How quickly and easily customers adopt these offerings is an open question, but Microsoft CEO Steve Ballmer, in an interview at the company's Redmond, Wash., headquarters, says that every CIO he talks to is at least considering the move. And just in case they aren't, all of Microsoft's 2,000 account managers are being required to make a cloud pitch to each of their customers.
One of the main cogs of Microsoft's cloud strategy is Azure, its approach to selling computing power over the Internet based on usage, as customers need it. Microsoft has some enterprise customers such as Kelley Blue Book and Domino's testing key Web applications on Azure, and some smaller tech companies--including SugarCRM--sell software services running on the platform. But Azure continues to be a work in progress.
Azure is a long-term bet because, for it to be a blockbuster the way Microsoft envisions, software needs to be written differently--just as Web apps are different from client-server apps, which are different from mainframe software. Microsoft sees the switch to cloud development as being as significant as those earlier generational shifts. Developers will write applications, for example, so they take advantage of key features of a cloud architecture, such as the ability to automatically scale server resources up and down as needed for demand, treating their computing capacity as a pooled resource. Companies that run huge data centers to run Web apps--Google, Facebook, Microsoft, Amazon--do that today, but most enterprise data centers don't.
"There are a few people in the world who can write cloud applications," says Bob Muglia, president of Microsoft's server and tools division. "Our job is to enable everybody to be able to do it."
What's In Azure
Azure is pay-per-use computing and storage offered from a virtualized, multitenant IT infrastructure, meaning systems generally are shared by customers for higher efficiency. Microsoft's cloud infrastructure includes systems management that handles tasks such as autoscaling and failover and APIs that developers can use to tap into those and other capabilities. Azure has been available since the beginning of the year, at a cost of about 12 cents per hour for a basic Windows server.
Microsoft's service offerings include SQL Azure, a version of the company's database that has been configured for the cloud. Developers can run stored procedures and other SQL Server programming in Microsoft's data center rather than their own, with the added benefit that Microsoft takes on the headaches of database administration. "They don't have to worry about tuning, load balancing, cluster management, and all that, because that's done at the automated systems layer," says Doug Hauger, general manager of Microsoft's cloud infrastructure group.
Another element is Azure's content delivery network, which customers can use to distribute and store data and media files for better performance over the Web. The network is in beta, so Microsoft isn't charging for it yet. Another big piece in development is AppFabric, a service layer that supports identity management, messaging, service bus, and other middleware functions.
"There's nobody with an offer like ours in the market today--not even close," Ballmer says of Azure. "We're actually trying to help people do what they really will need to do for the modern time. You don't get that out of what Amazon is doing."
The comparison to Amazon was inevitable. Amazon launched its Elastic Compute Cloud in 2006, more than three years ahead of Azure, so Microsoft is playing catch-up. At this stage, Amazon enjoys not only a market-share lead over Microsoft and other cloud service providers, but mindshare among the cloud's early adopters.
Because Azure is platform as a service, geared toward development and hosting of Web apps, it lacks some of the basic infrastructure-as-a-service options available on Amazon's EC2. Microsoft is providing, in essence, a ski resort with only advanced runs. Company execs admit the mistake and say Microsoft will add what it's calling VM Role to offer more EC2-like infrastructure-as-a-service options. Microsoft wants to make it simpler to bring an existing workload to Azure.
Even so, Microsoft will continue to emphasize the platform-as-a-service model, encouraging customers to write apps and in some cases rewrite old apps to take full advantage of the cloud. "If you've got a hairball in your data center, and you move that hairball to an infrastructure as a service, and you don't rework it, it's still just a big hairball," Hauger says.
Microsoft expects businesses to build enterprise apps that scale up and down in the Azure cloud and that take advantage of its built-in high availability. Microsoft plans to engineer some of Azure's automation capabilities into Windows Server and its System Center management software; it recently announced Dynamic Datacenter Toolkit for Enterprises, to help IT departments create compute clouds in their own data centers. Being able to choose and switch among clouds is a recurring theme Microsoft uses, particularly against Google App Engine.
"Google is kind of its own weird, funny proprietary environment, which I don't think has any hope of ever coming back and being run except out of a Google data center," says Ballmer. "We have to have a story and an approach where people can run our cloud in their data center." A major preoccupation of Muglia's team is developing the software and tools to create hybrid Windows clouds that link corporate data centers with Microsoft's Azure services.
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Azure has drawn a lot of customer interest, and Kelley Blue Book is typical in the questions it's asking before going--to borrow Ballmer's phrase--"all in" with using the cloud. Kelley Blue Book, which gives car shoppers data on vehicle prices, is keen for Azure to take over spikes in traffic and provide disaster recovery, so it might eventually drop its second data center and save about $100,000 a year. But Microsoft only released the monitoring and diagnostic APIs late last year, and Andy Lapin, Kelley's director of enterprise architecture, can't get a clear view of how Azure is performing from a management console. "As of yet, no one has come up with a monitoring platform for Azure," he says.
