The Allure of Azure

With a competitive pricing model established and different licensing options on the table, partners are starting to see how Microsoft's cloud-computing offering can drive new business.

Microsoft's channel program is in flux on several fronts. The highest-profile set of changes has to do with the change of the Microsoft Partner Program to the Microsoft Partner Network (MPN). For more on this transition, see "From the MSPP to the MPN." While those changes will affect partners in many ways, they mostly change the labels that partners use to distinguish themselves and should have impacts around the edges of partner businesses.

Another program has the potential to unleash a powerful wave of change upon Microsoft's channel, and that's the Microsoft Azure platform. Microsoft's cloud-computing infrastructure will require partners to imagine new ways of doing business with their customers and with Microsoft, while facing competitors made more agile by the technology. Azure and its competitive cloud-computing models -- from Inc., Google Inc., IBM Corp. and others -- have the potential to upend the logistics of going into the computer business. No more will channel competitors have to find ways to fund large infrastructure outlays. Now, if you can come up with the idea -- and hire the software development talent to execute it -- you can leave the physical infrastructure to Microsoft or other cloud providers on a pay-as-you-go basis.

At least that's the promise. There are a few missing pieces. One is the assurance that Microsoft's infrastructure will hold up under load when it goes into production in November and as usage grows in the following months and years. Another area of concern surrounds security, data privacy and the national laws in these areas that affect the way applications can fail over from one of Microsoft's global data centers to another. Those questions won't be answered, or even take full shape, until the whole system is live for a couple of years. Uncertainty about both will provide opportunities for enterprising consultants to earn their fees opining on which apps are appropriate for Azure and which apps aren't.

Until July, pricing for Azure was also a complete unknown. Now, however, enough pricing information is available for partners to begin evaluating how they could work the Azure platform into their businesses.

How Much Will It Cost?
Microsoft laid out the pricing for its Azure platform in detail in July at the Microsoft Worldwide Partner Conference (WPC). Remember, this is Microsoft we're talking about -- the company that takes a new swing at simplifying its traditional, on-premises licensing every year to address customer complaints about complexity -- so wrinkles abound. Still, the picture is clear enough that an early consensus is emerging: The pricing is competitive and compelling when compared to Amazon Web Services, the first mover in monetizing cloud-computing resources.

Microsoft Azure is broken into three main pieces. Windows Azure is the operating system in the cloud that developers can write to and from which they can consume services. Then there's SQL Azure, an online set of database services. Finally, there's .NET Services for stitching together services within applications or between apps, either online-to-online or online-to-on-premise.

For the moment, the services are free for partners and customers to test because Azure is in the community technology preview (CTP) stage. At the WPC, Microsoft released the following consumption-based pricing for the services when they become generally available later this year:

Windows Azure
• Computing: $0.12 per hour
• Storage: $0.15 per gigabyte per month stored
• Storage transaction: $0.10 per 10,000 transactions
• Bandwidth: $0.10 in/$0.15 out per gigabyte

SQL Azure
• Web Edition Database, includes up to 1GB relational database: $9.99
• Business Edition Database, includes up to 10GB relational database: $99.99
• Bandwidth (both): $0.10 in/$0.15 out per gigabyte

.NET Services
• Messages: $0.15 per 100,000 message operations, including Service Bus messages and Access Control tokens
• Bandwidth: $0.10 in/$0.15 out per gigabyte

A Role for Partners
With its pricing announcement at the WPC, Microsoft signaled a couple of important things about its partners. While Azure is primarily a developer play, partners will be key. Partners are Microsoft's sales force, and releasing pricing at the WPC, when partners are paying closest attention, gives the Azure pricing model mindshare when it counts. The second is that, although pricing may be similar to Amazon's, Microsoft is marketing Azure to partners first, rather than to customers.

Hard as the transition to cloud infrastructure will be for partners, at least with Microsoft there's an effort to figure out a way to do it through them, rather than over them. "The services transformation is happening in the market no matter what Microsoft does," says John Betz, director of product management for Microsoft Online Services. "I think what you hear from us is deliberate dependence on partners. As a company with 640,000 partners in the world [producing] 95 percent of our revenues, it would be foolish for us to try to do it without partners."

