The Good and Bad of Microsoft's Cloud Strategy
Microsoft is well positioned to give Amazon a run for its money in the cloud market, but it needs to break away from its Microsoft-centric approach.
Seeing as how the cloud has been tied to digital transformation, and seeing as how more businesses are embarking on digital transformation projects, it makes perfect sense to me that cloud has been one of the hot topics at Microsoft's Ignite conference for enterprise IT, taking place this week in Atlanta. Microsoft has an interesting position in cloud, in that it was simultaneously early and late to the market. In some ways it's like Schrödinger's Cloud.
Almost 20 years ago, Microsoft launched Bing, and to support it, the company had to build out a massively scalable, global cloud network. Google had done this with its search platform, and Amazon had done similar to support its e-commerce business. However, Amazon was the only vendor with the foresight to convert their platform into something on which businesses could run workloads. No one really took the cloud seriously a couple of decades ago, and Amazon's solutions were looked at more as an experiment than as a credible business computing platform. All of the mainstream computing vendors were sitting around trying to figure out whether the cloud was real while Amazon was capturing customers.Battling It Out
Today, Amazon stands as the cloud infrastructure services market leader with 31% global market share, according to Q1 research from the Synergy Research Group. Microsoft has gained some ground with a year-over-year growth rate of more than 100%, but is a distant second to Amazon with only 9% market share, followed by IBM (7%).
During his Ignite keynote, Microsoft cloud chief Scott Guthrie referred to the cloud market as a two-horse race. I agree with this completely. Despite Google's, IBM's and most recently, Oracle's efforts to become a serious cloud provider, the non-SaaS market has come down to Amazon for small and midsize businesses and Microsoft Azure at the high end. Amazon will likely always have significantly more share, but Azure will wind up having higher revenue per customer and be considered a more strategic platform.
There's a few reasons I believe Microsoft will be able to break away from the rest of the pack and give Amazon a run for it's money. The company has the broadest set of cloud services available today, which includes some widely deployed SaaS applications such as Office365, Dynamics, Share Point, Exchange and Skype For Business. This combined with Azure and Azure Stack (private cloud) gives Microsoft a bigger "cloud footprint" than any other provider.
This presence lets Microsoft position its cloud as something transformative instead of as a cheaper alternative to on-premises servers. The key for Microsoft is being able to gather data from all of these sources, analyze it, and offer up new insights. The analytics can be done across a number of vectors including customer behavior, worker productivity, or IT metrics.
It's true that lots of vendors today are collecting data and providing basic insights like trending or behavioral information. Microsoft's cloud differentiation will come from its artificial intelligence (AI) capabilities, which is different than analytics in that it learns as it goes along. An example of how this might work is that a team may be working on a specific project and the AI can scan content in Azure, Azure Stack, desktop computers, mobile devices, and other sources, and then recommend relevant information to project teams. This could save hundreds of hours when compared to the traditional method of sifting through possible petabytes of data.
Developers can build the intelligence into applications through the Cortana Intelligence Suite. In addition to being Microsoft's voice interface, Cortana includes a suite of tools including a bot framework. In his Ignite keynote, CEO Satya Nadella stated that all businesses would eventually use conversational agents to interact with customers. AI will ensure the information given to customers is not only right, but, in fact, the best possible data. Also, the combination of Microsoft Cloud and AI, with HoloLens tossed in creates some really interesting use cases where businesses could completely change the shopping experience, sports fans could watch games differently, and students could learn better. Imagine a scenario where a person watching an NFL game could get real time fantasy football information about who to start and sit-out of his or her lineups. That would raise viewership and ad revenue for the TV networks.The Missing Piece of the Cloud Puzzle
The one missing piece of Microsoft's cloud strategy is multi-cloud. The current go-to market strategy assumes customers want to be primarily Microsoft. I believe many customers may elect to use both Amazon and Microsoft and a variety of private could offerings. The utopian scenario is for customers to have cloud freedom and move workloads between public or private clouds. This could be for reasons related to cost, business continuity, or data sovereignty. VMware recently announced Cloud Foundry, and Cisco acquired CliQr to address these issues.
In an analyst session at Ignite, I asked Microsoft about its plans in this area and representatives stated that they did not believe customers would want to use the cloud in this way. This may be true today, but over time, as hybrid cloud becomes the norm, customers will want this functionality. This need could be driven by the simple scenario of one company buying another, thus forcing multiple cloud platforms to come together.
I do believe that Microsoft is very well positioned in cloud, but its strategy is very Microsoft-centric, which is consistent with the way the company has operated in the past. Given its massive installed base of IT pros, this will bode well in the short term, but it needs to have multi-vendor cloud environments become a core part of its strategy for long term success.