Down To Business: Microsoft The Cloud Innovator

Give it some credit: Early signs show a company committed to transforming the way it builds products and serves customers (and generates profits).
Microsoft, always the butt of criticism because of its enormous size and influence, is taking more jabs than usual about its perceived inability to innovate. One former executive, writing in The New York Times, called the company "a clumsy, uncompetitive innovator" because, he argued, entrenched Microsoft product teams regularly undermine up-and-coming ones. My colleague Bob Evans worries that Microsoft is "drifting toward fat and complacent, prone to bold talk but tepid action." The message boards are teaming with unfavorable comparisons to Apple, Google, Amazon, and other competitors that are rattling the high-tech rafters with their exciting products and novel delivery models.

I pretty much agreed with that thinking before heading to Redmond last Thursday for a day of meetings with Microsoft's top executives, but I came away more confident (or less skeptical) about the company's ability to shake things up, especially in the cloud. Sure, all the execs, including CEO Steve Ballmer, were on message, reiterating Ballmer's March manifesto that Microsoft is now "all in" when it comes to cloud computing. But as with Bill Gates' "Internet tidal wave" missive in 1995, the proof is in the execution, and most early signs show a company committed to transforming the way it builds products and serves customers (and generates revenue and profit), rather than one just trying to capitalize on the latest hype.

Take the Windows Azure Services Platform. Released in February, this cloud-based application development environment isn't just something Microsoft plucked out of the vapor. The company has been working on it for more than four years, with the goal of providing developers on-demand compute, storage, and networking to host, scale, and manage apps in Microsoft data centers via the Web. Windows Azure is mainly for .Net apps, but it also supports PHP, Java, Ruby, and Python. Later this year, Active Directory will be able to issue a federated identity to authenticate users of Azure services.

"Interest is off the charts" was the predictable assessment of Bob Muglia, president of Microsoft's Server and Tools business, though he and other company execs note that mainstream adoption of Azure is still years away and that Microsoft is now absorbing prodigious customer feedback to iterate the platform. As for everyday apps such as Exchange, SharePoint, and Dynamics CRM, Microsoft sees half of its revenue from those products coming from cloud-based versions within four years. "We need to be (and are) willing to change our business models to take advantage of the cloud," Ballmer, the self-described "old PC salesman," wrote in his March memo to employees. Compare those words and deeds to the equivocation about software as a service from SAP and Oracle, and then tell me who the laggards are.

Granted, Azure and Exchange Online aren't quite the stuff of iPad buzz, but big enterprise IT platforms and decisions don't work that way. It's the reason Steve Jobs couldn't care less about selling to enterprises, where architecture and standards and manageability and compliance and ROI trump gotta-have-it impulse. CIOs don't line up to get their hands on the latest innovations, cloud or otherwise; they step back and evaluate them, as they're starting to do with Azure and, with more immediacy, Microsoft's SaaS products.

The behind-the-scenes investments that underpin platforms like Azure and Exchange Online aren't the stuff of market buzz either. Microsoft continues to spend hundreds of millions of dollars a year to build and enhance the data centers that make its cloud ambitions possible, including one recently opened in Chicago that houses 300,000 servers. It's worth noting that, amid a deep recession last year, Microsoft invested $9 billion in R&D, 10% more than it did the previous year, including a new research lab in Cambridge, Mass., and a Search Technology Center in Europe. No question, Microsoft has laid some eggs -- Zune comes to mind immediately, and Windows Vista and Windows Mobile have failed to captivate the company's consumer and enterprise customers. But Microsoft has had plenty of recent buzz-worthy innovations it doesn't get much credit for. On the consumer side, one example is Project Natal for Xbox 360, which uses sensors and software to track body movements, recognize faces, and respond to spoken directions and changes in voice tone. For consumer and business apps, its Surface tabletop touch screen computer, with its large, horizontal interface, is a sight to see and use; Harrah's casinos are among the early testers who see enormous potential for Surface as a gathering place for multiple users to interact with data and each other.

Never before has a company so big (close to $60 billion in revenue) and so astoundingly rich (operating profit of more than $20 billion and cash and cash equivalents of more than $30 billion) been taken so lightly by so many. Make no mistake: Microsoft won't dominate the cloud -- no company will ... it's just too big a place -- but it will be the preeminent, most profitable player there in no time.

Rob Preston,
VP and Editor in Chief, InformationWeek
[email protected]

To find out more about Rob Preston, please visit his page.