Who owns the cloud business inside Microsoft?

By Eric Lai, Computerworld |  On-demand Software, Microsoft

To understand Microsoft Corp.'s cloud software strategy, look not just to what the software maker plans to deliver, but how.

For instance, its massive data center investments show the seriousness of Microsoft 's purpose around software-as-a-service (SaaS), however belated it may be.

Or how Microsoft plans to develop and roll out to customers its new cloud software such as Windows Azure, Exchange and SharePoint Online, or Office Web.

Rather than creating a new business division devoted to building and selling its SaaS offerings, Microsoft plans to house each hosted service in the same group as its on-premise counterpart, according to an interview with Bob Muglia , Microsoft senior vice president, at the Professional Developers Conference last week.

For instance, Exchange and SharePoint Online are being built today by a team led by corporate vice president for Microsoft Online, Dave Thompson.

Thompson reports to Muglia, who runs the Server and Tools Business (STB). A $13 billion-a-year enterprise software business in its own right, STB's trademark products include SQL Server, Windows Server and the Visual Studio developer tool.

But do Exchange and SharePoint Online, products that will likely be purchased by line-of-business/small business workers rather than back-end IT managers, fit inside STB?

Muglia doesn't think so. He said that after an incubation period, the two products will be transferred to the Microsoft Business Division, which sell the regular server versions of Exchange and SharePoint today, though he gave no timetable.

Though Office brings in the bulk of the business division's, both Exchange and SharePoint are also huge businesses, worth $2 billion and $1 billion a year, respectively, for Microsoft.

Similarly, Windows Azure, Microsoft's upcoming hosted server platform, is being built by a team under chief software architect Ray Ozzie .

But when Microsoft begins to sell Azure to businesses next year, it will likely be through Muglia's Server and Tools, he said.

It makes sense, Muglia said, because Azure is a lot "like Windows Server in the cloud."

The recently introduced Office Web, meanwhile, is already under the control of the business division.

Critics may say that not housing its cloud offerings under the roof of a single division will hurt Microsoft's agility in the fast-moving SaaS market. But others think this will result in less revenue cannibalization and harmful political infighting inside Microsoft.

"I think it makes sense for the original product group to own the product so it can create a vertically integrated strategy," said Rob Helm , an analyst with the independent research firm Directions on Microsoft. He cited as an example Microsoft's tactic of offering vouchers to Exchange and SharePoint customers that let them try Exchange and SharePoint Online for free.

Helm's main criticism is that Microsoft has too many cloud services today, with an overlap as a result. He cited the example of SQL Server Data Services , Live Mesh , and its Sync Framework.

"How is Microsoft going to resolve this?" Helm asked.

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