Cloud Computing and Microsoft

Here's a popular topic. 😉 A quick search in the blogsphere finds countless number of posts and comments proclaiming the inevitable (or already happening) decline of Microsoft as we near the age of cloud computing.

A small sampling of some well-known publications finds comparatively less dramatic views, but the theme is quite consistent - cloud computing is heralded as the future, and Google is best positioned to dominate this new era.

While things look quite certain on Google's side in terms of succeeding on the Internet and leading/riding the cloud computing tidal wave, at this point it doesn't seem to be the case for Microsoft.

Single-Era Conjecture

"The invisible law that makes it impossible for a company in the computer business to enjoy pre-eminence that spans two technological eras"; as described in the NYTimes article, "The Computer Industry Comes With Built-In Term Limits". While I think the article did not articulate the precise reasons why Microsoft won't stay on top through a major paradigm shift (other than focusing on where Google is succeeding and where Microsoft isn't), the question is still valid.

Reason being, cloud computing itself represents a migration from distributed client-server and on-premise software models, to a more centralized model (though logically centralized and physically distributed). Eric Schmidt said, "What [cloud computing] has come to mean now is a synonym for the return of the mainframe... and the mainframe is a set of computers... They're in a cloud somewhere." And this everything-as-a-service (in the cloud) model directly conflicts with what people most commonly identify Microsoft with - software for people to use (and most visibly Windows and Office - client O/S and desktop software).

More specifically, various trends in the past 10+ years have also influenced this paradigm shift. Just to list the obvious ones:

  • Consumerization of the Web, and use of browsers

  • Application development efforts shifting towards thin clients and server-side programming

  • Improvements in network bandwidth, anywhere wireless access, etc.

  • Increased maturity in open source software

  • Proliferation and advancement of mobile devices

  • Service Oriented Architecture

  • Software-as-a-Service

  • Utility/Grid Computing

Effectively, the shift towards browsers as the primary channel of access for consumers and deployment target for organizations, has reduced the need to use locally installed software. And this directly impacts Windows and Office, plus server software traditionally acquired and installed on-premise; perceivably the entire Microsoft product portfolio.

Plus arguably, Microsoft's investments in online services so far have not won leadership positions and profitability. Recent deliverables such as Windows Live have made significant progress, especially Live Search where the technology has closed some gaps with Google, but still trails behind in terms of adoption. And the gap seems to be widening still.

So it seems the "Single-Era Conjecture" must be true, and that Microsoft is walking towards its impending downfall? That would certainly be the case if Microsoft completely ignores the market and not see the need to change, or is incapable of change.

However, Microsoft does see the need, and has been working on many significant changes to shift towards the cloud.

But, then, why does it seem so difficult for Microsoft to make any significant progress in this area? A couple of thoughts:

  • Microsoft still has a $60B/year and consistently growing business in software

  • As a publicly traded company, Microsoft cannot simply abandon the current software customer base to fully pursue the new services model

  • Microsoft's own culture has to shift as well, but that won't happen overnight given the size and complex environment

  • As a software platform company, Microsoft's focus has been delivering innovation-enabling capabilities to IT customers, not massive scale and speed and multi-tenancy in Microsoft's own technical infrastructures

  • Software is a complex business, and Microsoft has built extensive processes and organizations to deliver secure and robust software, compared to Google's rapid release and perpetual beta model. It will require significant changes in Microsoft to compete on the same grounds as Google, or achieve a similar level of agility

  • If the bottle is half-full, Microsoft actually has made very significant progress; but Google has set the bar very high for anyone to be compared against

  • General mindshare shift towards open source software

What About the Other Guys?

So much attention has been focused on the perceived "war" between Microsoft and Google. But what about the rest of the IT industry? This shift towards cloud computing also in many ways presents challenges to their existing businesses. I'll bet many organizations are also thinking that they missed the opportunity to land grab some market share in online search.

But from a corporate strategy perspective, the seemingly different approaches are very remarkable. Microsoft is pursuing the path of organically build towards the cloud. Oracle is starting to build data centers, but seems to in general prefer acquiring its way into the cloud once the market begins to mature; as they have done with the major acquisitions in the past decade. IBM is also building data centers, but seems to leverage and build upon pure cloud players such as their partnership with Google; as they have done with open source software. Similarly, Intel, HP, and Yahoo have teamed up to build towards the cloud as well. Very distinct strategies, but do seem to be the sensible approaches for each organization.

However, not everyone will be able to afford building massive data centers and establishing clouds. Yahoo Research Chief Prabhakar Raghavan said, "In a sense, there are only five computers (clouds) on earth." He listed Google, Yahoo, Microsoft, IBM, and Amazon. Well, may be not exactly, but that view of the world is also not entirely implausible, and imagine the kinds of changes everyone will undergo in order to achieve that state.

