In a surprising admission, Microsoft president Bob Muglia says Microsoft's licensing arrangements with Amazon Web Services and other cloud service providers are both too complicated and too expensive. "We'll fix that," Muglia promises.The subject came up in a recent 90-minute interview in InformationWeek's New York offices. I asked Muglia, president of Microsoft's Server and Tools division, about what I see as a growing rivalry between Microsoft and Amazon in the cloud computing market. "There are people at Microsoft who think of Amazon as a competitor," he admitted. "I don't. I think of them as a customer."

Muglia revealed that he had just talked with Andy Jassy, the senior VP at Amazon who oversees Amazon Web Services. The conversation involved "challenges" with the licensing terms that Microsoft offers Amazon and other companies that host Windows Server. "Andy's got some very valid issues with our licensing policies right now. Our licensing to hosters really needs to be simplified. We'll fix that," Muglia said. He added that in some areas Microsoft's Windows Server licensing terms for hosting companies are too expensive.

Why the spirit of cooperation? Amazon introduced Windows Server as Amazon Machine Images six months ago, and Muglia calls demand "very strong." He says Amazon is one of Microsoft's fastest-growing hosters.

Of course, Microsoft plans to enter the cloud services market with its Windows Azure services in the months ahead, so we'll get a better idea of just how far it's willing to go to assuage Amazon and other competitors.

Already Muglia is drawing a line in the sand: Microsoft doesn't plan to license its in-development Windows Azure OS to Amazon or other third parties. Microsoft is reserving Windows Azure as a platform for its own cloud services. Other cloud service providers wanting to run Windows inside their data centers will have to make do with Windows Server 2003 or Windows Server 2008.

For more from our interview with Bob Muglia, see "Microsoft To Enable Private Clouds."

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