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Virtualisation and hosted applications : Microsoft's Perspective

Microsoft recently announced the launch of a new data centre in Ireland to support its growing online business. This new data centre will comprise tens of thousands of servers pumping out web-based applications to internet users (in particular business users) all over the world.

This launch represents a revolutionary shift in the IT marketplace creating a high quality service which allows business users access to their desktop from any location. This in turn not only puts a greater emphasis on the telecoms industry to provide efficient and effective internet connections, but also produces key long term business benefits for the industry as a whole.

However, a question to be answered is whether businesses will be able to see the real benefits of such a shift in the industry. Given that online applications produce a seamless system, home-workers for example will benefit greatly by be able to access more of an office experience at home and thereby maintain their productivity levels. This is a clear advantage for larger organisations; but will SME’s be able to reap the same benefits? With this increased investment, will they perhaps have to compromise on cost by opting for weaker networks and rely on cheaper services?

The following series of discussions will feature the nature, pros and cons of Microsoft online apps for both larger corporations as well as SMEs. The first section will focus on the direction that Microsoft Inc is taking by launching its software online in relation to other major online players such as Google.

1) What direction is Microsoft going with its online business

Microsoft’s online business, particularly on the search front is dwarfed by Google’s market share in search advertising industry. Through providing its product portfolio on the internet enabling individuals to use software such as Word and Excel without having to install them, the company is making a stand where its niche has been most pronounced since its inception. Unlike Google, Microsoft has proprietary rights to the most successful software package in the world which can be utilised to revive their online presence. If successful, this will give Microsoft back the competitive advantage in online business by reflecting the success of their software onto a highly in-demand market of online applications proven through ventures such as Google docs as well as other independent providers.

Microsoft will therefore become a rental business but unlike Google it won’t be relying solely on advertising hence reflecting a charge for the use of its services. Users will most likely be subject to a monthly subscription fee to get all the Microsoft software limiting future possibility of fraud and illegal use of licences.

Through launching this service, Microsoft is capitalising on its prominence in the software world and adapting it to evolve with the fast moving online business environment. By providing high quality software at a manageable cost, users (in particular business users) are going to find real benefit from the service. Nevertheless there are a plethora of issues to be considered that surround Microsoft’s next step which will be followed in next parts of this series of discussions.

2) What implications are Microsoft’s online venture and services of that nature going to have on the business IT landscape in general?

The IT industry is moving down the rental services market now made possible by advances in internet connectivity technology. With features such as ADSL2+, line bonding and cheaper fibre businesses large and small businesses can now ensure they have suitable connectivity to be able to benefit from the offerings of conventional Software as a Service in all its shapes and forms.

Businesses are going to have to get used to no longer having IT as a capex cost or an asset on their books. In fact, IT expenditure should be looked at as a more a direct cost for providing services. This is a result of proprietary benefits of technology fading with maturity and becoming utility natured necessities that are crucial to the everyday running of the business. This approach will provide flexibility but in most cases will work out more expensive in the long term as ‘assets’ such as software can’t be made to operate outside their standard useful term.

Hardware suppliers are already taking notice of this shift as hosting companies increase their expenditure in new blade and infrastructure equipment. This is in response to businesses looking to outsource their server requirements by renting virtual servers as a more efficient alternative. With further advances in hardware technology, it is now possible to run many computers on one piece of hardware providing better return on investment and a better use of space which has a direct impact on businesses’ bottom line.

3) What are the pros of Microsoft’s online software operation?

Being able to access the world’s most ubiquitous office software on the internet has a number of key benefits for Microsoft and subsequently the users of this service:

• Users always receive the latest edition software by not needing to individually update/upgrade

• Microsoft receives a monthly revenue which is more reliable than the ad-hoc basis at the moment where people don’t necessarily upgrade to the next version

• PCs don’t have to become more powerful to run Microsoft applications as web based products use less processing power

• Users don’t have to worry about saving their data or backing it up as major data centres such as Microsoft’s will store all the data making it much more secure and reliable.

By launching its software online, Microsoft will have more control on the distribution channel as it is in essence as centralised as it can possibly be. This heightened control over the entire software supply chain means giving away a smaller margin and providing better support to its customers through reducing response lead times.

From the customers’ point of view, they will be able to have more flexibility on licensing resulting in keeping operations legal being easier to manage. By paying a ‘fixed’ and regular subscription fee that can be set up in the beginning, businesses can have access to a bundle of software that in the past needed to be paid for separately each time a new upgrade entered the market in order to stay on the ball with changes in the landscape.

Another key benefit of this service is that businesses won’t have to invest much in their existing infrastructure directly associated with this shift. In order to move to this model they can make older PCs and servers work harder by moving to a cloud based environment using the hardware as more of an output device than a processing tool.

4) What are the dangers and negative effects associated with moving to online software between concerning the network of players in the IT industry?

It is not possible to review Microsoft’s online service provision as an exclusive issue. Due to a remarkably high level of interdependence in the IT industry, such a move comes with implications on not only the provider (Microsoft) and users (subscribers) but also a collection of other stakeholders that will be affected by such a fundamental step.

Although Microsoft is talking about letting its partners sell its rental model initially, it is in effect moving more to a direct relationship with the users much like the way that Google deals with its customers. From the supplier’s perspective, this will have massive repercussions on the industry specially when there is a good chance other software providers will follow suit. Other companies that can be affected are complimentary service providers such as antivirus. These products may be deemed obsolete as software is no longer stored within company networks.

Another big factor is the necessity to have excellent communication links because if the internet connection goes down for any reason the companies operations will not be limited, but put on halt altogether. No being able to carry out any business for a particular amount of time is a risk majority of companies are not willing or can not afford to take. To counter this effect it is very important that investment is made in the network to ensure uptime with resilience and automatic fail over facilities using multiple carriers.

To sum up, Microsoft’s online software provision is not filling a gap in the market. Nevertheless if successful it would fill and maintain a respectful position in the online software provision arena and has all the potential to be the final step in transforming the entire software industry to a live cloud base accessible by users from anywhere at any time. The benefits of this are quite clear with more centralised distribution and a quicker response to upgrades and advances in software technologies. However, businesses should make certain they are moving forward with technology as a whole and not only with SaaS; this means taking into consideration other aspects such as resilience in connectivity and reliable support infrastructure.