Microsoft's Cloud Power Struggle

 |  Includes: DVMT, JNPR, MSFT
by: Dana Blankenhorn

The move of Bob Muglia to Juniper (NYSE:JNPR) is just the latest example of a veteran Microsoft (NASDAQ:MSFT) executive jumping ship, ostensibly to run “cloud strategy” somewhere else.

Juniper sells networking gear. The company's shares have fallen by one-third since April, and it's had to fight off a mini-tender offer, even though its revenues and earnings have shown strong year-over-year growth, and despite analysts from Goldman Sachs and J.P. Morgan pounding the table for the stock.

Muglia had been heading servers and tools for Microsoft. But his own email on that departure emphasized his excitement over clouds, an area he didn't manage in Redmond. Juniper already has a lot of ex-Microsoft people who are building tools on Juniper's Junos operating system.

Juniper's take on clouds is that they require scaled networking, which is at the heart of its business. Clouds should indeed make Juniper more valuable, at least over the near term.

What seems to have gone on at Microsoft over the last year is a power struggle over cloud strategy, with the losers in that struggle, like Muglia, being given the chance to claim cloud credibility on their way out the door.

What won that struggle?

The cloud strategy Microsoft has chosen was described at its recent partners conference. It's an “embrace and extend” approach that puts cloud capabilities into its servers for private clouds, pushes cloud services on smaller customers, and merges the cloud into existing product lines like Office, Kinect and Skype.

Microsoft is saying that clouds are no big deal, that they don't break existing relationships, that they're a capability customers can evolve toward in their own time.

The execs who left, like Muglia and Amitabh Srivastava, now at EMC, view clouds as a fundamentally different way of computing, much more network-based than anything that has gone on before, which will move companies to spend a lot less on software and demand a lot more service.

If you believe the former is the case, put your money on Microsoft. If you think it's the latter, bet on EMC and Juniper. The correct answer should become obvious by this time next year. We'll know then whether Microsoft or its exes won the power struggle.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.