How Microsoft will Force you “To the Cloud” (Part 2-Why)

Okay, since it is obvious Microsoft is now “All-in” on cloud, some people, particularly old-line partners are asking why. “Why is Microsoft harshing my mellow?” As if getting their asses handed to them was not reason enough for Microsoft, there are a lot of other reasons why this ocean liner is hanging a hard right. Microsoft to partners: “It’s not personal, just business“.

In looking at why, it first makes sense to look at what Microsoft has been historically made of, and how they have made money. Microsoft is a software company. But within that they are also the dominant operating system powering over 90% of the world’s computers. Good for them, you buy a PC and a portion of that goes into Microsoft’s pocket. You buy Microsoft Office, and more money goes into their pocket. Woohoo. But now… they have to wait. They can’t get any more of your money for a while, yet they still have to provide you with support for what you bought. A couple of years go by, and they roll out a new “gotta-have” version. And you decide that you really don’t gotta have it. Oops, no money from you, but they still have to support your old product(s), as well as the new one. A couple of more years and another “gotta-have” version rolls out, and again, you decide “If it ain’t broke…”. Now they are supporting multiple versions of their products, and the support team keeps growing. Here comes yet another version, but this time Microsoft has had enough and says “If you don’t upgrade, we won’t support you anymore“. But they are already supporting four or five legacy versions, many deeply rooted in enterprise companies that they can’t just forsake. Eventually, Microsoft’s product support becomes the biggest part of their company and their largest expense. Ballmer muses that “If everybody was just using the same, latest version of our products, we could whack our support expense by three-quarters.” Cloud does this for them.

What else? How about hardware? “But Microsoft does not sell hardware” you say, with the exception of xBoxes. So why should hardware matter? Because hardware is a cost impediment for many companies to buy Microsoft’s software. Let’s say for example that you were thinking about CRM for your small business. The reason CRM seems so foreign to small business, is that so few have it. Why? The cost of the servers, software, installation, configuration etc, puts CRM beyond their reach. Enter the cloud again. “Let’s put enterprise level CRM in the cloud” says Ballmer “and sell it as a subscription”. For a small business, suddenly, CRM is attainable… actually cheap. No servers, no configuration, no updates, just login and its there. This same argument can be made for Exchange, SharePoint, Lync, and the whole gamut of Microsoft “enterprise” products. Everybody wins right? Well, the old-line partners who used to make most of their money selling you those servers and all those setup and support services are not happy… not happy at all. Some of them feel that Microsoft is cannibalizing their own market. Microsoft used to make a nice piece of change on an on-premise partner install, but the ones who really made the money were the partners. Microsoft is trading that “Piece of change” for an ongoing revenue stream, and leaving the partners with their jaws agape. Thus is the risk of building a business on top of someone else’s products. They don’t owe you a living.

The cannibalization of Microsoft does not end there. How about all of those large partners, who saw the same hardware impediments and built their own data-centers so they could offer hosted services? This was fast becoming the largest shift in technology today! Ballmer says, “You know what?, we are leaving a lot of money on the table here”. Partners are buying Microsoft’s products for themselves, putting it in their own data centers and reselling it to their customers as a subscription. And Ballmer’s like “WTF dude?, we have data-centers“. So Microsoft set about upgrading and expanding and building new state-of-the-art data-centers all over the world. “Hey boss, how we gonna compete with all those existing data-centers reselling our stuff”, “We’ll sell the same stuff for less and cut out the middle-man”. Classic… the oldest game in the book, “Cut out the middle-man”. If you get a call tomorrow from a hosted services provider offering you Microsoft products hosted on their data-centers, ask him why you should use them, instead of Microsoft directly… they usually hang up. The partner data-center angle’s days are numbered, their only growth exists among those who are uninformed. Think about how scary that must be for a large partner, who built or leased a big-ass building and bought or leased a hundred servers… how they gonna make that payment? We got lucky, we entered as a “cloud only” partner with no baggage.

Another benefit to Microsoft is getting paid for every copy of their software in use. We all know piracy is rampant in the software space. PC based applications are copied by friends and even posted by strangers to the world. A whole industry of people work to crack the codes so you can use the software for free. Some estimates put the percentage of unpaid software in use at over 30%. That’s a lot of money on the table. Via cloud, you access software with an online login. Sure you could pass this login info around, and Microsoft expects this, so they give you permission for five access points. One of the reasons people use pirated software is that the upfront cost of buying it is so high, but as a low subscription payment, a lot of the incentive to steal it is reduced. Is it a perfect system that will eliminate piracy? Not yet, but it’s a major step for software makers.

One more reason why Microsoft wants you in their cloud… Total World Domination. As a society, we will always allow ourselves to be dominated… if it is an easier, cheaper path. Microsoft is well aware of this penchant. So how do they exploit it? Product integration. Huh? Let me explain, let’s say you drank the koolaid and signed up for Office 365. You’re loving it, you completely fell for the “full-featured product for less” trick. You’re an avid user of Outlook, open it every morning and it pretty much stays open all day. After all, you want to be able to respond to your clients immediately. This whole “Customer Satisfaction” thing, seems like a good scheme, so you decide to ramp it up and add CRM to the mix. In your research you find that there are only a few top players, and a bunch of sketchy, don’t know if they will be around in a month, competitors. You decide that your business will be around for at least two months so you eliminate all but a few, probably, the biggest, and lacking other cloud choices (because you cannot afford the non-cloud options), you decide to look into Microsoft Dynamics CRM online also. Now must be the biggest for a reason (couldn’t be the huge head-start they got), so you look at them first.

That is some pretty powerful stuff and many of the biggest companies in the world are running it. But it is important to you that it integrate with your current daily routine, I mean, you don’t want to duplicate effort or have to go multiple places to get work done; so how well does this work with the Microsoft products you are already using, like for example: Outlook? Great news! You see that there are a few third-party connectors that will do the trick, sorta… but definitely workable. You’re sold, “Sign me up!” “Hey boss. I thought you were also going to look at that stuff from Microsoft?” “Why bother, is used by tons of big companies and it will pretty much tie into my Outlook?” “But it’s late and salesforce is closed”, “Well, I guess I have a little time to kill, I’ll take a quick look at Dynamics, just for grins“. So you pop on over to the Dynamics CRM Online website to download the free trial. But before you do, you take a quick look at the pricing page. “Less than half!, no way… I guess I was right about salesforce being better, it must be, because it cost so much more, but it’s a subscription so I can still afford it”. You go ahead and install the Dynamics CRM demo and open Outlook. “What’s this? CRM is right inside my Outlook… looking like Outlook, completely native to Outlook”. You poke around a bit and conclude that you would never even have to leave Outlook to do everything CRM related. You pause and think, “How can this be?” Then a lightbulb goes off and you realize that both Outlook, and Dynamics are made by the same people… of course they can integrate it so flawlessly. And right then and there, you walked into Microsoft’s snare. Fully, natively integrated for less money… those diabolical bastards.

Make no mistake, Microsoft’s “Native Integration” ploy is intended to keep you from even thinking about any other line of products by connecting everything together to the point where you don’t know where one application left off and another one started but together they solve everything you could possibly think of.

Next post: Where?

Previous Post: What?

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