Can Cloud Computing Be Bad For Microsoft?

Can Cloud Computing Be Bad For Microsoft?

Microsoft and Cloud Computing share a strange relationship. On one hand, Cloud Computing threatens Microsoft’s dominance in the personal computing space through its Windows OS and Office suite; on the other hand, Microsoft accepts the inevitable progress of Cloud Computing and is investing considerable resources in that space – some may even argue, a bit too much (See: Is Microsoft Taking A Risk By Putting All Its Eggs In The Cloud Computing Basket?). Now, analysts have started asking questions whether cloud computing can be bad for Microsoft’s bottom line.

According to Goldman Sachs analyst Heather Bellini speaking to Bloomberg, lower profit margins in cloud computing will adversely affect the company’s overall bottom line. This view is seconded by Jason Maynard from Wells Fargo Securities who said that Microsoft may not be able to produce outsized margins like before (See: Microsoft Shrinking Margins Loom as Cloud Push Lifts Costs: Tech). “Nothing will ever be as high as the old model,” Maynard said.

Forbes has laid out Microsoft’s problem clearly in its feature titled Cloud Could Rain On Microsoft’s Profit Parade. “Microsoft has traditionally enjoyed very high operating profit margins on its enterprise software products like the Office suite as the incremental costs of producing one more copy of the software are very low. However, hosting software on servers in its data centers and offering it over the cloud is more expensive than simply selling packaged software as it incurs operating cost throughout the usage period,” it says.

Moreover, it’s not only cloud computing that’s hurting Microsoft’s margins. The company’s bestselling X-Box gaming consoles, though bringing in revenue dollars, are considerably more expensive to manufacture than software, thereby affecting profitability. Thus, although top line growth is happening, the bottom line has been taking a beating, and will continue to in the foreseeable future. Only if Microsoft manages to get more customers for its cloud computing offerings can it generate economies of scale to improve margins.

Now, we come back to the question posed in the title of this article: can cloud computing be bad for Microsoft? If we consider that the technology is affecting the company’s stranglehold on enterprise software, then it certainly is. However, that does not mean that Microsoft wash its hands off cloud computing. If it did, it may very well end up as the Kodak of its age. Even with the reduced profit margins, it makes sense to have a prominent presence in cloud computing. After all, a smaller share of a growing pie is better than a larger share of a shrinking one. This has resulted in Microsoft becoming, as I stated in an earlier article, “Cloud Computing’s Unlikeliest Supporter” (See: Cloud Computing’s Unlikeliest Supporter).

By Sourya Biswas

sourya

Sourya Biswas is a former risk analyst who has worked with several financial organizations of international repute, besides being a freelance journalist with several articles published online. After 6 years of work, he has decided to pursue further studies at the University of Notre Dame, where he has completed his MBA. He holds a Bachelors in Engineering from the Indian Institute of Information Technology. He is also a member of high-IQ organizations Mensa and Triple Nine Society and has been a prolific writer to CloudTweaks over the years... http://www.cloudtweaks.com/author/sourya/

2 Responses to Can Cloud Computing Be Bad For Microsoft?

  1. I guess we can all see that the cloud is here, and here to stay. Microsoft need to make sure they adapt and go with the times. We live in a very different computing world than we had 15 years ago. Microsoft do not want pull off a ‘Kodak’. I’m sure they want let that happen….. http://ow.ly/8wwcl

Comics

At CloudTweaks, we're plugged into the cloud, the internet of things and all that the web has to offer. From wearable technology, to mobile computing, cloud computing and big data, CloudTweaks is your source for updates and news on the most innovative technology.

Popular

Top Viral Impact

Cloud Infographic – Cloud Computing And SMEs

Cloud Infographic – Cloud Computing And SMEs

Cloud Infographic – Cloud Computing And SMEs SMEs (Small/Medium Sized Enterprises) make up the bulk of businesses today. Most cloud based applications created today are geared toward the SME market. Accounting, Storage, Backup services are just a few of them. According to the European Commission, cloud based technology could help 80% of organisations reduce costs by…

Cloud Infographic: Cloud Public, Private & Hybrid Differences

Cloud Infographic: Cloud Public, Private & Hybrid Differences

Many people have heard of cloud computing. There is however a tremendous number of people who still cannot differentiate between Public, Private & Hybrid cloud offerings.  Here is an excellent infographic provided by the group at iWeb which goes into greater detail on this subject. Infographic source: iWeb About Latest Posts souryaSourya Biswas is a…

Technology Advice Report: 2014 Business Intelligence Buying Trends

Technology Advice Report: 2014 Business Intelligence Buying Trends

Technology Advice Report: 2014 Business Intelligence Buying Trends For nearly every business, the concept of business intelligence is nothing new. Ambitious organizations have been searching for any type of data-driven advantage for some time now – perhaps for as long as they’ve existed. However, the historical use of competitive intelligence pales in comparison to the…

2014 Future Of Cloud Computing Survey Results

2014 Future Of Cloud Computing Survey Results

Engine Yard Joins North Bridge Venture Partners, Gigaom Research and Industry Collaborators to Unveil 2014 Future of Cloud Computing Survey Results SAN FRANCISCO, CA–(Marketwired – Jun 25, 2014) – Engine Yard, the leading cloud application management platform, today announced its role as a collaborator in releasing the results of the fourth annual Future of Cloud Computing Survey,…

Featured Sponsors

Salesforce Service Cloud: Air Traffic Control For Your Customer

Salesforce Service Cloud: Air Traffic Control For Your Customer

Salesforce Service Cloud One of the greatest benefits of the increasingly reliable and ubiquitous state of cloud technology is the removal of business silos and the consolidation of information flow, both in-house and on the road. This is of particular importance to the many different types of professionals whose work involves customer relationship management (CRM).…

Sponsors

The Future Of Work: What Cloud Technology Has Allowed Us To Do Better

The Future Of Work: What Cloud Technology Has Allowed Us To Do Better

The Future of Work: What Cloud Technology Has Allowed Us to Do Better The cloud has made our working lives easier, with everything from virtually unlimited email storage to access-from-anywhere enterprise resource planning (ERP) systems. It’s no wonder the 2013 cloud computing research IDG survey revealed at least 84 percent of the companies surveyed run at…

Placement Opportunities - Find Out!

Established in 2009, CloudTweaks is recognized as one of the leading influencers in cloud computing, big data and internet of things (IoT) information. Our goal is to continue to build our growing information portal, by providing the best in-depth articles, interviews, event listings, whitepapers, infographics and much more.

You can help continue to support our community by social sharing, sponsoring, partnering or contributing to this great educational resource.

Contact

CloudTweaks Media
Phone: 1 (212) 763-0021

Join Our Newsletter