Windows Azure one year later: Walking the cloud vs. on-premises tightrope

Microsoft's Windows Azure development engine is chugging along, following closely the original path the team outlined for its cloud operating environment. But the marketing and positioning of Azure isn't tracking as smoothly.
Written by Mary Jo Foley, Senior Contributing Editor

Microsoft's Windows Azure development engine is chugging along, following closely the original path the team outlined for its cloud operating environment. But the marketing and positioning of Azure isn't tracking as smoothly.

As I noted in part one of my 'Azure year in review' post yesterday, Microsoft has made a number of under-the-cover additions to Azure. Microsoft is now in the position of leading with its cloud on the Windows development front. In other words, new Windows Server features are developed for and launched in Windows Azure before they make it into a new release of Windows Server software.

Microsoft is in the process of attempting to lead with the cloud on the Azure marketing front, as well. But its messaging here is murkier. Company execs abruptly stopped touting "Software + Services" as the way Microsoft is going to market with its products. Chief Operating Officer Kevin Turner recently told Wall Street analysts that playing up customer choice between software and cloud services wasn't a good move strategically and that Microsoft is now "course-correcting" by convincing customers to go with its cloud wares over its on-premises software.

The problem is Microsoft makes far and away most of its money from software, not services -- and is likely to do so for a number of years ahead. Despite Turner's claims "the cloud actually helps better position Microsoft to sell more on-premise products than we ever have before," there's little to back up that assertion. Microsoft officials have made a case for how/why leading with the cloud offers the company new opportunities to reach brand-new customers, but haven't offered any real evidence that the cloud will generate the high margins that software sales traditionally have.

In short, Microsoft can't -- and won't -- suddenly turn the switch and stop selling software in favor of cloud services. In spite of the corporate edict to "lead with the cloud," officials still seem conflicted about how to tell customers they still have a choice. Example: Microsoft is touting its recently announced Windows Azure Appliances as the way large enterprise customers will be able to run a private Azure cloud at their sites. But it also is continuing to offer its Dynamic Datacenter Toolkit, Windows Server AppFabric, BizTalk Server and other software components the building blocks for customers desiring their own private clouds.

In spite of the company's "We're All In" cloud messaging, you still find Microsoft using charts like the one below that highlight the software and services options available to users:

When I asked the Softies about the challenges of positioning Windows Azure and cloud services vs. Windows Server and on-premises enterprise software products, I received this statement from a company spokesperson:

"Ultimately, it’s  up to the customer if, when and how they move to the cloud. We see it as our job to provide the choice and the right solutions, guidance and tools to enable them to use their existing skills and achieve the fastest time to business value. For those organizations and businesses that want a highly optimized, scalable environment where we prescribe the hardware and normalize the cost of operations, that’s our services platform, the Windows Azure platform. For those that want the versatility to enable environments of any scale, or that need custom hardware configurations and operating models, that’s our server platform, built on Windows Server.”

Next Page: Customer choice vs. confusion

As of June 2010, Microsoft officials said there were 10,000 customers (each with an unspecified number of users) hosting/developing applications and services on Azure. Fifty percent of these customers are running their applications in "steady state" (i.e., as replacements for onsite/on-premises software), according to the Softies. Users are relying on Azure to do on/off batch job computing; create quick start-ups (with no need or money to build out a private data center; and to handle unpredictable and predictable bursting.

Having a relatively long test/beta period helped Microsoft figure out what customers wanted with Azure, said Yousef Khalidi, a Microsoft Distinguished Engineer and one of the original members of the Red Dog team.

"We've been talking to customers for the past year about what we've shipped and what we will ship. We've been asking them what was good and what was bad," Khalidi said.

When Microsoft surveyed current and potential Azure developers earlier this year about the features they'd most like to see, lower pricing was the No. 1 request. Microsoft hasn't introduced a cheaper entry-level Azure tier (so far), but it has introduced a couple of new free trial programs.

But with the Year 2 emphasis for Azure on enterprise customers, Microsoft is planning to focus on other kinds of features in the coming months, Microsoft will be rolling out a test program for the VM role capability the Redmondians first discussed last year to make it easier for customers to move their existing applications to the cloud.

"We're also now paying more attention to integrating with on-premises servers," Khalidi said. That means Project Sydney, Microsoft's coming IPv6 secure-networking technology that goes beyond the connectivity provided today by the service bus in Windows Azure AppFabric. It also means more  functionality around network monitoring, integration with existing tools and processes, he said. The idea is to raise the level of abstraction around things like configuration management, patching, and network plumbing, he said, while keeping the cloud infrastructure generic enough to support multiple development languages and tools.

"It all hinges around operation and management," Khalidi said. Microsoft's premises is "if you want to build the cloud, you better know how to run the cloud."

Microsoft itself is the guinea pig for a lot of these new cloud technologies. Microsoft's CIO Tony Scott told me recently that Microsoft's plan is to be running 85 to 90 percent of its own internal apps in the cloud before this decade ends. In some cases, that means rewriting existing applications to run on Windows Azure; in others, it means moving employees off on-premises Exchange Server to Exchange Online.

When the Red Dog team needed to test Azure not so long ago, members knew better than to approach any of Microsoft's own IT teams about dogfooding. But these days, the perception is "we've crossed the line regarding trust," said Senior Vice President Amitabh Srivastava.

More and more of Microsoft's internally-facing apps are running on Windows Azure. And "all of the new services from the company are being written for Azure," Srivastava said. That means everything from new gaming services, and Docs.com, to Bing Twitter, and forthcoming Windows Phone 7 cloud services. Srivastava said Microsoft is "in the process" of moving its Business Productivity Online Suite (Microsoft-hosted Exchange, SharePoint, Communications and Live Meeting) to run on Windows Azure, but wasn't ready to provide a timetable as to when that migration will be finished.

Not every Microsoft product is going to be moved to Azure, Srivasta acknowledged. Some older Microsoft applications won't ever go to Azure, nor should they, Microsoft officials said. The same is true for customers' applications: Some applications are so old or so customized that moving them to the cloud would be more trouble than it's worth.

Balance is going to be the watchword for Azure in the coming year, as both Microsoft and its customers seek the right balance in the on-premises vs. cloud mix.

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