Microsoft's Delicate Balancing Act Between Cloud and Data Center

Can Microsoft pull off moving to the cloud without losing customers in the process?

TechEd's focus on Exchange 2010 this week is all about the efficiency gains through improved productivity, lower power consumption (thanks to Windows Server 2008 R2) and decreased storage costs of Exchange 2010. Thank the economy for the focus on efficiency gains. Upgrades like Exchange 2010 will get close budget scrutiny in 2010/2011 and for the remainder of this year.

There's certainly no shortage of new features in Exchange 2010, like speech to text for reading your voicemail, archiving, direct-attached storage, conversation view of email threads, simplified high availability, and improved mobile email features. Exchange is the standard for enterprise email even though Google (and now Cisco "the collaboration company" with WebEx email) would like to change that. Gartner lists Microsoft solidly in the Leaders square of the Magic Quadrant, which is always the safe choice for enterprises. (Magic Quadrants for unified communications and wireless email.)

I'm personally very interested to see how Microsoft's hosted Exchange and SharePoint are adopted in the market. With PDC 2008 coming up I would anticipate some new news about Microsoft's Azure and Online Services. Email is ripe for moving into the cloud rather than managing on premise, especially for medium sized businesses who largely depend on COTS applications and just want a reliable, stable infrastructure without the headaches of staffing an organization to support a mission critical app like Exchange. Fortunately the math is pretty straight forward; cost per user for equipping, staffing and supporting an Exchange infrastructure vs. hosted solutions. Microsoft's made a big bet on online services and I'm curious to see what the take rate will be.

But don't confuse online service offerings from Microsoft with them giving up on on-premise solutions. At the same time we hear about new cloud offerings, like Office Web Apps, Microsoft provides the capabilities for enterprises to host their own Office Web Apps. Same with Exchange 2010, SharePoint, Office, etc. Microsoft's not assuming everyone will race to be in the cloud, and Microsoft doesn't want them to until Microsoft is fully ready for that transition to keep customers with them. Microsoft's straddling both cloud and customer installed offerings, a big challenge to pull off successfully.

It's a interesting balancing act to watch. Move products into cloud offerings but give customers strong reasons to continue using Microsoft products running in data centers and on individual's computers. Using Office Web Apps as an example, the licensing for using Office Web Apps running on an enterprise SharePoint 2010 server is an extension of the licensed Office desktop software, not a standalone license for the Office web version.

Though the focus this week hasn't been on Microsoft Online Services, there are plenty of sessions at TechEd on the topic. It's more likely we'll see a much bigger focus on Microsoft Online Services at PDC 2009.

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