MSFT’s Head in the Clouds: Big Deal?

This cloud computing thing (I use way too much tech lingo, don’t you think?) is a thorny issue, dear readers. And the briar patch just got thicker with Microsoft Corp.’s launch of the Windows Azure operating system, designed to be hosted in Microsoft data centers and accessed via the Internet in order to tap third-party services and applications using a wide range of Azure-compatible enterprise endpoints. Is it that big of a deal? Eh, maybe.

We’ve seen “cloudiness” before, in the form of IP Centrex, the ill-fated ASP bubble, Salesforce.com, managed infrastructure, hosted services, data center virtualization, Amazon’s pioneering cloud initiatives, widgets and on and on. How many native applications do you have running on your PC? MS Office, sure. What else? Think about it. Is this such a revolutionary concept? No.

That said, you have to consider what it means that the big M-to-the-S-to-the-F-to-the-T is in da cloud computing house. There are a few points to make, and I’m going to bullets because it’s easier, I’m feeling lazy, and I have a cover story to finish:

1) This is a massive bolster for the world of cloud computing, and one that might take it into commodity territory. Microsoft is entrenched. It owns the enterprise environment no matter how many creative departments remain Mac outposts. Developers and IT folk are already very comfortable with Microsoft APIs and tools, which will remain familiar in Azure. MSFT is putting its considerable weight behind the shift from on-premise enterprise computing infrastructure to relying on remote data centers and networked architectures and online access. It means that shift is real, it has arrived.

2) While others have tried to kick-start the remote service model with varying degrees of success, Microsoft is offering a de facto standard platform for enabling the delivery of hosted services in a trusted environment. It’s important to make a big delineation note here: It’s not about Microsoft getting further into hosted services, though it will almost certainly look forward to SaaS revenues on Office, unified communications and more. It’s also about Microsoft becoming the ubiquitous enabler, foundation, rock of Gibraltar for such services, because developers as mentioned will be writing for Azure.

3) What’s in it for Microsoft, aside from having a horse in a popular race? For one, it’s obviously solidifying its operating system hegemony by covering both on- and off-premise approaches. Also, the software biz is a dismal one right now. There’s plenty of freeware, plenty of pay-as-you-go services and plenty of margin squeezing going on out there. Azure has the potential to ultimately cannibalize Microsoft’s desktop software business, but that’s probably not much of a problem. Especially considering that MSFT executives hinted that Azure might also be monetized with an advertising model. Advertising has made a lot of companies a lot of money, and Microsoft probably wants a piece of that. And that reminds me, Azure is also erecting a firewall against what is emerging as Microsoft’s top rival: that company in Mountain View, you know, the one with the search empire, Internet application market corner and the new mobile operating system that puts Windows Mobile to shame? Google Inc. has the potential to make Microsoft, with its premise-based, native software-focused old school ways, look passé, even stodgy. Microsoft has to adapt, and with businesses being the lone area Google doesn’t focus on, this is a good entry point to prove that it can do just that.

Incidentally, whenever I think of Google and Microsoft, I can hear Bill Gates, from retirement, shaking his fist and uttering something like Capt. Kirk’s desperate “Khaaaaaaan!!” in the Wrath of Khan, vowing to put things right.

4) All of this is pure gold for the savvy service provider willing to crash this whole party, both for providing that bandwidth and those data center services, but also as third-party application providers. Offering hosted services is one thing; offering hosted services backed up by a trusted, known infrastructure is another. One casualty might be storage vendors though, since Microsoft plans to host all Azure infrastructure and services itself. If the majority of remotely hosted enterprise services go to Azure, well ... do the math.

5) You have to consider that there will be push-back. Enterprises, especially privacy-sensitive verticals like financial services and health care, are loathe to relinquish control over their infrastructure. But in a down economy, avoiding capex in favor of opex looks like a pretty good trade ... oh wait, except when the short-term credit that pays for opex dries up, which it has. Hmm. On the other side, there’s this: Gartner Inc. expects sales for remotely accessed enterprise applications to surpass $6.4 billion in 2008, a 27 percent increase from last year’s revenue of $5.1 billion. And that market is expected to more than double by 2012.

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