Why Microsoft wants to move to Cloud Computing

 

Over the last couple of years, there has been a fair bit of commentary on Microsoft’s lack luster performance in the cloud computing space. And generally speaking it’s a fairly accurate assessment at this point in time. Critical in this statement is “point in time”.  I believe that MS views the move to cloud computing as a major opportunity.  I’ve heard that Ron Markezich, CVP MS online, is telling his troops that they are going to “Creatively Disrupt” themselves.  Which is a great internal line, something you would absolutely use when trying to convince your staff that everything they have worked towards is now going to be thrown out the window.  We’ve got Ballmer talking about the need for channel partners, which is true…now. Again, if you are MS you have to do this because your old business 100% depends on channel partners and you don’t want to alienate them.

Both great lines, but a bunch of baloney.  If you believe this and you are a channel partner or operate in a subsidiary supporting the channel, you are in big trouble. Heads up! In a cloud world, Redmond  doesn’t need you… In fact its worse than that, in a cloud world Redmond believes they can make more profit.  Forrester agrees with me..

Check out this picture to see how…

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On the face of it, this profit increase is derived from cheaper operating model, no channel and no subsidary required. And to some extent it is, but its way more than that.  MS is moving into the adjacent market of its very own integrators by absorbing up the complexity it has traditionally created in the on premise world.  And if you are MS this is a huge new profit pool, I’ve heard ratio’s of 4-6 : 1 services to license spend are normal. This means that the potential profit pool is something like $200-300bn.

On top of this, I think that MS knows that with its on premise software its now ‘overshot’ to use disruptor language.  And in fact, there are large pools of users who are ‘non-customers’.  By offering up a simpler package, priced accordingly and that has much more wider appeal, MS can actually grow its market share.  Think about it, all over the world,  broadband and mobile networks are opening up computing to completely new users.  Netbooks, PDA’s and notebooks are becoming increasingly affordable to boot.  In affect MS’s addressable market is increasing massively too, but only if it meets this new markets needs. Something that a cloud solution will do nicely…

Make no mistakes, Microsoft  dearly wants to be a cloud computing company…..

   

Playing by the rules

Every industry has an unspoken set of rules that govern how you operate, compete and play. By rules  I’m not talking about the legal structures we operate under or collusion.  I mean the mutually arrived at sort of symbiotic rule set that allows everyone to co-exist and eek out a profit.

These rules get reinforced by the industry over time by a process which I think is best described as collective thought. Basically all the players have the same information, probably the same people moving between companies, and eventually they all seem to think the same. Something to the affect of ..“We make money from X, so don’t do Y or we’ve ruined our own market…”

All this is fine if all the combatants are playing the same game.  But just recognise that in doing this you are probably leaving profit on the table, you are also horribly exposed when someone enters your game and starts playing by different rules.   

Google is one of the great rule breakers. They didn’t play by the advertising industry rules, neither did they play be the desktop application rules, they aren’t playing by the Telco voice rules, Rupert Murdoch thinks they aren’t playing by the media rules.  

So the question is, what rules do you adhere to in your industry? How could you exploit these? Perhaps even more importantly, how could you be exploited?

 

Proprietary or open standards– where economics and philosophy collide

There has been a fair amount of commentary within the cloud community about standards.  The view is that for cloud to really take off we need vast interconnectedness, and the lack of standards, is somehow holding us back.  Possibly…

Thinking about cloud computing from a developers point of view, this absolutely resonates. But if you think about if from both a buyer and a provider view point…then I think that vertically integrated, proprietary systems are exactly what we need…in some cases.

Those cases being where the current cloud offering is not quite good enough in the customers eyes. That is, there is a functionality or reliability gap between the current offerings and what the majority of customers want (this changes by customer). 

You could argue (which I am) that recent outages like the ones at Sidekick and Google  create a perception in customers minds that the cloud isn’t quite there yet. Its "not good enough".

Because of this, I think cloud providers need to be using proprietary technology that is vertically integrated. By doing this the provider can control what happens along the whole system, which will address the reliability or functionality gap to some degree.  This is good for the provider because in the market you have an advantage against the competition and hence win customers. It also allows you to find the elements that are still causing the 'gap' and incrementally address those.  I think the poster child of this approach is Salesforce.com. In terms of cloud providers, they are top of mind (to me at least) for reliability and functionality.

Now before I get flamed as a heretic, there is absolutely a time and place for an open, standards based modular approach.  To me these traits become important when you stop being able to win the competitive game based on functionality or reliability.  When those things become table stakes and customers are demanding ever more customised offerings, then you need flexibility, creativity and speed. You can’t do this using proprietary vertically integrated systems. You can’t be nimble enough, creative enough, customised enough and of course relevant enough with a monolithic approach.  In this world, open standards are absolutely required.  Just look at the struggle Telco’s are going through as they try to remain relevant.

Because this is a question of timing, there is bound to be tension about this issue. Its exacerbated because ‘cloud’ is so broad, some parts of it are way more advanced and probably should be moving to a modular approach, others not so much.  To me, if you can step aside from the philosophical argument and instead focus on the customer requirement (make it good enough) and how you can compete (ie make money) from cloud the debate looses its heat.