Microsoft rolled out several promotions to get partners started. The marquee promotion is a 5 percent discount on Windows Azure compute, SQL Azure and .NET Services for members of the MPN. Another promotion, for developer partners who subscribe to the MSDN Premium service, involves resources for testing cloud-based apps and development. In an effort to accelerate development, Microsoft also launched two promotional offers:

  • Core: Includes Windows Azure compute hours and storage, .NET Services messages, and bandwidth in the base unit
  • Extended: Includes Windows Azure compute hours and storage, SQL Azure database, and .NET Services messages and bandwidth in the base unit

Service-Level Agreements
Until the Azure platform has a few years of production data under its belt, Microsoft's assurances of reliability will be nothing but promises. But, by committing to service-level agreements (SLAs), at least Microsoft is forcing itself to back its promises with real effort. The SLAs announced in July are:

  • Compute Connectivity: 99.95 percent guarantee
  • Storage: 99.9 percent guarantee
  • Automated Service Management: Automatically re-instantiates apps when they shut down, without requiring the subscriber to constantly monitor the platform for shutdowns.

Business Models
Microsoft's partner community is diverse, and the company is already thinking about how different subsets of that community can increase profits by leveraging Azure.

According to Microsoft's materials:

  • Independent software vendors (ISVs). ISVs can quickly and easily build, deploy, scale and manage Web applications and services using Windows Azure, SQL Azure and .NET Services. ISVs will have the following business opportunities:
    • Avoidance of large capital expenditure in infrastructure when delivering Software as a Service (SaaS) offerings to customers
    • More agility by quickly scaling up and down as business needs dictate
    • Augmentation of existing on-premises applications using cloud services to generate recurring revenue
  • Web agencies and value-added providers (VAPs). Web agencies and VAPs can quickly and easily create, deploy, manage and distribute Web applications and services. The business opportunities for Web agencies and VAPs are these:
    • Ability to reach customers unwilling to incur the infrastructure cost required to support Web marketing efforts
    • Leveraging the interoperability of Windows Azure, SQL Azure and .NET Services to recruit the best talent with skills to write in either .NET or PHP
    • Experimentation with new innovations made possible by reliable and scalable business class infrastructure provided by the Windows Azure platform
  • Custom software developers (CSDs). CSDs can build solutions for customers that use the Windows Azure platform to simplify the infrastructure requirements for their projects. The business opportunities for SQL Azure are these:
    • Increased agility by quickly building, hosting and managing solutions built on Windows Azure, SQL Azure and .NET Services
    • Expanded reach of software solutions to customers unable or unwilling to incur the cost of in-house deployment or investment in hardware
    • Ability to deliver applications in a SaaS model without having to maintain their own data centers
    • Ability to extend value to customers by augmenting current applications with services based on Windows Azure, SQL Azure and .NET Services
  • OEMs. OEMs can bundle backup services with their devices to generate a reoccurring revenue stream.
  • Value-added resellers (VARs). VARs support and integrate ISV applications and influence the customer decision to select Windows Azure platform applications, and the Microsoft ISV ecosystem provides VARs and systems integrators with offerings that they can provide to their customers.

Prashant Ketkar, director of product marketing for the Windows Azure PMG, says the value proposition is most obvious for ISVs. "They now have a platform to deliver their Software as a Service in a globally reachable manner," Ketkar says. These are prime customers for the pay-as-you-go, or consumption-based, pricing models. If business takes off, they'll have the cash flow to pay for the scale. If not, ISVs are out very little. "If you're a start-up developer, for them, this is it," he explains. "Why invest in the capital of buying hardware or software?"

A little less obvious, but also fairly compelling, is the opportunity for systems integrators and custom application developers. "Now I can go to my customer and talk to them about solutions, not necessarily about having to invest in the capital to buy hardware and software," Ketkar adds.

One area where Azure's possibilities aren't yet clear is in the existing hosting space.

Those thinking about hosting their Web site using Windows Azure likely will find Windows Azure services to be expensive overkill, according to an MSDN forum post. "I doubt there are many hosting providers who would appreciate you calculating the next Mersenne prime between serving up Web pages," forum participant Neil Mackenzie wrote. "The practical reality is that neither Azure nor Amazon Web Services are [price] optimized for hosting a simple Web site because it costs a lot more to support their virtualized platforms than it does to support a virtual directory."

That said, executives at several hosting partners report that they're evaluating the Azure platform and expect to find ways to leverage it to enhance their own businesses. As for the overall opportunity, estimates are all over the map. Ketkar says analyst estimates range from a $20 billion to $50 billion opportunity now to a $100 billion to $150 billion opportunity in 2013.

