In-Depth

Cloud Computing: Microsoft’s Azure Initiative Adds Risk to Business Model

Azure amounts to Microsoft's "most significant coordinated shift in strategy" since it got come-to-the-Internet religion in 1995.

• By Stephen Swoyer
• 11/11/2008

Most everyone remembers Pearl Harbor Day, 1995, when Bill Gates, then-CEO of Microsoft Corp. -- riding high on a surging Windows 95 O/S -- agreed to nearly missing the boat on the Internet. Gates famously outlined an Internet strategy centering around Redmond's Internet Explorer Web browser, which shipped with Windows 95.

Most everyone remembers how Gates' December mea culpa turned out, too: Microsoft continued to grow its shares of the client and server operating system markets; Internet Explorer became the dominant Web browser; and the United States Department of Justice initiated antitrust proceedings -- for the second time in less than a decade -- against the company.

Industry watcher Gartner Inc. picked up a similar Pearl Harbor Day-like vibe at Microsoft's recently concluded Professional Developer's Conference (PDC), although the focus, this time, was with cloud computing. Gartner concludes that the cloud-related offerings Microsoft unveiled at last month's PDC amount to its "most significant coordinated shift in strategy since its transformation to embrace the Internet and combat Netscape in 1996."

To be fair, Gartner flagged several Microsoft news items, starting with Windows 7, the successor to Redmond's much-maligned Windows Vista operating system. In addition -- and in response to rival Google Inc.'s push into the productivity and collaboration segments -- Redmond also unveiled a Web-enabled version of its Office franchise, slated to ship as part of Office 14.

There's little doubt, Gartner researchers argue, that the latter announcement -- or, principally, the timing of that announcement -- is aimed squarely at Google. "By announcing the service so far in advance, Microsoft hopes to slow the adoption of Google Apps and other personal productivity applications," write analysts Matthew Cain, Tom Austin, and Michael Silver.

The big story, however, was the availability of preview code for Windows Azure and the Azure Services Platform, Microsoft's cloud-based platform and services stack. It was Azure's debut that most contributed to the fraught atmosphere at this year's PDC.

"This most-recent PDC was the most important such event Microsoft has held in a decade. At the forefront, Microsoft chief software architect Ray Ozzie led Microsoft's Azure Services Platform announcement -- a significant and coordinated shift in Microsoft strategy," write analysts Neil MacDonald, David Smith, and David Cearley. "The vision significantly expands Microsoft's 'software plus services' vision to encompass all of Microsoft's offerings, and it will impact all of Microsoft's products during the next decade."

There's a sense, in fact, in which Windows 7 (which Microsoft distributed -- on preloaded laptops -- to journalists, reviewers, and other attendees) was something of a sideshow; the real story, the one with ramifications for both Microsoft's and the industry as a whole, was Azure.

"Microsoft is facing the most challenging decade ahead in its traditional business model, which heavily depends on Windows and Office revenue streams," they conclude. "The changes and risk to its business model are significant. However, Microsoft had to respond to the challenge of cloud computing. Microsoft has done so in a reasonably cohesive fashion, orchestrated by Ray Ozzie -- even though different units within Microsoft had proceeded independently with their cloud strategies -- leveraging its developer and enterprise IT strength with the potential of the cloud."