Is Microsoft Corporation (MSFT) In Catch-Up Mode?

Microsoft Corporation (NASDAQ:MSFT) is cutting prices on its cloud services, according to Reuters, so it can better compete with Amazon.com, Inc. (NASDAQ:AMZN). Will it work?

The Cloud

The Internet is a confusing place. While more and more people are accessing it from mobile devices, that doesn’t change the backbone of the web. Every time a person tries to look up a site, stream a movie, or buy a book there is a computer on the other side of the transaction.

In fact, more and more companies are using the Internet as their main computing power. That includes using the Internet as a conduit into a private network and using software that is located on “the web.” Often called software as a service (SAS), the latter is just one example of the so-called “cloud.”

Sharing computing power is a big business. Amazon.com, Inc. (NASDAQ:AMZN) was among the first big companies to step into the field. There are even real estate investment trusts the specialize in housing the thousands of computers that support the web.

Since Amazon has to have a vast amount of computing power to support its own business, it makes sense that it has an impressive level of expertise in the area. Letting others join in on the company’s web-based computational ability leverages on existing strengths. Simply put, the company is a clear leader in the space, offering both a good name and a good product.

A Big Lead

Reuters also reported that developers prefer Amazon’s cloud services by a more than two-to-one margin over Microsoft Corporation (NASDAQ:MSFT)’s similar offerings. That’s a big problem for Microsoft Corporation (NASDAQ:MSFT). If a company hires an expert to get them into the cloud, they are most likely going to follow that person’s advice—which means Amazon is getting recommended more often than Microsoft Corporation (NASDAQ:MSFT).

By cutting prices to compete with Amazon, Microsoft Corporation (NASDAQ:MSFT) is at least leveling the playing field to some degree. While this is only one segment of a vast company, it’s an important growth area and Microsoft Corporation (NASDAQ:MSFT) needs to be a big player. The only problem is that the price drop is pretty steep, 33% by Reuters’ estimates. That’s a big pinch on margins.