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Another day brings another Amazon Web Services price cut, yielding another frantic bout of spreadsheet-hammering among the Microsoft and Google accountants trying to work out just how low their companies' margins can go, we imagine.

Thursday's price cut sees Amazon go after Microsoft's Windows Azure cloud by reducing the cost of renting Windows on-demand servers by up to 26 percent – bringing Bezos's big yellow cloud within a whisker of Ballmer's blue sky.

"The price drop continues the AWS tradition of exploring ways to reduce costs and passing the savings along to you," the company wrote in a blog post.

Prices are effective from 1 April 2013. The reduction applies across Amazon's Standard (m1), Second-Generation Standard (m3), High-Memory (m2), and High-CPU (c1) instance families.

Microsoft's cloud fields a fraction of the types of rentable instance available on Amazon, so a full comparison is difficult. Here's how the prices look for Amazon's m1 family versus Azure's standard instances*.

  • Small: $0.08 per hour versus Amazon's $0.091
  • Medium: $0.16 vs $0.182
  • Large: $0.32 vs $0.364
  • XL: $0.64 vs $0.728

If Amazon gets lower, Microsoft may not have the will to reduce its prices further: remember, Azure is currently in "preview" mode, which means "customers are charged discounted rates for Virtual Machines during preview," Azure's FAQ reads.

How could Amazon have further reduced its prices? Well, it could have a) extracted more efficiency out of its famously advanced global data center infrastructure, or b) received a discount from Microsoft on the various Windows licenses it buys to let it sway developers away from Azure.

We somehow doubt that the answer is b).

More evidence for the overall efficiency of Amazon's cloud comes when you look at how much Amazon charges for its Linux instances versus Azure:

  • Small: $0.08 per hour, versus Amazon's $0.06
  • Medium: $0.16 vs $0.12
  • Large: $0.32 vs $0.24
  • Extra Large: $0.64 versus $0.48

Now, for all its open source activism in recent years it's unlikely that Microsoft would undercut Windows in favor of Linux. But Amazon doesn't have that attitude, and with EC2 the mainstay and (along with S3) the majority service on AWS, it's likely that these prices reflect the lowest prices permitted by Amazon's current strategy.

It strikes us that they're far, far below Microsoft's lowest price for Windows Azure. And with Azure still in "preview" there's even an implication that prices could go up, not down.

It's a common saying that if your opponent smokes and you don't, then compete with them in a competition where you hold your breath. Microsoft got hooked on hefty software dividends in its youth, whereas Amazon grew up by brutally slicing at the margins of everyone in every market it passed through.

We suspect the high-pitched squeak we heard when updating our cloud pricing spreadsheet (Google Docs, funnily enough) came from Microsoft's Azure biz dev team as it tries to work out how it can keep its prices below Amazon's without leaking red ink.

Microsoft's tech-focused Management Summit is due to kick off in Las Vegas next week, and Amazon states in its blog post that it will be holding "an invitation-only customer session" for Microsoft types keen to make an Azure switch. We expect a Microsoft price cut next week, but the company told us it had no news to share at this time when we asked about it. ®

*Bootnote:

There are differences here with RAM allocation, with Amazon offering 1.75GB of RAM for a Small instance versus Microsoft's 1.7GB, up to 15GB of RAM for the XL instance versus Microsoft's 14. Both companies run their machines off of one (small), two (medium), four (large), or eight (xl) 1.6GHz CPUs.

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