As president of Microsoft’s server and tools division, a $19 billion-a-year business devoted to databases, servers and other software products, Satya Nadella has a predictable cast of competitors to worry about. There is Oracle, VMware, SAP and a bunch of other makers of highly technical products that make everyday services like banking and airline reservations work, even if the software running them is invisible to most consumers.
But one of Mr. Nadella’s competitors – Amazon – is not like the others.
The Internet retailer is beloved by consumers for its seemingly infinite online selection of merchandise available for one-click purchasing, speedy delivery and Kindle e-readers. Out of view of most of the public, though, it has transformed itself into a huge player in the field of cloud computing. By renting capacity on the industrial-strength servers and beefy Internet connections in its data centers to anyone willing to pay for it, Amazon has become the virtual landlord of choice for technology start-ups, including the likes of Instagram and Foursquare.
Microsoft wants a piece of the action. On Tuesday, the company is opening to general availability a new service that competes directly with Amazon’s cloud offering. (Microsoft has been testing the service with customers for the past year.) And to make sure it’s taken seriously, Microsoft is committing to match Amazon’s prices for its cloud service, which is known as the Elastic Compute Cloud.
“It’s a two-horse race between us and Amazon,” Mr. Nadella said in a phone interview last week, noting the Seattle location of its cloud rival, a short distance away from Microsoft’s Redmond, Wash., headquarters.
Actually, that may be wishful thinking on Mr. Nadella’s part. Google and Rackspace are among the other companies that are fighting with Microsoft for the number-two spot in the cloud market.
The cloud represents a profound threat to Microsoft’s traditional business of selling software that people install on their machines. As a result, the company’s executives for some time now have been blaring their own plans to become serious cloud players.
For its first foray into the business a few years ago with a service called Windows Azure, Microsoft settled on an approach that played to its strengths, offering customers the ability to rent applications like databases and servers for broadcasting video. Amazon, in contrast, was known for more minimalist, low-level services — storage space on its servers, computing time and a share of its Internet connections.
If Microsoft’s offering was akin to a garage space outfitted with an arsenal power of tools, Amazon was renting just the garage.
Microsoft’s approach had appeal – the company says it has 200,000 Windows Azure customers – but not as much as what Amazon is offering. While the big companies targeted by Microsoft for its initial Windows Azure services will likely move to aggressively embrace the cloud at some point, the most ardent cloud supporters right now are technically sophisticated start-ups. And what they want is what Amazon – and starting this week, perhaps Microsoft – has to offer.
“They mistimed the market for sure,” James Staten, an analyst at Forrester Research, said of Microsoft.
In Forrester’s surveys of cloud developers, roughly 70 percent say they are using Amazon’s infrastructure, while about 30 percent say they are using Microsoft. (Many customers spread their business across several cloud vendors.)
Mr. Nadella, a Microsoft veteran, said the company is well positioned to become a stronger player in cloud computing because it has a more diverse portfolio of offerings than Amazon, including, of course, software that big customers can install in their own data centers if they want to take full control of their online services.
“It’s still the early part of the cloud market,” Mr. Nadella said. “Clearly they have done a good job in one segment of it. But it will play out.”