Azure

New “cloud-computing” platform, Windows Azure, gives Microsoft access to huge business market

After three years of work, Microsoft Chief Software Architect Ray Ozzie unveiled a wholesale change in strategy Monday.

The Redmond company whose mega-profits derive from software that runs on PCs and server computers, is launching a broad computing platform for a new era of anytime, anywhere access to applications and information over the Internet.

“It’s a complete re-helming of Microsoft’s strategy across the board,” said Lee Nicholls, who tracks Microsoft closely as global-solutions director at technology-services firm Getronics. “We’ve known that it had to happen because the world is evolving and the industry is changing.”

While consumers have enjoyed Web-based applications such as e-mail for several years, there’s a growing business movement toward the Web. In addition to using the Internet as a primary way to interact with customers, corporate technology managers are running more of their applications online — “cloud computing,” as it’s called — to save money and be flexible.

“[T]he systems that we’re building right now for cloud-based computing are setting the stage for the next 50 years of systems, both outside and inside the enterprise,” Ozzie said.

Elements of the platform, called Windows Azure, will compete directly with Amazon.com‘s Elastic Compute Cloud, giving Washington state two front-runners in a fast-growing and potentially enormous new market.

In addition to software development, the region is home to several of the large, power-hungry data centers on which this “cloud computing” model depends.

Ozzie acknowledged the work Amazon has done and other executives talked about opportunities for Microsoft and Amazon to work together.

“I’d like to tip my hat to Jeff Bezos and Amazon for their innovation and for the fact that across the industry all of us are going to be standing on their shoulders,” Ozzie said.

Microsoft is backing Windows Azure with billions of dollars in building and managing a global network of data centers to power its own Internet services, including Web-based e-mail, Internet search and high-traffic Web sites.

A few years ago, Ozzie assigned top technical talent to evaluate those services and build a common platform for them, as well as for the emerging online needs of customers.

In keeping with its traditional strategy of building broad platforms that serve the full spectrum of users, Windows Azure will serve individual consumers, software developers and corporations of all sizes.

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On Azure, software developers can write Web-based applications using their existing skills, while saving costs and risks involved with the necessary infrastructure.

Microsoft will essentially rent space in one of its data centers; the developer won’t have to buy or manage that computing power itself.

A corporation could do the same thing with its applications. Many already are, for certain functions, such as e-mail and customer-relationship management.

Microsoft says it can operate data centers — sometimes called server farms — more efficiently than its customers. This saves customers the cost of hardware and software, as well as space, electricity and staff required to operate a data center.

These globally linked data centers also allow customers to quickly add capacity if demand for an application spikes, and is backup if natural disasters or other interruptions take an individual data center offline.

Jack Wilson, chief technology officer of Bellevue-based Laplink Software, said Azure may save companies like his from building their own infrastructure. It could also help the maker of PC connectivity and migration applications reduce development time.

“As a small company, it offers some nice advantages since we can add our products to these services quickly, therefore helping increase profits,”Wilson said in an e-mail.

There are potential environmental benefits, too.

“How inefficient is it to have 10 companies lined up down Main Street, all running their own server farms at 10 percent capacity?” said Kip Kniskern, a contributor to LiveSide.net, which tracks Microsoft’s online efforts. “We just can’t afford to do that anymore. We can’t afford it monetarily, but we can’t afford it ecologically as well.”

The exact business models — and profit margins — for cloud computing are still emerging. Microsoft is taking an intentionally conservative approach to rolling it out, starting with a technology preview.

And Microsoft is by no means abandoning its highly profitable business of selling software that companies run directly on their own hardware. It’s trying to distinguish itself by offering customers a choice.

Bob Muglia, senior vice president of Microsoft’s server and tools business, acknowledged in an interview that there could be some “revenue substitution” as customers choose a services offering to replace something they were doing with their own servers.

And while Microsoft’s existing online services for business are “very positive” in terms of revenue and profitability, building and operating data centers have a higher capital cost. The exact profit margin associated with services provided through Windows Azure is still to be determined.

“In the overall scheme of things, we still expect to have really good margins out of all of this,” Muglia said.

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