The competition in the cloud computing space between Microsoft (News - Alert) and Amazon continues to heat up, as Microsoft’s Windows Azure has surpassed $1 billion in annual sales for the first time.

Azure, which stores business information and programs on remote servers and lets customers access them over the Web, achieved the sales milestone over the past year, Curt Anderson, finance chief for Microsoft’s server and tool unit, told Bloomberg (News - Alert). The $1 billion sales figure includes Azure, as well as software provided to partners to create related Windows cloud services, according to Anderson.

While Microsoft is edging closer to Amazon in the race to rack up more cloud customers, the tech giant will need to do a better job of convincing existing customers as well as other companies seeking to reduce computing costs, why they should opt for Azure over AWS, according to James Staten, an analyst at Forrester (News - Alert) Research.

In its quest to continue to gain ground, Microsoft also recently added Infrastructure as a Service (IaaS) to its cloud portfolio. IaaS, which lets companies move applications to the cloud by renting storage and servers, is the fastest-growing part of the cloud market, according to Gartner (News - Alert), which estimates that sales of infrastructure services will surge by an average of 38 percent annually to $30.6 billion by 2017 from $6.17 billion last year.

Aligning itself in more direct competition with Amazon, Microsoft launched Windows Azure Infrastructure Services – a self-proclaimed “significant step” in Microsoft’s cloud computing strategy, which has been influenced directly by discussions with customers and partners.

“Throughout these conversations, one thing holds true in every discussion – enterprises know that success with the cloud lies in the power of “and,’” the company explained in a company blog post. “Customers don’t want to rip and replace their current infrastructure to benefit from the cloud; they want the strengths of their on-premises investments and the flexibility of the cloud.”

Microsoft went a step further by matching its prices to that of Amazon Web Services (News - Alert) for commodity services such as compute, storage and bandwidth, starting with reducing its GA prices on virtual machines and cloud services by 21 percent to 33 percent.