Ballmer says Microsoft is betting its business on the cloud

Microsoft is reshaping its business around cloud computing. In his strongest public statement to date, CEO Steve Ballmer on Thursday said that Microsoft is "all in" when it comes to the cloud.

Cloud computing is changing the way people think about server hardware and software, Ballmer told an audience at the University of Washington in a speech that was Webcast. Seventy percent of Microsoft's 40,000 software builders are either working on something associated with the cloud or working on projects designed to support the company's cloud computing initiatives. Within a year, that figure will be 90 percent, Ballmer said.

"We're betting our company on" cloud computing, Ballmer said. He pointed to the infamous memo issued by Microsoft Chief Software Architect Ray Ozzie that set the company on its current cloud computing course. Nevertheless, nearly five years after Ozzie issued the memo, there's still unrealized potential, he said.

Microsoft and other companies are betting on a cloud computing industry that may amount to a $3.3 trillion global industry, Ballmer explained. He noted that there will be room for various cloud implementations, not just Microsoft's Windows Azure. However, Microsoft's teams have already shifted to creating products for the cloud and will do so even more in the near future.

Some of Microsoft's 2010-branded products have already been designed to take advantage of the cloud, including Microsoft Office, Exchange and SharePoint. Microsoft currently offers some of those products' capabilities as services through its Business Productivity Online Suite (BPOS). Microsoft also launched its Windows Azure platform-as-a-service as a commercial venture just last month.

While there were few revelations in Ballmer's remarks, they appeared to represent a tacit shift in messaging and emphasis for Microsoft, which will begin rallying its partners next week to take advantage of opportunities enabled by its cloud and software-as-a-service offerings.

In response to a question from the audience, Ballmer distinguished Windows Azure from other cloud computing platforms. He particularly singled out cloud computing leader Amazon.com as doing a "nice job" with "the programming model of yesterday that is not scale agnostic."

"On the other hand, what we're trying to do with Azure is let you write a different kind of application, and I think we're more forward-looking in our design point than on a lot of things that we're doing, and at least right now I don't see the other guy out there who's doing the equivalent," Ballmer said.

Ballmer outlined "five key dimensions of the cloud" that Microsoft considers important. Cloud computing:

1. Creates opportunities and responsibilities, meaning it will lead to new inventions and business models much like Apple's App Store.
2. Uses semantics to add more context to data, providing new ways to learn and make decisions.
3. Enhances social and professional interactions.
4. Lends itself to smarter devices.
5. Drives server advances that in turn drive new forms of computation.

There currently are about 2 million servers powering the Internet cloud, Ballmer said. Still, there can be some limitations in terms of geographic scale. For instance, the United Kingdom's Sky TV has a service that integrates with Microsoft's Xbox gaming console. It's not available in the United States and it might have problems expanding to this market.

"Believe me we had some geographic scale issues with Sky TV," Ballmer said. "Thank goodness they're not trying to sell us that service in Seattle."

A study commissioned by Avanade, which measured the opinions of 502 IT decision-makers on cloud computing late last year, found a three-fold increase in the rate that enterprises are planning or testing cloud computing when comparing those opinions over a nine-month period. Avanade, which provides systems integration services, has a particular stake in Microsoft's cloud computing effort as it delivers BPOS services to enterprise customers.

"We were encouraged by the reinforcement of Microsoft's vision around their dedication and commitment to the cloud and it certainly aligns well with our enterprise business and our plans," said Tyson Hartman, Avanade's global CTO. Avanade is a joint venture between Microsoft and global management consulting firm Accenture.

Ballmer acknowledged privacy and security concerns that could slow adoption of cloud computing. For enterprises, that's an ongoing concern, but Hartman argued that companies have been successfully dealing with such issues for a while, such as outsourcing payroll processing functions and sharing that data.

Ballmer was also asked about the possibility that government regulators might insist that data be stored locally within the country, and how that might affect cloud computing. It's a debate more prevalent in Europe at the moment. Ballmer suggested that local Windows Azure-based data centers could be built to address the issue.

While privacy and security are legitimate concerns, they likely were too complicated to address in a single speech, said Matt Rosoff, an analyst with Directions on Microsoft.

"For instance, the dedicated versions of Exchange, SharePoint, and Communications Online are hosted on a dedicated server, and Microsoft recently announced a version of the BPOS for government agencies where the data is actually stored in a separate, monitored and guarded facility," Rosoff noted. "So there are going to be different mechanisms and levels of privacy depending on the service."

Ballmer made sure to acknowledge that his latest cloud emphasis does not signal a move away from Microsoft's core software business. "We start with Windows at Microsoft," he said. "It's the most popular smart device on the planet, and our design center for the future of Windows is to make it one of those smarter devices that the cloud really wants."