Microsoft looks to cloud to open new windows

After years of hesitation, Microsoft is finally ready to take a big leap into the world of internet-based computing.

That, at least, has been the message for much of this year from senior executives, including chief executive Steve Ballmer.

The wraps are set to be taken off at a conference that the company is throwing for software developers in Los Angeles that starts on Monday.

Depending on what it has up its sleeve, Microsoft's move could propel it into a new internet-based approach to computing that has become all the talk of the tech world.

Known as "cloud computing", this involves a greater centralisation of processing power and information storage in large networks of datacentres.

Rather than relying on computing power from corporate servers or desktop PCs, applications and services created in this new "cloud" are delivered over the internet and often accessed through a simple web browser.

If Microsoft fails to lay out a compelling plan for how it will adapt to this new world, however, it would add to a nagging concern among investors and customers that the company is falling behind in the biggest transition to hit information technology in years – and could further open the door to rivals.

"The market is going to look for something big," said Frank Gens, a technology analyst at IDC.

"If they do it in dribs and drabs, if they come out with a half-hearted 'cloud' deployment, it will open the way for IBM, or for Amazon and Google."

The software company has already hinted at what it has up its sleeve.

Mr Ballmer recently promised that next week will bring an "operating system that runs in the internet" – something he dubbed "Windows Cloud".

The clear message: having dominated the PC-era of computing, Microsoft believes it is now ready to move to a new arena.

Microsoft's attempt to reposition its core software reflects a broader change that is forcing all the big tech companies to rethink their approach.

"Platform shifts like this come along every 15 or 20 years," said Sean Poulley, vice-president of cloud services for IBM's software division.

Tech executives argue over how new this trend really is or how quickly it will take hold, but generally agree on its significance.

In the consumer world, advertising-supported internet services like those offered by Google have already won a big following.

Corporate IT departments, which account for the lion's share of the tech business, have started to inch towards a similar approach.

About 4 per cent of IT budgets are currently spent on the business applications, infrastructure software, servers and storage technologies that support cloud computing, according to IDC.

But by 2012, with the share up to 9 per cent, spending on this new approach to technology will account for a quarter of the annual growth in technology spending, making it an important new market for the entire industry.

Much of the attention around cloud computing so far has focused on services, such as Google's online word-processing service or the corporate applications from Salesforce.com.

Microsoft's announcement next week, however, will shift the focus back to the guts of the technology behind this shift: the infrastructure of datacentres that supports it, and the software "operating system" that supports online services, in much the way that the current Windows PC operating system supports applications that run on a PC.

The scramble to win a piece of this new market is in its early stages. "There will be a number of years when there will be a lot of competition and confusion," said Nick Carr, author of The Big Switch, a recent book about the coming transition. "Over time, I think it will resolve to a small number of platforms."

Big IT suppliers like IBM on the one hand, and internet companies like Amazon have already dipped their toe in this water.

As the technology industry's pre-eminent "platform" company, Microsoft's promised move has attracted considerable anticipation.

The biggest question that has hung over Microsoft, and the one to which next week's event may provide an answer: how far, and how fast, will the company push as it reorientates its business around the web?

This is largely an economic decision.

Microsoft's current highly lucrative business relies on sales of PC and server software, mainly to business customers.

If these customers turn away from that computing approach and instead buy services delivered from the "cloud", often at low monthly subscription rates based on how much they use, it could undermine the company's core business model, said Mr Gens.

To compensate for that, Microsoft will have to run fast to create new markets for cloud-based services, for instance among small businesses and consumers, as well as in emerging markets, he added.

Published by: Richard Waters

Published 23rd October, 2008

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