Wednesday, November 5, 2008

Microsoft Azure - Contribute or Cannibalize?

While the discussions between Microsoft and SaleForce fans continues to heat up, I think the announcement of Microsoft’s Azure cloud services is a good sign for customers. Especially, for IT shops and product vendors that are committed to .net technologies this is great news. This also means customers will now have more choices in selecting their Cloud provider. For Microsoft, the success of this offering really hinge on creating and sustaining a profitable business model for Cloud services.
For one, this is a timely move on Microsoft front to capture its share of the growing Cloud services market. With the increasing
economic pressures, more and more enterprises are now considering SaaS and Cloud services to enable business agility. Clearly, Azure is a excellent attempt to align Microsoft products to these emerging customer needs (capital vs. operational cost, business agility) and technology trends (connectedness and flexibility).

Second, just like Google and Amazon, Microsoft invested heavily in Windows Live infrastructure for consumer markets. The recent Cloud offering could be a natural extension to these massive infrastructure investments enabling Microsoft to further capitalize on these investments, learnings and expertise.

In addition to the new market opportunities, Azure platform also brings the inherent risk of cannibalizing existing on-premise products to Microsoft. The
pull out of SAP SaaS and inhibitions of Oracle to be a SaaS/Cloud provider demonstrates the serious impediments the product companies face to takeup dual role as a Cloud provider (Google, Amazon) and Cloud supplier (Dell, HP). Especially, the competing nature of these two offerings mean winning more business for one product may turn out as losing business for the other. The second risk is monetization part. So far, only few players are able to turn SaaS offering into a profitable business model. With Microsoft Live investments yet to make money, how soon Azure offering will be profitable is anybody’s guess at this point.

More importantly, the network effect of eco system on SaaS providers is clearly evident in great success of few SaaS leaders. One example is partnership between Workday and I noticed that strategic partnerships of this kind help to increase customer confidence in the overall eco system and attract more customers towards the eco system. I think Microsoft need to do more than standing next to SAP to insert itself into the Cloud ecosystem. It needs to establish strategic partnerships with leaders and strong players in this niche to establish strong base in SaaS/cloud ecosystem.

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