Click here to close now.


Government Cloud Authors: Elizabeth White, PagerDuty Blog, Philippe Abdoulaye, Liz McMillan, Kevin Jackson

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  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, 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
With all the incredible momentum behind the Internet of Things (IoT) industry, it is easy to forget that not a single CEO wakes up and wonders if “my IoT is broken.” What they wonder is if they are making the right decisions to do all they can to increase revenue, decrease costs, and improve customer experience – effectively the same challenges they have always had in growing their business. The exciting thing about the IoT industry is now these decisions can be better, faster, and smarter. Now all corporate assets – people, objects, and spaces – can share information about themselves and thei...
The Internet of Everything is re-shaping technology trends–moving away from “request/response” architecture to an “always-on” Streaming Web where data is in constant motion and secure, reliable communication is an absolute necessity. As more and more THINGS go online, the challenges that developers will need to address will only increase exponentially. In his session at @ThingsExpo, Todd Greene, Founder & CEO of PubNub, exploreed the current state of IoT connectivity and review key trends and technology requirements that will drive the Internet of Things from hype to reality.
Two weeks ago (November 3-5), I attended the Cloud Expo Silicon Valley as a speaker, where I presented on the security and privacy due diligence requirements for cloud solutions. Cloud security is a topical issue for every CIO, CISO, and technology buyer. Decision-makers are always looking for insights on how to mitigate the security risks of implementing and using cloud solutions. Based on the presentation topics covered at the conference, as well as the general discussions heard between sessions, I wanted to share some of my observations on emerging trends. As cyber security serves as a fou...
The cloud. Like a comic book superhero, there seems to be no problem it can’t fix or cost it can’t slash. Yet making the transition is not always easy and production environments are still largely on premise. Taking some practical and sensible steps to reduce risk can also help provide a basis for a successful cloud transition. A plethora of surveys from the likes of IDG and Gartner show that more than 70 percent of enterprises have deployed at least one or more cloud application or workload. Yet a closer inspection at the data reveals less than half of these cloud projects involve production...
Most of the IoT Gateway scenarios involve collecting data from machines/processing and pushing data upstream to cloud for further analytics. The gateway hardware varies from Raspberry Pi to Industrial PCs. The document states the process of allowing deploying polyglot data pipelining software with the clear notion of supporting immutability. In his session at @ThingsExpo, Shashank Jain, a development architect for SAP Labs, discussed the objective, which is to automate the IoT deployment process from development to production scenarios using Docker containers.
Countless business models have spawned from the IaaS industry – resell Web hosting, blogs, public cloud, and on and on. With the overwhelming amount of tools available to us, it's sometimes easy to overlook that many of them are just new skins of resources we've had for a long time. In his general session at 17th Cloud Expo, Harold Hannon, Sr. Software Architect at SoftLayer, an IBM Company, broke down what we have to work with, discussed the benefits and pitfalls and how we can best use them to design hosted applications.
Discussions of cloud computing have evolved in recent years from a focus on specific types of cloud, to a world of hybrid cloud, and to a world dominated by the APIs that make today's multi-cloud environments and hybrid clouds possible. In this Power Panel at 17th Cloud Expo, moderated by Conference Chair Roger Strukhoff, panelists addressed the importance of customers being able to use the specific technologies they need, through environments and ecosystems that expose their APIs to make true change and transformation possible.
Microservices are a very exciting architectural approach that many organizations are looking to as a way to accelerate innovation. Microservices promise to allow teams to move away from monolithic "ball of mud" systems, but the reality is that, in the vast majority of organizations, different projects and technologies will continue to be developed at different speeds. How to handle the dependencies between these disparate systems with different iteration cycles? Consider the "canoncial problem" in this scenario: microservice A (releases daily) depends on a couple of additions to backend B (re...
Too often with compelling new technologies market participants become overly enamored with that attractiveness of the technology and neglect underlying business drivers. This tendency, what some call the “newest shiny object syndrome” is understandable given that virtually all of us are heavily engaged in technology. But it is also mistaken. Without concrete business cases driving its deployment, IoT, like many other technologies before it, will fade into obscurity.
We all know that data growth is exploding and storage budgets are shrinking. Instead of showing you charts on about how much data there is, in his General Session at 17th Cloud Expo, Scott Cleland, Senior Director of Product Marketing at HGST, showed how to capture all of your data in one place. After you have your data under control, you can then analyze it in one place, saving time and resources.
