Microsoft (MSFT) is in the middle of a price war with Amazon (AMZN) and other companies in the cloud-computing space, lowering prices to attract developers looking for a place to build and host Web applications.

Microsoft has put its Azure cloud-computing platform up against Amazon (AMZN) Web Services, the largest player in the cloud computing space. Also competing in this sector are Google (GOOG) with its App Engine, Rackspace Hosting (RAX) and Salesforce.com (CRM). (Microsoft owns and publishes Top Stocks, an MSN Money site.)

Microsoft has slashed pricing for Azure storage and computing in a bid to stay competitive with Amazon, which recently reduced the pricing for many of its Web services, like Elastic Computing Cloud, Elastic Map Reduce and Relational Database Service.

Azure an important business

In response to Amazon's price cuts, Microsoft reduced prices for its similar offerings: Azure Storage and Azure Compute. Both Microsoft and Amazon are targeting small businesses, developers and start-ups with their services. We expect revenue from Azure cloud services to grow steadily in the coming years and account for an increasing portion of Microsoft's revenue from the servers and tools business.

Azure Storage, Compute and SQL are part of the Servers and Tools business, which accounts for around 17% of Microsoft's total value.

The Trefis price estimate for Microsoft stands at $38, nearly 15% above its market price.