Yesterday’s announcement of Microsoft Azure was largely a statement of Microsoft’s commitment to their Software + Services strategy. There’s more work to be done but it’s hard to deny that Microsoft isn’t taking the cloud seriously.
But the more Microsoft addresses the technology underpinning their cloud efforts the more pressing the questions on their cloud economics come into play. Technology determines what can be done but ultimately it’s the economics that provide the reasons to do it. The closest Microsoft came to providing some insight on the topic was Ray Ozzie’s assurance that Microsoft Azure would be “priced competitively.”
It’s important to note that there are two dimensions to a competitive cloud price. The obvious one is its relationship to direct external competition. But the less obvious aspect is the indirect relationship it has with the on-premise products also provided by the organization. The challenge is how to aggressively compete in the the first area without creating a competition distinction in the second.
Microsoft Dynamics CRM Online is a good example of where Microsoft would like to be on this spectrum. At $59 per user, per month, for their Professional Plus version they’re posing some serious competitive pricing pressure on the likes of salesforce.com, RightNow Technologies and Siebel CRM On Demand. At the same time, pricing is roughly equivalent to what you’d be paying for the on-premise version. From the users standpoint there is no on-premise or Online penalty. And that certainly helps those users considering contextually blending the two different approaches – exactly what Microsoft wants to see in a Software + Services model. Achieving the same dynamics (no pun intended) across the portfolio will not be as easy for Microsoft.
Pricing aside, the most significant component of Microsoft’s cloud economics that still need to be detailed are their service level agreements. Pricing, ultimately, has to relate to service levels and hopefully they will significantly increase the current market standards. Just as important, if not more so, these service levels have to be designed in a way that doesn’t complicate their developer community’s ability to create their own meaningful and competitive service levels agreements to their customers.
Microsoft Azure is a proof point that Microsoft’s engineers are capable of building their cloud. Next time around we need to see whether their product managers are up to the task.
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