Container technology is shaping the future of DevOps and it’s also changing the way organizations think about application development. With the rise of mobile applications in the enterprise, businesses are abandoning year-long development cycles and embracing technologies that enable rapid development and continuous deployment of apps. In his session at DevOps Summit, Kurt Collins, Developer Evangelist at, examined how Docker has evolved into a highly effective tool for application delivery by allowing increasingly popular Mobile Backend-as-a-Service (mBaaS) platforms to quickly crea...
The Internet of Things is clearly many things: data collection and analytics, wearables, Smart Grids and Smart Cities, the Industrial Internet, and more. Cool platforms like Arduino, Raspberry Pi, Intel's Galileo and Edison, and a diverse world of sensors are making the IoT a great toy box for developers in all these areas. In this Power Panel at @ThingsExpo, moderated by Conference Chair Roger Strukhoff, panelists discussed what things are the most important, which will have the most profound effect on the world, and what should we expect to see over the next couple of years.
Growth hacking is common for startups to make unheard-of progress in building their business. Career Hacks can help Geek Girls and those who support them (yes, that's you too, Dad!) to excel in this typically male-dominated world. Get ready to learn the facts: Is there a bias against women in the tech / developer communities? Why are women 50% of the workforce, but hold only 24% of the STEM or IT positions? Some beginnings of what to do about it! In her Day 2 Keynote at 17th Cloud Expo, Sandy Carter, IBM General Manager Cloud Ecosystem and Developers, and a Social Business Evangelist, wil...
PubNub has announced the release of BLOCKS, a set of customizable microservices that give developers a simple way to add code and deploy features for realtime apps.PubNub BLOCKS executes business logic directly on the data streaming through PubNub’s network without splitting it off to an intermediary server controlled by the customer. This revolutionary approach streamlines app development, reduces endpoint-to-endpoint latency, and allows apps to better leverage the enormous scalability of PubNub’s Data Stream Network.
Apps and devices shouldn't stop working when there's limited or no network connectivity. Learn how to bring data stored in a cloud database to the edge of the network (and back again) whenever an Internet connection is available. In his session at 17th Cloud Expo, Ben Perlmutter, a Sales Engineer with IBM Cloudant, demonstrated techniques for replicating cloud databases with devices in order to build offline-first mobile or Internet of Things (IoT) apps that can provide a better, faster user experience, both offline and online. The focus of this talk was on IBM Cloudant, Apache CouchDB, and ...
I recently attended and was a speaker at the 4th International Internet of @ThingsExpo at the Santa Clara Convention Center. I also had the opportunity to attend this event last year and I wrote a blog from that show talking about how the “Enterprise Impact of IoT” was a key theme of last year’s show. I was curious to see if the same theme would still resonate 365 days later and what, if any, changes I would see in the content presented.
Cloud computing delivers on-demand resources that provide businesses with flexibility and cost-savings. The challenge in moving workloads to the cloud has been the cost and complexity of ensuring the initial and ongoing security and regulatory (PCI, HIPAA, FFIEC) compliance across private and public clouds. Manual security compliance is slow, prone to human error, and represents over 50% of the cost of managing cloud applications. Determining how to automate cloud security compliance is critical to maintaining positive ROI. Raxak Protect is an automated security compliance SaaS platform and ma...
The Internet of Things (IoT) is growing rapidly by extending current technologies, products and networks. By 2020, Cisco estimates there will be 50 billion connected devices. Gartner has forecast revenues of over $300 billion, just to IoT suppliers. Now is the time to figure out how you’ll make money – not just create innovative products. With hundreds of new products and companies jumping into the IoT fray every month, there’s no shortage of innovation. Despite this, McKinsey/VisionMobile data shows "less than 10 percent of IoT developers are making enough to support a reasonably sized team....
Just over a week ago I received a long and loud sustained applause for a presentation I delivered at this year’s Cloud Expo in Santa Clara. I was extremely pleased with the turnout and had some very good conversations with many of the attendees. Over the next few days I had many more meaningful conversations and was not only happy with the results but also learned a few new things. Here is everything I learned in those three days distilled into three short points.
DevOps is about increasing efficiency, but nothing is more inefficient than building the same application twice. However, this is a routine occurrence with enterprise applications that need both a rich desktop web interface and strong mobile support. With recent technological advances from Isomorphic Software and others, rich desktop and tuned mobile experiences can now be created with a single codebase – without compromising functionality, performance or usability. In his session at DevOps Summit, Charles Kendrick, CTO and Chief Architect at Isomorphic Software, demonstrated examples of com...