Broadband Developments

As the battleground between Microsoft and VMware takes shape with the launch of Microsoft’s Hyper-V, I’ve talked about what VMware should do as well as how Hyper-V could prevail. While this is a critical battle for both companies, it is only a precursor for Microsoft as Google looks to be launching the cannibals of commoditization at Microsoft’s core applications.

This morning a very interesting article on online office applications appeared in Computerworld. While the article is a feature assessment of three online office applications (Google, ThinkFree and Zoho), the strategic implications of these innovations become obvious in the first paragraph:

For quite a while, Web-based suites — which offered word processing, spreadsheets, presentations, and other tools associated with desktop office suites — were extolled not because they did these things well, but because they could do them at all. But the three major competitors, Google Docs, ThinkFree, and Zoho, have all made major improvements in recent months. They’re becoming both broader, with more applications, and deeper, with more features and functionality in existing apps.

This takes me back to a Computerworld blog discussion and Nicholas Carr’s new book The Big Switch. Carr argues in The Big Switch that enterprise IT is about to get sucked into the cloud of utility computing, similar to how electricity production went from strategic industrial age differentiator to ubiquitous commodity as access spread and service providers expanded their coverage.

That switch would be a major disruption to the likes of Microsoft, as the world of massive shrink-wrapped and pre-installed software for ever larger hard drives has been very good to the Redmond Empire. It has allowed Microsoft to bundle its way into waves of innovations while crushing rivals. Its ability to assimilate and crush reminds me of Ancient Rome.

As I mentioned a couple days ago in Microsoft Unleashes the Cannibals, cloud computing gives new entrants the ability to deliver software as a service and change the economics of the software industry. And I think that both Microsoft and Google are well aware of the enablers, the potentials and the new stakes.

I think Microsoft is bracing for the first formidable cannibal assault on its core suite of applications. Yes, Google may do to Microsoft what Hyper-V is attempting to do to VMware and what Microsoft has done to others for decades. The outcome of this assault promises to change the critical requirements of enterprise computing, spur new innovation and make computing more affordable and accessible for even more users.

Clearly Microsoft is a well-funded empire populated with a lineage of brilliant strategists/generals. It won’t go away. But I think it will have to adapt to the switch as Carr calls it; and the way it fights off cannibalization will impact Microsoft, the software industry and the world of computing.

With software from the clouds will come new demands, new players and new opportunities. Appliances that enhance security in the clouds, make compliance more manageable and enhance flexibility and control will become even more strategic. Specialized hardware and ASIC races between various “one trick pony” category players will become increasingly uncommon. Service providers will ultimately out-innovate many enterprise data center teams.

I think this process is already underway, as some enterprises have already started commoditizing their shops, outsourcing certain roles, and establishing ever more bureaucratic technology evaluation committees. Security pundit Chris Hoff may blame analysts for quashing innovation, but I think enterprise IT is under even more scrutiny for justifying innovation.

Google’s cannibals will also likely impact more than Microsoft. They may transform the increasingly reactive and incrementalist IT industry already juggling legacy purchases with emerging new demands under increasing resource constraints. They may force change at a critical time for the IT industry.

The shift to cloud computing could unleash an explosion of innovations in applications, application delivery, core network services, traffic management and security. It promises a new generation of technology leaders, opportunities and market dynamics and perhaps even new types of service providers. No doubt Microsoft will survive and ultimately thrive; the real question is what its business will look like after the aftermath of its coming battle.

You can read my disclaimer at About Archimedius.

One of the most powerful weapons used by dominant technology companies is the power of commoditization. Established players with product offering breadth can crush single product line competitors by offering loss leader bundles with much lower prices for similar products. The net effect of the loss leader bundle is to make a competitor’s single line into a commodity, which slows revenue growth and creates new demands for innovation and spending.

In How Hyper-V could beat VMware I talk about this dynamic and the additional pressures placed on VMware when Microsoft launched Hyper-V, its new virtualization platform. Of course, VMware can fight back and win, as I mentioned in How VMware could beat Microsoft’s Hyper-V. The outcome may come down to the interplay between marketing and technology strategy, as differentiation is the best weapon against the cannibals of commoditization.

VMware cannot beat Microsoft, but its technology can set up Microsoft for plenty of commoditization pressures from Google, Apple and others. As I mentioned to Richard Stiennon at his Network World blog on Microsoft last week, virtualization is at best a double-edged sword for the Redmond Empire.

Virtualization decouples the powerful link between hardware and software that has played to Microsoft’s OS/applications core strengths for decades. That can enhance the addressable market by allowing any hardware to run Windows, yet it also gives users more options to say no or pick and choose what they use and when.

The fact that Microsoft already has considerable market share means that user choice could have more downside than upside. And Apple’s reputation for developing sticky applications and interfaces and endpoints, combined with Google’s recent entry into enterprise applications in the cloud are clear threats despite Google’s walled garden approach. As virtualization spreads it increases the economics of cloud computing with unprecedented levels of efficiency and flexibility. Service providers become more strategic, even to core enterprise application delivery, because they can dramatically reduce IT costs.

Applications could become free to those willing to accept advertising, and delivered from the cloud with minimal hard drive requirements.

I’ve posted a collection of posts about cloud computing at Archimedius.

The emergence of enterprise software as a service means layers of disruption to Microsoft’s seemingly omnipotent channel of pre-installed hard drives and shrink wrapped add-ons. It means a level playing field for innovators and disruptors; perhaps to an extent that Microsoft hasn’t seen for decades. Ironically, Google has the potential to turn the cannibals loose on core Microsoft applications and even threaten Windows and transform the software industry.

In the clouds are herds of cannibals ready to be unleashed on the dominant hard drive and shrink wrapped software players. Microsoft risks becoming a victim to a strategy that it has used ever so effectively against some once-mighty innovators.

VMware is a critical enabler of this new revolution in computing. While it doesn’t threaten Microsoft directly, it is a critical component in a more powerful cloud computing marketplace. I think that is why Hyper-V came out as a loss leader bundle. Microsoft would like to slow innovation by commoditizing the hypervisor, dethroning VMware and exercising more control over virtualization innovation.

While pundits argue about the success of Microsoft with Hyper-V over VMware, the real battle with Google looms on the horizon. And it may be simply too late to slow the march of progress that VMware started. The hypervisor genie is now out of the bottle and cloud computing innovations will be delivered with or without VMware.

Even if VMware loses it could become the accelerant that gives software as a service new potentials: VMware’s worst case scenario may be being immortalized with Leonidas and his critical stall of the Persians at the Battle of Thermopylae. If it wins, Microsoft will have even bigger issues to contend with, including the cannibalization of its own core business.

That kind of ironic twist is what keeps technologists free from summer boredom.

Yet the proliferation of virtualization and cloud computing in the short term isn’t a done deal, although it is inevitable in the long term. There are significant barriers to true VMotion, virtualization security concerns and change management and compliance requirements only recently being addressed by private companies like Tripwire, 3 Leaf Systems, Xsigo Systems, Blue Lane (my alma mater) and others, who I’ll be talking about in future posts.

As VMware reaches beyond virtualization-lite in production data centers and these private players grow, Microsoft will be under increasing pressure by a new crop of application service providers based around the world with new cost structures, new ideas and new access to a growing market enables by cheaper hardware and shrinking endpoint/access requirements. Applications become as available as electricity and network access.

You can read my disclaimer at About Archimedius.