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Posts Tagged ‘Microsoft

Everyone suspected that Windows Azure was not a blazing success. Now the official stats seem to suggest that it is pretty much a failure.

Microsoft does not tell the exact number of users it has on their cloud platform – Windows Azure, however a couple of day ago we got the latest vague estimate from the company. Quoting Mary Jo:

“On May 8, Microsoft Corporate Vice President of Azure Marketing Bob Kelly provided Merrill Lynch Technology Conference attendees with another tally tidbit. Kelly said Microsoft now has “high tens of thousands of customers” for Windows Azure.”

That was it, so now let me try to interpret what we have heard:

  • I assume that “high tens of thousands” means 50,000 to 100,000 customers,
  • Is that for paying customers or does that include free ones? I assume that if they were paying – Bob would have told us so,
  • Does that include Microsoft’s own teams? Probably, yes. Microsoft teams traditionally view other teams within the company as “customers”,
  • If I have a team of developers working on a project – do these get counted as 1 customer or multiple customers? If everyone is counted the number would have to be divided further. I would assume that the answer is 1 – otherwise, considering that SaaS development and operations are team efforts, the resulting number would get too small.

Now, let me be straight on that, if these assumptions are right, this is a very small number for a platform that was publicly launched in October 2008.

Just to put that in perspective, the company for which I work now – Jelastic (Java PaaS) – launched public beta in October 2011 and last month announced 15,000 signed-up users (including free, trial and beta).

As much as I love our marketing team, the marketing resources that we have are minuscule compared to that of Microsoft, so considering all the efforts that Microsoft made touting Azure everywhere and all the .NET developers their marketing can reach – Bob Kelly’s number is incredibly low.

The previous datapoints that Mary Jo quotes are in line with the current number:

“In 2010, the Redmondians said they had 10,000 Azure customers. In 2011, it was 31,000. (Microsoft officials declined to say if any of these were Microsoft users and how many were paying customers.)”

I have a lot of friends at Microsoft and a lot of sympathy toward the company, so I really hope that some of the assumptions that I made are wrong. If so, I think Microsoft should be more transparent about the way they count “customers”. Giving the number and then letting everyone make their best guesses on how it was counted – is a very bad tactics. People just assume the worst case scenario and this damages, rather than improves the company image.

 

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Don’s recent attempt to look at financials of 10 publicly traded “cloud” companies got me willing to expand his research to a bigger picture.

After all, limiting the scope to 100% cloud companies really skews the charts to “Salesforce.com and everyone else” leaving such cloud juggernauts as Amazon and Google out of the picture.

As Don notes, Salesforce.com is doing extremely well: in Q1 2011 the company demonstrated 34% year-over-year growth rate and made $504 million in revenue. Their 2010 revenue was about $1.66 billion.

Companies like Google and Amazon are indeed much harder to analyze. Neither of them discloses cloud-related revenue which sort of vanishes in the grand scheme of core business such as respectively online advertisement and retail.

In this blog post I decided to have a look at where these two cloud businesses stand.

Amazon

In August 2010, UBS Investment Research estimated that Amazon Web Services were on track to make $500 million in 2010 (up from $275 mln in 2009), and $750 mln in 2011 (out of total $44 bln revenue of Amazon as a whole). By 2014 they are expected to get to $2.5 billion.

Profits are estimated to be around $58.2 million in 2010, $100.7 million in 2011.

As a side note on the Infrastructure as a Service space, Rackspace is considered to be number 2 cloud provider and they are way behind Amazon with target revenue for 2011 set to $100 mln (for cloud services).

Google

Google Apps is Google’s core subscription cloud service, and again a small fraction of the total company’s revenue (and with Android’s success no longer the most cherished ‘secondary business’ either).

The latest interview with Google Enterprise (which includes Google Apps) boss – David Girouard does not say much:

3,000 business are moving to the suite each day, and over three million have moved since its debut in 2007. But it’s unclear how much revenue Google is generating from subscriptions. All we know is that it’s under $1bn a year, less than four per cent of the company’s overall revenue. The aim, however, is to create a multi-billion-dollar business – in the near term. “Not a decade from now,” Girouard said, “but within a few years.”

Obviously ‘under $1 billion’ is a huge range.

A year ago, in May 2010, Nikesh Arora, president of Google’s Global Sales Operations and Business Development provided more detailed information:

First of all, back then the number of customers was one-third lower: “There are 2 million small businesses that have signed up”.

And secondly he provided a date estimate for reaching the $1 billion mark: “In perhaps three- or four years, I hope it will be more than a billion dollar revenue stream.”

With that kind of growth, to get to a billion dollars in 3 years, Google Apps need to be making  $300 million in revenue a year at the moment. On the other hand, when Google Apps were claiming 1 million users in early 2009, their revenue target for the year was $40 million. So with 3 times more users today, they might very well be at the 3 times the revenue – $120 million a year for Google Apps. My guess, is that the broad range ($120-$300 mln) might be related to them including or excluding advertisement revenue coming from free Google Apps accounts.

Anyone else?

