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Microsoft's Cloud Economics

| by James Vastbinder Follow 0 Followers on Nov 23, 2010. Estimated reading time: 1 minute |

Two weeks ago Rolf Harms and Michael Yamartino of Microsoft published a whitepaper entitled The Economics of the Cloud. In the whitepaper, they predict a seismic shift within the IT world away from client/server to public clouds, ala Amazon AWS and Microsoft Azure. They begin with an analogy that compares cloud computing to the horseless carriage which rings similar to the .NET analogy years ago of the standardization of the railroad industry in the late 1800’s. 

Yester-year analogies aside, the target audience for the paper is IT decision makers and business managers. The paper provides significant insight into the impetus behind Microsoft’s investments in Azure, Office 365 and Windows Live technologies, including their willingness to cannibalize their current business model in a move away from their Software + Services theme in times past. In the past year, Microsoft has re-tooled its Developer and Platform Evangelism business group, previously focused on .NET and server technologies, to focus keenly on Azure and getting the message out to developers and Independent Software Vendors worldwide.

In the cloud economics whitepaper, Rolf and Michael identify three areas for significant economies of scale:

Supply-side Savings – Large scale datacenters which lowers the cost-per-server. 

  1. Cost of Power
  2. Infrastructure Labor Costs
  3. Security and Reliability
  4. Buying Power

Demand-side Aggregation – Aggregating demand for computing increases utilization rates and lowers variability of usage.

  1. Randomness
  2. Time-of-Day Patterns
  3. Industry Specific Variability
  4. Multi-resource Variability
  5. Uncertain Growth Patterns

Multi-tenancy Efficiency – Lowers cost-per-tenant and application management. 

  1. Fixed Application Labor
  2. Fixed Component of Server Utilization

Reviews of the whitepaper have been scant and no other cloud technologies or vendors are mentioned which is indicative of the strategy Microsoft will take, providing solutions along the PaaS or SaaS model. This means partner opportunities are available only at the application and data levels of their maturity models. 

Tim Negris postulates: 

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.

The holy land of cloud computing is to provide leaner, highly flexible and more efficient information management all while delivering enterprise software capabilities at commodity level pricing, the word from Redmond seems to be clear, public clouds are the long term bet and Microsoft is in the game to win.

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