Sizing up the public cloud: Microsoft bets on the hybrid horse


One of a series of articles analyzing the strategies the largest public cloud vendors are using to court enterprise customers. Previous installments looked at Amazon Web Services, IBMGoogle and Oracle.

While many cite Amazon Web Services’ early start as one of the main reasons behind its emergence as the leader in the public cloud, the fact that it had no legacy business to protect also played a part. Unencumbered with an installed base, AWS delivered comprehensive and sustainable cloud-based compute and storage services that were streets ahead of anything else on the market.

But these days it’s a different story, and AWS’ main competitors are gaining ground, finding that the customer base that was once perceived as a weakness is now a strength. The biggest IT vendors today are developing newer, software-defined and hybrid infrastructure services aimed at what is fast becoming the favored strategy for most large enterprises.

That’s where Microsoft comes in. The Redmond, WA firm might have been late to the public cloud, but it’s already made its presence felt, capturing a 16 percent share of the Infrastructure-as-a-Service (IaaS) market according to Wikibon, second to AWS’ 27 percent share. Microsoft also ranks second in the software-as-a-service (SaaS) market with eight percent – trailing, Inc.’s 11 percent – and third in the platform-as-a-service segment, where its 10 percent share is behind only Salesforce’s 24 percent and AWS’s 16.8 percent, Wikibon says. When lumped together, Wikibon estimates that Microsoft’s cloud business is already bigger than AWS.

These numbers suggest that Microsoft doesn’t even need to catch up with AWS in the IaaS market in order to claim its cloud strategy is a success; according to Wikibon, it already is. Microsoft is dominant in the enterprise data center, and now its goal is to leverage that dominance and rule the world of hybrid cloud with Microsoft Azure.

IaaS market share

IaaS market share 2015 via Wikibon

Embracing the hybrid world

Instead of trying to tackle AWS head on, Microsoft is attempting to build a hybrid cloud platform that enables a combination of private and public clouds to develop, manage and provision a range of IT services, while allowing companies to keep their most critical data on premises.

“Microsoft is more of a hybrid play compared to AWS and Google,” said Rob Enderle, principal analyst at the Enderle Group, noting that Microsoft’s tight integration with legacy IT vendors is one of its biggest advantages. He said Microsoft’s basic strategy is to work closely with other IT firms to package their products in the Azure cloud. Meanwhile, blended offerings are designed to integrate with Microsoft’s enterprise software, rather than being overlaid. As a result, hybrid implementations are easier to implement and manage.

“Azure works well with others, so a packaged solution using your preferred vendor is far less risky and more problem-free,” Enderle explained.

Microsoft is also first and foremost a software company, so its main focus is on building a complementary environment for its applications, said Chris Wilder, practice leader and senior analyst of cloud services and enterprise software at Moor Insights & Strategy.

“Microsoft’s forte is to provide tools that deliver productivity and collaboration technologies,” Wilder explained. “It’s also the only software vendor that can traverse all environments, including public, private, and hybrid cloud services. For example, Office 365 is, and will continue to be, the de facto standard for cloud-based productivity solutions.”

Because of these strengths, analysts agree that Microsoft Azure is well-positioned to become the default hybrid cloud solution for many large enterprises. The company has a considerable advantage in that it already has the kind of access to larger enterprises that AWS and Google can only dream of. As they move to the cloud, Azure is an attractive choice, if not the default one.

Azure’s strengths

Office 365 is rapidly becoming a key demand driver for Azure, said Holger Mueller, an analyst at Constellation Research Inc. “Every enterprise that converts from Office to Office 365 effectively becomes a new Azure customer, and so Microsoft can entice these customers much more easily than AWS or Google can,” Mueller said. “And let’s not forget AWS and Google are both Microsoft partners too, offering Windows Servers and more, which highlights the huge demand for Microsoft-based infrastructure.”

The Azure cloud itself also has some significant strengths that neither AWS nor Google can currently match. For one thing, Microsoft owns the application layer to a much greater degree than its rivals. And unlike many of its legacy competitors, it doesn’t have hardware to sell, said Wilder of Moor Insights & Strategy.

“While the Web has marginalized the operating system, cloud services feeding data to mobile native applications are ruling the day,” Wilder said. “Microsoft is in a unique position to differentiate itself by providing value at the data and applications layer.”

Together with those capabilities, Azure also offers the ability to move loads easily across data centers. Add to that Microsoft’s dominance of on-premises directories with Active Directory, and Azure becomes a no-brainer to its largest customers.

Microsoft has other advantages, too, such as a large developer community that’s already embraced its cloud tools. The new Windows Universal Apps run not only on Windows but also on iOS and Android, give it a unique mobile story. It all adds up to what should be strong appeal for Azure with many enterprises.

Azure’s weaknesses

But it won’t be all clear sailing for Azure. Microsoft was slow to build out its cloud capabilities, noted Constellation Research’s Mueller. That meant the company failed to capture the pole position in cloud mind share in the same way that the “cloud-only” vendors did. More importantly, initial Azure iterations lacked key features like a scalable cloud database and simple, cheap object storage, although it has since begun to address these shortcomings.

But the most pressing concern for Microsoft lies with its partner ecosystem, which is still relatively nascent, wrote Gartner Inc.’s Lydia Leong in most recent Magic Quadrant for Cloud Infrastructure as a ServiceAlthough the company has been aggressively recruiting managed service and professional services partners, many of those partners lack experience with Azure, and this could potentially compromise the quality of the solutions they offer. The Azure ecosystem is also heavily dependent on Microsoft’s existing partner and customers relationships, which may lessen its appeal to non-Microsoft-centric organizations.

Who’s a good fit for Azure?

Still, analysts agree that Microsoft Azure should have a rosy future. Although AWS and Google may be better bets for non-Microsoft users, startups and enterprises that are deploying new applications, Azure remains one of the most attractive options for enterprises looking to adopt a hybrid cloud strategy, especially if they’re existing Microsoft customers.

“Amazon is more effective going directly to line users and bypassing IT, while Microsoft goes through IT,” Enderle said.  “Microsoft wins if IT trusts it and remains strong. But if IT becomes redundant, Amazon wins.”

Microsoft has a vested interest in keeping IT relevant, and it has a good track record of looking after its enterprise customers. “Everybody is already a Microsoft customer,” said Mueller, underlining the huge potential customer base Azure is looking to capture. However, he said Microsoft may find it has to settle for reeling in smaller and medium-sized fish for the time being, while waiting patiently for larger organizations to take the bait.

“The sweet spot for Microsoft is SMBs and small multinationals who can scale through Azure,” Mueller stressed. “When going to very large organizations it already has point solutions like Office365 in place, but not across the board.”

That could soon change, of course. With hardware obsolescence constantly triggering new refresh cycles, Microsoft will find it has increasing opportunities to grab more enterprise loads that were previously running on-premises. Microsoft has so many opportunities, in fact, that Mueller believes it could one day pull even with AWS in the prized infrastructure-as-a-service market.

“So the question is how fast can Microsoft create compelling and mature offerings to have its customer base move to Azure?” Muller asked. “What we have seen is that the ‘new’ Microsoft under Nadella is faster and more pragmatic than ever before.”

Photo Credits: v i p e z via Compfight cc