Microsoft’s New Golden Goose Is Azure

When I look at large tech companies, I always get the feeling that they have a strategy based on maximizing revenue from one or two core products. Every decision about the other products tends to be made on the basis of protecting or increasing sales of these core products. It is usually hard for the company to accept that the central products are past their prime. This is the core of the innovator’s dilemma: protecting the goose that lays the golden egg leaves you exposed when the goose dies. In the end, the large company usually gets disrupted by a smaller player with no legacy to protect. Very occasionally, companies will allow themselves to self-disrupt, building a new core product before the golden goose is dead. It looks to me like Microsoft has decided to build a new golden goose: Azure.

At the start, Microsoft’s core product was the desktop operating system DOS, then Windows. The reach of Windows was expanded when Windows Server was released. Microsoft built the Office suite to make Windows a better desktop. Then, it added a Back Office suite, SQL Server, and Exchange to make Windows Server better. Just about every corporate and home computer was “Better Together” with Windows. One of the great things for Microsoft was that customers replaced their server and desktop hardware every three years or so. This was a natural time to buy an upgrade to the latest Windows and Office suites. However, a few things came along to disrupt the cycle and the Microsoft dominance. First, there was virtualization. In a VM, a hardware refresh doesn’t dictate a refresh of the VM operating system or applications. VMs are immortal, so there needs to be a much stronger reason to upgrade operating systems or applications. Customers might skip a Windows version in their VMs. The second thing was SSDs. Replacing a spinning disk with an SSD made a three-year-old PC run like a brand-new machine: no need to replace the whole computer, and no need to upgrade Windows. Again, this was a reason for customers to skip a version. There is another big disruptor. The cloud is also getting in the way of Microsoft’s traditional revenues. Neither AWS nor Google has Microsoft operating systems underneath the cloud services they deliver. They use free open-source software like Linux and Apache to deliver services. Let us not forget that Microsoft has not excelled in mobile devices. Smartphones and tablets have been replacing laptops for some uses. The combination of cloud and mobile all happens without any Microsoft operating system or software. The reign of Windows and Office as Microsoft’s cash cows is coming to an end, and a new flagship is required.

The new flagship is the Microsoft cloud, Azure, and Office 365. Now, we look at Microsoft and ask whether the other changes it has made will drive more cloud revenue for it. We can also look at whether some of the changes stem from the fact that it is no longer trying to protect Windows and Office so much. SQL Server on Linux feels like it fits both cloud revenue and relaxing the protection of Windows. I can imagine that there were Microsoft developers doing secret (weekend) work on making SQL work on Linux, just because they could. It is a bit more of a stretch to say that companies will be building fleets of Linux VMs to run applications on Azure and want SQL Server for these applications. However, providing more support for Linux will be attractive to developers wanting to build applications. Open sourcing .NET is another bonus for developers, as is Visual Studio on non-Windows platforms. Neither would be allowed while Windows was a protected platform within Microsoft. Keeping developers happy with Microsoft is definitely going to increase the chance that they will deploy on Azure rather than on AWS. PowerShell being made available on non-Windows platforms is definitely only possible because Microsoft has decided to stop protecting Windows so much. The spread of Microsoft Office to Apple and Android devices is also a sign that Microsoft cares more about Office 365 than Windows.

After years of protecting Windows, Microsoft is now prepared to sacrifice Windows if it means Azure wins. This one perspective explains the sea change of Microsoft’s behavior over the last couple of years. I think we will see more changes in Microsoft that are centered around Azure and Office 365. Many more of our expectations of what Microsoft will and won’t do will need to be reevaluated.

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