Microsoft’s Cloud Offerings: Are They Hiding Big Rocks?

Author: Scott Braden

Another dust-up in the news lately regarding a service called “OnLive” offering a full Win7 / Office experience to iPad users.

It seems pretty clear that what customers really want is the Windows / Office experience on any platform, anywhere, and streaming (“VDI” by some definitions) seems like a reasonable way to do that.

But, Microsoft prohibits that, at least in the way that OnLive implemented it.  They are so serious about getting the word out that Joe Matz, Worldwide VP for licensing, posted a blog entry calling out OnLive by name:

http://blogs.technet.com/b/volume-licensing/archive/2012/03/08/delivery-of-desktop-like-functionality-through-outsourcer-arrangements-and-service-provider-license-agreements.aspx

Of course we assume that Microsoft has financial reasons for this policy; apparently they believe they can make more money by frustrating customers desires than by serving them (at least in this case).  But how?  The answer, we suspect, lies in the PC OEM Windows business – which is still one of the single largest cash contributors in Microsoft’s entire business.

If Microsoft makes it convenient and reasonably priced to access Windows and Office from a variety of non-PC devices, that has the likelihood of damaging their incumbent Windows cash flow – a clear case of self-cannibalization.  And one thing we know Microsoft wants to do is increase “dollars per desktop”, not decrease it.

Further, a practical and platform-agnostic VDI offering would damage their PC partners’ business models – since neither Dell nor HP have a legitimate contender in the tablet or phone wars (after several failed attempts each), they’d be out of the PC revenue.

The PC makers have been loyal partners for Microsoft; each has sidelined alternative OS’s such as Linux (which requires no per-PC license fee, potentially improving PC maker’s margins), in favor of Windows.  The Wintel oligopoly is strong and profitable and none of the members wants to break it up any time soon.  While Microsoft and others are rushing headlong into cloud services in every other aspect of their business, they aren’t able to unhook from the traditional Windows license revenue yet.

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