don't make their money competing on price. That simply isn't their model.

Like so many other MS products in the past, Azure has every earmark of an experiment that was started without a clear idea of, well anything really. It's a Zune, or one of several aborted responses to QuickBooks or that half baked map server or Groove or the Expression family that they give away free now. Elements of those things live on, but those things were dropped because they didn't generate enough money.

Except for the maps thing, none of those products were 'bad'. They all sold well enough, but well enough isn't how MS makes its money. That's why the majority of large MS shareholders don't ever say much about MS operations. If something isn't returning the revenue volume and margins they aim for then it's cut off. MS doesn't much play low cost anything because their model won't support it. Look at the Surface 'tablet'. They was absolutely no product driven justification for its insanely high pricing. It's nice enough kit, but not that nice. But selling it cheaper won't give the returns they demand so just write off the $1+ billion losses and scale marketing back 90% until the warehouse shelves are freed up and the premixed parts are liquidated.

It is ultimately cheaper for MS to absorb the losses in product trials than to keep pumping cash into things that, even if profitable, aren't profitable enough. You can work around those kinds of financial issues and continue on your merry way. But if you adopt a strategy of throwing huge chunks of money at underperforming products then the class of shareholder changes as well. You start pulling in the 'activist' investors and share price falls accordingly. That's nearly impossible to recover from.

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"far more expensive than on-premises kit maintained by a knowledgeable sysadmin."

...does that include the salary of the knowledgeable sysadmin?

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Re: "far more expensive than on-premises kit maintained by a knowledgeable sysadmin."

"""...does that include the salary of the knowledgeable sysadmin?"""

What sysadmin? that one who will work for as long as required to deal with your problem?

Or the one you do not know and keeps writing on your support ticket that two days later and 3 different people looking at the problem they still haven't figured out what's wrong with the set-up?

Something people miss is that with IAAS you still need sysadmins, all you are getting rid of is datacentre costs, but unless you use very simplistic/generic services the ISP is not going to help you with "your stuff" that your run on their servers.

Amazon is well known for telling large customers to fcuk-off when customers boogie them with support tickets.

Now when it comes to SAAS and Microsoft wait a few years and tell me if the prices still go down.

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Anonymous Coward

Re: "far more expensive than on-premises kit maintained by a knowledgeable sysadmin."

The sysadmin who will work as long as required to fix the problem is a liability to the company. If you're dealing with a serious outage and it's taken out the whole company, but you only have one or two sysadmins, they will start to make serious mistakes after a relatively short time.

I've seen it in DR rehearsals - events which last entire weekends - we had the same guys involved in recovering the data to servers from start to finish, two generalist server guys and two backup and recovery guys. By the time the data were streaming back onto the servers - about 16 hours - the backup guys were totally useless. The server guys were close to it as well. We changed our procedures so that one guy overlapped with the next, in order that they could sleep properly. This can only scale if you have enough for three or four people to cover a specialism.

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Anonymous Coward

1 cent per Gigabyte per ???

For those not up to speed, please turn the ??? in to seconds/hours/days/months/epochs or whatever unit applies.

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Lower price for lower quality of Microsoft solutions

Microsoft is acting like the only consideration differences between choosing their Azure Cloud Services over Amazon offerings is the (lower) price. Unfortunately for all those gullible and naive Microsoft customers, the reality of greater reliability/flexibility, scalability and robust Security of Amazon services - which actually accounts for and should account for choice between the two is lost in their worship of Redmond popularity and 20th century prominence.

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Anonymous Coward

Re: Lower price for lower quality of Microsoft solutions

"Unfortunately for all those gullible and naive Microsoft customers, the reality of greater reliability/flexibility, scalability and robust Security of Amazon services "

Although Azure has had some glitches - and a couple of major outrages - historically Azure has had fewer and generally less extensive outages than Amazon S3.

In terms of flexibility, Azure integrates seemlessly with with your on premises stack and can migrate VMs in and out of the cloud at the click of a button. As far as I am aware, to achieve that with Amazon requires a third party toolset.

Azure also has a much more capable security model than S3 with full Active Directory support, and features that Amazon S3 can only dream of like expression based security and constrained delegation.

Also Azure runs on 'Hyper-V Server' which is a dedicated Hypervisor layer - much like vSphere - so is more efficient, more scalable and has a much smaller attack surface than S3 - which runs on a Linux based monlithic Hypervisor.

This is why many corporates and enterprises are migrating over to Azure. Amazon S3 is likely to retain it's ecommerce space leadership imo, but in the enteprise Azure has so many advantages for most clients it's a no brainer...

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Ida

"this stuff as the cost to an end-user tends to be far more expensive than on-premises kit maintained by a knowledgeable sysadmin."

Ahh the comment of an ignorant salesman.

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Angel

Looking ahead...

How long before three, become two, or even one.....?

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