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Satya Nadella
A bemused Microsoft CEO Satya Nadella listens to a question from a Microsoft shareholder at the company’s 2016 annual meeting in Bellevue, Wash. (GeekWire Photo / Todd Bishop)

Microsoft believes that its unique combination of cloud offerings will hold off market-leading public-cloud service Amazon Web Services in Microsoft’s traditional stronghold of the enterprise, CEO Satya Nadella said in phone call with press and analysts after the release of quarterly earnings Thursday. Microsoft is the number-two public-cloud company, competing energetically with AWS in an ongoing battle of pricing and features.

Cloud computing has always appealed to startups, freeing them from the financial burden of buying, housing and maintaining computing and networking hardware. Instant expandability (and contraction, if necessary) of both compute and storage, plus the availability of APIs into esoteric and otherwise-out of reach services such as machine learning and voice recognition, make the cloud an easy choice for new companies.

So called SMBs — small and medium-sized businesses — and large corporations are a different matter. Selling the cloud to them has required reassurances about security, migration plans, and patience while boards and CEOs adjust to one of the biggest developments in the history of computing.

In its 10 years, AWS has achieved increasing success in selling into the enterprise. Major recent corporate wins include Adobe, Expedia, Dow Jones, Kelloggs, McDonald’s, and Siemens.

But compared to Microsoft, AWS is a stranger to many companies seeking help with computing. Microsoft has been a familiar presence for many years, selling a breadth of offerings including staples such as Office, SQL Server and Windows Server. Microsoft deeply knows the lay of the land when it comes to corporate computing. AWS has had to learn that as it goes, and it’s only had 10 years to do so.

That knowledge and breadth of offerings are what Microsoft is counting on to fend off AWS.

Asked by an analyst how Microsoft will cope with “some belief among investors that AWS is going to be a big, strong competitor in the enterprise,” Nadella replied Thursday, “Even in the client-server era we had tough competition.”

He continued:

We had Oracle, we had VMware, we had many other players that I grew up competing with, and we now have AWS, which I think is going to be a credible competitor. We have a cloud strategy that is not just about infrastructure, it’s about SaaS (software as a service) and infrastructure, and we think about what we can do to differentiate and add values to our customers in that context. That’s where, if you will, our fair share will come from: by competing hard where we have to and by thinking about differentiation.

Nadella was referring to Microsoft’s key differentiator from AWS: its ability to offer not only infrastructure and platform as a service (IaaS and PaaS, respectively) but also SaaS, in the form of Office 365, Dynamics 365 and applications accessed over the internet on a browser. AWS lacks any SaaS component along the lines of Office 365 or Dynamics 365.

And AWS is really not oriented toward offering SaaS. Its development efforts, at least thus far, have been devoted mainly to creating new web services.

Microsoft posted a strong cloud Q2FY17, with its “commercial cloud” segment run rate topping $14 billion for the first time, driven by Azure as well as Office 365. That segment also includes Dynamics 365 and other cloud properties.

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