Microsoft Poised to Regain Momentum in 2010

No software company has been more threatened by the rapid growth of Software as a Service (SaaS) and the broader cloud computing phenomenon than Microsoft.

After decades of dominating the technology industry, Microsoft isn’t even the most important player in Seattle anymore. That honor goes to Amazon, which single-handedly resurrected the idea of utility computing by moving the concept to the Web and giving it a more viable business model called “cloud computing”!

Not only has Amazon Web Services (AWS) captured the attention of the business and IT press, Amazon has become the epicenter of a rapidly growing ecosystem of tech entrepreneurs and enterprise software developers seeking to harness cloud services to achieve their business objectives.

Meanwhile, Google is doing all it can to disrupt Microsoft’s monopoly in office applications and break its stranglehold on computer operating systems. Google Apps are gaining acceptance in the corporate world, as well as in government agencies. And Google Chrome is slowly attracting end-users.

On the Defensive

At the same time, Salesforce.com has been stealing enterprise application users away from Microsoft, as well as from SAP and Oracle. Now, its Force.com Platform as a Service (PaaS) is being used by a widening array of ISVs and enterprises as well.

Adding insult to injury, Microsoft Xbox gamesters are increasingly migrating to Google Apps rather than Microsoft Office to meet their classroom and corporate needs. This trend was accelerated by widespread disenchantment with Microsoft Vista and added complexities of the latest version of Office apps.

As a result of these converging forces, Microsoft has been on the defensive and has become less of a dominant factor in the software world for the past one-to-two years.

Bill Gates saw this threat coming and sounded a warning bell in an internal memo, which was conveniently made public in October 2005:

“This coming ‘services wave’ will be very disruptive…. Services designed to scale to tens or hundreds of millions will dramatically change the nature and cost of solutions deliverable to enterprises or small businesses.”

Despite these setbacks, I think Microsoft is on the cusp of a turnaround and could see its fortunes change in 2010.

Partner Power

First, the generally positive reviews of Windows 7 will reassure many Microsoft users that it is safe to reinvest in the company’s operating system, applications and development tools.

Second, Microsoft’s Azure PaaS solution has also received positive grades from early users and is now available to developers for full-fledged production purposes. Azure may not be the best-of-breed PaaS leader, but Microsoft’s market power will make it the preferred development platform for many ISVs and enterprise developers.

I expect Microsoft to push a partner-friendly strategy to promote its Azure PaaS. Its experience working with ISVs can give Microsoft a competitive advantage over Salesforce.com, Google and Amazon who are still learning how to work with third-party developers and have already encountered conflicts with their new channel partners.

Encouraging third parties to develop SaaS solutions on Azure also permits Microsoft to mitigate the risk of cannibalizing its legacy on-premise applications and to minimize the potential for channel conflicts.

Microsoft received two major endorsements of its cloud strategies last month. HP and Microsoft announced a US$250 million joint venture to develop and deliver cloud solutions. Intuit also announced that it will team with Microsoft to link their respective PaaS offerings together to give developers a broader set of functional and go-to-market capabilities.

So, once again, Microsoft may be a late entrant in the market with a set of solutions that lag those offered by today’s industry innovators, but it is still in a good position to regain its momentum and become a dominant force in the rapidly evolving cloud computing marketplace.