A Cloudy Future for Microsoft?

and there's a bit of a mixed bag here, folks...

You’d have thought, having an analyst in Australia, we’d get contributions such as “How to outsource all your work and spend all day on the beach”, or “Precautions to avoid business failure now the local pub has WiFi”. 

But no.  What do we get? Endless reams of insight on the Cloud – I didn’t think they had Clouds over there?  All jesting aside, Andrew Milroy poses some profound challenges for software giant Microsoft, which may be set to miss out with Cloud computing in a similar vein to its struggles with internet search market and mobility… 

A Cloudy Future for Microsoft? 

Microsoft urgently needs to address its approach to Cloud Computing, together with the closely related tablet and smart phone markets, if it wants to avoid falling further behind the likes of Google and Apple in these interrelated markets.

At the turn of the 21st century, Microsoft’s position as the world’s largest, most dominant, and most influential IT vendor seemed unassailable.  In recent years, however, there have been seismic shifts in the IT industry, much of which has been driven by two companies, Google and Apple. Both are massively disrupting Microsoft’s traditional business model. These shifts have been centred on a move away from on-premise models of computing, towards a model where data and other computing resources reside offsite, or in the Cloud. 

Google generates revenues from advertising so has been in a position to offer software that competes directly with Microsoft products, free of charge, while driving the Cloud computing model.

Apple has been leading the development of smart phones and tablet computers which are undermining the dominance of PCs and further driving the Cloud Computing model. 

These developments are being compounded by a shift away from Microsoft’s operating systems towards Open Source alternatives. 

The shift towards the Cloud model is now taking place at breakneck speed, and is threatening to choke revenue streams that are dependent on selling software licenses.  Frost & Sullivan estimates that the market for public Cloud computing will grow at a compound annual growth rate of just over 40% between 2009 and 2014 – while Gartner and Forrester both come up with similar forecasts.

In the short term, we will be working within hybrid computing environments, consisting of both Cloud computing and traditional models of computing, but the Cloud model will dominate in the next few years. Soon, managers will need to present very strong business cases to justify the expense of keeping computing resources on-premise.

Microsoft’s two key competitors have Cloud-based business models and lots of cash. 

Google has only ever had a Cloud-based business model. Apple, on the other hand, has brilliantly made the transition from an ailing desktop-oriented IT supplier to a cash generating machine, by fully capitalizing on technology shifts. Its iTunes business is a Cloud business and its iPhones and iPads have driven the development of a huge number of Cloud-based applications. The tablet computing market that Apple has pioneered, will speed up the demise of PCs. Where is Microsoft in this market? 

Right now, the market is dominated by Apple and Google. A rapidly growing number of Android devices are appearing on the market and taking on Apple’s iPhone and iPad products. It is reminiscent of the battle between Apple and Microsoft in the early days of the PC. Apple had a ‘walled garden’ strategy. Its software ran only on its hardware. Microsoft, on the other hand, licensed its software to run on PCs produced by anyone. Microsoft’s Windows Phone/Slate 7 is expected to provide competition but, the market is growing very fast without Microsoft’s product having been released. Has Microsoft been too slow this time? Will Windows Phone/Slate 7 be well received or will it be considered to be a sluggish and unreliable product? Does the product name suggest that Microsoft has not recognised or anticipated the growth in tablet computing and its impact on Cloud computing? Is Microsoft designing its mobile/tablet products specifically for these new environments or is it merely re-coding its existing PC oriented products? 

To be fair, Microsoft now offers Cloud products. Its applications can now be offered over the Cloud and its price competitive, platform as a service (PaaS) product, Azure, creates a development environment that is simple to get to grips with for those that are used to working with Microsoft products. This, of course, represents most developers. Microsoft seems to be banking on developers believing that it is simpler to stick with Microsoft, with whom they are familiar, as they move into the Cloud, rather than using products from Cloud, pure play, suppliers of PaaS products like Amazon, Google and Salesforce.com. 

Microsoft’s current approach is to ensure that it can offer Cloud services to its customers if customers seek these solutions. In doing so, it is shifting substantial numbers of its customers into the Cloud and it has been working closely with its partners to support these efforts. But, is it working hard enough to move its customers into the Cloud? Has it anticipated the huge growth of Cloud computing? 

Andrew Milroy, Expert Contributor, Asia/Pacific Sourcing Strategies, HfS Research

Has it created sufficiently attractive sales incentives to encourage sales teams and partners to sell Cloud services instead of on-premise alternatives? In order to enjoy success, Microsoft must proactively ensure that its Cloud offerings become embedded within the world’s leading corporations before its competitors, as it did in the PC-oriented world. If it does not do this, it risks losing its very strong, but no longer dominant position in the IT industry. 

Microsoft needs to improve its speed to market with new products. It needs to act faster than it has ever acted before and it needs to do this now. 

Andy Milroy, pictured right,  is Expert Contributor for Horses for Sources Research.  You can access his bio here.  He likes to be tweeted at @andy1994

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6 Comments

  1. Posted July 19, 2010 at 12:07 am | Permalink

    As someone who loves Apple and Mac OS for 25+ years, and has always choked on hearing the words Microsoft and Innovation in the same sentence, it would be ironic to say I hope Microsoft does make it in Cloud Computing.

