Seeking Alpha
Long only, growth
Profile| Send Message| ()  

While Amazon's (AMZN) AWS is the undeniable public cloud leader and VMware (VMW) the undeniable private cloud leader, Microsoft's (MSFT) Azure can certainly be considered a hybrid cloud leader, at least at this point in the evolution of the cloud as well as Azure.

I was in Redmond last week for a couple of days, and had the opportunity to meet with several Azure teams as well as Mike Schutz, Windows Server and Management GM. From the first moments in front of the Azure execs, it felt like a hungry, entrepreneurial startup. That surprised me.

I've been hard on Microsoft over the years, especially around how it handled its launch into virtualization and its "legacy of hubris," which tends to victimize many of the world's most powerful companies. Microsoft has done something unique and powerful with the Azure team that larger companies frequently have trouble doing: they've hired smart, passionate entrepreneurs who want to change the world. That is how Redmond felt last week: smart people with a mission.

We talked through the accomplishments/leaps made by the team in the last 12 months as well as areas for improvement. I won't dwell on areas for improvement, but rather acknowledge the breadth and depth of how quickly a giant company has made meaningful strides in addressing an untapped enterprise cloud market and why they might, indeed, prevail.

Mike Schutz and I spent perhaps 25 minutes together and he hit the high points of why Microsoft might indeed become a hybrid cloud powerhouse. He set the stage by talking about the rise of mobility and consumerization combined with the rapid growth in network-connected devices. "We are going from millions to billions [in terms of endpoints]," he said. Then he discussed today's steady transformation of the data center into a single compute resource, and how Microsoft is setting the stage for software-driven innovations that will make IaaS an integral part of that single compute resource.

At that point I was convinced that Microsoft indeed had the true hybrid cloud vision, not the watered down "two+ silos with a path" hybrid cloud vision being marketed by vendors not yet ready for what Gartner calls hybrid IT, and being dabbled in by enterprises and service providers who are simply not ready for the transformation.

I asked Mike about VMware and Google (GOOG) specifically, because they are newer entrants to the hybrid cloud race and he had cogent explanations for how Microsoft could prevail over each. Microsoft had strategic relationships with all of the core audiences, from developers to end users and service providers and could create virtuous (and synergistic) cycles between these audiences.

Because Microsoft was also a service provider (mostly complementary and not directly competitive with the emerging cloud providers), it had extensive experience deploying highly scalable and dynamic services at scale to a variety of audiences, and had recently announced (at TechEd) that it would bundle software for services, stacks and portals for free to encourage service provider adoption. Microsoft was at minimum articulating a virtuous cycle message to emerging cloud service providers.

This was a stark contrast to VMware's recent foray into the hybrid cloud via its own IaaS offering (see VMware Crosses the Rubicon Again, and VMware - A Hybrid Cloud Leader?), which at least threatened to be a double-edged sword for service providers.

As the interview closed, Mike also mentioned that Microsoft would start shipping Windows Servers with software that linked to Azure for storage. That took me back to my March article: Will VMware or Microsoft Cash In on Hybrid Cloud?

If VMware could get $2k/year for each server (traditional and x86), that would amount to an additional TAM of $60B based on a three year refresh rate. Yet that would represent a major business model shift and limit the amount of lock-in that VMware would have over its customers operating on its private cloud platform. It could face margin erosion for its core lines.

On the other hand, if Microsoft Azure truly embraced hybrid cloud, it could force VMware to decouple server from cloud virtualization and make the leap to an entirely new operating model. That could be even more interesting, as it would give Microsoft a powerful position offering N+1 app and service in the cloud, for everything from development and testing to failover. Microsoft could trump VMware.

Hybrid cloud also is a lower risk proposition for Microsoft, as well as the opportunity to end VMware's dominance of server virtualization.

Coincidentally, I wrote a blog in the fall of 2008 which was in parallel with Mike's comments (see Recession Induced Network Innovation), albeit from a networking perspective, but which included Microsoft as a key software constituent in the infrastructure 2.0 (a precursor to SDN) triumvirate. Since then, Microsoft has leaped from being the leading software company to a hybrid cloud leader thanks to the rapid maturation of Azure, its software expertise and the credible "virtuous cycle" vision Mike articulated last week.

Last month, I acknowledged VMware as a hybrid cloud leader based on how they discussed the hybrid cloud as a seamless extension of the data center and based on the strength of their enterprise "private cloud" footprint. This month, I'm adding Microsoft to the list of hybrid cloud leaders. The Azure team has its work cut out for it, but they appear to have both the passion and expertise to indeed change the world.

Disclosure: CloudVelocity (my employer) is both an Amazon AWS and Microsoft Azure partner. I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Source: Microsoft's Azure And The Hybrid Cloud Race