Whatever the top-line number, Ketkar says the lion's share of the market will belong to the ecosystem: "We think that the majority of that -- 60 [percent] to 70 percent -- is in the partner ecosystem. The rest is what the cloud providers would make -- Microsoft, Google, Amazon, hosters."

Comparative Pricing
With so many pricing variables, it sounds fairly complex to calculate what it'll cost to use Windows Azure services on a monthly basis. The Windows Azure team blog hinted that Microsoft plans to relax the pricing for customers that require "payment predictability" and can commit to a certain level of use.

"While consumption-based pricing provides great flexibility, we've also heard it introduces a level of unpredictability, and some customers prefer other options," the Azure team wrote. "At launch [at the Microsoft Professional Developers Conference (PDC)], we'll share details of subscription offers that provide payment predictability and price discounts that reflect levels of usage commitment."

Partners that will be most involved with the subscription model are systems integrators, Ketkar says. "Systems integration companies who build consulting services or do systems integration work for large enterprise or midmarket customers typically respond to a request for proposal," Ketkar explains. "The customer wants to know, 'Is it going to cost me $20,000 to implement that solution through a systems integration partner and then $2,000 on an ongoing basis per month?' The unpredictability of the consumption model isn't good. For them, a subscription-based or predictive pricing model becomes very, very important."

In a blog posting, Drue Reeves, Burton Group vice president and research director, applauded the predictive-pricing option: "IT governance will demand that predictable-cost controls be put in place. An all-you-can-eat-within-limits model seems to fit the bill. This could be a good move by Microsoft."

Microsoft's cloud-computing pricing is somewhat similar to that of Amazon Web Services, Reeves wrote. However, Microsoft has thus far failed to specify any pricing distinctions based on the level of computing resources consumed by users.

"The missing part in the model is the size [or type, in Amazon terms] of the compute platform," wrote Reeves. "I don't think Microsoft would allow an application that requires five times the amount of memory or CPU time to be the same price as another application with lesser requirements."

Paul DeGroot, an analyst with Directions on Microsoft, also says the pricing appears comparable to what Amazon is offering and could be a great deal for customers. "It's potentially saving people a lot in terms of power, costs, etc.," DeGroot says. One area where partners can get involved -- or where they may be drawn in -- is on licensing. "In some cases, [customers] might be paying for on-premises and online [at the same time]," he adds.

Microsoft's Ketkar acknowledges that the Azure team must eventually develop a version of Azure pricing that can slot into the volume licensing agreements that represent the way enterprises currently buy software. "We're committing, over a period of time, that we'll integrate Azure into the volume licensing agreements. There's a ton of complexity involved, which is why we won't have that ready at PDC," Ketkar says.

As for a price battle with Amazon, Ketkar downplays comparisons. "We didn't have a goal to get under Amazon's prices," he says. "The rate-card comparison in some ways isn't interesting in my mind. Let's say I took a small line-of-business application, and I moved it to the Windows Azure world. Let's say it cost me $10,000 to run it on-premises, and it now costs me $5,000 to run it in the cloud environment. Whether [Microsoft] charges you 10 cents or 12 cents is immaterial. You're saving $5,000."

Decision Tree
Wayne Beekman, principal with Gold Certified Partner Information Concepts Inc. in Herndon, Va., agrees that questions about which platform -- Amazon versus Microsoft -- has the better price miss the point. But he also says those conversations remain premature, even with Microsoft's pricing on the table. Beekman's firm has been evaluating Azure and plans to begin developing custom solutions for customers by using the platform shortly after it's available.

"I think the real issue is nobody knows what it's really going to cost when you put a solution in the cloud," Beekman says in reference to the variables of application load, message traffic, storage efficiency and application popularity that all affect online application pricing.

For Beekman, who sees tremendous opportunity for small partners in the Azure model, the question will be about moving the right applications to the cloud. He hopes to leverage his firm's expertise to help customers determine which applications go up on Azure.

"You can forklift applications easily," says Beekman, referring to the process of moving an on-premises application into the cloud. "The question is, are you going to get that instant scalability from it without architecting it? You're probably not. You kind of have to go through a decision tree."

Decision trees, after all, are the lifeblood of the trusted advisor, and Azure promises to present decision trees in abundance.