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A diagram, by Steve Ballmer, Microsoft’s chief executive, of its cloud computing strategy

By annie shum | March 21, 2009

Steve Ballmer_Cloud Computing Strategy Diagram

    Steve Ballmer Maps Microsoft’s Cloud-y Future

Look at the picture above. It’s an original Steve Ballmer created before my eyes on the wall of a conference room here at The Times. Simple, isn’t it?

Well, that’s the point that Mr. Ballmer, the chief executive of Microsoft, was trying to make when he drew it. I was talking to him about Microsoft’s plans to offer companies cloud computing services — software that will run on Microsoft’s new network of big data centers. As I learned about the Azure system, Microsoft’s new cloud operating system, I started to wonder if it is overly complex. I asked if Microsoft was risking taking on too much, as it did with Longhorn, the operating system rewrite that led to the ill-fated Windows Vista.
“It’s not anything like Longhorn,” Mr. Ballmer said. “And it’s not really that complicated.”

He jumped up, grabbed a marker and drew a big black rectangle divided into smaller rectangles on the white board. “This is what we look like in the data center,” he said. He was referring to all of the software Microsoft currently sells to run on corporate servers and the tools to develop them. That currently is a $13 billion-a-year business for Microsoft (22 percent of its total revenue) and its fastest growing segment. All of those products, Mr. Ballmer said, are being rewritten so customers can run them on Microsoft’s computers in addition to their own. “Anything that has been a server needs to be a service,” he said.

So in the center box he wrote “Windows Server”—the company’s core product for data centers. “Windows Server becomes Windows Azure,” he said. That is going to be a service that will let companies build applications to be run from Microsoft’s data centers. The next block up represented SQL Server — Microsoft’s database product. “I’ll bet by the time we’re done, if I win, this will be called SQL Azure,” he said, implying a bit of a branding debate. Nearby were boxes for Microsoft’s other server products — Exchange for e-mail, SharePoint for collaboration, etc.

The trapezoid at the very top of Mr. Ballmer’s picture represented Office and other PC software products that it sells to big companies, much of it meant to interact with the server software, like Exchange. As he has before, Mr. Ballmer insisted that these PC programs are not all going to be replaced with Web sites, like Google Docs or Gmail. “Everyone says ‘You have to run in a browser.’ That’s nonsense,” he said. “When you run in the browser, you are not running HTML, you are just downloading code to the browser instead of downloading code to the PC.”

What is important, Mr. Ballmer argued, is giving Microsoft software the ability to use the Internet as needed. For example, corporations will be able to start their own social networks to enable employees to work together better. You’ll use this network from within Office.

He also suggested that the move will increase Microsoft’s earnings from corporate services. That’s because it will be able to charge both for the software itself and Microsoft’s service to operate that software on its own machines. The company’s costs will rise and its profit margins will fall as it builds out its data centers. Software, after all, has remarkable margins because it doesn’t really cost anything to deliver an additional office license to a corporate client. But Mr. Ballmer said that Microsoft will still come away with more dollars in profit for every worker using its cloud-based services than it does from software. “Shareholders don’t get fed by percentages,” he said.

So far, little of this is actually making money for Microsoft. It started selling the early version of cloud-based Exchange and SharePoint services last year. And it is testing its new systems with big companies including Coca-Cola Enterprises and Nokia. But Mr. Ballmer said he didn’t think Microsoft was behind its potential rivals. “This is all so early,” he said. “It’s early for Amazon. VMware is just barely there. We’re barely there. Google isn’t there yet.”

Most of these companies don’t have much experience selling to big companies, he said. “It took us 10 years to establish our enterprise capability and this company, Google, hasn’t really begun to focus,” Mr. Ballmer said. “We understand what the enterprise needs: security, compliance, archiving.”
That’s why I keep wondering about the scope of what Mr. Ballmer is trying to do. Azure and the related products are meant from the start to have all the features that a multinational company might need to run sophisticated applications. His picture may well look simple to chief information officers who see in it a mirror of the software they already buy from Microsoft.

I said one more time to Mr. Ballmer that his approach seemed much riskier than that used by Google and Amazon, which can start by offering simple services and then can build them up over time. Mr. Ballmer replied he was quite confident that Microsoft’s “story is right.” He added, “We are taking the complexity out, not the capabilities.”

March 20, 2009, 11:40 am By Saul Hansell

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