That view also underscores a complete commoditization of the entire IT industry. While unfathomable by today's standards, it is conceivable that a paradigm shift such as cloud computing could exact such sweeping changes from us. Reason being, cloud-based services have the benefit of the economies of scale, which allows the services to be provisioned at a lower cost. Existing IT shops, which increasingly face the need to reduce maintenance costs and deliver innovation, may very well favor switching over to cloud-based utility-like services; often compromising quality for lower cost.

Nicholas Carr said in his book, The Big Switch - "In the long run, the IT department is unlikely to survive, at least in its familiar form. It will have little left to do once the bulk of business computing shifts out of private data centers and into the cloud." Plus a very contrarian and sensational blog post "Your new IT budget: $10".

Which means, IT shops will increasingly need fewer investments on in-house technology and resources to support operations. And that also translates to needing fewer in-house technical specialists. As demand for technology and technical skills decreases, so does their value, which marks the trend of complete commoditization. Scary thought no?

Of course Nick Carr's view has generated a lot of controversy, as well as an ample amount of vehement disagreement. But in that light, doesn't Microsoft's scramble towards the cloud seem reasonable, and whoever is not doing so may need to be a bit concerned?

Microsoft's Perspective

In a nutshell, Microsoft does see the importance of cloud computing, and is actively building towards the cloud. But Microsoft's approach to shift towards the cloud, is based on a considerably pragmatic perspective that the world will not completely move into the cloud. We think that on-premise and local/client software still has value in the future, but the cloud will undoubtedly be a major component as well.

The moniker that best describes Microsoft's approach is "Software Plus Services".

Basically, we expect that the world will remain in a hybrid state, where commonly used services (like today's outsourcing of payroll services to ADP) may move into the cloud, but many differentiating capabilities will continue to be implemented and delivered towards the edge. Some potential factors:

  • User experience - browsers tend to constrict differentiation; client software is still best at delivering high-fidelity and robust user experiences

  • Not one-size-fits-all - not all things are suitable for the cloud; many capabilities are still best delivered on the client or on-premise

  • Organizations' need to innovate and differentiate from competitors using the same or similar commoditized services in the cloud

  • Advancements in human-device interface will drive a new class of clients (i.e., Surface, Sphere, 3-D displays, multi-touch, etc.) which may drive entirely new ways to interact with information (and browsers become the legacy mode)

  • Merits of distributed computing may shift attention back towards the edge again, as certain tasks are more suitable for smaller and more distributed units than a few massive centralized clouds (such as disaster recovery, defense-in-depth, data privacy, etc.)

So what is Microsoft doing to shift towards cloud computing? To list some interesting points:

  • Microsoft's recent surge in investments on building massive data centers around the world (for example, Quincy, WA; Chicago, IL; San Antonio, TX; Des Moines, IA; Dublin, Ireland; Siberia, Russia, etc.). Some of these data centers cost more than $500M each

  • Every one of Microsoft's server products will eventually be offered as subscription-based services in the cloud; though licensing-based on-premise versions will also continue to be offered to provide the full range of choices for customers (reinforcing "Software + Services")

  • For example, Exchange, SharePoint, and Office Communication Servers are already part of the Microsoft Online services offerings; Biztalk and SQL Servers are also being delivered as Biztalk Services and SQL Server Data Services; and Dynamics CRM Online

  • One publicized case is Coca-Cola Enterprises moving 30,000+ knowledge workers to Exchange Online (from on-premise Lotus Notes)

  • Significant investments in advertising solutions; both on-line and off-line

  • Significant investments in leveraging open source software

  • Research efforts in multi-core and massively distributed parallel processing capabilities

  • Closing the gap in online search is just one component of the overall services strategy which includes a full spectrum of target audiences, and different types of services (i.e., infrastructure/building blocks, complementary/attached, consumer/finished services, etc.)

Thus Microsoft definitely aspires to become a major player in the cloud. What remains to be seen is just how well Microsoft executes towards the cloud.

Interesting times ahead. One thing is certain - more changes to come, and we can expect Microsoft to ramp up activities in this area very aggressively the next few years. Don't count Microsoft out, just yet. 🙂

This post is part of a series of articles on cloud computing and related concepts.


Comments (7)

  1. What you don’t know can hurt you. Sometimes the world can change under your feet and you never

  2. It has been a couple of months since I wrote about cloud computing and Microsoft’s plans and strategies

  3. It has been a couple of months since I wrote about cloud computing and Microsoft’s plans and strategies

  4. It has been a couple of months since I wrote about cloud computing and Microsoft’s plans and strategies

  5. This is an ongoing series of posts and studies on cloud computing and related concepts, and the Microsoft

  6. This is an ongoing series of posts and studies on cloud computing and related concepts, and the Microsoft

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