by Bernard Golden

MS and Google Moves Show How Cloud is Transforming IT

Jul 20, 200912 mins
Cloud ComputingVirtualization

Every disruption also contains the seed of new products and services, which companies leverage for success. Last week, Microsoft and Google showed two new ways they're cashing in on the cloud.'s Bernard Golden explains what it means to you.

Two announcements last week, one from Microsoft and one from Google, demonstrate how cloud computing is transforming IT. Actually, transforming is to antiseptic a word. It implies a gentle improvement, akin to a caterpillar turning into a lovely butterfly. The reality is that transformations are wrenching, with market re-ordering taking place as companies struggle with or take advantage of technology developments. Within the companies wrenching transformations take a personal toll as employees are laid off or find themselves working for a new company post-divestiture.

Nevertheless, this creative destruction (a term coined by Joseph Schumpeter, subject of an excellent biography that is well-worth reading) is a fact of modern life. Silicon Valley, source of the biggest contributor to the increasingly speedy pace of this destruction—the microchip—has certainly experienced its share of upheaval. To be fair, though, every disruption also contains the seed of new products and services, which companies leverage for success. I’d like to examine two examples of this process that were announced this week.

Microsoft and the Future of Office Documents

Microsoft came out and announced that it is going to make a cloud-based version of Microsoft Office available—in both free and paid versions. The former will be ad-supported; the latter, presumably, will contain no ads but will include support. I couldn’t find any mention about how full-featured this offering will be; in other words, will it provide all the functionality of the installed version of the product, or will it offer a subset? However, given that the preponderance of people never use 90 percent of what’s included in the installable version of Office, I don’t think most people would miss whatever is not included—unless, of course, Microsoft were to deliberately hobble the online version in an effort to motivate purchase of the on-premise version.

Make no mistake about it, this is a huge change, and carries enormous implications for cloud computing. Here are some of the implications:

Online office applications are now legitimate. There are four stages of technology revolutions: (1) dismissal; (2) denigration; (3) accommodation; (4) surrender. Microsoft has pretty clearly been stuck in denigration for a while, insisting that the only good way to use an online office application is to have it tied to an local installed version. I expect that Microsoft has seen enough customers and prospects choose the less-functional but fully-available-online Google Apps to conclude that it had to bring a product to market that isn’t hampered by requiring a local installed version. Microsoft’s action has made it clear that an online office product is capable of standing on its own. This is a powerful endorsement of the SaaS approach in a key—perhaps the key—computer application.

Microsoft has thrown in the towel on the “on-premise is best” perspective. For too long the message from Microsoft was that, if you wanted to do real document or spreadsheet work, you’d want the local installed version. This always had the feel of a message crafted to satisfy Microsoft’s packaged software division’s revenue protection desires rather than to satisfying real-world users. Microsoft, evidently, has decided to go full bore toward supporting an online offering.

Free is in the air. First Google Apps. Now Microsoft. I understand that both companies seek to have users pay, but, believe me, free is gaining steam. And if Microsoft is supporting a free version, it will be hard for it to imply that Google’s Apps must be inadequate because they’re free. Free is settled. Now the discussion is about features (and support, if one chooses the paid version).

What does this mean for the companies?

For Microsoft, this move to online applications represents a grave threat and an enormous opportunity. As to the threat side, it’s easy to see the obvious one: if Microsoft gives away what it used to charge for, it seems like it would hurt their business. Obviously, lots of people are going to determine that they’re OK with looking at ads while they use the free version. It may be more pernicious than that, however. Does anyone really think that new customers are going to sign up for buying Office packages instead of using the free version—or maybe the supported version, but in any case, they’re unlikely to buy the packaged version.

One of the themes we proclaim to companies we talk to is that the cost of software is going to drop; this provides an example, because how likely is it that companies will pay as much for support of an online version as they do for the packaged alternative? With this move to online Office, the Office product line now becomes a franchise to protect rather than a growth opportunity to build.

This move to online Office also holds the potential for collateral damage to the Windows franchise. Many people have observed that the true lock-in to Microsoft products is Office, not Windows. In fact, many might proclaim that Windows is a burden to be borne in order to make Office accessible. This reflects the fact that, for most people, it’s the applications that make a difference, not the underlying OS. To the extent that people use other operating systems or platforms to access online Office, that could represent lost revenue to Microsoft.

However, this move also carries opportunity with it. Requiring an upfront purchase of an Office package certainly had to affect total market size. With a free version, Microsoft can address a potential market that previously went unsatisfied and un-sold to. Free and low-cost products give Microsoft an offering it can provide to this potential market; moreover, it then creates a larger pool to sell additional products and services to. This offering has the effect of knocking down the fence built by packaged pricing, with the potential result of a vastly larger market. Furthermore, to the extent that Microsoft ties online Office with a larger offering incorporating storage, syncing, etc., it may drive overall customer engagement and revenues. In effect, it may be sacrificing a large market for an even larger market.

For Google, Microsoft’s announcement is a “good news/bad news” event. It legitimizes Google’s Apps office products because Google can now point out to hesitant customers “Of course it’s safe, Microsoft offers online products now.” This should certainly ease the evangelism burden Google has been carrying for its Apps. By the same token, however, Google now faces a true competitor; moreover, it faces one offering (presumably) a service completely compatible with the displaced installed product. Shortcomings in the Google product vis a vis Microsoft Office may now be more difficult to sell around, as prospects may not have to trade off functionality for price and convenience.

For end users, the Microsoft announcement is an unalloyed victory. More competitors always equals customer benefit. Competition drives functionality upward and prices downward: undesirable from the vendor’s perspective, but delightful from the customer’s.