    I say that because though it was, IMHO, quite undeserving of becoming the monopoly based on a lousy but commonly used product, it could serve a positive role as, say, a #3 or #4 player to keep Google and Apple on their toes in the new world of IT. Is it capable of screwing up even this opportunity, to be a #3 or #4? For sure.

    Just like Bill Gates was no visionary, Steve Ballmer is no leader. Only a company as big as MSFT can screw up with operating systems, miss the boat on the Internet (fad anyone?), waste an opportunity to build on Windows Mobile’s then greater computing capabilities over other mobile platforms, and still be in business.

    How long this can continue? I don’t know. Just like IBM does not own the IT world anymore, I don’t expect Microsoft to disappear, but become a staid, stoic, purveyor of boring technologies to an established base of users.

    What do you think?

    Imran Anwar
    Cloud 9
    IMRAN.TV

  2. Bernard Gore
    Posted July 19, 2010 at 6:49 am | Permalink

    I think you are rather overstating things – looking around I see many of my colleagues with smartphones (not all of them Apple and some running mobile versions of windows) but not a single one of them has as, a result, abandoned using Windows PCs or laptops, and their documents are all MS-Office and the email is all Exchange even when they access these on their smartphone. The servers are all Windows based (whereas even a few years ago there was lots more variety in these).

    The idea of Open source is useful in some sectors, but it’s generally niche ones. Almost every mainstream business in the world uses Windows-driven servers and is investing more in these rather then moving away.

    As far as tablets – Apple’s very late entry into the field with the iPad (a fairly poor offering with it’s defficiencies) certainly doesn’t count as “leading” the development of these – we’ve been using a good range of tablets for years and the most iPad will do is take a slice of that – their offering is more likely to take some of the ebook market, which while interesting is hardly a Microsoft-killing move!

    I’ve no objection to Apple, and qwuite like some of their products, but there is no sign inthe realy business world that Microsoft is in trouble! And at least they don’t produce things that don’t work properly if you hold them the wrong way – have Apple even HEARD of user testing?

    Bernard Gore

  3. Phil Perry
    Posted July 19, 2010 at 8:17 am | Permalink

    @Bernard: “The idea of Open source is useful in some sectors, but it’s generally niche ones. Almost every mainstream business in the world uses Windows-driven servers and is investing more in these rather then moving away.”

    Most servers are Linux (Open Source), and Windows/IIS is always playing catch-up. It tends to be confined to shops which bleed MS-red-green-blue-yellow, and need .Net and similar services. On the desktop, it’s another matter — unless MS becomes so complacent that it makes some major errors, I don’t see them losing their deathgrip on the desktop within the foreseeable future (at least until Gates and Ballmer are pushing up daisies). Cloud computing with lightweight Netbook-like devices for access? Perhaps, but it will be a while before business trusts the Internet with its very existence. The first major cyberattack that denies access to cloud computing facility will have everyone rushing back to local computing. Just watch. Whatever happens, it should be interesting.

    Phil Perry

  4. Eric Warthan
    Posted July 19, 2010 at 6:32 pm | Permalink

    Microsoft’s been doing cloud computing before it was called that; most people have missed it. XBox Live is practical cloud computing. The information that needs to be on the box is there, and the information that needs to be stored in the cloud is there. You can switch Xbox’s and recover all your information. If the console burned, the only thing that could get lost is saved-games, but everything else is recoverable including the account and downloadable content.

    There’s no SaaS equivalent to the games, because of the video bandwidth limitations. But if Microsoft wanted to put Office on XBox and run it that way, it would be no problem.

    Microsoft will do just fine when they decide they want to offer serious commercial cloud solutions. Also, Microsoft might end up working with Google; after all, Microsoft doesn’t have a problem with openess like Apple does.

  5. Andrew Milroy
    Posted July 19, 2010 at 9:22 pm | Permalink

    Imran, Bernard and Eric – thanks for the comments.

    The main thrust of my article relates to Microsoft’s tardiness when it comes to addressing, what should be, easy opportunities for it.

    Sure, Microsoft remains strong in many environments. But, games apart, it is nothing like as dominant as it was in fast growing segments. In the past, it was able approach new markets late and face competition only from much smaller players (e.g. Netscape). Today, when it enters a new market late, it faces much more formidable competition than before. In other words, it can no longer afford to take its time if it is serious about these new markets.

    For example the tablet/slate market is becoming a business market, and in some areas, these new devices are displacing PCs (see http://tinyurl.com/28qvkjo). Microsoft is incredibly late in addressing this new opportunity.

    It is also true that ‘the cloud’ has been with us for some time and that Microsoft has a significant presence in this area. But, shifting business applications and key components of business infrastructure into the cloud is now happening fast. And, Microsoft has been late to address this opportunity. It could easily have owned much of this market. Instead, its Azure platform faces very strong competition from companies that didn’t exist in very recent memory.

    As for Apple, it does indeed appear to have a problem with openness. But, the company has successfully made the transition from a PC centered world to a cloud-centered world. Microsoft seems to be facing greater challenges in making this transition.

  6. Wallace Jackson
    Posted July 22, 2010 at 8:19 am | Permalink

    There is a fourth major player that should be included in this shift to open source…

    Don’t forget the recent union of Oracle and Sun Microsystems earlier this year! ;)

    Giving Oracle virtually everything related to computing, open source & databases.

    I think Oracle and Google may get together on some open source technology…

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