I am actually quite impressed with how revenue of Salesforce.com compare to cloud businesses of Amazon and Google.

For now I would probably just limit the analysis to these 2 vendors. Microsoft is trying hard to get into this business with their Office 365 and Windows Azure launches. However, to be fair to the company I would probably wait another year before discussing their financial performance.

And that’s just for the software vendors. IBM‘s CFO Mark Loughridge claims that cloud services will generate $7 billion in revenue for his company by 2015, and I am pretty sure that hardware vendors are not losing money on shipping servers to all the new cloud datacenter either.

Have I missed any of the big players you would have expected to see in this analysis? Let me know.

With the recent changes in the leadership of one of Microsoft’s key business units – Server and Tools – from Bob Muglia to Satya Nadella one can’t help speculating what this means for the business unit and how it will affect Microsoft’s cloud strategy, specifically Windows Azure – Microsoft’s platform as a service.

Here’s my uneducated guess based on the assumption that given a new task humans tend to use the same approaches which worked well for them last time, and that Satya definitely got this post as a recognition for successfully rolling out Bing and transforming Microsoft’s search business from nothing to a competitor really frustrating Google.

Here’s what I think Satya will bring to Microsoft’s Server and Tools Business:

  • More focus on online (Azure) than on Windows Server: Bob Muglia made Windows Server business a success, this was his kid, while Windows Azure (one could argue) was kind of a step-child, imposed on him and added to his business during a re-org. Satya will likely feel much different: for last few years he has been “living in the cloud” leading Bing, and Steve Ballmer very explicitly made lack of cloud focus the reason for changing the business unit leadership.
  • Compete against the market leader: Bing clearly was developed to compete against Google. I guess this means that now Azure development will become aggressively anti-Amazon.
  • Acquisitions and partnerships: so far Azure has really been a ground-up effort by Microsoft engineers, Bing team tried to buy Yahoo, and when this did not work hired a lot of top talent from Yahoo and finally essentially acquired its search and ad business. Satya was directly involved in these efforts. So who is a runner up in IaaS business who Microsoft could acquire to get more visible in that space? Rackspace? Savvis? Although, one could argue that search share was more relevant in search advertising business in which the big get bigger (why even bother advertising with small players?) and this advantage of scale is not as relevant in hosting, so acquisitions might not be as effective. We will see…
  • Not sure if Azure appliance emphasis will persist: Azure appliance made a lot of sense under old leadership. Server and Tools Business knows how to sell to enterprises, so let’s turn Azure into an appliance which we can sell to our existing biggest partners and customers. Will Satya feel the same? I don’t think Bing folks were paying much attention to Microsoft’s search appliance strategy leaving this all to SharePoint/FAST and concentrating on pure cloud play…

There were speculations after Ray Ozzie left that Azure might get de-emphasized – after all Azure was one of Ray’s pet projects. With Satya’s appointment, I would say that we should expect Azure to only gain priority at Microsoft. We’ll see how applicable will Bing experience be for making Windows Azure a top player in the cloud platform space.

Burgeoning application stores satisfying any possible consumer need seem to be the number one reason for the incredible success of products like iPad tablets and iPhone and Android smartphones. What is it that does not let Microsoft provide the same application distribution for Windows consumers? Surprisignly, it increasingly seems that Microsoft has all the technology it needs and it is a matter of just connecting the dots rather than dramatically changing the way that the operating system is designed.

Let’s see of what it would take to get a Windows Marketplace rolled out. There is actually not that much involved – Microsoft is almost there:

1. Popular platform – it is the exposure to consumers that makes marketplaces attractive to developers. There are more applications created for iPhone and Android than for, say, Palm WebOS simply because there are more iPhone and Android users so a bigger addressable market. With the 91%+ marketshare that Windows still enjoys – I bet you can put check for that one.

2. Developer community and tools – again – clear check here: there are many .NET developers out there and Microsoft’s development tools such as Visual Studio are great and spawn all groups of developers from enthusiasts who can download Express edition for free to big teams which can get all the high-end features one can think of.

3. Marketplace application or portal – you know the actual site with stars, reviewers, popularity index, ability to buy an application, application submission process and so on. Microsoft clearly did not have this a year ago – but guess what – now they do. Windows Phone 7 Marketplace is launching and all the technology and processes used there are going to be totally applicable for any application store. Another check.

4. Application and data isolation – this is probably the hardest one. Windows was not designed with portable applications in mind, and if you really want applications to be easy to find, install, use, upgrade and remove you really need each application to be self-contained. Each application on iPad or Android comes with all it needs, can self-update and can never affect any other installations.

Windows on the other hand was designed as a file-oriented operating system in which you have the files: some with data such as your pictures or documents and some with with executable code – and all of them, as well as application and user settings in the Windows registry – are shared among applications and introduce potential dependencies and ability to negatively impact the operating system and other applications.

So is Windows hopeless? Not at all! Microsoft actually owns application isolation technology it acquired back in 2006 (more than 4 years ago!) from SoftGrid – called Microsoft Application Virtualization or App-V. It makes all applications totally isolated from others, not affected by any compatibility issues, easily upgradeable and removable. And it even natively supports streaming of the application packages from network. So what is the reason why it has not revolutionized the way we run applications on our PCs?

