How Bad Economy Is Good for Cloud Computing

Enterprises are taking a pragmatic approach to using hosted applications, especially with regard to security and privacy

A weakened economy will serve as a catalyst to push enterprises from on-premise computing to accessing services over the Internet cloud, according to Microsoft exec Doug Hauser, who delivered an address on Wednesday at the Thomas Weisel 2009 Technology and Telecom Conference.

Hauser is general manager of business strategy, cloud infrastructure services, at Microsoft. He said it was pretty much accepted that the small-to-medium business and consumer spaces are "looking at [cloud computing] adoption anyway, regardless of the economic climate."

Enterprises are taking a pragmatic approach to using hosted applications, especially with regard to security and privacy. They will probably move some of their less sensitive chores, such as back up and restore, disaster recovery and computational functions, into the cloud relatively quickly, Hauser suggested.

He added, though, "your core line-of-business financial services applications won't be going into the cloud relatively soon, unless it's a private cloud."

Microsoft supports such moves too, providing help with private clouds that require a little more security. Microsoft acts either as a primary service provider or works with its partners, especially those with security clearances.

"This is a beautiful partner opportunity, where separate from the [Microsoft] Azure [IP cloud computing] platform...we could help them with our technologies in their data centers and they could then provide that cloud service," Hauser said. "That is a perfect partner opportunity in this space."

During a Q&A session after a brief presentation outlining Azure, Hauser made it clear that Microsoft is serious about its cloud computing program and will make money immediately from offering it. To demonstrate how an off-premises solution can pay off for both Microsoft and an enterprise, Hauser described an Exchange implementation where an on-premise cost is $18 a month per user for the software, of which Microsoft gets $3.

"For Exchange Online, we charge $10 a month per user per seat, so our net gain is $7," he said. "The customer actually saves $8. There's a huge benefit to the customer; there's a benefit to us. There are very similar economics to have developer services in the cloud similar to those sorts of online services."

The cloud, he said, is not becoming crowded, although it seems that every day a new company joins the space. In ten years, Hauser predicted there would be "two, three, four, something like that" companies competing for cloud business.

"This is a brand new space. Everyone is entering this space in a very new fashion," he said.

Microsoft's fashion is to combine the best elements of two general approaches: a low-end model that delivers a broad set of resources and sets the enterprise free to use them, and a tighter model of offering "pure cloud services" that the enterprise can develop to, with limited control of the resources beneath that.

"Microsoft has come out with a unique approach in that we span that continuum," he said, providing some service-level guarantees but adding in a simplified management that "that takes you into this pure-play cloud services realm."

If Hauser was cautious at any point discussing Azure's potential, it happened when he was asked about migrating current on-premises applications into the cloud, especially as it relates to older applications.

"If you have an application on premises, you don't want to just move it to the cloud the way it is on premises because the cost savings will not be as large [than] if you actually take advantage of the automated systems management in the cloud," he said.

While unwilling to offer up "specific numbers" of the percentage and types of apps moving into the cloud, Hauser was relatively confident that "the first things that will move and move rather quickly are things like Exchange messaging, SharePoint collaboration and all those types of more infrastructure things."

It didn't take Microsoft long to get ready for those moves, he said.

"From the Microsoft development, it was a relatively quick development," Hauser said. "We actually developed the product in about 18 months from start to…where we are now."

-- Jim Barthold

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