Last week, VMware's top executives displayed just how worried they are about the competitive threat posed by Amazon's cloud computing service. With customers able to spin up virtual machines in Amazon data centers, VMware is concerned fewer people will buy its virtualization tools.

According to CRN, VMware CEO Pat Gelsinger told service partners at the company's Partner Exchange Conference that if "a workload goes to Amazon, you lose, and we have lost forever." VMware COO Carl Eschenbach jumped on the Amazon theme, saying, "I look at this audience, and I look at VMware and the brand reputation we have in the enterprise, and I find it really hard to believe that we cannot collectively beat a company that sells books."

Given VMware's view of Amazon, Gelsinger and Eschenbach won't like the latest news from the "bookseller," which also happens to be a large IT services provider. Amazon today announced price reductions of up to 27.7 percent for Elastic Compute Cloud Reserved Instances running Linux/UNIX, Red Hat Enterprise Linux, and SUSE Linux Enterprise Server. Reserved instances requiring up-front payments already provide discounts over "on-demand instances," which can be spun up and down at will. Using reserved instances requires a little more advance planning to make sure you get the most bang for your buck—although customers who buy more than they need can sell excess capacity on Amazon's Reserved Instance Marketplace.

The discounts announced today range quite a bit depending on location and the memory and CPU footprint of the instances. In the US, the discounts are anywhere from 10 percent to 27.7 percent. Buying in bulk can save up to 65 percent over on-demand costs (click here for a full price list).

This is just the latest step in an ongoing cloud price war. Last November, Amazon and Google each provided steep price cuts to their storage services, and Microsoft's Windows Azure did the same soon afterward.

VMware, of course, still leads the market for in-house server virtualization. But it has frustrated customers with its pricing, faced a steadily improving challenge from Microsoft's Hyper-V, and is now clearly worried about customers shifting workloads off VMware and on to public clouds.

It doesn't have to be an either/or proposition: customers can have their own virtual servers running in-house and use the Amazon cloud. Amazon's VM import and export tools let customers move VMware virtual machines into Amazon and back out into the customers' data centers.

VMware's focus on being a cloud service provider, as opposed to a seller of cloud-building software to service providers and IT shops, has waxed and waned. VMware and owner EMC recently spun out several cloud products and services into a new joint venture, letting VMware focus on its core competency of data center software, and a greater push into desktop virtualization. VMware today announced that it sold off its SlideRocket online presentation business, but that doesn't necessarily mean it's given up on the idea of being a cloud service provider. It still offers Zimbra e-mail, and the latest unconfirmed rumor is that VMware is building something called "VMware Public Cloud" to compete directly against Amazon.

Whatever the specifics end up being, it's clear VMware hopes to control IT workloads both in customers' data centers and in public clouds. VMware's hardware, software, and services partners will likely play a big role.

"We want to own corporate workload," Gelsinger told partners, according to the CRN article. "We all lose if they end up in these commodity public clouds. We want to extend our franchise from the private cloud into the public cloud and uniquely enable our customers with the benefits of both. Own the corporate workload now and forever."