Seems like the Microsoft’s size and org chart are the answers. App-V is part of Systems Center (Microsoft’s division selling management tools to enterprises) and not Windows client OS. And it is not free either – and even enterprises only get it if they buy Microsoft Desktop Optimization Pack or Microsoft Application Virtualization for Terminal Services.

Seems to me that if Microsoft really wants to fight the iPad and Android tablet battle and not let Windows get marginalized to professional workstation use only this needs to be changed. App-V should be made a standard component of Windows 8 and App-V package creation tools standard part of developer tools.

That, in combination with a more touch-oriented graphical user interface and nice hardware from partners, will immediately make Microsoft big in the consumer tablet market – which seems to be the consumer PC market of the future.

Come on, Microsoft! You are almost there. Just make the teams talk and make it happen.

private-cloudMaybe not just yet unless you are an extremely large hosting company or enterprise with big IT and research and development (R&D) budgets.

To re-cap, this week at its Worldwide Partner Conference (WPC) Microsoft announced that together with their hardware partners they will start offering (some time later this year as a limited release for folks like Dell, HP, Fujitsu and eBay) Azure containers basically giving others the ability to run pretty much what Microsoft is running in their own public Windows Azure cloud datacenters.

This is an important move from Microsoft which they kind of hinted in the past and something we expected them to do back in 2009. Microsoft is not the only hosting company in the world, and there are governments and enterprises who – for security and other reasons – are continuing to invest in their own datacenters – these are big markets which Microsoft wants to address and not let go to VMware and other competitors.

However, the biggest drawback which all observers seem to be missing is that while Azure technology stack is similar to regular Microsoft Windows/IIS/SQL/.NET stack, it is not completely identical. You just cannot take an existing Windows Server application and point it to Azure. Even Microsoft’s own flagship server applications such as Exchange, SharePoint and Dynamics CRM and ERP systems do not run on Azure. Applications actually have to be ported to Azure which is certainly doable but does require R&D efforts on the side of application creators.

Today the set of applications available for Azure is so limited that I can probably count them with my fingers: Microsoft ported their SQL database, SugarCRM just released an Azure version of their tool, Quest Software has a set of cloud-based management services for administrators, and FullArmor has a beta of their endpoint management tool.

Maybe there is one or two other application that I missed – but you get the story. As of today, even if you get an Azure container (and you actually have to buy one – you will not be able to re-purpose the servers you already have) – there is not much you will be able to run on it.

For eBay this maybe worth it – they have their own custom-developed application and big budgets for developing and improving it. For most other folks out there – applications need to come first and make private Azure valuable enough. I am not saying that this will not happen – folks in Redmond are doing their best to recruit their partners to form the Microsoft cloud ecosystem – but we are definitely not there yet.

This Wednesday was probably the first day on the (potentially long) path to Adobe Flash decline: the most popular video site out there – YouTube – started offering videos in Flash-less mode for browsers which support HTML 5 and h.264 video codec.

This means that today the option is available for Chrome and Safari. Then at some point they will likely add the Ogg codec and support Firefox, or help Firefox get native h.264 codec support. And then IE9 ships and all latest browsers will play videos natively. Flash will no longer be required for video, and why would anyone want it then?

The whole story of Flash in retrospect is going to be an interesting one. Adobe had 95-98% penetration in PC market for years and could not expand its adoption beyond video. They tried: kept improving the tools, added offline, even tried open-sourcing it, and getting to the mobile market – but Flash has not become an application platform – video is what most people use it for, and this exact segment is now under the HTML 5 fire.

Can anything help Flash now?

If Flash failed, does Microsoft’s Silverlight have a chance? So far they are basically following Adobe’s path of pushing it to consumers via video streaming websites while beefing up the developer story. As far as I understand, Microsoft’s thinking is that they can succeed because their development story is much better and their development community much bigger.

I guess we’ll have the answer within next couple of years.

Ben Riga posted a video recording with a fairly detailed discussion we had at Microsoft PDC about Quest OnDemand (Quest’s Systems Management as a Service offering):

In that discussion we have covered quite a few topic which I hope you will find interesting:

  • What is Systems Management as a Service and how it is different from all other *aaS offerings,
  • How SaaS can increase market penetration,
  • Quest strategy in SaaS vs. on premises products,
  • Why and how we picked Windows Azure as our platform,
  • Which code from existing on-premises products could be re-used and which had to be developed from scratch,
  • Some details on the product architecture including security and multi-tenancy.

One thing I could not help noticing is how the UI of the service itself changed between this shooting in November and the way it looks today. I guess this is a testimony of how SaaS model lets vendors innovate fast.

Check out the video here.


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The posts on this blog are provided “as is” with no warranties and confer no rights. The opinions expressed on this site are mine and mine alone, and do not necessarily represent those of my employer Jelastic or anyone else for that matter. All trademarks acknowledged.

© 2008-2012 Dmitry Sotnikov

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