Microsoft is starting to learn – Recap from TechEd 2010

Microsoft is facilitating the TechEd 2010 in New Orleans, and among many new and broad insight, I seems like Microsoft finally started to push back on their strategy for hosters. For a long time, hosting partners and Microsoft has collided as Microsoft launched BPOS and later Azure. Whether or not the parts see themselves as competitors or not, many hosting partners are facing a hard time on cost-pressure commodity services, and failing to recap their business strategy to go up the stack. Seeing Azure and BPOS as a competitive solution are fare from the truth, and I would like to use Bob Muglia’s statements from TechEd 2010:

“Microsoft sees hosting partners becoming more important as the cloud becomes more predominant. The partner piece of this is incredibly important.”
Muglia said – CRN


“If a business wants to go outside the firewall in a cloud environment, Muglia notes, the main difference between using Microsoft and one of its hosting partners is that a partner’s cloud can be customized better to your environment.”

Also Bob Muglia touched upon the statement of building Windows Azure together with hosting offerings, maybe bundling BPOS for other services. This has been the voice of Microsoft for many months, but I yet still see a lot of hosters, neglecting to recap their business strategy and start building dynamic data centers to support higher margin services and outsourcing opportunities.

  • SMB customers WISH to outsource their IT these day.
  • SMB customers WISH to rent commodities at a very low price
  • SMB customers NEED fanatically good support
  • SMB customers SEE service providers as their future IT support

Even Enterprise customers wish to asses their opportunities:

Face your fears and change your business model. Turn into a service provider to facilitate services and sell more premium support packages on top of BPOS. It does not sell itself, and the term, just of using a credit card does not compete with a hosters telesales organization!!! Turn into a hoster to transform business from internal IT management to outsource IT management with a combination of dynamic data centers and commodity services. As Bob Muglia shows, Windows AppFabric may be the piece to tie it all together, so partner up with SI’s or software vendors to make the solutions stick. Microsoft ForeFront 2010 offers extensive identity integration capabilities, giving an established hoster or service provider, many many new channels of revenue.


ISV’s will move away from Traditional Hosting Providers

Independent Software Vendors often launch Partner Programs and form partnerships for extend their channel and reach of revenue. Some of these revenue stream are traditional hosting providers (often referred as Technology Partners or Hosting Partners)  – providers of static non-dynamic / non-optimized hosting. Within the next 3-5 years, many ISV’s will be forced to break this relationship to persue new opportunities of self-control and service delivery.

With the launch of Windows Azure, Google Cloud and enterprise cloud solutions like CloudRig and vCloud, ISV’s are able to manage and control their own relationship of hosting – and managed those required resources. Many ISV’s still have legacy offerings and despite Microsoft’s push on Azure, many ISV’s will still not launch service on that platform. Hosting providers have to find new ways of adding value to the ISV’s, but my belief is a certain few cloud vendors will have knowhow to persue the opportunity to bundle the right services and products to prove a gardened relationship to the ISV’s.

The revenue channels and business model for SaaS formes nicely around Independent Software Vendors these days; their opportunity is enormous and only the right focus can help ISV’s pick the right cloud strategy. A resent survey I made with 130 ISV’s in Scandinavia 82% considered SaaS a great opportunity and 67% would invest in this opportunity within the next two years. 16% consider Azure as a platform, while 54% would rather have their legacy application prove their business case for Cloud Computing. Interesting number, but also interesting to follow these ISV’s.

Will Cloud Computing disrupt the traditional hosting industry?

Cloud Computing rushes towards the goals of high growth it. The term is being absorbed even more based on the economic pressure, and as we all see the great business opportunities beneath Cloud Computing, I believe it is time to look at the “leftovers in the industry”. Based on my view, I could try to answer the question

Will Cloud Computing disrupt the traditional hosting industry?

Let’s make a quick SWOT analytic of Cloud Computing:


  • Low up-front capital investment
  • Easy economy model
  • Low cost
  • Quick deployment

  • No clear usage calculation
  • Unclear profile/ terminology
  • Monitoring & maintenance
  • Outsourcing vs. Consume
  • Interoperability

  • Metered cost
  • Pay-as-you-grow
  • New business model
  • New generation hosting

  • Security and governmental/
    public audit requirements
  • Vendor dependency
  • Immature model
  • Privacy

Looking at the traditional it hosting industry, often the customer will hand over the components, maybe staff and knowledge as part of the outsourcing deal. This makes economy of scale and economy of skill drive the IT hosting industry, as costs and outcome simply are predictable and also know between the partners – the customer and the outsourcing partner. With Cloud Computing the customer will have to trust the vendor and it’s “platform, knowledge and skill. Not only will the customer need to use a “one-solution-to-fit-all” rather than “our-requirement-will-be-the-deal”.

But doing interviews with customers and buyers of IT outsourcing deals, and looking at the buyers that are considering Cloud Computing – I strongly believe that customers and vendors will bridge that gap. Through many years, I cost-models and return of investment have been calculated over 3 or 5 year, based on write-off profiles and accounting standards. Today, Cloud Computing offer an instant-ROI and test-implement model, where the years (probably weeks or months) often used on cost model, now totally rely on the implementation and organizational implementation, many mid- and enterprise market companies struggle to reach.

Consumption and IT is simple more flexible and “fast” in Cloud Computing in contrast to traditional it hosting. The cost model is more attractive, and based on these facts; I do believe the Cloud Computing will the next generation and standard of it hosting/outsourcing within the next 2-5 year. Consolidation in the hosting industry will make 25-50 global international traditional outsources, who runs the major components of traditional it hosting. Vendors and service providers will build their adoptive and structured platform above them, offering true compelling and attractive business propositions, which simply disrupt the old it model.

And based on that vision, it would be beneficial to look at the economy stream of the vendor it market, to determine those 25-50 global vendors, but that is to another article 😉