Amazon Web Services could cut prices and change its market strategy as it tries to fend off Microsoft in the cloud wars, analysts predict

Associated Press

Amazon Web Services CEO Andy Jassy.

• Amazon Web Services is still the cloud computing leader, but Microsoft is gaining through big deals and partnerships.
• Analysts expect AWS will explore price cuts and a change in market strategy to attract bigger customers and hold on to its lead over Microsoft.
• AWS has already made changes to offer new discounts and court larger customers, including a "complete overhaul" of its pricing model for its most popular service and a big hiring push for marketing and salespeople capable of scoring big enterprise deals.
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Amazon Web Services still has a wide lead in the cloud computing market, but Microsoft is starting to narrow the gap through big deals and partnerships - and analysts expect AWS will explore price cuts and a change in market strategy to attract bigger customers and hold on to its position.

Amazon Web Services started primarily selling to startups while Microsoft has a long history of selling to large enterprise companies. Oppenheimer & Co. Managing Director and AWS analyst Timothy Horan said he expects AWS to spend aggressively and even discount prices to win those larger customers.

"We expect AWS to improve their go to market strategy to attract more legacy enterprise customers," Horan told Business Insider. "This is a huge market and we are only 10% of the way through adoption, so capturing customers the next two years...is critical."

Amazon declined to comment on this story, but the company has already made changes to offer new discounts and court larger customers.

AWS recently made a "complete overhaul" of its pricing model for its most popular service and offered new discounts to make it more difficult for customers to switch to competitors like Microsoft and revealed a big hiring push for marketing and salespeople capable of scoring big enterprise deals.

Microsoft is gaining

Amazon Web Services still leads the cloud computing market by a lot, but analysts expect Microsoft is catching up. Gartner's most recent public cloud market share report, released in July, showed Amazon's 2018 market share was more than three times the size of Microsoft's - about 47.8% to 15.5% respectively.

Since then, Microsoft has closed notable deals and partnerships including beating Amazon to secure a $10 billion cloud computing contract with the Pentagon (though Amazon is currently challenging the award in court) and inking deals with big companies like Salesforce, SAP, and Oracle to get the Azure cloud in front of more customers.

Wedbush Securities analyst Dan Ives, who's often bullish on Microsoft, even expects the company to gain "significant" market share from Amazon Web Services in the near future.

"As we head into 2020 we believe this next phase of cloud is Microsoft's to go after and further close the gap with AWS," Ives told Business Insider. "We also foresee Microsoft getting more aggressive on cloud M&A and could see them making some more significant deals to further bulk up their product suite. We see 2020 as a year in which Microsoft starts to win the next phase of cloud versus AWS."

Scoring enterprise customers

Analysts expect AWS will make big investments to score more enterprise customers.

AWS has already acknowledged one big investment to court larger companies. Amazon Chief Financial Officer Brian Olsavsky on the company's most recent quarterly earnings call said the company is hiring more marketing and salespeople to go after enterprise customers.

"We are investing a lot more this year in salesforce and marketing personnel mainly to handle a wider group of customers, an increasingly wide group of products - we continue to add thousands of products and features a year - and we continue to expand geographically," Olsavsky said of AWS in late October.

AWS in November also introduced a new discount model for its Amazon Elastic Compute Cloud, known as Amazon EC2, requiring customers to make a one- to three-year commitment for a minimum amount of spending on the platform.

This new model, which AWS is calling Savings Plans, not only makes it easier for customers to save money but makes it harder for them to move onto a cloud competitor.

Corey Quinn, cloud economist at a company that helps AWS customers manage spending called the Duckbill Group, said Amazon already has cut prices more than 70 times ,and has never increased prices on a generally available service.

"I don't think narrowly-targeted price cuts are going to significantly impact the approach a company would take when evaluating a cloud provider," he said.

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