cloudalps (hidden peaks)

High Tech Economics – implications from a global perspective.

Does Microsoft actually challenge itself in the Cloud?

Today, the Wall Street Journal commented on tomorrows expected announcement of the availability of Office365, Microsoft’s integrated Cloud offering that includes all of Microsoft Office plus the cloud-equivalent of server applications like Microsoft Exchange for mail, calendaring and so forth []. The bottom line of the WSJ is that first and foremost, Microsoft is about to cannibalize itself.

At the scale of Microsoft’s software revenues in Office and Windows, it is not trivial to see the upside potential of cloud computing for the company. Much of what will come in through Office365 will come from existing customers that move to the cloud from their own datacenters in an attempt to gain some of the (Shared) economies of scale of running Microsoft’s software. This is a challenge both commercially – as the margin to Microsoft of running its software itself is bound to be smaller than the margin of just shipping  its code – and technically becasue the hundreds of millions of Microsoft Office seats require huge datacenters and internet pipes to be run centrally.

In developing economies, start-up and small businesses however, Office365 might very well generate actual incremental revenues for Microsoft.

With the choice of running their licenses themselves or let Microsoft do it, customers are actually the ones that are being challenged here: how many take the risk and move Microsoft applications out of their datacenter and into the cloud? Assuming that Office365 offers at least what current cloud competitors’ offerings do – and that should be a safe bet – this also translates into a challenge thrown out by Microsoft to its cloud competitors, including Google. With the existing concerns for privacy and security that run high in certain countries like Germany, the challenge also includes the public perception of cloud-based productivity applications like Office365.

While strategically, Office365 will be a challenge for Microsoft over the longer-term, the short-term challenge mostly hits its competitors, partners and customers.


Filed under: Cloud Computing, Software

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