With Azure, Microsoft Seeks a New Place in the Cloud

Microsoft's (MSFT) mobile strategy appears to be in tatters, especially with the failure of the Kin mobile handset. The company's online offerings also lag. Yet there is one thing the company still does very well: create infrastructure software for businesses.

Here too, however, danger looms on the horizon. Microsoft's strength in PC-based software faces an ominous threat from the shift toward network-based "cloud computing." The cloud approach undermines Microsoft's traditional advantage, which revolves around installing software on desktop and server hard-drives. With the cloud, software is often hosted outside corporate walls and accessed from datacenters via the Internet. That means lower hardware costs and more centralized data, which can be a big help for IT managers who oversee complex business applications.

Hello, Azure

To head off the threat, Microsoft has been abuzz about its cloud initiatives at the Worldwide Partner Conference (WPC), taking place week in Washington, DC. The centerpiece of Microsoft's strategy is the company's Windows Azure platform, which can be thought of as an operating system for cloud-based computing.

Azure is a "platform as a service," or PaaS, technology. It includes components to manage the critical functions of cloud-based applications, like load balancing, resource management, geo-replication and so on. With Azure, customers have two main options: They can deploy the technology through Microsoft's massive datacenters, paying-as-they-go for usage based on power, storage and bandwidth resources consumed. Alternatively, customers can use Azure in their own datacenters -- an approach called the private cloud which is preferred by many large enterprises and firms that need very high levels of security.

Enter the Azure Appliance

At the WPC conference, Microsoft introduced a new product that will be a key part of the private cloud: the Azure appliance. The Azure appliance is a hardware device makes it easier to enterprise customers to implement and coordinate Azure across thousands of servers within a datacenter.

Per usual, Microsoft has lined up a roster of marquee customers like eBay (EBAY) -- as well as partners like Dell (DELL), Fujitsu and Hewlett-Packard (HPQ) -- to help build confidence in Azure. In addition, business application companies such as Infor are using Azure to bring their technology into the cloud.

To be sure, Microsoft remains a laggard when it comes to cloud-computing, as evidenced by its oh-so-late, web-only Office application. While Microsoft pondered the future and fought to protect its Windows franchise, other providers, like Salesforce.com (CRM) and NetSuite (N), have become market leaders -- in no small part by leveraging the cloud as a simpler way to provision and use critical software applications.

But Microsoft's huge installed-base is a formidable advantage, and history teaches that the company often wins by playing catch-up. Given that many firms want to migrate to the cloud -- but have already invested heavily in Microsoft infrastructure -- Azure is likely to get plenty of traction in coming years. To emphasize the point, Microsoft CEO Steve Ballmer, said today that the company is "all in" for the cloud, and that its partners need to get up to speed. Better late than never, perhaps.