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Despite all the criticism Microsoft's outgoing CEO Steve Ballmer has received, he has aggressively driven Microsoft into new businesses. One major investment Microsoft has made under Ballmer is in cloud computing. While Amazon Web Services is the acknowledged leader in cloud computing, it appears as though AWS is about to face it’s most serious challenge yet in the form of Microsoft’s Azure. 

Microsoft recently made two important announcements about Azure that are worth highlighting:

First, Microsoft announced yet another price drop in its Azure product, with the obvious intention of taking on AWS. Given that Microsoft has invested $15 billion to date in building its Azure cloud, Microsoft has the economy of scale to compete aggressively with AWS, especially as it is continuing to gain market share. 

What is interesting about Azure is that Microsoft believes enterprise customers will take a hybrid approach to the cloud, i.e. a combination of public and private clouds. From this perspective, Microsoft wants to help customers utilize their investments in on-premises software solutions in their adoption of cloud computing.

The AWS messaging, by contrast, focuses more on the public cloud alone, as AWS has frequently claimed that a private cloud is not a real cloud and does not take advantage of the economies of scale offered by the public cloud. Microsoft is clearly betting that IT departments will ultimately want to keep some applications in-house, and Azure aims to take advantage of this trend.

Microsoft’s second recent Azure announcement is that it is creating a separate, dedicated cloud solely for US Government Federal, state and local agencies. In keeping with its bet on hybrid clouds, US Government customers at all levels will still be able to choose public, private or a hybrid solution.

To assure security, all of the data, hardware and support services will be located solely in the continental US. Accordingly, Azure’s new US Government Cloud service – which Microsoft has nicknamed “Fairfax” - will only be hosted in Microsoft data centers located in Virginia and Iowa and all Microsoft employees in its Government cloud group will be US residents with security clearances. Microsoft also just received a so-called “FedRAMP certification” which will make it much easier for them to win US Federal Government business.

The message from Microsoft to Amazon, IBM and others? Its game on in the cloud computing space.

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