Microsoft CEO Steve Ballmer has sent a message of late that Microsoft is "all in" when it comes to cloud computing. In an interview with InformationWeek editors, Ballmer made clear that this all-in cloud computing bet isn't merely a long-term, over-the-horizon play. The cloud growth--"hockey stick" growth, he said -- is taking off right now. And Ballmer makes a passionate case for how the investment Microsoft has made in cloud computing products and infrastructure over the last five years makes it different from rivals Google, Amazon, and Salesforce.
We pushed to clarify--when does that hockey stick growth take off? We're not there yet, right? "I don't know. It sure feels like we're there today to me," Ballmer said.
He added, however, that most lines of business software--industry-specific applications or transaction systems, for example--aren’t going to the cloud en masse yet. Platform as a service offerings, like Microsoft's Azure, haven't taken off. But with what he calls "information worker infrastructure” -- think Exchange, SharePoint, and Office software -- CIOs are ready to move quickly to the cloud.
"Look, I don't want to oversell or undersell, but the truth of the matter is there is not an enterprise customer I visit today where this is not an issue -- just not," Ballmer said. Any CIO considering an upgrade to the company’s e-mail or other collaboration platforms has to at least consider going to a cloud-based infrastructure. "Everybody is saying, look, next time I touch anything, I'm going. If I'm not touching anything, maybe I don't go," Ballmer said. "But if I'm really going to touch something, I'm going to have this [cloud] discussion."
Ballmer kicked off our discussion in fine form, busting my colleague Fritz Nelson's chops for using an iPad hooked to a flimsy-looking keyboard to take notes. "Spend enough time and money, and you can make anything work like a PC," he cracked.
Text can never do justice to the intensity of Ballmer, who's rapid fire from topic to topic. So rather than present a straight Q&A, what follows is a series of extended excerpts from Ballmer's conversation with InformationWeek's Nelson, Rob Preston, and me, set up with the context of our conversation.
On where we are in terms of cloud adoption:
Ballmer: We have hit a point where things have been, let me say, moving along, incubating, coming along, being used, but I think we're really at a point where we'll see a transformational kind of hockey stick in the pace with which we will accelerate our efforts and our customers, most importantly, will accelerate their adoption, which is kind of the reason we get out and talk about things, and sort of put the stake in the ground at this stage.
We asked how the shift to cloud computing compares with the "Internet tidal wave" that Bill Gates predicted in a company memo in 1995. The cloud brings more business model change, as Microsoft adds huge new costs to run some of the world's largest data centers. Ballmer discussed the business model and competitive changes of cloud computing:
Ballmer: Operational process changes, pricing, and business model changes, for sure. I think there's huge opportunity, upside opportunity, for us from a profit perspective. It turns out that if you made $50 and 100% of it was profit, and now you take in $100 of revenue, and you have $40 of COGS -- these aren't real numbers -- it turns out your gross margin doesn't look as good in the second case, but your shareholders actually have more profit in the second case.
So, I say we've got a lot of opportunity. We actually have an opportunity to improve total gross margin dollars, total profit dollars. We've got a lot of competition, we've got a lot of issues, a lot of this, a lot of that, but we have opportunities, because where we used to do this much for our customers, we're now putting out value propositions where we do a lot more for our customers. And we can save our customers money we couldn't save them before, and that gives us an opportunity to make more money.