Welcome!

@CloudExpo Authors: Elizabeth White, William Schmarzo, Lisa Calkins, Mamoon Yunus, Pat Romanski

Related Topics: @CloudExpo, Agile Computing, Government Cloud

@CloudExpo: Article

Cloud Computing Journal Analysis: Microsoft's Cloud Strategy

"Public Cloud Will Dominate Market, We Will Dominate Public Cloud"

A few days ago, Microsoft published The Economics of the Cloud, a whitepaper that has so far not gotten nearly as much attention or consideration as it deserves.  Perhaps this indifference is due to a collective freshman flashback on the dreaded "Econ 101" or, to skepticism about Microsoft's importance in the new world of cloud computing.  Either way, it is unfortunate because the paper presents some startling new data about the cloud, and, not entirely intentionally, reveals the company's cloud strategy at a level of nuance that we have not seen before.

The paper is by Rolf Harms and Michael Yamartino, a director and manager, respectively, in Microsoft's Corporate Strategy Group.  The paper is pointed at "IT leaders", a phrase used 16 times in 22 pages, and has the ostensible goals of sharing the cloud wisdom Microsoft has gained from doing Azure, Bing, Windows Live, and Office 365, and of sharing data gathered and conclusions drawn by Microsoft about the future of cloud computing from modeling done in its Strategy Department.

The numerical data in the report and what the researchers make of it are quite interesting in their own right, but, when calibrated, Da Vinci Code style with the company's history and recent activities, they may reveal a bit more than the authors intended.  In any case, neither Ray Ozzie's dreamy "Dawn of a New Day" farewell memo nor Steve Ballmer's buzzy "All In" UW speech and internal memo helped us see this coming.

I admit it, until this whitepaper, I was one of those who took the "All In" stuff for opportunistic hyperbole and simply did not believe Ballmer when he said in his memo, "We need to be (and are) willing to change our business models to take advantage of the cloud."  Yeah, given what the cloud will do to the licensed software business, he should be saying that.  But, a company that big and successful changing its business model seemed impossible.  In short, I thought the cloud would turn Microsoft into the world's biggest dairy farm.  Now, I am not so sure.

Biggest is Bestest

The intended takeaways from the paper are summarized like this:

"Private clouds address many of the concerns IT leaders have about cloud computing, and so they may be perfectly suited for certain situations.   But because of their limited ability to take advantage of demand-side economies of scale and multi-tenancy, we believe that private clouds may one day carry a cost that is as much as 10x the cost of public clouds."

"Based on our analysis, we see a long-term shift to cloud driven by three important economies of scale: (1) larger datacenters can deploy computational resources at significantly lower cost than smaller ones; (2) demand pooling improves the utilization of these resources, especially in public clouds; and (3) multi-tenancy lowers application maintenance labor costs for large public clouds. Finally, the cloud offers unparalleled levels of elasticity and agility that will enable exciting new solutions and applications."

They are saying that the private cloud will be a niche business for them and a costly specialty for customers - the future is all about big public clouds, due to their dramatic economies of scale gained through lower infrastructure costs, higher utilization, and multi-tenancy cost amortization.

Microsoft must be changing to a new business model, because those things are all bad for their old one.  Today they make most of their money from dedicated servers, desktop software, and single-user and single-tenant applications.

Supply, Demand, and Multi-Tenancy

The supply-side economies of scale gained through big public clouds highlighted in the paper are:

  • Lower power costs through strategic power grid location and bulk purchasing
  • Lower labor costs from fewer employees managing more servers and apps.
  • Higher security and reliability due to provider expertise and infrastructure quality
  • Higher buying power from high volumes of a few standardized configurations

The demand-side economies of scale are gained through optimizing infrastructure utilization in these five areas:

  • Randomness of end-user access
  • Time of day patterns for applications
  • Industry-specific variability
  • Multi-resource variability
  • Uncertain growth patterns
  • About these factors, the paper says,

"A key economic advantage of the cloud is its ability to address variability in resource utilization brought on by these factors. By pooling resources, variability is diversified away, evening out utilization patterns. The larger the pool of resources, the smoother the aggregate demand profile, the higher the overall utilization rate, and the cheaper and more efficiently the IT organization can meet its end-user demands."

In other words, the bigger the cloud, the more the users, and the more diverse the applications, the greater the economies of scale on the demand (customer/user) side will be.

Finally, the report breaks out the multi-tenancy economies of scale like this:

  • Fixed application labor amortized over a large number of customers.
  • Fixed component of server utilization amortized over large number of customers.

