Theres a Dark Cloud over Microsoft–Cloud Computing

When Microsoft sold Razorfish, the digital advertising firm it received as part of the aQuantive acquisition in 2007, Microsoft told the company it had to vacate the $5 million worth of computers it occupied in Microsofts data center. What at first seemed like a traumatic event proved to be a blessing in disguise.

Tobias Klauder, director of IT software engineering at Razorfish, moved all his customer data to Amazons web service, where he discovered, much to its delight, that his IT costs were now a fraction of the $100,000 in maintenance it had cost him to be on Microsofts data center. And that cost didnt even include the $5 million worth of hardware he had occupied at Microsoft. Even better, Razorfish was able to offer its customers data quicker and in a more useful way than he could while he was part of Microsofts massive IT infrastructure. We could flip upside down and land on our feet like a cat, said Klauder, speaking in one of two forums focused on the cloud at the Washington Technology Industry Associations North to Innovation event yesterday.

Not to rain on Microsoft’s annual meeting at Safeco Field, where tens of thousands of employees are now gathered, but Klauder’s story and that of others at the forum, underscored the huge challenges Microsoft faces as the computer industry undergoes its largest transition since the software giant took center stage from IBM by dominating personal computing with its Windows software.

To be fair, the story was told in a panel moderated by Amazon evangelist Werner Vogel that focused on Amazon customers. But the fact that Amazon had a whole panel to itself, while a lonely Microsoft representative had trouble making his case on a second panel, said scores about where things stand for the beleagured software giant.

Bob Wise, director of engineering at Melodeo, spoke of his fateful decision to move most of his IT operations onto Amazons web services. Not long afterward, Wise said, Melodeo was working with Bing on a promotion in which a Melodeo product was prominently featured. Demand for Melodeo’s music streaming service soared by ten times. If the company had still depended on its own computer systems, the system would have crashed and the company would have lost that huge opportunity. Instead, because it was on Amazon’s web services, the company was able simply to add new servers. In half an hour went from 5 servers to 9 servers, said Wise. That huge spike in business, he says, was instrumental in Hewlett Packards decision, not long afterward, to acquire Melodeo. The deal wouldnt have happened if we hadnt gotten that traffic.

Matt McIlwain, managing director of Madrona Ventures, said in a second panel at the WTIA conference, that the kind of cloud computing services offered by Amazon represent a fundamental shift in the world of Information technology, something he likes to refer to as next IT.

Cloud computing, he said, represents the confluence of three key trends: the technologys shift from physical to virtual (computers are remote and potentially accessible from anywhere); an architectural shift from static to dynamic, (the kinds of services offered can be broadened without making fundamental changes because that infrastructure lives in the cloud) and companies can increase or decrease the number of services as their needs rise or fall and pay only for what they use.

One key implication of the change, said Simon Crosby, CTO at Citrix, a pioneer in virtualization, is that companies will no longer require the huge support staff they currently have, because most of the maintenance will be done by the provider of the services. Fear of that change, has resulted in resistance among many IT people to moving to the cloud.

Doug Hauger, general manager of Windows Azure, which is Microsofts web services platform (Microsoft is offering most of its products including Office and Exchange as services on the cloud and is aggressively courting developers to build new applications on Asure), agreed that while its possible to address customers concerns around things like security, whats harder to address is the nebulous thing about losing control. That fear, he said, is most pronounced in large companies.

Hank Skorny, senior vp of media cloud computing at Real Network, said that companies have to look at the upside. By moving IT into the cloud, IT personnel can apply their skills to more intellectual pursuits such as analytics and business differentiation rather than having to deal with such mundane issues as how to buy power or change discs.

Several panelists spoke of the ability, thanks to the cloud, of offering services over an infinite number of devices from PCs, to IPads and smart phones. And hundreds of companies now offer a range of new services using the Web.

But Vogel of Amazon pointed out that many traditional computer companies are also now offering their services on the web including giants like SAP, Oracle and Computer Associates. He said cloud computing has gone beyond the early adopter phase to where the core functions of enterprises are moving onto the cloud.

That’s a huge challenge for Microsoft. Enterprise computing, along with Windows and Office, represent Microsofts bread and butter.

Steve Ballmer told the Seattle Times today that cloud computing represented a huge profit opportunity for the company. But what he didnt say is the cloud computing, and its corollary, mobile computing, is rapidly shifting resources away from Microsoft strongholds on the desktop and in the enterprise. While the company may make a lot of money on cloud computing, it will likely lose even more as its dominant position in other areas shrinks.

Said Citrixs Crosby Everything good about the cloud is desperately bad for Windows. While Windows and Office is paying the bills at Microsoft, there is a new way of doing all these things. Thats a problem for anyone tied to legacy systems. Enterprises are asking why are we buying PCs. C level execs have their iPads and now they want everything running on it.

Crosby said Citrix has 10 new service providers signing up every week and now has 650 services offered over its Software-as-a-service technologies running on the cloud. They dont need an IT department, they dont need servers. You even see law firms going that way.

Werner of Amazon pointed out that any incumbent is going to be hurt by the changes. He pointed out that new companies are offering telephone exchange services over the cloud at a tiny fraction of what large telephone equipment suppliers charge for PBX devices. These new young players are having the telcos for lunch, said Werner, politely avoiding a direct attack on Microsoft. The cloud allows anyone with a good idea to move a lot faster than an incumbent.