Down To Business: As IBM Reaches For Cloud, Where Next Microsoft?

It's a bit surreal to watch IBM come off as the plucky, self-deprecating maverick. That was the specter May 1 as CEO Sam Palmisano took the stage in Los Angeles with Google chief Eric Schmidt, both their heads squarely in the cloud.

They were there to talk up cloud computing, reminding the audience of a partnership the two companies announced in October to help universities promote large-scale, highly parallel computing practices among the next generation of programmers and system architects. Apparently, the IBM-Google alliance is moving beyond academia, as the two chiefs spoke in general terms about their plan to build a global network of servers from which consumers and businesses will access everything from the most basic e-mail and word processing services to enterprise-class processing capacity and management tools.

Google, with its Google Apps and rudimentary storage services, now plays mostly in the consumer market, but expect it to move aggressively into the enterprise, overlapping with IBM on some application and infrastructure services but ceding management, security, and other support services to its leathery partner. "The cloud has higher value in business," Schmidt said. "That's the secret to our collaboration."

As my colleague Paul McDougall reports (see story,"Google, IBM Join Forces To Offer Cloud Computing Services"), Palmisano was eager to acknowledge Google's momentum. "We're boring, they're exciting. We're slow, they're fast. We're fat, they're skinny," Palmisano joked, before emphasizing that both companies share "a common technical alignment." It's that alignment, around Linux and Internet standards, that should have longtime rival Microsoft sweating. A week after its $40 billion bid to take over Web giant Yahoo unraveled, Microsoft still depends on its Windows, Office, Exchange, and other mostly client-server franchises for the bulk of its profits.

Microsoft's jewel, of course, is Windows, and Vista has exposed a glaring flaw. As software gets more bloated (Vista contains more than 50 million lines of code), it becomes more difficult to deploy, scale, and manage, and it becomes more prone to breaking other applications. Some customers are looking for alternatives.

While CEO Steve Ballmer insisted last week that Microsoft is moving well beyond its client-server roots--that it can reach its ambitious goals in search, online services, and social networking without Yahoo--one observer offered a Clubber Lang prediction: pain. "Without a quick fix, Ballmer now has to truly lead the company through a painful and arduous period of reform--he can't just write a check and get the company back in the game," Forrester CEO George Colony wrote in a blog post.

That was the position IBM was in 15 years ago, when Lou Gerstner took over a proud company still too dependent on the mainframe and other bygone computing platforms. Gerstner fixated IBM on services and software, but one or two acquisitions didn't remake Big Blue. It was a wholesale cultural shift that included scores of acquisitions (as well as divestitures), a commitment to Linux and the Internet, and a strategy acknowledging that customers no longer accept single-vendor lock-in.

Don't cry for Microsoft just yet; its net income rose 12% last year to $14.1 billion, on 15% higher revenue of $51.1 billion. And although its "software plus services" strategy smacks of incrementalism, Microsoft is hipper to the cloud than people realize. It's "investing massively" in four new data centers, says senior VP Chris Capossela, and has begun offering "single tenant" hosted services to a handful of big customers. Coca-Cola Enterprises has signed for 70,000 cloud-delivered seats of Exchange and SharePoint. For small and midsize businesses, Microsoft plans to offer multitenant versions of CRM, Exchange, Office Communications Server, and SharePoint by year's end. Capossela predicts that half of Exchange users will get their e-mail from the cloud within five years.

So while comparing Microsoft favorably to IBM may seem unnatural, Microsoft is starting to get on with the kind of transformation IBM embarked on 15 years ago.

Rob Preston,
VP and Editor in Chief
[email protected]

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