Microsoft Cuts Prices to Match AWS

Microsoft Corp. ( MSFT - Analyst Report ) recently announced its decision to slash prices for its Windows Azure cloud services as part of an effort to better compete with Amazon's ( AMZN - Analyst Report ) cloud computing platform.

The decision to slash prices by 21% to 33% for some of its online data services will help Microsoft to match the prices offered by Amazon Web Services (AWS).

Windows Azure is Microsoft’s cloud computing platform for building, deploying and managing applications and services through a global network of managed datacenters. Windows Azure core services include Media Services, Mobile Services, Cloud Services, Virtual Machines, Websites and Big Data. It competes with Amazon's cloud computing platform AWS and OpSource Cloud Computing Services.

We view Microsoft’s decision to cut prices as an aggressive move, designed to increase its share in the cloud computing market, where AWS has gained a lot of success. Last year, AWS generated about $1.8 billion in revenues and is expected to grow stronger given the increased adoption of its cloud services.

Cloud storage came into prominence in 2009, with Nirvanix and Amazon's Simple Storage Service (S3) being two of the major pioneers. Since then, Amazon has continued to dominate the space, with other players like Microsoft and Rackspace ( RAX - Snapshot Report ) offering their own solutions.

Companies have significantly cut down their own IT infrastructure expenses for data storage as cloud-based storage services save both time and money.

IDC predicts that the cloud market will jump 130%, reaching $43.0 billion in 2016. Further, Gartner predicts that around $677.0 billion would be spent on cloud services within the 2013–2016 timeframe. Microsoft, with its solid portfolio should be able to tap this opportunity.

Microsoft remains one of the best positioned software vendors, given its wide range of products, emerging markets strength, continued technology deployment at data centers and growth in cloud computing. The company delivered better-than-expected second quarter results with non-GAAP earnings up sequentially. New products across segments, strength in the cloud computing segment and share gains in search combined to generate encouraging results.

However, Microsoft is also battling the slump in the PC market caused by the sluggish economy. Therefore, it is important for the company to focus more on emerging segments such as mobile hardware and the cloud.

Currently, Microsoft has a Zacks Rank #3 (Hold). Another stock in the sector that is performing well currently is Priceline.com Inc. ( PCLN - Analyst Report ) , carrying a Zacks Rank #2 (Buy).