Amazon.com, which dropped prices on its internet-based cloud-computing service this month, says it will keep cutting when it can, putting pressure on competitors such as Microsoft.
Customers of Amazon's EC2 service, which lets clients run their programs on the online retailer's server computers, saw price cuts of as much as 37 per cent on March 5, and other Amazon cloud service prices were trimmed as well. Microsoft responded a few days later with reductions on its rival Azure services.
"We expect prices to be lower and lower over time, and load volumes to be higher and higher," says Adam Selipsky, a vice-president at Amazon Web Services.
Amazon has lowered prices 19 times in the six years it has sold Amazon Web Services, which has gained customers as more companies seek to run and store applications in outside data centres instead of maintaining the servers themselves.
As they tussle over price, narrower profit margins may be tough to swallow for both companies.
Microsoft is under pressure from investors concerned about its entry into markets where costs are higher than its traditional software business.
Meanwhile, Amazon's stock has slid about 25 per cent since October as expanded investments in areas such as cloud services and the Kindle Fire tablet cut margins in 2011.
"It's another round of a race to the bottom, and this won't be the last one," says Colin Gillis, an analyst at BGC Partners in New York. "Amazon has made it pretty clear that they are interested in share over profits, at least for now."
Microsoft and Amazon are jousting to stay competitive on price for a reason: The market for so-called public cloud services will increase from US$21.5 billion ($26.2 billion) in 2010 to US$72.9 billion in 2015, according to the most recent forecast from researcher IDC.
As a veteran of the retail business, Amazon is more adept at dealing with pricing pressure than Microsoft, analysts say.
Pricing pressure is likely to persist as new companies enter the market. Hewlett-Packard, for example, is testing a competing service and plans to release it officially this spring, says spokesman Michael Thacker.
Google this month trimmed the price of its cloud-based storage service.