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BW Businessworld

Microsoft Opens A New Window

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Talk to any Microsoft official and you will realise how obsessed they are with the cloud. Sure, Windows 7 garnered rave reviews and they are extremely happy with its performance. And yes, they expect the Office 2010 suite to be as big a hit as Windows 7 and rake in big money. But more often than not, the conversation veers around quickly to cloud computing and the Microsoft initiatives on that front. Whether it is Microsoft India chairman Ravi Venkatesan or managing director Rajan Anandan, they all have their heads in the clouds. So, on 8 March, when Anandan unveiled Azure — the 8th and, perhaps, most significant cloud offering from Microsoft in the past 12 months — he could be forgiven for talking about nothing but the future of the cloud.
The obsession is understandable. Microsoft India is only tracking the software giant’s new global mantra. As Steve Ballmer, Microsoft CEO, emphasised in a speech earlier this year: “We are betting our company… on this incredible transformation around the cloud.”
Here is a quick primer for those who are still not sure why cloud computing is such a big deal. Currently, almost all your computing tasks — whether it is writing applications or making spreadsheets — depend entirely on the hardware you are working on, and the software you have loaded on it. The power of the hardware and the sophistication of the software pretty well limits what all you can do. Cloud computing, which was called many things in the past, including grid computing and utility computing, started out with the idea of sharing the power of different computers installed in a network. The basic premise was that at some point, you did not need to own the most powerful computers if you could rent power from other computers in a network, and you would not need to own or install applications provided you could rent it from a cloud or network.
“We are betting our company on this incredible transformation around the cloud” Steve Ballmer CEO, Microsoft (BW pic by Tribhuwan Sharma)
The idea has been around for over a decade and a half at least. But no one had found a way to make it work on a large scale. And frankly, companies such as Microsoft, which made its fortune by installing its software in each new computer that was shipped out, had no real incentive to change the model. Until, that is, a number of small companies started experimenting with workable cloud-based offerings a few years ago, and then significant players such as Google and Amazon threw their weight behind the movement. Suddenly, everyone was talking about cloud computing replacing the current model in a few years time, and Microsoft was beginning to look like a company that would be late to the new party — just as it has been late in areas such as search and social networking. Even where it started out early, Microsoft has often squandered the lead by not being farsighted enough — the prime example being Web- based free email, where it bought Hotmail, but let Yahoo overtake it.
But Microsoft is determined that this will not happen in the cloud at least. And that is why, though Azure has been a late launch, Microsoft has come out with a product that it hopes will help it dominate the new computing arena in much the same way as it does the old one. And in cloud computing, India is playing a crucial role in the overall Microsoft story.
Twelve-Month Dash
Microsoft pressed the pedal on cloud computing in India a year ago in the backdrop of its key markets, US and Europe, de-growing after the banking bust in the US. In 2009, the company reported its first ever negative growth in annual revenues — a drop of 3 per cent from $60.4 billion in 2008 to $58.4 billion. But Anandan says the India unit has been in positive territory. “Before the slowdown, we were growing very fast... So, obviously in India also, our growth slowed down. But we still grew double digits.”
The slowdown called for acceleration in India. That meant reinventing Microsoft India by launching new products and services in quick succession, and overhauling the management and distribution “We have had more new launches in the past 12 months than any other period in our history,” says Anandan.
For emails offered on a per-user-basis rather than fixed-license basis. A recent entrant to the market. Competes with IBM’s Lotus Notes
Helps in web video conferencing. Competes with IBM Lotus Sametime and Cisco WebEx
Helps share powerpoint prsentations and business processes across locations. Leads EMC Documentum and Oracle Stellent
Platform for collaborative development of tools for the Cloud. Recent entrant. Trails Google Apps and Salesforce’s
An instant messaging and presence service, including video and voice. Competes with Skype and Google Talk
For enterprise resource planning and customer relationship management. Late entrant. Competes with, SAP and Oracle, but adding more SME users than rivals
Microsoft’s search engine (3.39 per cent of market share), which is still in beta phase in India. Trails rival Google (86 per cent) and Yahoo (6 per cent) — which is now a partner
Designed to support mobility, the most critical feature in a cloud-competitive landscape. Leads the OS market with a global share of 86 per cent. Followed far behind by Red Hat’s Fedora and Ubuntu Linux. Google’s Chrome OS is coming this year
Microsoft’s offering in the phone market. Expected by mid-2010. Among the last to enter the market. Will compete with Apple’s iPhone and Google’s Nexus One
Online gaming services in the cloud where users can log in and play. Also offers social networking. Competes with Nintendo’s Wii and Sony’s PlayStation 3
Web browser. It is the window to the cloud, hence critical for Web-based applications. Leads with 62 per cent marketshare, but Mozilla Firefox (24 per cent) and Google Chrome (5 per cent) are closing in
Microsoft India introduced some of the parent’s most critical cloud-based offerings. These include Microsoft Exchange Online, an email service on the cloud for companies; Office Sharepoint, a real time business process and presentations sharing and management service; Microsoft Dynamics, a service to provide customer relationship management (CRM) and enterprise resource planning (erp) over the Web; and Bing, a search engine pitted against Google and Yahoo. And, of course, Azure, which will target the small and medium businesses. “It is all (in) early stages, but it is the way of the future,” says Venkatesan. “Today, all software is on premise, within the confines of the enterprise. Our point of view is that more of it will be either hosted or will move to the cloud.”
