Microsoft admits: it costs less to run Linux

Buried in today’s news of Microsoft’s pricing scheme for their cloud service, aka Azures, is some amazing insight into their own IT infrastructure costs.

Before we continue, I suggest you go here and become vaguely familiar with Azure’s pricing structure.

Now that you are back, the most important number to look for in their pricing scheme is the overall cost of a running a CPU for a full hour (commonly known as cpu/hr) which, in the cloud age in we live in, is the common currency of all providers. Microsoft clocks in at 12 cents per cpu/hr. That is very important since it gives you a fair ratio by which to compare providers and how efficiently they are at running their IT departments.

For instance, Amazon Web Services (AWS) – undoubtedly the market leader and Microsoft’s real competition – is able charge $0.10 per cpu/hr (http://aws.amazon.com/ec2/#pricing) which, besides being 20% cheaper, also conveys that they are able to run their IT infrastructure 20% more efficiently than Microsoft. But why should you care?

Amazon is not in the business of selling enterprise IT software (at least not their own software) and services, much less operating systems expertise. However, buried in their cost structure is the idea that they are able to deliver an internal (and external) IT infrastructure that is 20% cheaper running Linux than the best Windows IT infrastructure in the world – assuming that Microsoft employs the best Windows engineers in the world. That is truly mind blowing especially if you factor in that in both cases you can cross out the cost of licensing (assuming that Microsoft’s IT doesn’t pay Microsoft for licensing of their software and that Amazon does not pay to run Linux).

An astute reader at this point of the post is either asleep or noticing that I’m overlooking a basic rule of pricing: it’s not just cost but cost + margin and maybe Microsoft’s margins are just much bigger? This is really unlikely, especially if you keep in mind that to Amazon, AWS was always intended to be a revenue generating engagement (otherwise why bother?) meanwhile to Microsoft, which feels pressure to embark in the cloud hype, this is more of an attempt to remain relevant which would require a much lower return, maybe even revenue neutral.

Again, why does this matter? I believe it matters a lot, especially if you are in charge of running a large “enterprise” IT infrastructure in which you benchmark your “cpu/hr” cost against others to assess overall company efficiency. If you are building your infrastructure around Microsoft products you can expect to hit a theoretical limit of $0.12 cpu/hr, meanwhile, on a Linux deployment modeled by Amazon, the bar is much lower at $0.10 or less (since we don’t know Amazon margins).

Lastly, the question that remains to be answered is how many MBAs worked on coming up with the proper pricing structure for Azure without foreseeing its market implications?

12 thoughts on “Microsoft admits: it costs less to run Linux

  1. This is a stretch. A big one. Not least because the publicly listed prices may not have much to do with what you can get if you’re buying a big, enterprise-level order. I’d bet your MS rep could cut you a deal.

  2. Amazon didn’t start EC2 at $0.10/cpu-hour, it fell to that price as usage increased. Also, you are comparing Apples to Oranges. Amazon just recently opened up Windows virtualization (on top of their existing *nix virtualization stack for EC2). It’s more interesting to compare to the pricing from this page:

    http://aws.amazon.com/windows/

    In this case it seems that virtualizing Windows on Unix is currently $0.125/cpu-hour on Amazon EC2. I wouldn’t dare make a similar stretch and claim “virtualizing Windows on top of Unix virtualization stacks” is $0.005/cpu-hour more expensive than “virtualizing Windows on top of Windows virtualization stacks”.

    If there is something to actually learn from the Azure pricing scheme: At $9.99/month SQL Azure may be (I’m tentative until I actually see it in operation) the cheapest, most scalable RDBMS choice in the cloud (compare EC2′s MS-SQL hosting or Oracle hosting or even MySQL/PostgreSQL at the base EC2 rates, and that’s before replication/scaling). I’m curious to research more about SQL Azure and see what the hidden catches probably are…

  3. Well, it looks like you haven’t familiarized yourself much with pricing and pricing strategies. Cost-plus pricing is only one of several pricing strategies and most probably it is not the one used by Microsoft to fix the price of Azure.

    Now let us assume that Cost-plus pricing was chosen by Microsoft then what are the costs? They are: hardware, infrastructure (building space, energy, bandwidth), and labour. I don’t think that Amazon has any substantial advantages regarding hardware and infrastructure and furthermore don’t think that Amazon’s staff is that more efficient/productive than Microsoft’s, so the only explanation would be that Microsoft is paying their employees 20% more on average than Amazon. If you depend on wage labour yourself then you should ask yourself what is actually better for you – Microsoft’s salaries or Amazon’s?

    At this stage you might start thinking about the economics of open source in general and Linux in particular. Who is paying open source? The users? The general public (via taxes)? Are people working on those projects actually paid? Fairly? Is open source really cheaper (than closed source/Microsoft)? Are closed source companies greedier than open source companies? (look at the earning reports!) Maybe it is “socialising costs – privatising profits”?

    Whatever. My guess is that Microsoft is trying to only get early adopters at this stage to not overload their infrastructure. It is hard to predict usage patterns and infrastructure load and they don’t want to risk to much – therefore the somewhat uncompetitive pricing. Real price wars will start later (if at all).

  4. Max, I understand your comparison but my point has less to do with Windows versus Linux but more with “which IT shop is cheaper to run” think of that cpu/hr mark as an efficiency metric of how cheap they can do business and still turn a profit. I’m not making any claims about the capabilities of the different OSs

  5. “Microsoft clocks in at 12 cents per cpu/hr [...] Amazon Web Services [...] is able charge $0.10 per cpu/hr [...] which, besides being 20% cheaper”

    Should be: MS is 20% more expensive than AWS OR AWS is ~17% cheaper than MS

  6. The price must cover the costs, of course, but just because two products have different prices does not mean the two products have different costs. You can’t draw any conclusions based on the price here.

    Lies, damn lies, and statistics indeed.

  7. disclaimer i’m a *nix fan boy and have used ec2 extensively

    How do these machines really compare? the 10c/h amazon machine has 1.7g or ram and a really slow processor.

    also if you buy a year of service off Amazon its more like 4c an hour.

    What does M$’s offering boast?

    This comparison has holes.

    As an aside giant companies can afford to lose money on new products for years, inorder to strangle out the competition, hard to draw any conclusions really.

    Of course I know the ms is garbage beside *nix, but hey that’s beside the point.

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