Microsoft’s New CEO Confirms “All in for the Cloud”

Author: Scott Braden

Satya Nadella is Microsoft’s next CEO confirming, again, that Microsoft views “the cloud” as the company’s strongest bet for future growth and continued dominance of the enterprise software world.  Previously, he was executive vice-president of Microsoft’s Cloud and Enterprise group – and that should be all the information that enterprise IT managers need to know about where Microsoft wants to go in the future (taking enterprise customers along for the ride of course).

I think this truly is a key inflection point in Microsoft’s history, even beyond the obvious changing of the guard from the old Gates / Ballmer duo, and the rather distinct personality trait differences between Ballmer and Nadella.  By inflection point, let me illustrate this contrast:  Ballmer famously wanted to pursue the global internet advertising business by sinking billions of dollars into Bing and competing (or more accurately, attempting to compete) head to head against Google, Yahoo and Facebook for the massive prize of billions of end-user clicks and page-views.  Clearly, that strategy never worked.  Bing remains an afterthought in search engines, Windows phone carries a tiny market share, and today more than ever Microsoft’s revenues are driven by the enterprise space.  Nadella, the leader of the team that made Office365 into one of Microsoft’s best-ever successes, clearly deserves the recognition and resulting promotion to the big chair.

From this observer’s viewpoint it’s a logical step in the progression from the old school client-server / fat desktop model, selling perpetual licenses and version upgrades for in-house IT departments to manage on-premise, to the desired future (desired by suppliers like Microsoft, especially) of a subscription based, cloud delivered view of IT as a service.

From the supplier’s perspective it’s a near-perfect business model.  Predictable future revenue streams, greater share of enterprise wallets (Microsoft can operate the physical infrastructure cheaper/better/faster than in house IT, so it wins that business by default), and a very much enhanced power of lock-in over customers.  Once a customer subscribes to Office365 (or any other subscription model) the pain of disconnect only increases versus the old model of perpetual licenses on-premise.

Doubtless, Nadella has big plans to accelerate this transition.  The cloud marketplace is still in a massive market-share war with end customer costs artificially decreased as the players with deep pockets (MSFT, GOOG, ORCL, AMZN) battle to win customers for long-term locked-in agreements. The question for enterprise decision makers: are you ready to bet that when the cloud market dust settles, you’ll still have a sustainable business model for your IT services?

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