Cloud computing: can Microsoft turn from servers to services?

As everyone knows, Microsoft rose to its dominant position as a software provider. Today, however, it faces threats of disruption from players such as Google, which delivers software functionality as a service, over the Internet.

The new approach is dubbed "cloud computing," because the software that provides the service does not reside on a specifically-identified computer but is deployed over the Internet (which is often depicted graphically as a cloud) from any number of networked computers. The user has no idea of where the host computer is or what operating system it is running. The application is just out there "in the cloud," as so to speak.

A threat to Microsoft
Market leaders spend a lot of time thinking about how they can lose their market position. As Andy Grove, founder of Intel said, "Only the paranoid survive." The trend toward cloud computing, or software as a service, certainly is a threat to a company that depends on organizations buying servers and installing software. So Microsoft's current strategy, at least the one it offers publicly, is "software plus services." That is, it continues to sell software, but it is also offering hosted versions of its popular Exchange messaging system and Sharepoint collaboration system.

Which brings us to Phil Wainewright's view of Microsoft's strategy: "bunkum." In a Feb. 1 post, he wrote:

The attempt to define software as somehow separate and parallel to services is what exposes Microsoft’s software-plus-services notion as bunkum. Software is the stuff that powers services. Before the Web existed, the easiest way to get those services was to install a software package. Now that the Web exists, the easiest way to get those services is to click a link and let someone else run the software. That’s what Google does. That’s what Yahoo! has always done. These companies aren't doing away with software; they’re huge consumers of it. When Salesforce.com talks about ‘No Software’ what it really means is ‘Lots more software, but we’ll take care of it for you.’ The software becomes part of the service provider’s infrastructure.

Now, in a new post, Wainewright says that Microsoft may already be realizing that software-plus-services will not be enough to counter the threat of cloud computing. He points to recent comments by Microsoft's chief strategy officer Ray Ozzie, which suggest that, "despite the public bluster, Microsoft’s top brass already secretly realize that they must put services, not software, at the center of their world view." Read Wainewright's whole post for Ozzie's comments that reflect his view of Microsoft's need to make a more complete turn to services.

Dynamics a laggard in cloud computing
Where does this leave Microsoft in terms of its enterprise applications, Dynamics? Microsoft is way behind the curve in deploying these products in the cloud. It is just now getting ready to release CRM Live, the software-as-a-service (SaaS) version of its Dynamics CRM product. As far as its other Dynamics products, such as Axapta (AX) and Great Plains (GP), the only SaaS deployments are hosted versions offered by some Microsoft business partners.

The slow progress in moving its Dynamics applications to the cloud is not a big deal right now, as most small and mid-size businesses are still thinking in terms of on-premise deployments of software. (CRM is the one area where the SaaS model has taken hold, where its ubiquitous access characteristics are an advantage in serving sales users that have no fixed work location.) But as cloud computing becomes a more accepted way of delivering enterprise system functionality, providers that do not have a credible solution are going to be at a disadvantage.

Both Oracle and SAP are making major investments in the new model. SAP in particular is developing its new SMB offering, BusinessByDesign, from scratch to run in the cloud. As for Microsoft, it's no doubt difficult to embrace a business model that undermines the way it got to be an industry leader. But if it does not do so, it's likely to lose its position, not just in enterprise applications but the whole nine yards.

Update, Mar. 18. In the comments section, Michael Sheehan notes that cloud computing and SaaS are really not the same thing. I agree, and I was a bit sloppy in using the terms somewhat interchangeably. In my mind, SaaS is any software functionality delivered as a service, whether it be a dedicated system hosted by the service provider, a multi-tenant system providing services to multiple customers, or a system deployed in the cloud. I suppose in some organizations, the cloud could be used to deploy a system that is used by the organization itself. So, although cloud computing is often used as a way of deploying SaaS, they are not synonyms.

On his own blog, Sheehan points to this post by Paul Wallis that goes into much more detail on the evolution and relationship of supercomputing to grid computing to utility computing to cloud computing.

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