Feisty Ballmer Talks Cloud, Office 365, And Big Data
In this Q&A, Microsoft's CEO pushes back, but also provides new insights into the company's cloud computing business, its hardware strategy, and his customers' next big bet.
Microsoft’s cloud computing business is on a “steep ascent,” in the words of CEO Steve Ballmer, but what does that mean in terms of revenue, profit, per-seat economics, and rate of growth?
Quantifying its cloud business -- providing hard numbers on specific services -- isn’t something that Microsoft is ready to do. Ballmer says “millions of seats” have moved to Business Productivity Online Services, which includes software-as-a-service versions of Exchange and SharePoint, and the company’s other SaaS offerings, but that’s as far as he would go. “I don’t know whether we’d give you something more specific or not,” Ballmer said in a June 9 interview with InformationWeek editors at the company’s Redmond, Wash., headquarters.
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Microsoft’s progress in the cloud, including the pending launch of Office 365, which will replace BPOS, was top of mind for the InformationWeek team (Rob Preston, Doug Henschen, Paul McDougall, and me) on this visit. Just 14 months ago, Ballmer told us that Microsoft’s cloud business was on the cusp of “hockey stick” growth. We’re monitoring the pace of adoption closely because of the massive change it represents not just for Microsoft, but for ITS business customers.
Ballmer was in a recalcitrant mood -- parrying some of our questions, calling others “unanswerable.” But he was also forthcoming, providing new insights into the company’s Windows Azure business (it’s growing slower than expected), its hardware strategy (it wants more control over the hardware), the secret to making SaaS pay off (minimize churn), and more.
Following is a lightly edited transcript of our conversation.
We started by asking Ballmer about his forecast last year that “hockey stick” growth was ahead for Microsoft’s cloud business, which includes BPOS, Windows Azure, and the soon-to-launch Office 365.
Ballmer: We've got a lot of room still to go, but we've definitely seen a hockey stick in terms of adoption of Business Productivity Online Services, soon to be Office 365. Literally rising to millions of seats effectively in a very short time. In that case, we have seen absolutely good liftoff, hockey stick-like liftoff.
In terms of Azure, we've seen good acceptance. But if you were to say, What percentage of enterprise computing is likely to move? Mission critical apps as a percentage will move to the cloud more slowly than information worker infrastructure. We’ll see a different pace and cadence.
Now, we're a big company; the numbers are all big. Every growth in Office 365 is something else that somebody didn't buy. You can look at our financial results by segment or the whole company, and you may not say, yes, I got it, I see it, it's right there. On the other hand, there is seat explosion, and if you look at the list of reference customers, people have moved, people are moving. We are in a very steep ascent, both in terms of commitments and deployments.
InformationWeek then asked whether there were any surprises in Microsoft’s cloud strategy, any areas where adoption was actually faster than expected.
Ballmer: I would have said, we were expecting faster growth [rather] than we're seeing faster growth. If anything, if you ask a year later about private clouds and public clouds, particularly as it relates to line of business applications, I'm smarter than I was and we're all smarter than we were a year ago.
The private cloud thing was important; it's still important. Is it a private cloud, or is it really just a virtualized data center? There is a conceptual difference between a virtualized data center and a private cloud, yet a lot of what’s getting sold as private clouds are really virtualized data centers. And a lot of what’s being done in the public cloud is the hosting of virtual machines, which, again, is a little bit different. We would not run our big services with the same kind of technology that are running enterprise data centers.
So, the move to next-generation operations and management infrastructure is going to be a little tougher, because there's a lot of legacy, a lot of understanding [required] of current approaches. Things will move a little more slowly, and people aren't willing to commit line of business apps en masse to the public cloud anyway right now. They're willing to commit websites. Startups are willing to move in that direction. But there's not an en masse move to the cloud versus virtualization.
Virtualization is in full flight, of course. The Hyper-V private cloud stuff that we've announced with our System Center Management tools I'm real excited about. But we're smarter 12 months into it than we were when I saw you guys last.
Ballmer and other Microsoft execs continue to talk about cloud growth, but where’s the evidence of it? Microsoft doesn’t break out cloud services in its financial statements, and quantifiable data is scant.
Ballmer: We've got literally many millions of seats that moved to the cloud. Millions of seats -- stop and think about that, that's a big statement, millions of seats from enterprise customers. I'm not talking about small and medium business. I don't know whether we'd give something more specific or not. I'm not close to what we're saying publicly on that, but I'll let Frank Shaw [Microsoft’s VP of corporate communications] get the correct public pronouncement that's not going to cause us a problem with the financial guys who haven't heard it before. But I am really excited about the speed with which that's happening. You'll see it mostly as reference customers as opposed to the numbers.
Whether the number was one million, 5 million, or 10 million it's hard to assess the difference. Across the planet, there's about 1.2 billion computers installed. Roughly a third would be in some kind of managed enterprise environment, say 400 million-ish. Millions is a big number. It's a big number.