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10/8/2009
03:40 PM
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The Conversation With Gates And Ballmer That Sparked Microsoft's Cloud Strategy

Microsoft's march toward cloud computing is fascinating to watch. Next year, Microsoft will take the most successful desktop software package of all time-Office-and offer it online to businesses, somewhat similar to the Google Apps model. Microsoft's VP of Online recently shared with me some thoughts on Microsoft's strategy-and the conversation he had with Bill Gates and Steve Ballmer that led to Office Web Apps 2010 and other decisions.

Microsoft's march toward cloud computing is fascinating to watch. Next year, Microsoft will take the most successful desktop software package of all time-Office-and offer it online to businesses, somewhat similar to the Google Apps model. Microsoft's VP of Online recently shared with me some thoughts on Microsoft's strategy-and the conversation he had with Bill Gates and Steve Ballmer that led to Office Web Apps 2010 and other decisions.Microsoft seems a lot more committed to cloud computing these days, following a year or two of vague references to a "software+services" model. VP of Microsoft Online Ron Markezich, however, claims that the company has quietly been preparing for a major shift in delivery models for five years.

In May, 2004, Markezich was Microsoft's CIO, and doing very CIO-type stuff, like overseeing HR and ERP applications, and running the overall IT Infrastructure. That was, until Bill Gates and Steve Ballmer called him into a meeting. They told him there was a major new strategy in place, and his experience in operational IT was critical to make it happen. "They said that the future of the company is not selling a license, but selling our software over the Internet as a service," Markezich recalls.

Microsoft first focused on bringing Exchange online. Energizer was Microsoft's first customer before it became an official product, and customers that followed included Autodesk, Ceridian, GlaxoSmithKline, and XL Capital. In April, Microsoft made its Business Productivity Online Suite widely available for purchase, which includes Exchange, SharePoint, and instant messaging. It's available as a subscription on a dedicated server, or multi-tenant, meaning you share the main application with other companies but your data remains separate and protected. Per-seat licensing can get pretty cheap. For example, about 10% of GlaxoSmithKline's 115,000 employees are using Exchange Online Deskless Worker, for $2 a month. (And I do believe we're on the verge of a major battle for email SaaS, involving Google, Microsoft, and IBM's newly released LotusLive iNotes).

Meanwhile, the technical review for Office Web Apps 2010 became available in September, and is due out in the first half of 2010. And, after saying in January it was slowing its data center investments, Microsoft shifted gears and this summer opened two $500 million facilities, in Chicago and Dublin. Both are aimed at delivering apps online.

But, like many other software vendors and customers, Microsoft sees this as an evolutionary step comprised of alternatives, and not a complete shift away from on-premise software. "We don't want a one-slice-fits-all model," Markezich says. "What we're seeing is that very few customers with any legacy systems will move 100 percent to the cloud. There's always going to be some data on the desktop or in their data centers."

Microsoft and IBM, however, have come to realize they can't stop this train, since it's fueled by computer users' behavior. Legacy email is about replicating to a laptop, working offline, and the synchronizing with a server when back online. But more and more, thanks to things like Wi-Fi and G3 networks, people are doing much of their work while connected. In a recent interview, GlaxoSmithKline CIO Bill Louv put it this way: "The heavy laptop with the big replication engine, which Notes was really good at, has become passé."

It's clear Microsoft is betting heavily on an up-sell and cross-sell strategy. For example, Markezich notes that the online version of PowerPoint won't have all the rich features of the desktop version. Also, any desktop deal, whether it's Office running in Microsoft's data center or on individual desktops, is a foot in the door to sell SQL Server and yes, Exchange, too. You see, you can also run Office Web on your own server in a "private cloud" approach, similar to what we used to talk about 10 years ago, with what was then called network computing, or 20 years ago, then called terminal emulation. The difference is that it's a whole new world in terms of powerful wireless networks, a mature Internet, mobile computing, and much more.

But also, Microsoft will position itself as a vendor of choice to global companies. Markezich uses the example of an oil and gas company. "They have a large corporate headquarters with high connectivity and great bandwidth," which will be appropriate for some employees to use Microsoft-hosted Office Web, he says, while others, such as heavy information workers or executives, who handle a lot of sensitive information, might feel more comfortable with the desktop version. "Then they have oil rigs in the ocean and remote areas in Nigeria or Ethiopia with sporadic connectivity. The company will say, I'm not going to move my entire operation to the cloud because of sporadic access in some locations. They may choose to say that in Nigeria, I'll have a server running Office Web apps, but [in another location] I'll have corporate users on the [Microsoft] cloud because I've got great connectivity there and can save money."

This is very different from Google's socialistic approach to online apps: all customers are treated equal; no, we can't tell you exactly what server your email is hosted on, but trust us, we've lived up to our 99.9% availability guarantee so far and prices that can't be beat. We will treat you well because we're a good company. Remember, we don't do evil.

But Microsoft, in many ways, is continuing with the sort of corporate hand-holding, lets-make-a-big-deal approach it and other traditional enterprise software companies are famous for. The kind of deals that get a CIO's armpits sweating because there are so many choices, and it's getting complex, this salesperson is talking a mile a minute, there's a lot to think about, and should I buy some more servers with this package, too?

Can Microsoft's sales reps consistently walk into a CIO's office to make a deal to put together something that is truly focused on lowering costs across the board, rather than offering really cheap Office apps and email in one area, while working toward the up sell in other areas, to even things out? Interesting times, indeed.

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