The whitepaper elaborates on these factors in great detail to make a compelling case for big clouds and then goes on at length to impugn the private cloud and provide reassurance that the common IT concerns of security and compliance about the public cloud would soon be non-issues.

The report's big finish is an analysis of two points of probable market and the conclusions that should be drawn by "IT leaders."

We can do this the easy way or the hard way.

The first behavioral point is that "Decentralized IT (also known as ‘rogue IT') will continue to lead the charge."  In support of this as follows:

"Many prior technology transitions were led not by CIOs but by departments, business decision makers, developers, and end users - often in spite of the objections of CIOs. For example, both PCs and servers were initially adopted by end users and departments before they were officially embraced by corporate IT policies. [...]

"We‘re seeing a similar pattern in the cloud: developers and departments have started using cloud services, often without the knowledge of the IT group (hence the name -rogue clouds‖). Many business users will not wait for their IT group to provide them with a private cloud; for these users, productivity and convenience often trump policy. [...]

"CIOs should acknowledge that these behaviors are commonplace early in a disruption and either rapidly develop and implement a private cloud with the same capabilities or adopt policies which incorporate some of this behavior, where appropriate, in IT standards."

In other words, Hey, CIO, get with the program or we will help the business users go rogue on you.

Go public.  You'll feel better.

The second behavioral point is that "Perceptions are rapidly changing," supported by the observation continued SaaS successes are building trust in the cloud that will only increase, and closed out with this carrot and stick:

"In summary, while there are real hurdles to cloud adoption today, these will likely diminish over time. While new, unforeseen hurdles to public cloud adoption may appear, the public cloud economic advantage will grow stronger with time as cloud providers unlock the benefits of economics we discussed [earlier.]  While the desire for a private cloud is mostly driven by security and compliance concerns around existing workloads, the cost effectiveness and agility of the public cloud will enable new workloads."

In the final section, the paper, this last point is reinforced in this way:

"For businesses of all sizes, the cloud represents tremendous opportunity. It represents an opportunity to break out of the longstanding tradition of IT professionals spending 80 percent of their time and budget -keeping the lights on, with few resources left to focus on innovation. Cloud services will enable IT groups to focus more on innovation while leaving non-differentiating activities to reliable and cost-effective providers. Cloud services will enable IT leaders to offer new solutions that were previously seen as either cost prohibitive or too difficult to implement. This is especially true of cloud platforms (Platform as a Service), which significantly reduce the time and complexity of building new apps that take advantage of all the benefits of the cloud."

In other words, Why don't you IT people leave all that infrastructure management to someone else and do something new and innovative?

What are they really saying?

They seem to be trying to talk IT out of implementing private clouds, or any other kind of internal IT infrastructures, so that means that Microsoft is moving away from selling stuff directly to IT.  But, if the public cloud is the future, does that mean that their new customers will be cloud service providers, like telcos or Rackspace, or Salesforce.com?  Maybe not.

It appears to me that the end-game for Microsoft is to become the biggest public cloud in the world, comprising AZURE PaaS, plus Office, Bing, and Windows Live SaaS, and partner applications re-engineered as multi-tenant services.  They put it like this:

"We have over 600,000 partners in more than 200 countries servicing millions of businesses. We are already collaborating with thousands of our partners on the cloud transition. Together we are building the most secure, reliable, scalable, available, cloud in the world. [...]

"Microsoft and our partners helped bring PCs to over one billion homes and desktops. Millions of developers and businesses make their living on PCs and we are fortunate to play a role in that. [...]

"Now, we have a vision of bringing the power of cloud computing to every home, every office, and every mobile device. The powerful economics of cloud drive all of us towards this vision. Join Microsoft and our partners on the journey to bring this vision to life."

So, their customers remain the same -SME and enterprise IT.  Their functional products remain the same - applications and enablers for custom and partner applications.  What changes is the way that functionality is delivered to those customers, with a large portion of private IT and its supporting vendors evaporating and transferring value and power to Microsoft and their really big honkin' cloud.

In the whole carefully written whitepaper, there was not a single mention of other cloud service providers and how Microsoft will partner with them, because they may not.  It is conceivable that Microsoft would license Azure to, say, hosting services currently based on Windows, but I think it is unlikely.  There is no reason to think that Microsoft doesn't believe that the economics are telling them that they can dominate the new world as much or more than they did the previous one.

