Microsoft is planning to hike the price of its Azure cloud services based on macro factors in the markets where the company operates. The step is in stark contrast to the trend of the past few years where companies like Google, Amazon and Microsoft all announced price cuts.
Is the price rise from Microsoft justified?
A Microsoft spokesperson told the Register that the company is evaluating the market situation in the countries where they operate. And from 1 August 2015, “we will be adjusting the prices for the company’s enterprise cloud services in Australia,” adding that the changes will be “worldwide.”
The price rise is certain in Europe, says the report citing the excerpts from Microsoft emails (posted by Blogger Aidan Finn), which mentions an 11% rise in the Eurozone and 26% in Australia.
Microsoft is blaming currency exchange rates for the price rise, noted the report. At present, the euro is not the world strongest currency. When Microsoft started operating in Australia, one Australian dollar bought 94 U.S. cents. After one year, with China decreasing interest in commodities, observed prices of Australian ore and coal dropped. And, a relatively stronger U.S. economy helped force the Aussie dollar’s buying power to 74 US cents.
As per the report, Microsoft sets it local prices after considering local operational costs and the exchange rate. Considering such factors, the price rise from the Redmond-based firm may actually appear reasonable.
Will rivals follow suit?
Recently, nearly all earning calls from firms with global sales have included warnings about revenues and profits being hurt by currency movements. So really, Microsoft standing up and going for a price hike is not really that surprising. However, it will be interesting to watch if Amazon Web Services (AWS) and Google also deice to hike the price of their cloud services, especially as both companies have worked hard to keep the prices low. Apart from the currency movements, all three are also under financial pressure from upcoming legislation which could make it hard to make use of tax loopholes for non-domestic sales.
Microsoft does not reveal its public-cloud, or even its combined public/private-cloud, revenues. The software firm instead reports the numbers under the “Commercial Cloud” heading, which includes revenue from Azure, Office 365 and Dynamics CRM Online. In the last quarter, Microsoft CEO Satya Nadella told that the company’s Commercial Cloud was at a run rate of $5.5 billion, suggesting triple digit growth. It must be noted that the run rate is not as same as revenues, but are more of an estimate of future performance.