But such tools are coming, and moving the .Net applications on Kelley's Web site to Azure should be fairly straightforward, Lapin says. "We're confident it will work," he says. Lapin envisions on-demand scalability--automatically firing up Azure server instances when utilization of Kelley's own servers exceeds 90% and ratcheting back when utilization falls below 80%. For now, though, he's waiting for better monitoring.
Muglia admits Microsoft has a lot of building to do. His short-term to-do list includes support for infrastructure as a service, larger database partitions, analysis and reporting capabilities in SQL Azure, a better developer portal, and bringing the new .Net 4 into Azure.
Muglia says companies will save money with Azure by cutting back on infrastructure costs, but he predicts the big gains will come in the form of business agility, including getting software developed and implemented faster. "You can't just do it at the infrastructure layer," he says. Virtualized software and hardware are key in the cloud, but "the real magic happens in the way applications get built," says Muglia. "That's where most of our investment has been."
Microsoft's Windows NT operating system took 10 years to become mainstream, Muglia says. With Azure, uptake will be much faster--three to five years, he predicts, but Azure is every bit as much a "rough diamond" as NT was when first released in 1993.
Software As A Service
A free, ad-supported online version of Office 2010, aimed at consumers, will become available in June. Businesses will have two other options.
Those that license Office 2010 for PCs will also be able to offer browser-based versions of those apps from Windows servers in their data centers. And sometime in the coming months--Microsoft hasn't said just when--it will offer Office 2010 Web-only apps, though it isn't saying if that will be by monthly subscription or volume licenses. Microsoft still doesn't have the cheap, simple pricing model of Google ($50 per user per year for Google Apps), but Office 2010 will bring the online access and collaboration options employees increasingly want.
One thing to watch is whether Office 2010 gets bundled with BPOS, which includes Exchange and SharePoint. To date, Office has required a separate license. Given Google's $50-per-user offer for apps, e-mail, and a collaboration platform, Microsoft will be under pressure to cut deals that roll BPOS (listed from $120 a year) and Office 2010 (price to be determined) together.
Office 2010 is getting a big makeover for the cloud in terms of browser-accessible features and functionality. (See next week's issue for more coverage of news features in Office 2010 and SharePoint 2010.) Whether the business model surrounding Office gets altered as much remains to be seen.
The Webified Office 2010 morphs from a standalone content creation tool to more of a group collaboration tool. It's an area where Google's productivity tools threaten to take the lead. When people rave about Google's online documents and spreadsheets, it's invariably for the ability to work on them simultaneously or share them online.
The new browser-based Word will let multiple users work in a document. Yet it's different from Google's real-time co-authoring, which lets collaborators write anywhere in the document. Microsoft decided people would find that too intrusive in Word. So, when a writer grabs a paragraph, it's locked until he or she is finished revising, though people can work elsewhere in the document. (However, in OneNote, which is more a brainstorming tool, testers liked open collaboration, so Microsoft includes it. "The same people were comfortable with anarchy in OneNote and wanted peace in Word," says Chris Capossela, Microsoft's senior VP of information worker products.)
Driven by BPOS, Microsoft's cloud business is already generating a substantial revenue stream. Stephen Elop, president of Microsoft's business division, says Microsoft is on track to generate half of SharePoint, Exchange, and Dynamics CRM revenue from services within four years. "The sense of momentum is definitely stronger than it was a year ago," Elop says.
Microsoft's progress matters to CIOs because they're under intense pressure to make collaboration within their companies easier.
At GlobalCrossing, an early adopter of Office 2010 and SharePoint 2010, a half-dozen employees might work in a Word document simultaneously to create an RFP, or on a PowerPoint presentation. The kludgy alternative is e-mailing attachments around. "E-mail is not a collaboration tool, even though everyone uses it like that," says Steve Schafer, director of internal collaboration services at GlobalCrossing.
GlobalCrossing studied groups working on PowerPoint files and found that co-authoring cut the time involved by as much as 30%. It's also planning to use that co-authoring capability outside its extranet, to create documents with partners, vendors, and customers. GlobalCrossing serves Microsoft Web apps from inside its own data center, due to the regulatory complications of being a majority foreign-owned telecom company.
Playing It Less Safe
Not long ago, while the rest of the industry talked about cloud computing, Microsoft used the phrase "software plus services" to describe its SaaS strategy. Its tone--and lingo--have since changed, and Microsoft leaders now say cloud computing will cause major disruption to software business models, including its own. Microsoft execs still hedge a bit, referring to "cloud on your terms" and pounding home the idea that you can shift Exchange, Office, and Azure apps from the cloud and into your data center if business requirements call for it. Of course, that caution reflects more than Microsoft's own worries--many CIOs feel the same way.
If Microsoft succeeds in the cloud, it will become a different company. It's already sunk several billion dollars into data centers, because implicit in the cloud model is a requirement that service providers take on capital investment in hardware as customers do less of that.
But that will let Microsoft do new things for customers. Says Ballmer, "It turns out that if you made $50 and 100% of it was profit, and now you're taking $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."
Translation: Cloud computing is a point of dramatic change for Microsoft.
-- With Charles Babcock and Doug Henschen
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