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How Will You Make Money in the Cloud?

It's getting serious now, this cloud computing stuff. It's not just the up-and-coming vendors or the Web-era giants (think Google and Amazon) that are offering some sort of Software-as-a-Service model. Oh, no. As of this week, there's an old-school player in this game in a serious way: Microsoft.

Microsoft is investing heavily in the cloud with Windows Azure. And some observers, at least, including one at analyst firm Forrester, believe that enterprises are ready to get serious about SaaS and start using it for critical applications rather than just messing around and experimenting with it. SMBs, presumably, are way ahead of their enterprise counterparts in terms of SaaS adoption, mainly because the cloud is a good model for modest SMB budgets.

So, there's money to be made in the cloud, right? Well, Microsoft thinks that there is -- or will be, anyway. And what's good for Microsoft is good for Microsoft partners, right? Well, maybe. It depends, really, on the type of partner we're talking about.

Pure hosting partners, if there are that many of them left out there, will probably need to diversify their business pretty quickly or find another line of work. Microsoft is in the hosting business now in a big way, and you know what that'll probably mean: impossibly low pricing from Redmond that no partner could ever match, at least not on an ongoing basis. Steve Ballmer said way back at the Partner Conference that the partner-hosting model had a future...but not as lucrative a future as Microsoft's own hosting business will have. Hint, hint.

But if hosting partners didn't know by now that they needed to diversify their offerings, they're probably not in business anymore, anyway, or won't be for much longer. The question, really, is how much partners should invest in datacenters and how much they should focus on hosting -- or whether they should continue to do it at all. In any case, as with everything else these days, the cloud is going to be all about services.

Well, of course it will be. But that brings up another question -- which services will those be? Microsoft is in that business, too, to some extent, with Azure. Companies can develop using tools in Azure and then have Microsoft host their applications -- all of which sounds great for customers and for Microsoft. But whither partners?

Oh, sure, there'll be opportunities to create custom applications, consult on SaaS strategies and develop specific vertical functions. But how much of those opportunities does Azure actually take away by giving customers more opportunity to work directly with Microsoft? And what exactly will those custom apps and vertical functions involve if SMBs prefer pre-packaged, minimally customized applications and enterprises are doing the development themselves with Azure? Will partners have to be content with referral fees and whatever consulting they can manage to squeeze out of accounts?

All of these questions, of course, seem to point to a worst-case scenario of Microsoft horning in on partners' turf and claiming the cloud for itself while leaving the channel high and dry. But we should remember that Microsoft has always relied on the channel to serve as its sales force and has, for the most part, been good to partners over the years. And, traditionally, what's been a moneymaker for Microsoft -- and Redmond clearly thinks it has a revenue driver in the cloud -- has also been a cash machine for partners. So, there's reason for optimism. In fact, there's probably more reason for optimism than for pessimism.

But there's also reason for concern, as there always is when a new model of computing emerges. It's time for partners to engage with Microsoft, to air their concerns and demand answers to tough questions. But it's also time for partners to get creative -- to develop business strategies that will complement Azure rather than work at cross purposes with the Redmond giant and its ambitious cloud plans.

The cloud is here -- whether it'll bring sunshine or rain for partners, though, remains to be seen.

How do you plan to make money in the cloud? How will you interact with Microsoft regarding Azure and cloud computing? Sound off at lpender@rcpmag.com.

Posted by Lee Pender on October 29, 2008 at 11:54 AM


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