Microsoft: Beyond 'Software Plus Services'

Microsoft will join the cloud computing crowd with its Azure Web operating system. Are blue skies ahead?

By Peter Burrows

For 30 years after Bill Gates and Paul Allen founded Microsoft in 1975, the tech world revolved around making their dream—a PC on every desk—a reality. But over the past few years the Internet has given rise to a new guiding principle: using the Web to more efficiently dole out software to reach almost anyone, any time, on nearly any device from a smartphone to supercomputer. If someone has to deal with the hassles of buying, running, and updating complex software programs, why not let so-called cloud-computing suppliers like Google (GOOG), Amazon (AMZN), or Salesforce.com (CRM) be the ones to reach for the aspirin, rather than force every consumer and business to deal with these headaches?

It's a message Microsoft (MSFT) has struggled to counter. In recent years the software giant has pursued a kind of middle-ground approach through its "software plus services" strategy. The idea is that almost any job is best accomplished using a combination of the two methods. In some cases, work can be done by software residing on a powerful electronic device, with limited assistance from Web services—say, a periodic update to deliver a patch for the latest computer virus or to add a twist to your favorite video game. Or, the heavy lifting can be handled by the computers of an Internet company that delivers an online service to a broad array of devices, from high-powered PCs to "dumb" machines with far less smarts.

In truth, Microsoft's position reflects the current reality in many cases. Consider Apple (AAPL). Its hugely popular iTunes is not a destination on the Web, but software you install onto the hard drive of your Mac or PC. All of those 50,000 apps that run on your iPhone are just that: apps, not Web sites. Even Google, one of the biggest proponents of cloud computing, makes software that resides on PCs and other devices. Google Earth, its powerful mapping tool, is a program you download. Says Stephen Elop, president of Microsoft's Business Div.: "These companies would never say it, but actions speak louder than words. They're doing software plus services, too."

Cloud Computing Coming Slowly

Customers also recognize that cloud computing is still in its infancy. "The industry isn't moving at a pace that everything is going in any one direction," says Anthony Nuzzo, vice-president for deployment of applications at Coca-Cola Enterprises (CCE). "The cloud isn't mature enough for many applications."

The problem for Microsoft is that its "software plus services" message hasn't resonated with customers or Wall Street. The company's stock remains at the same level, around 24 a share, as it was when Google (GOOG) was founded in 1998.

Now, Microsoft is poised to put far more behind its software-plus-services approach. The software giant has been working on a new "Web operating system" called Azure that will let other software developers sell their programs either in the traditional way—on CDs in shrink-wrapped packages—or deliver them as a service from Microsoft's sprawling network of data centers. Microsoft is expected to release more details on pricing and the rollout plans for Azure on July 13-16 in New Orleans at its annual meeting with business partners.

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