For the first time since 1982, the year that IBM launched its
first personal computer, Microsoft's domination of the computing
landscape is under pressure.
The recession and new technologies such as virtualsation, cloud
and open source are hurting Microsoft's sales and margins.
But last week Microsoft fired the opening salvo of a price and
technology war that aims to preserve its position against new
competitors, notably search engine firm Google and online retailer
Amazon, which are competing against Microsoft in the cloud.
Microsoft announced competitive pricing and service level
agreements for
Azure, its cloud-based hosted processing, data storage and
network service.
It took the wraps of Office 2010, which includes a stripped down
browser-based version of Office that will run for free from the
cloud, heading-off competition from Google's low-cost cloud-based
alternatives to Office.
And it
revealed new licensing agreements that could save enterprise
customers up to 40% of their licence fee. They will make it less
attractive for enterprises to move to other open source and
virtualised operating environments
Azure brings Microsoft into head-on competition with Google and
Amazon for public hosted processing, data storage and networking in
terms of price and product. Microsoft has the advantage of the
widely-used .net application development platform. It will use this
to encourage software developers to write software that will run in
an Azure environment.
These are financially risky moves. It is not certain how
successful Azure will be, and whether conservative IT departments
will be prepared to move business-critical applications to the
cloud. Commercial applications such as SAP and Oracle will need to
be re-engineered before they can make the transition. But Microsoft
has $25bn in cash and short-term investments to finance the
war.
Analysts are interpreting Microsoft's move as a rushed response
to its fragmenting hegemony. Many relish the prospect of increased
competition. Some see an end to Microsoft's absolute control of the
rate at which it releases new and better products.
Richard Holway, an
independent analyst who has followed Microsoft since the 1970s,
says without competition from Google, Microsoft would never have
brought out Windows 7 so soon after Vista, and may never have
introduced Office 2010.
David Roberts, executive director of the
Corporate IT Forum , says the
fight between Microsoft, Google, Amazon and other hosted service
firms for the cloud computing market could be an "amazing
spectacle".
"Name the three biggest players you would wish to see in a
triangular thunderstorm of a boxing match. This is going to be a
great fight," he says.
Holway believes Microsoft had no choice but to get into the
cloud. "Everything will be cloud-based," he says. "We are going
back to time-sharing."
Fabio Torlini, EMEA marketing director at
RackSpace, one of
the world's biggest hosting firms, agrees. "I don't think that
Microsoft has a choice. The world is moving online and cloud is
here to stay. I think Microsoft has seen what a big opportunity the
market is and knows that it needs to take it seriously," he
says.
Everyone wants a piece of Microsoft's financial fat. But it
won't be easy.
McKinsey
analyst William Forrest says cloud computing is highly hyped and
ill-defined. Many firms who go in for cloud computing now may not
reap all the benefits they are promised, he says.
So far, cloud computing services are generally not
cost-effective for larger enterprises, he says. The break-even
point between cloud and on-premises processing, based on Amazon
figures, is around $45 a month for an equivalent number of CPU
cycles in a datacentre, he says. He estimates the total cost of
ownership of cloud services needs to drop by 60% to match the
per-CPU monthly costs of a typical datacentre.
This suggests revenue from software licences sold to large
enterprises for on-premises processing will keep Microsoft afloat
for a long while yet. Even Alistair Bagley, Microsoft UK's head of
emerging business technologies, says companies are unlikely to
convert their core enterprise systems to run on Azure in the short
term.
But what about smaller firms and individuals?
"[With Azure] Microsoft is playing catch-up against two very,
very modern thinkers where its huge embedded customer base may not
be much of an advantage," says Roberts.
One of the attractions of cloud computing, especially for
business start-ups, smaller firms and individuals is that they can
get much of their data processing, storage and networking on a
pay-as-you-go basis without the capital and running costs of their
own datacentre. That cost differential may loosen existing bonds
with Microsoft, but Bagley notes interoperability will be crucial
in heterogeneous applications environments.
Holway believes that Microsoft's 90%-plus share of desktops will
work to its advantage. He notes that 80% of netbooks are sold with
paid-for Windows XP and Office rather than free Linux and
OpenOffice.
"When you get to the cloud, you would like something familiar,
and that means Office 2010, not Google Apps," he says.
As to how CIOs should respond to Azure, Holway reckons they
should be guided by their users. "CIOs have always fought
innovations like the PC and the mobile phone, usually on security
grounds, but in the end they have had to accommodate them," he
says. "End-users will dictate how fast they will have to move."