 

More Stories By Tim Negris

Tim Negris is SVP, Marketing & Sales at Yottamine Analytics, a pioneering Big Data machine learning software company. He occasionally authors software industry news analysis and insights on Ulitzer.com, is a 25-year technology industry veteran with expertise in software development, database, networking, social media, cloud computing, mobile apps, analytics, and other enabling technologies.

He is recognized for ability to rapidly translate complex technical information and concepts into compelling, actionable knowledge. He is also widely credited with coining the term and co-developing the concept of the “Thin Client” computing model while working for Larry Ellison in the early days of Oracle.

Tim has also held a variety of executive and consulting roles in a numerous start-ups, and several established companies, including Sybase, Oracle, HP, Dell, and IBM. He is a frequent contributor to a number of publications and sites, focusing on technologies and their applications, and has written a number of advanced software applications for social media, video streaming, and music education.

Comments (0)

Share your thoughts on this story.

Add your comment
You must be signed in to add a comment. Sign-in | Register

In accordance with our Comment Policy, we encourage comments that are on topic, relevant and to-the-point. We will remove comments that include profanity, personal attacks, racial slurs, threats of violence, or other inappropriate material that violates our Terms and Conditions, and will block users who make repeated violations. We ask all readers to expect diversity of opinion and to treat one another with dignity and respect.


