Can Microsoft Get Customers, Partners to Buy In to the Cloud?

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Microsoft executives speaking at the company’s annual gathering of partners and resellers in Washington this week were adamant that the software giant is moving to the cloud — that it’s “all in” when it comes to embracing the technology

But the $64,000 question is will customers, partners and others that depend on Microsoft (NASDAQ: MSFT) for a living move to the cloud as well — and if so, how soon?

The answer, say several analysts that follow Microsoft, is that it’s probably too soon to tell. But it’s bound to have an impact on IT organizations worldwide, one way or another.

Partners and resellers have good reasons to be cautious. Many of them have important, as-yet-unanswered questions — not the least of which is whether IT customers will be enthusiastic about a move to the cloud on the same timetable as Microsoft.

“While the cloud is important, it’s not going to have an impact on the sales side [i.e., to IT managers] for two or three years,” Tim Bajarin, president and principal analyst at Creative Strategies, told InternetNews.com.

Still, Microsoft is clearly hoping to begin igniting interest among its customners and partners for its shift to the cloud right away — and as a result, it has a lot of irons in the fire even now.

The company started off its Worldwide Partner Conference (WPC) on Monday with the announcement that it is launching its Windows Azure application platform “appliance”, which will enable large hardware partners Dell, Fujitsu, and HP to offer IT customers hosted cloud services running in the hardware vendors’ own data centers.

Alternately, large IT organizations will be able to host Azure appliances themselves in-house, or they could have a Microsoft partner host the appliance — although they’ll need to be able to dedicate “hundreds or thousands” of servers to support those cloud services, company executives said.

By moving services into the cloud, though, some observers wonder whether Microsoft won’t eventually usurp partners’ markets: “If I’m a service provider, would it be to my advantage to join Microsoft [in the cloud] when they’re going to sell services that are going to compete with me?” Charles King, principal analyst at Pund-IT, told InternetNews.com.

Windows Azure started out as a Microsoft-hosted application service for third-party companies who wanted to build services in the cloud. The company started charging for Windows Azure in February and has boasted that it has already signed up 10,000 paying customers.

Now, by announcing the Azure appliance, Microsoft is expanding its offerings so that partners can participate in the revenue opportunities by servicing corporate customers.

“The opportunity in the cloud is tremendous, and it’s an opportunity we want to continue to pursue hand-in-hand with our partners,” Jon Roskill, corporate vice president of Microsoft’s Worldwide Partner group, said in a post to the Redmond View blog Tuesday.

That is a pattern that Microsoft has used before, when it began to host IT applications such as CRM and ERP in its own datacenters, though it let partners actually service the accounts and eventually let third-parties host those applications themselves for IT customers.

“Dell is actually pretty excited about it [the Azure appliance] and when you can get a large third-party like Dell excited, it’s a validation of the concept,” Rob Enderle, principal analyst at the Enderle Group, told InternetNews.com.

Still, Enderle isn’t ready to sign off on Microsoft’s cloud plans just yet. “It’s not complete because it needs to encompass more than just Microsoft technology … so it’s about one generation young,” he added, a nod to the fact that few IT organizations run only Microsoft software.

Meanwhile, Roskill pointed to the rise of Microsoft’s Business Productivity Online Suite (BPOS) as an example of how the company has found ways in the recent past to expand its revenue base while still preserving revenue streams for partners.

The suite provides hosted versions of enterprise applications such as Exchange, SharePoint, Live Meeting, and others. In May, Microsoft said it had garnered some 40 million customers for BPOS and other cloud services.

In fact, Roskill cited a new promotion that gives partners 250 BPOS seats free for the first year, and promises the same for a second year provided the partner closes a minimum of two BPOS deals of at least 25 seats each.

Microsoft also announced this week an expanded beta test — adding another 10,000 testers beyond the original 1,000 — of its upcoming Intune online services, which are intended to provide enterprise-quality system management tools to small and medium-sized businesses via the cloud.

Despite the vision of a pot of gold just over the next hill, however, if hosted cloud computing really catches on, it could result in layoffs for IT personnel — after all, it’s a form of outsourcing, Pund-IT’s King pointed out.

“If companies are actively moving functions to the cloud, over time, you could see a loss of jobs at the corporate level,” King said.

Much remains to be seen, however — something that all three analysts agreed upon. Another point of agreement is that most IT decision makers aren’t ready to commit to Microsoft’s latest vision yet.

“I would expect enterprises to nibble around the edges this year and the first half of 2011, and then we’ll see if customers are ready to sign onto it,” King said. “It will probably take two to four years to really get off the ground.”

Stuart J. Johnston is a contributing writer at InternetNews.com, the news service of Internet.com, the network for technology professionals. Follow him on Twitter @stuartj1000.