Microsoft Office 365 and Windows Azure: Were Price Cuts Wise?

What's my reaction to the recent Microsoft Office 365 and Windows Azure price cuts? That's the question I heard over and over again from VARs, MSPs and cloud services providers (CSPs) during a cloud computing event yesterday in New York. My response: You're actually asking two separate questions, because Office 365 and Windows Azure pricing should not be lumped together into a single discussion. Here's why.

Windows Azure essentially is platform as a service (PaaS) and infrastructure as a service (IaaS), and Microsoft attempting to compete head-on against Amazon Web Services (AWS). For many customers and developers, the AWS discussion often boils down to price -- and regular price cuts. And that's why Microsoft continues to cut Azure prices from time to time.

Office 365

In stark contrast, Office 365 is software as a service (SaaS), loaded with popular cloud or hosted applications like Exchange  Online, SharePoint Online, Lync Online and more. When enterprise customers evaluate Office 365, I think most folks think about such variables as reliability, scalability, security and cross-platform applications.

But I don't think enterprise customers spend much time worried about Office 365 pricing. In fact, I've never heard a customer say that Office 365 is just too darn expensive. That's why I was so surprised when Microsoft announced some Office 365 price cuts.

Still, price cuts do surface from time to time in the SaaS market. offered aggressive sales incentives in December 2011. And NetSuite has offered price cuts to customers that run rival ERP platforms.

Microsoft, meanwhile, crows about its 42,000 cloud partners, many of which promote Office 365. And Microsoft Channel Chief Jon Roskill recently claimed Microsoft essentially is the world's largest cloud computing software company (including service provider relationships with hosting providers).

Impressive. But if Microsoft is so darn strong in the cloud then why did Microsoft announce an Office 365 price cut? The simple answer: Big, enterprise deals often involve price wars with Google Apps. And that price war continues to remain intense.

Nevertheless, I'll come back to my original point: Exchange Online, SharePoint Online, Lync Online and other Office 365 capabilities offer lots of value to end customers. But somehow, the customer conversation (at least for this week) has shifted from high value to low cost. That's not a good trend for Microsoft.
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