Ray Ozzie on service strategy and economics of cloud computing

In a recent interview by Om Malik, Ray Ozzie discusses Microsoft's service strategy and economics of cloud computing.

Desktop is not dead: He reaffirms that desktop is not going away but the desktop needs to be more and more network and web aware to support the computing and deployment needs.

"A student today or a web startup, they don’t actually start at the desktop. They start at the web, they start building web solutions, and immediately deploy that to a browser. So from that perspective, what programming models can I give these folks that they can extend that functionality out to the edge?........There are things that the web is good for, but that doesn’t necessarily mean that for all those things that the desktop is not good anymore."

Microsoft did try to ignore the Internet in the early days and they obviously don't want to repeat the same mistake. The desktop is certainly not going away, but there are plenty of innovation opportunities around the operating system. I am happy about the fact that Microsoft is considering user-centric approach for the desktops against an application centric one.

Economics of cloud computing: There are massive efforts already underway in this direction and we have seen some results such as the Microsoft Live.

"I think we’re well positioned, because we have a selfish need to do these things, and because we have platform genetics. We have the capacity to invest at the levels of infrastructure that are necessary to play in this game. So I think we’ll be well positioned."

This is simply the truth that people need to recognize. The cloud computing is about the scale and the scale requires large investment in infrastructure with no guaranteed near-term return. This is one of those boats that does not seem to have an obvious early ROI but you don't want to miss that boat. Microsoft certainly will be well positioned from the consumer and the supplier sides. They can run the productivity suite and other applications on the cloud and at the same time provide opportunities to the partners and ISVs to author and run applications on the cloud.

"But, we have every reason to believe that it will be a profitable business. It’s an inevitable business. The higher levels in the app stack require that this infrastructure exists, and the margins are probably going to be higher in the stack than they are down at the bottom."

The business value proposition of composition on cloud, the ability to build applications on this platform, is tremendous and that's the revenue stream Microsoft could count on. The profit expectations from the street are inevitable and there is no room for loss but raising the price at the bottom of the stack would increase the barrier to entry and competition at the commodity level would yield thin margins and risk slow adoption. He cites Amazon's strategy to set the price low despite an opportunity to raise it without risking to lose customers.

Cloud computing is not a zero sum game but organizations will be forced to make money somewhere to sustain the infrastructure investment and on-going maintenance and perhaps rack a decent profit on top of it.