Microsoft Wants Its Cloud And On-Premise Business Too


In his first public appearance as head of Microsoft's Server and Tools Business (STB), Satya Nadella said the cloud doesn't represent a threat to Microsoft's traditional on-premise software business. In fact, cloud will actually help Microsoft by boosting customers' appetite for storage and compute capacity, Nadella said at GigaOm's Structure 2011 conference this week.

Windows Azure, the platform-as-a-service Microsoft launched last February, is a major long-term investment for Microsoft and, in the opinion of many partners, a bellwether for how Microsoft's cloud vision is being accepted in the marketplace. "We have tens of thousands of customers playing with Azure, and a lot more testing and developing," Nadella said at the event.

At this point, asking any Microsoft executive about the cloud's impact on the company’s traditional on premise software business is like throwing a fastball to a Major League hitter -- they're waiting for it, and they know exactly what to do with it. The response is always well polished and optimistic, but this is actually unnerving to partners who feel that Microsoft isn't being up front about the fact that it's still figuring out some aspects of the cloud.

"Of course the cloud is a threat -- but isn't that the point?" said Tony Safoian, president and CEO of SADA Systems, a North Hollywood, Calif.-based solution provider. "Microsoft claims that more than 90 percent of their developers are working on cloud-based platforms, solutions and systems. So if SQL Azure doesn't take any share away from on-premise SQL, that would mean that Azure is not successful."

Microsoft and its rivals are both in direct competition with Microsoft's traditional enterprise IT business, since both are trying to move companies away from on-premise software and into the cloud, said Ron Herardian, president of Global System Services, a Mountain View, Calif.-based solution provider.

"The accelerating adoption of cloud computing is both a challenge for Microsoft in terms of adapting its products to a new delivery model, as well as a clear window of opportunity for competitors," Herardian said.

Although Azure PaaS may take a while to catch on, partners can use Azure today as a way to save money for customers. "People aren't looking for ways to increase spend -- they're not going to buy SQL servers and then also spend tons on SQL Azure," said Safoian. "But if they're planning a major SQL Server investment, we're showing them that maybe they can do part of that on SQL Azure and avoid paying for all that software and hardware."

At Structure, Nadella said customers are moving transactional and marketing Websites to the cloud, and many customers are hosting hybrid apps that are hosted in the public cloud and "call back" to the private cloud for functions like identity management. This flexibility and choice is the bedrock of Microsoft's cloud strategy, and given the slow pace of many companies' journey to the cloud, it could help the software giant down the road.

"I think that today cloud is additive to on-premise, and that over time the reverse could be true," said Andrew Brust, CEO of Microsoft analyst firm Blue Badge Insights, based in New York City. "There’s a spectrum of enterprise to cloud environments that exist today and I think Microsoft’s story around it is general pretty good. In fact, it’s probably the best in terms of contemplating a gradual movement along the spectrum by enterprise customers."

There are plenty of promising signs with Microsoft's cloud strategy, but there are clearly gray areas, too. That's to be expected in any Wild West atmosphere, and cloud certainly fits this description. But while no partner would expect a Microsoft executive to get up on stage and profess to being terrified of the cloud, they'd like to see just a little more candor about its impact on Microsoft's traditional business.