Azure gives software developers a platform to write applications on a pay-per-use basis. This is critical, as the developer community often determines what becomes the de facto standard. And Amazon and Google were already wooing developers with their offerings for several months before Azure hit the market. So far, it has received mixed reviews in the blogosphere. At any rate, Microsoft plans to launch many more cloud offerings soon. Its carpet bombing approach to the cloud is crucial to whether the world’s largest software maker will remain the numero uno or will be outsmarted by rivals.
And India is the hotspot for Microsoft’s cloud offerings as it provides a fertile ground for finding customers. The huge number of medium and small companies in India makes the country a perfect market. Even though its critics believe that trying its hands at everything signals desperation, Microsoft has spread its new offerings across consumers and enterprises. “If you want to accuse us of ubiquity, yes; it is a big part of our dream,” says Venkatesan (see interview on page 36).
Microsoft India’s biggest bet is on the 8 million small and medium businesses (SMBs) whom it plans to tap by offering CRM and ERP on the cloud. SMBs can pay as per usage and do not have to buy licences for the services. Anandan claims Microsoft India is adding more clients than its nearest competitors. According to research firm Gartner, Microsoft’s global market share in CRM increased from 4.1 per cent in 2007 to 6.4 per cent in 2008. SAP and Oracle, which had 22.5 and 16.1 per cent in 2007, lost market share by 3 per cent and 0.1 per cent. 
“Oracle has a complete suite of solutions, but Microsoft is growing fast,” says Diptarup Chakraborty, an analyst at Gartner.
But rivals SAP and Oracle are not giving Microsoft any more leeway. SAP’s Business-by-Design and Oracle’s CRM-on-Demand have similar cloud-based hosted solutions. Several local vendors also offer low-cost CRM and ERP solutions. Microsoft, however, believes its price point (which it claims is the lowest) is its unique selling proposition. “That is why I am very bullish about our prospects,” says Venkatesan.
But Oracle, which hosts firms such as Bharti Airtel and Idea, believes price alone can’t win the battle. “A CRM product has to be scalable, so price is not the only differentiator,” says Kaushik Mitra, Oracle’s director for application channels. Maruti Suzuki India’s chief general manager-IT, Rajesh Uppal, who uses Oracle, says, “Oracle is most competitive.”
Although Microsoft has entered the market aggressively, some users say its solution is good for small enterprises, but isn’t scalable and doesn’t challenge SAP and Oracle in the large enterprise space. Aroon Raman, managing director of the Rs 15-crore SME, Raman Fibre Science, uses Microsoft Dynamix, but says Microsoft’s solution is only good for an enterprise of up to Rs 300-500 crore. “After a certain level of size, alternative solutions have to be sought,” says Raman.
Banking On The Flagship
On the consumer side, Microsoft’s hot cake, Windows 7, has erased the dreadful memories of the slow and clunky Windows Vista and re-established Microsoft as the undisputed leader in the OS space, with 86 per cent market share globally. Windows 7 has been designed for mobility, keeping the cloud in mind.
Click here to view enlarged image
But other operating systems are also being built for the cloud. Google’s Chrome OS, readying for shipment in May, is an extension of the Web. “No software updates will be required as everything runs on the Web,” says Google India’s head of products, Vinay Goel. With Chrome on the horizon, Microsoft has been cautious with Windows 7. Even though the product was launched in October 2009, it gave trial version as early as January 2009. In India, it had 1,000 companies (now 5,000) running on Windows 7 on the launch day. Companies such as Maruti Suzuki and Wipro, which did not migrate from the XP to Vista, moved directly to Windows 7.
Microsoft has positioned the OS as a product that delivers a better return on investment (RoI). “Enterprises will not have to invest separately in anti-malware and anti-viruses, etc. The OS is also energy efficient,” says Akhilesh Tuteja, executive director of KPMG. The company claims the savings per Windows-based computer would be Rs 5,000 to Rs 7,000 per year. The price of Windows 7 is also sliced. It ranges from Rs 5,899 for the Home Basic version to Rs 11,199 for Windows Ultimate.
