Microsoft Corporation (MSFT): Bursting Onto This Scene

Capturing it

Even with similar pricing and capabilities, big enterprises and small startups alike are choosing Amazon over Microsoft because as Staten put it, “they haven’t really answered the question ‘Why Azure?’”

Microsoft is now giving startups a good reason – it’s free. The company is teaming up with venture firms and investment groups, and often giving away its services. That way, as startups grow, they’re already Azure customers and likely willing to pay for scale. This is similar to how Facebook Inc (NASDAQ:FB)’s recent acquisition, Parse, grew from 0 to 60,000 subscribers in just two years. Parse, a cloud-computing solution for mobile app developers, has a free tier, and as developers expand, the service scales out to paid tiers. As a result, Parse has captured a significant part of a growing market from the stalwart Appcelerator.

A similar strategy is certainly viable for Microsoft to continue growing Azure. After all, startups and frontline developers are what got Amazon where it is today, and what will continue to drive growth in the industry going forward.

Microsoft can afford to take losses on Azure, and there’s no real pressure yet for the segment to be profitable. That’s evident in the constant price wars between the company, Amazon, and Google.

Then again, Amazon and Google are capable of doing the same thing. Amazon has no qualms sacrificing margins for market share, but with its current dominance in the market it doesn’t need to. Google, however, could deploy a similar strategy. Coupled with its perception as startup-friendly, Google could become a big threat to Microsoft’s growth.

Saving grace?

I think Staten’s 35% market share estimate may be a bit too optimistic. Still, the potential for Microsoft to grow its Azure business is quite significant. With Windows sales falling, Microsoft will need a new product to take its place. While it’s still a long way from the $20 billion revenue machine that Windows was at its peak, Azure has the potential to get there.

Interestingly, that $20 billion mark is where Gartner expects Amazon’s Web Services to be by 2020. By that point, Azure could be a much closer second than it is today, providing a similar revenue figure.

The article Cloud Computing: Microsoft’s Saving Grace originally appeared on Fool.com is written by Adam Levy.

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