@CloudExpo Stories
WebRTC is great technology to build your own communication tools. It will be even more exciting experience it with advanced devices, such as a 360 Camera, 360 microphone, and a depth sensor camera. In his session at @ThingsExpo, Masashi Ganeko, a manager at INFOCOM Corporation, will introduce two experimental projects from his team and what they learned from them. "Shotoku Tamago" uses the robot audition software HARK to track speakers in 360 video of a remote party. "Virtual Teleport" uses a...
While some vendors scramble to create and sell you a fancy solution for monitoring your spanking new Amazon Lambdas, hear how you can do it on the cheap using just built-in Java APIs yourself. By exploiting a little-known fact that Lambdas aren’t exactly single-threaded, you can effectively identify hot spots in your serverless code. In his session at @DevOpsSummit at 21st Cloud Expo, Dave Martin, Product owner at CA Technologies, will give a live demonstration and code walkthrough, showing how ...
Translating agile methodology into real-world best practices within the modern software factory has driven widespread DevOps adoption, yet much work remains to expand workflows and tooling across the enterprise. As models evolve from pockets of experimentation into wholescale organizational reinvention, practitioners find themselves challenged to incorporate the culture and architecture necessary to support DevOps at scale.
When shopping for a new data processing platform for IoT solutions, many development teams want to be able to test-drive options before making a choice. Yet when evaluating an IoT solution, it’s simply not feasible to do so at scale with physical devices. Building a sensor simulator is the next best choice; however, generating a realistic simulation at very high TPS with ease of configurability is a formidable challenge. When dealing with multiple application or transport protocols, you would be...
As more and more companies are making the shift from on-premises to public cloud, the standard approach to DevOps is evolving. From encryption, compliance and regulations like GDPR, security in the cloud has become a hot topic. Many DevOps-focused companies have hired dedicated staff to fulfill these requirements, often creating further siloes, complexity and cost. This session aims to highlight existing DevOps cultural approaches, tooling and how security can be wrapped in every facet of the bu...
SYS-CON Events announced today that CA Technologies has been named “Platinum Sponsor” of SYS-CON's 21st International Cloud Expo®, which will take place October 31-November 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. CA Technologies helps customers succeed in a future where every business – from apparel to energy – is being rewritten by software. From planning to development to management to security, CA creates software that fuels transformation for companies in the applic...
SYS-CON Events announced today that CAST Software will exhibit at SYS-CON's 21st International Cloud Expo®, which will take place on Oct 31 - Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. CAST was founded more than 25 years ago to make the invisible visible. Built around the idea that even the best analytics on the market still leave blind spots for technical teams looking to deliver better software and prevent outages, CAST provides the software intelligence that matter ...
yperConvergence came to market with the objective of being simple, flexible and to help drive down operating expenses. It reduced the footprint by bundling the compute/storage/network into one box. This brought a new set of challenges as the HyperConverged vendors are very focused on their own proprietary building blocks. If you want to scale in a certain way, let’s say you identified a need for more storage and want to add a device that is not sold by the HyperConverged vendor, forget about it....
SYS-CON Events announced today that Pulzze Systems will exhibit at SYS-CON's 21st International Cloud Expo®, which will take place October 31-November 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. Pulzze Systems Inc, provides the software product "The Interactor" that uniquely simplifies building IoT, Web and Smart Enterprise Solutions. It is a Silicon Valley startup funded by US government agencies, NSF and DHS to bring innovative solutions to market.
With Cloud Foundry you can easily deploy and use apps utilizing websocket technology, but not everybody realizes that scaling them out is not that trivial. In his session at 21st Cloud Expo, Roman Swoszowski, CTO and VP, Cloud Foundry Services, at Grape Up, will show you an example of how to deal with this issue. He will demonstrate a cloud-native Spring Boot app running in Cloud Foundry and communicating with clients over websocket protocol that can be easily scaled horizontally and coordinate...
SYS-CON Events announced today that Elastifile will exhibit at SYS-CON's 21st International Cloud Expo®, which will take place on Oct 31 - Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. Elastifile Cloud File System (ECFS) is software-defined data infrastructure designed for seamless and efficient management of dynamic workloads across heterogeneous environments. Elastifile provides the architecture needed to optimize your hybrid cloud environment, by facilitating efficient...
For financial firms, the cloud is going to increasingly become a crucial part of dealing with customers over the next five years and beyond, particularly with the growing use and acceptance of virtual currencies. There are new data storage paradigms on the horizon that will deliver secure solutions for storing and moving sensitive financial data around the world without touching terrestrial networks. In his session at 20th Cloud Expo, Cliff Beek, President of Cloud Constellation Corporation, d...
Businesses and business units of all sizes can benefit from cloud computing, but many don't want the cost, performance and security concerns of public cloud nor the complexity of building their own private clouds. Today, some cloud vendors are using artificial intelligence (AI) to simplify cloud deployment and management. In his session at 20th Cloud Expo, Ajay Gulati, Co-founder and CEO of ZeroStack, discussed how AI can simplify cloud operations. He covered the following topics: why cloud mana...
DevOps at Cloud Expo, taking place October 31 - November 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA, is co-located with 21st Cloud Expo and will feature technical sessions from a rock star conference faculty and the leading industry players in the world. The widespread success of cloud computing is driving the DevOps revolution in enterprise IT. Now as never before, development teams must communicate and collaborate in a dynamic, 24/7/365 environment. There is no time to w...
SYS-CON Events announced today that Golden Gate University will exhibit at SYS-CON's 21st International Cloud Expo®, which will take place on Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. Since 1901, non-profit Golden Gate University (GGU) has been helping adults achieve their professional goals by providing high quality, practice-based undergraduate and graduate educational programs in law, taxation, business and related professions. Many of its courses are taug...
Vulnerability management is vital for large companies that need to secure containers across thousands of hosts, but many struggle to understand how exposed they are when they discover a new high security vulnerability. In his session at 21st Cloud Expo, John Morello, CTO of Twistlock, will address this pressing concern by introducing the concept of the “Vulnerability Risk Tree API,” which brings all the data together in a simple REST endpoint, allowing companies to easily grasp the severity of t...
Recently, WebRTC has a lot of eyes from market. The use cases of WebRTC are expanding - video chat, online education, online health care etc. Not only for human-to-human communication, but also IoT use cases such as machine to human use cases can be seen recently. One of the typical use-case is remote camera monitoring. With WebRTC, people can have interoperability and flexibility for deploying monitoring service. However, the benefit of WebRTC for IoT is not only its convenience and interopera...
When shopping for a new data processing platform for IoT solutions, many development teams want to be able to test-drive options before making a choice. Yet when evaluating an IoT solution, it’s simply not feasible to do so at scale with physical devices. Building a sensor simulator is the next best choice; however, generating a realistic simulation at very high TPS with ease of configurability is a formidable challenge. When dealing with multiple application or transport protocols, you would be...
In his session at 20th Cloud Expo, Scott Davis, CTO of Embotics, discussed how automation can provide the dynamic management required to cost-effectively deliver microservices and container solutions at scale. He also discussed how flexible automation is the key to effectively bridging and seamlessly coordinating both IT and developer needs for component orchestration across disparate clouds – an increasingly important requirement at today’s multi-cloud enterprise.
WebRTC is the future of browser-to-browser communications, and continues to make inroads into the traditional, difficult, plug-in web communications world. The 6th WebRTC Summit continues our tradition of delivering the latest and greatest presentations within the world of WebRTC. Topics include voice calling, video chat, P2P file sharing, and use cases that have already leveraged the power and convenience of WebRTC.