But even as Microsoft hits the cloud with vigour, open source OS remains its bugbear. Red Hat, one of the world’s largest open source players, has Fedora, a desktop OS. Satish Mohan, Red Hat India’s director for software engineering, says there has been a 35 per cent increase in adoption between Fedora 10 and Fedora 11. But open source remains less than 3 per cent of the total market. The segment where open source was making some headway was netbooks, whose low pricing, need for quick start-up and lack of frills suited Linux OSs. But of late, Microsoft has plugged that gap with Windows 7. Now, about 95 per cent of all netbooks come loaded with a Windows OS. Microsoft India’s joint managing director for consumer business Hemant Sachdev says netbooks will be as successful as mobiles in India. 
One area in the consumer space where Microsoft has to catch up is search, where its Bing (3.39 per cent) trails Google (85.74 per cent), according to research firm Net Applications. “As long as we continue to innovate, be close to customers, we have nothing to lose,” says Venkatesan. Only, Bing is heavily focused on the US market. Even though India is not a large online market, it is a market Microsoft considers strategic. But Bing remains a weak player in India where Google and Yahoo continue to devote a lot of their resources. Microsoft now hopes Bing’s strategic tie-up with Yahoo would be able to make a dent in Google’s market share.
Then, Microsoft Office Live, a light online version of MS Office, is already on the cloud. Microsoft offers it free of charge for consumers currently to counter Google Apps and OpenOffice, which are fast gaining acceptance as substitutes to Microsoft Office. By mid-2010, Office’s next version — MS Office 2010 — will also go on the cloud (besides having an on-premise version). 
Stacking Up On Servers
Up until Q3 of 2009, Microsoft’s server operating system — Windows Server — led (with 43 per cent market share) over Unix and Linux. Unix, used by IBM, HP and Sun Microsystems, had 26.9 per cent. Globally, Linux grew slightly from 14 per cent to 14.8 per cent year-on-year in Q3 09, according to IDC.
But in virtualisation, Microsoft has hopes on Hyper-V. “This actually places us competitively with incumbents such as VMWare… given the high cost of their solution,” says Pallavi Kathuria, director of server business of Microsoft India. T. Srinivasan, managing director of VMware India, says, “We deliver about 20-50 per cent cost reduction, and the only one who can do this is VMware.” Venkatesan, however, says Microsoft’s offering is 30 per cent cheaper than VMWare’s. The industry believes VMware is far too strong a product for Microsoft, even though Microsoft has shot up to be No. 2 in virtualisation.
A great amount of what is on the cloud is free, and is based on open standards. But that goes against Microsoft’s grain. It has fought open standards in what Ballmer calls an “us-versus- them battle” for decades. But in the middle of the past year, Microsoft made a surprise move to appease the Linux community. For the first time, it released 20,000 lines of code of Windows Server with the Linux kernel community to allow developers to build applications for Windows Servers for greater inter-operability. “Release of the code came after a lot of negotiations with anti-trust regulators,” says Rajat Kathuria, professor at think tank Icrier.
But hardly anybody was convinced that Microsoft had had a change of heart. For, just in April last year, Microsoft and Amazon were among the first to reject the “Open Cloud Manifesto” — a set of principles on cloud computing laid out by about 30 companies and backed heavily by IBM. The manifesto advised IT firms to keep all developments on the cloud as “open” as possible so as to allow seamless inter-operability of data. Microsoft believed it was biased in favour of a handful of companies, and it was only given a “sign it or leave it” option. But the jury’s still out on whether open standards are really key to success on the cloud. 
Actually, Microsoft’s success in the cloud may not be decided by its cloud-worthiness as much as by several external factors and progress in technologies such as natural user interface, servers and telecommunications, which will drive masses to the Web. 
The cloud is causing an unprecedented transformation in the 20-year-old Microsoft India. For one, it required an organisational restructuring (see ‘The New Structure’ on page 31). In early 2009, Venkatesan introduced a new job — group director, cloud services — and brought in Vikas Arora from IT firm STG. In January 2009, he brought in Hemant Sachdev as joint managing director for consumer and online businesses such as Bing and Internet Explorer. But a big push has been in distribution. Microsoft India touched just 30 cities 15 months also, which has expanded to 250 cities. Its distributors have expanded from 4,000 to 7,500.
According to research firm Gartner, global cloud services revenues were projected to grow from $56.3 billion in 2009 to $150.1 billion by 2013. But more than revenues, it is the prospective trend of migrating businesses from capex-heavy IT to requirement-based opex that is attracting IT services providers to business on the cloud. “Much of the growth represents a transfer of traditional IT services to the new cloud model,” says Gartner’s vice-president Ben Pring.
In India, of course, the challenge is even greater because the success of cloud computing will also depend on the availability of the Internet and computers to a vast majority of people and organisations.
(This story was published in Businessworld Issue Dated 22-03-2010)