For more detailed background on the Microsoft apps offering, see’s article, “Office Web Apps have Edge Over Google Apps”.

What Google Voice Means

I didn’t really understand some of the implications of Google Voice until I read Om Malik’s blog posting about Google Voice. His main point: Google is inserting itself between the phone user and the phone company. Calls from your mobile are routed through Google Voice; call recipients see your Google Voice number, not your mobile number.

I saw others assert that the SMS support in GV obviates the need to use the operator’s offering; I’m not sure I understand that, as it seems like you’d need to send an SMS-formatted message to GV in order for it to forward it on, which would mean you’d need the operator’s SMS service. If this does work as people assert, there will be an en masse desertion of operators’ SMS service, since they’re so expensive. And by the way, did I mention GV is free? (In the spirit of full disclosure, this post is being composed in Google Apps; my company uses the [free] email from Google).

The service offers lots of other capabilities: you can use one number for all calls to you, whether personal or business; you can get voicemail transcribed and emailed to you; you can set different rules for different people calling you (e.g., your spouse’s calls get straight through while calls from others go straight to voicemail). One thing Malik did not touch on is the opportunity to avoid huge roaming charges on your phone. Get a SIM card from the country you’re visiting, drop it in your phone, and direct your GV calls to the local number.

One reservation I had about using this in a business setting was this: OK, business calls go to my GV number. So a bunch of people I work with (both internal and external people) call my GV number when they want to discuss company business. What happens when I leave that job and move to another? People keep calling that number, expecting to talk to me about company business—except it’s no longer my company. I posed this question to a fervent GV user. His response? While I’m talking to you (via GV, of course) I’m IMing on Skype to a customer from my Skype account. People can separate person from role and can deal with any “confusion.” I guess it really is a free agent nation now.

One problem this would solve for me is multiple voicemail boxes. I have one for my company line and another with my mobile number. We use Vonage (which I love, BTW) and I have it set to simultaneously call the office line and my mobile number. Unfortunately, where the call ends up in terms of which voicemail box a message goes to seems to be random, which means I have to check two places. Far better is a voice account that distributes the call, but centralizes the other services like voice mail.

Google Voice demonstrates the power of cloud computing. This is an application that could only be put together and scale in an environment of enormous capacity. No individual company could ever bring this off, no matter how good it is at operating its data center. It’s a question of size, not skill.

GV also demonstrates how additional services can be layered onto a cloud infrastructure relatively easily, which is where cloud computing gets really exciting. While the opportunity to run traditional apps in a cloud environment brings benefits, it’s always the case that a platform shift opens up new applications that couldn’t be executed in the previous platform environment.

For example, the PC did not make its mark by running COBOL programs shifted from mainframes (though MicroFocus seemed to do ok with that approach); it made its mark by enabling applications never possible in a mainframe environment — applications like graphic design, financial analysis, and, yes, games. GV is the kind of application that the cloud platform makes possible.

Another cloud voice application I recently saw is called Twilio, which offers web-services based, Amazon-hosted telephony services that can enable putting telephone services into web pages. And of course, there’s RingCentral, which hosts a PBX in the cloud. Frankly, if I were a on-premises PBX provider, I’d be scared stiff. Telephone services are crucial, but hosting telephone services is not. Google will undoubtedly continue to explore how to integrate GV into its other offerings; one obvious place would be in the new Google Wave that was the hit of the recent Google IO Conference.

Obviously, mobile operators are not going to be enthusiastic about GV. I remember going to a meeting in the past (several meetings, in fact) about mobile services and the phrase that kept getting used was “who owns the customer?” The attitude captured in this question demonstrates arrogance—not to mention a perspective borne of monopoly service. The operators continue to attempt to restrict services to those they favor (or, indeed, provide), overlooking the fact that their services always suffer in comparison with others. It’s just a fact of life: operators are not nimble and creative; they’re lumbering and focused on execution.

Nevertheless, operators continue to regard mobile connectivity as something they own and control; furthermore, they are obsessed with not ending up a “dumb pipe.” What they don’t seem to recognize is that the creativity evinced by the explosion of new applications drives bandwidth use. I predict in 18 months or so, the operators will realize that owning a dumb pipe isn’t so bad when the world is trying to pour content through it.

What does Google Voice mean to users? I continue to discuss with people I meet that cloud computing is a new platform, not just a different hosting arrangement. The rise of the automobile didn’t mean that people could get to the same places they used to go by horse, only faster. It meant they could go to new places that they never could have gone to by horse. And the automobile didn’t just move people from one place to another. It transformed (there’s that word again—and remember, transformation isn’t gentle, it’s heady, attractive, and menacing, all at once) the way we live and work. To offer just one small example, fast food wasn’t really important in the geographically constricted circumstances of a horse-oriented economy. Nobody really traveled so much that they didn’t know local restaurants (and please, don’t bring up the Fred Harvey Company; it’s the exception that proves the rule). With cars, suddenly everyone was going everywhere, and a standardized, branded food offering made sense—much to Ray Kroc and Carl Karcher’s delight. And that’s just one tiny example out of a multitude.

Cloud computing isn’t just more of today’s computing done a little bit better, faster, and cheaper. It’s a different computing altogether. Keep that in mind the next time someone tells you that cloud computing will never displace the local data center because of X, or Y, or Z.

Bernard Golden is CEO of consulting firm HyperStratus, which specializes in virtualization, cloud computing and related issues. He is also the author of “Virtualization for Dummies,” the best-selling book on virtualization to date.

Follow everything from on Twitter @CIOonline