Essential Guide

Browse Sections


This content is part of the Essential Guide: Legacy IT vendors transform to survive the mobile, cloud evolution
News Stay informed about the latest enterprise technology news and product updates.

Microsoft's cloud initiative, streamlined transition gives hope

Microsoft's cloud transformation to a mobile and services company may be exciting, but can it retain its bread-and-butter enterprise IT customers?

Microsoft's cloud initiative and transition into a streamlined organization continues, but whether enterprise IT will commit to all of the software giant's changes remains to be seen.

Windows 8's radically new interface alienated many customers -- a problem the company continuously battles. The majority of traditional enterprises are keeping Windows 8.1 at arm's length for a variety of reasons, including satisfaction with Windows 7 or a lack of support so far for business applications.

"They got pretty beat up around the whole Windows 8 transition," said Bob O'Donnell, chief analyst and founder of TECHnalysis Research LLC in Foster City, Calif. Right now, there is a big question mark over Microsoft's future vision, he said.

The big Windows 8 enterprise adoption challenge is the lack of a native touch-based Office suite, industry analysts said.

"The other shoe yet to drop is Office for the multi-touch developer platform," said Rob Helm, managing vice president of research at Directions on Microsoft in Kirkland, Wash.

Microsoft needs to show it can deliver the touch-based Office and use it as a showcase for what Windows 8 can do, he added.

For a while, Microsoft tried to be Apple, and that's not who they are. They've gone away from that and now listen to the customers.
Kevin SchwartzCTO, Clear Creek Independent School District

Some end users have overcome the bitter initial taste of Windows 8 and deployed the operating system.

"Microsoft is in the same position that Coke was," said Kevin Schwartz, in League City, Texas. "Coke tried to change the formula after 99 years and had to change it back. It's not what people wanted."

Microsoft is reportedly working on Windows 9 and in the spring is expected to update its Window Phone OS with more enterprise-grade features, negating the need to deploy Windows 8 in the short term.

Microsoft's push to the cloud

Meanwhile, cloud-based services have proven lucrative for Microsoft. The company's Office 365 is on a $1 billion annual revenue run rate, and businesses continue to adopt the subscription model. The company aims to deliver more cloud services and sell Azure to businesses.

More than 15% of Microsoft's Office revenue stemmed from its consumer Office 365 Home Premium version during the last quarter of 2013, but its commercial business revenue was not disclosed.

Part of the reason for Office 365's success is that the way end users create and consume content has changed. The cloud, tablets and smartphones allow workers to access their data 24/7 using Web-based apps from non-Windowms devices.

As a result, many industry watchers say Microsoft should de-emphasize its focus on Windows, though that's unlikely.

"Everything should be OS-agnostic," said Imran Shaikh, program director of IT at Vista Equity Partners in San Francisco.

Shaikh also noted that he was pleased with Microsoft's direction for Office 365 applications in the cloud and Azure. "It's taken a while to get there," he added.

Recently, Microsoft said it would support the Open Compute Project, in which it will offer a reference design for server hardware. In December, the company also launched the Cloud OS Network, a consortium of 25 providers that will deliver services using Microsoft's cloud platform.

"Microsoft has already taken some promising steps in bringing Azure into Windows Server with an Azure package," Helm said. "Microsoft needs to improve the continuity [for] customers [on what] it delivers in their own walls and the software it runs in their own data centers."

With Azure tied closely to on-premises Windows, Office and SQL Server workloads, there is a clear roadmap to deliver those services in a hybrid cloud model at a measured pace, said Peter Ffoulkes, research director for servers and virtualization and cloud computing at New York-based 451 Research.

Now, the challenge is to expand the company's reach to new markets beyond its established franchises -- which the experience of new Microsoft CEO Satya Nadella will help with, Ffoulkes said.

Microsoft cloud users require security, control

One hurdle is cloud perception.

Some customers aren't ready to bet their entire business on the cloud just yet, citing concerns over security and issues such as unreliable network connections.

David Driggers, supervisor of desktop systems at Alabama Gas Corp. in Birmingham, Ala., has deployed a private cloud. Driggers said he has concerns about public cloud services, where his data resides and who has access to it.

"If your Internet connection goes down, you're out of luck," he said.

Although Nadella promises to give IT shops the control they need to manage their environments, Microsoft's partners are keeping a close eye on whether the company can deliver on its commitments.

Microsoft's directive that it will deliver software updates and upgrades at a faster pace must be managed well for its channel and end users.

"Microsoft has to take into account the rapid change that has happened with all [its] end users and really make a clear roadmap for the next two to three years on where these products and innovations are going to take place," said Mike Hogan, general manager at En Pointe Technologies, an IT solutions provider in Gardena, Calif.

With the rapid changes from mobile and cloud computing, enterprises won't want to enter a three-year agreement unless they understand Microsoft's three-year roadmap, he said.

Microsoft needs to be open and provide more information about release cycles so that IT knows what to expect as a buyer, said Chris Silva, director of enterprise mobility management research at Gartner Inc.

The relationship between Microsoft and its enterprise IT customers is something the company needs to protect in its quest to be an innovator and not just a follower.

Microsoft's technology can move organizations to be more productive, efficient and cost-effective. But the movement toward cloud computing integrated with on-premises technology "puts a lot of pressure on IT and puts jobs at risk," Helm said.

Holding the customers' hands

Meanwhile, IT pros are watching Microsoft very closely, keeping their expectations high.

"For a while, Microsoft tried to be Apple, and that's not who they are," Schwartz said. "They've gone away from that and now listen to the customers."

Schwartz noted a recent example of a mass deployment in which 1,100 devices were handed out to students in 30 minutes. Students could not create their Microsoft accounts because of a cap limiting the number of accounts that could be opened in one day.

"Microsoft couldn't imagine why anyone would need to create 1,000 accounts in one day," Schwartz said. "On the same day, they identified our situation and took care of our needs. I think the responsiveness might be better than it's ever been."

However, there still is room for improvement.

"I want to see them improve their Microsoft store for apps and evolve their user accounts and integrate them more seamlessly across the different platforms," Schwartz said. One account to deal with all of Microsoft would be terrific, he added.

Microsoft declined to comment for this story.

Dig Deeper on Unified endpoint management

Join the conversation


Send me notifications when other members comment.

Please create a username to comment.

On what basis would you say "cloud-based services have proven lucrative for Microsoft?" First quarter revenue in the Online Services division was $872 million, costs were about 1.2 billion, and they lost $321 million. It's true that's better than the previous year, where they lost $364, million but losing more than $1 billion a year on a service would not be considered lucrative for most companies.
Microsoft has changed the financial reporting structure so it's harder to make year over year comparisons but during its fiscal year 2Q 2014, commercial revenue (which includes commercial cloud services) was up by 28% to $1.78 billion while in FY Q1 2014, it was $1.6 billion. There is revenue growth but Microsoft needs to continue making investments in the infrastructure to support its commercial customers as they move to the cloud. Over time, Microsoft will become more profitable in this area as the company continues its transition and they gain more traction in the cloud.