Government Cloud Authors: Pat Romanski, Liz McMillan, TJ Randall, Elizabeth White, Carmen Gonzalez

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.

@ThingsExpo Stories
@ThingsExpo has been named the Top 5 Most Influential M2M Brand by Onalytica in the ‘Machine to Machine: Top 100 Influencers and Brands.' Onalytica analyzed the online debate on M2M by looking at over 85,000 tweets to provide the most influential individuals and brands that drive the discussion. According to Onalytica the "analysis showed a very engaged community with a lot of interactive tweets. The M2M discussion seems to be more fragmented and driven by some of the major brands present in the...
WebRTC has had a real tough three or four years, and so have those working with it. Only a few short years ago, the development world were excited about WebRTC and proclaiming how awesome it was. You might have played with the technology a couple of years ago, only to find the extra infrastructure requirements were painful to implement and poorly documented. This probably left a bitter taste in your mouth, especially when things went wrong.
The Quantified Economy represents the total global addressable market (TAM) for IoT that, according to a recent IDC report, will grow to an unprecedented $1.3 trillion by 2019. With this the third wave of the Internet-global proliferation of connected devices, appliances and sensors is poised to take off in 2016. In his session at @ThingsExpo, David McLauchlan, CEO and co-founder of Buddy Platform, discussed how the ability to access and analyze the massive volume of streaming data from millio...
SYS-CON Events announced today that Pulzze Systems will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Pulzze Systems, Inc. provides infrastructure products for the Internet of Things to enable any connected device and system to carry out matched operations without programming. For more information, visit http://www.pulzzesystems.com.
Successful digital transformation requires new organizational competencies and capabilities. Research tells us that the biggest impediment to successful transformation is human; consequently, the biggest enabler is a properly skilled and empowered workforce. In the digital age, new individual and collective competencies are required. In his session at 19th Cloud Expo, Bob Newhouse, CEO and founder of Agilitiv, will draw together recent research and lessons learned from emerging and established ...
Enterprise IT has been in the era of Hybrid Cloud for some time now. But it seems most conversations about Hybrid are focused on integrating AWS, Microsoft Azure, or Google ECM into existing on-premises systems. Where is all the Private Cloud? What do technology providers need to do to make their offerings more compelling? How should enterprise IT executives and buyers define their focus, needs, and roadmap, and communicate that clearly to the providers?
One of biggest questions about Big Data is “How do we harness all that information for business use quickly and effectively?” Geographic Information Systems (GIS) or spatial technology is about more than making maps, but adding critical context and meaning to data of all types, coming from all different channels – even sensors. In his session at @ThingsExpo, William (Bill) Meehan, director of utility solutions for Esri, will take a closer look at the current state of spatial technology and ar...
SYS-CON Events announced today that Streamlyzer will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Streamlyzer is a powerful analytics for video streaming service that enables video streaming providers to monitor and analyze QoE (Quality-of-Experience) from end-user devices in real time.
You have great SaaS business app ideas. You want to turn your idea quickly into a functional and engaging proof of concept. You need to be able to modify it to meet customers' needs, and you need to deliver a complete and secure SaaS application. How could you achieve all the above and yet avoid unforeseen IT requirements that add unnecessary cost and complexity? You also want your app to be responsive in any device at any time. In his session at 19th Cloud Expo, Mark Allen, General Manager of...
SYS-CON Media announced today that @WebRTCSummit Blog, the largest WebRTC resource in the world, has been launched. @WebRTCSummit Blog offers top articles, news stories, and blog posts from the world's well-known experts and guarantees better exposure for its authors than any other publication. @WebRTCSummit Blog can be bookmarked ▸ Here @WebRTCSummit conference site can be bookmarked ▸ Here
Cloud based infrastructure deployment is becoming more and more appealing to customers, from Fortune 500 companies to SMEs due to its pay-as-you-go model. Enterprise storage vendors are able to reach out to these customers by integrating in cloud based deployments; this needs adaptability and interoperability of the products confirming to cloud standards such as OpenStack, CloudStack, or Azure. As compared to off the shelf commodity storage, enterprise storages by its reliability, high-availabil...
The IoT industry is now at a crossroads, between the fast-paced innovation of technologies and the pending mass adoption by global enterprises. The complexity of combining rapidly evolving technologies and the need to establish practices for market acceleration pose a strong challenge to global enterprises as well as IoT vendors. In his session at @ThingsExpo, Clark Smith, senior product manager for Numerex, will discuss how Numerex, as an experienced, established IoT provider, has embraced a ...
DevOps is being widely accepted (if not fully adopted) as essential in enterprise IT. But as Enterprise DevOps gains maturity, expands scope, and increases velocity, the need for data-driven decisions across teams becomes more acute. DevOps teams in any modern business must wrangle the ‘digital exhaust’ from the delivery toolchain, "pervasive" and "cognitive" computing, APIs and services, mobile devices and applications, the Internet of Things, and now even blockchain. In this power panel at @...
SYS-CON Events announced today that Super Micro Computer, Inc., a global leader in Embedded and IoT solutions, will exhibit at SYS-CON's 20th International Cloud Expo®, which will take place on June 7-9, 2017, at the Javits Center in New York City, NY. Supermicro (NASDAQ: SMCI), the leading innovator in high-performance, high-efficiency server technology, is a premier provider of advanced server Building Block Solutions® for Data Center, Cloud Computing, Enterprise IT, Hadoop/Big Data, HPC and ...
SYS-CON Events announced today that SoftNet Solutions will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. SoftNet Solutions specializes in Enterprise Solutions for Hadoop and Big Data. It offers customers the most open, robust, and value-conscious portfolio of solutions, services, and tools for the shortest route to success with Big Data. The unique differentiator is the ability to architect and ...
In the next forty months – just over three years – businesses will undergo extraordinary changes. The exponential growth of digitization and machine learning will see a step function change in how businesses create value, satisfy customers, and outperform their competition. In the next forty months companies will take the actions that will see them get to the next level of the game called Capitalism. Or they won’t – game over. The winners of today and tomorrow think differently, follow different...
“Media Sponsor” of SYS-CON's 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. CloudBerry Backup is a leading cross-platform cloud backup and disaster recovery solution integrated with major public cloud services, such as Amazon Web Services, Microsoft Azure and Google Cloud Platform.
In past @ThingsExpo presentations, Joseph di Paolantonio has explored how various Internet of Things (IoT) and data management and analytics (DMA) solution spaces will come together as sensor analytics ecosystems. This year, in his session at @ThingsExpo, Joseph di Paolantonio from DataArchon, will be adding the numerous Transportation areas, from autonomous vehicles to “Uber for containers.” While IoT data in any one area of Transportation will have a huge impact in that area, combining sensor...
More and more brands have jumped on the IoT bandwagon. We have an excess of wearables – activity trackers, smartwatches, smart glasses and sneakers, and more that track seemingly endless datapoints. However, most consumers have no idea what “IoT” means. Creating more wearables that track data shouldn't be the aim of brands; delivering meaningful, tangible relevance to their users should be. We're in a period in which the IoT pendulum is still swinging. Initially, it swung toward "smart for smar...
The best way to leverage your Cloud Expo presence as a sponsor and exhibitor is to plan your news announcements around our events. The press covering Cloud Expo and @ThingsExpo will have access to these releases and will amplify your news announcements. More than two dozen Cloud companies either set deals at our shows or have announced their mergers and acquisitions at Cloud Expo. Product announcements during our show provide your company with the most reach through our targeted audiences.