Microsoft makes about as much in profit every 12 days as Amazon does in a year. I don't think Microsoft is overly worried about margin at this point. They have a huge incentive to keep the Windows Server environment competitive in the cloud game.
They mention the only way Amazon will lose pricing power is if someone undercuts them in the cloud. I don't think that's accurate at all. Amazon is competing on the bottom side with dedicated hosting providers that give you twice as much for half the price plus bandwidth, and they're getting better constantly. I'd swear that Amazon taking some PR beating recently about how expensive their offerings are, was the primary reason for the EC2 drop. That comparison basis was mostly against dedicated and self/colo hosting.