Microsoft To Spend 90% R&D Budget On Cloud Computing: The Pressure’s On!

Yesterday the Sunday Telegraph ran a very interesting piece on Microsoft, and Steve Ballmer’s visit to the UK that takes place this week. On Tuesday (5th October) Steve Ballmer will be presenting at the London School of Economics and explaining that Microsoft is all about the Cloud and that the future of Microsoft will be dependent on their success in this new market.

Whilst he will be speaking to a hall of students, it is clear that his message is for the wider business community – the CIO’s, IT Directors and IT Managers in the UK and across Europe. The article quotes a Gartner statistic that the US has been leading the way with Cloud Computing, spending 58% of total IT budget last year in the Cloud, compared to just 24% in Western Europe.

Ballmer will confirm that by next year 90% of their annual $9.5 billion Research and Development budget will be spent on Cloud Computing. 90%. A huge commitment to a market that is yet to make many of the leading ‘traditional’ technology vendors any serious revenues. The main thrust of this development so far has been taking Office and Exchange into the Cloud as a Hosted Service, and Windows Azure – a cloud platform on which Businesses can develop and host their own applications.

Hostages

As I am reading the article a vision pops into my head of a Hostage video. You know the one where the kidnappers push their captive in front of the camera and get them to renounce their firmly held beliefs and declare that everyone should believe the captor’s ideology. I can see Steve Ballmer on screen, with the True Cloud Industry holding a big gun just out of shot.

“Software is bad. We know that now. We’re all in the Cloud and you should be to.” – Classic stuff.

The difficulty that Microsoft, and other niche market leaders like Sage have is that they are making too much money doing what they have been doing for the last 20 years. They have one key responsibility and that is to their shareholders. Their key asset is the software or hardware appliances that they are selling by the truck load today. Every Cloud decision, every Cloud innovation is tinged with software, is diluted by on-premise.

I experienced this first-hand in my time at Symantec. Symantec paid almost $700m for MessageLabs, a leading Cloud email and web security company. Symantec made the right noises that they wanted to lead the Cloud charge and buying the market leader was the way to do that.

But this is a Company turning over $7b a year from Software and Licences. Very soon the signs appeared. MessageLabs was renamed Symantec Hosted Services. Not Cloud, not SaaS – but Hosted Services. To me, that says “Doing what we do here, over there” – which is not True Cloud. Then the word “Hybrid” starts to creep in. ”Do something here and there” – not True Cloud. Very soon the entrepeneaurial True Cloud flame has been snuffed out.

Leaders or Followers

This is exactly the same issue that Microsoft will face. Whether they are hostages, or they really believe in the Cloud, they will always have the difficulty of balancing the new world with the mega-beast of their existing business, and whilst they spend time trying to work out internally what “Hybrid” or “Hosted” really means, the True Cloud vendors like Salesforce.com, and Google, who have no such baggage, will be busy innovating and dominating the market.

I’m not one to write Microsoft off – but I have to ask the question – are they leading this Cloud market, or following? I believe they are reluctant followers, and for that reason I’ve been resolute in my focus on just two True Cloud vendors – Salesforce and Google.

What do you think about Microsoft’s strategy? Do you think Microsoft are leaders or followers in the Cloud market?

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Charlie Cowan inspires and enables partners at NewVoiceMedia, a Salesforce Appexchange partner routing inbound calls based on CRM data. Unusually for someone in the IT industry, Charlie holds a degree in Rural Land Management from The Royal Agricultural College. He lives and works in Cirencester, Gloucestershire, with his wife and three children.

  • Microsoft is in big trouble. The traditional software giant has left it way too long to join the Cloud party, and when it does produce Web-based apps, they’re second rate. Take Office Web Apps (read BCW's review here), for instance, which is far from Office for the Web. MS needs to turn things around and quickly, or it won’t be a major player in 5 years’ time. For SMEs, the day of expensive software licensing is almost over.