Microsoft Offers Cloud Device to Battle Google and Amazon

Microsoft CEO Satya Nadella. Microsoft

Microsoft will soon offer a hardware appliance that will let businesses run something akin to its Azure cloud computing service inside their own data centers.

At a press event in San Francisco, Scott Guthrie, who oversees Microsoft’s cloud business, said that the appliance is based on hardware from Texas-based computer-server-seller Dell, and that it will arrive sometime next month. The idea is that the hardware device will make it easier for businesses to run software both inside their own data centers and atop Azure, an online service that provides access to computing power over the net.

In years past, Microsoft indicated that it would offer such an appliance through Dell and other partners, but this effort never quite came to fruition—until now. The news arrived as Guthrie and Microsoft CEO Satya Nadella laid out Microsoft’s larger strategy for competing in a modern world where businesses are increasingly moving their software onto cloud computing services.

After pioneering the modern notion of cloud computing, Amazon is still the market’s dominant player. And Google, which conceived so many of the underlying technologies that drive this market, is now pushing its own cloud services in a big way. But Nadella believes that Microsoft can challenge these web giants, not only because it can match—and perhaps even exceed—the scale of their online operations, but also because it can help businesses setup and run their own own software and hardware in their own computer data centers. “This,” Nadella said on Monday, “is something that only Microsoft does.”

The pitch is that businesses are a long way from moving all of their software onto cloud services—for reasons of privacy, security, cost, and, well, inertia, they will continue to run applications on their own hardware—and that Microsoft is in a unique position to help them do so in a way that complements their use if the cloud. Yes, companies like HP, IBM, and VMware have made a similar pitch, but Nadella’s argument is that none of these companies run cloud services at “hyperscale.” In other words, because Microsoft operates such a wide network of data centers, it can compete with Amazon and Google on price, and it can reach businesses in more locations worldwide.

According to its latest financial earnings report, Microsoft’s cloud business is pulling in about $4.5 billion a year. That includes revenues from its online office software, Office365, as well as from Microsoft Azure, where businesses can rent computing power, and still, this represents only a small fraction of the $70 billion the company makes each year for all its products and services. But the hope is that this will become a much larger share of the company’s overall business in the years to come.

It will have to if the company is to remain relevant in the modern tech world. It’s telling that Nadella was on hand for today’s event, but not for the event last month where Microsoft unveiled its early work on its latest operating system, Windows 10. The Windows franchise is still hugely important to Microsoft, across all sorts of devices, from computer servers to desktops, tablets, and wearables. But Nadella realizes that in order for Microsoft to thrive, it’s vitally important to offer software and cloud computing services that can be accessed across the internet.

By offering an appliance alongside its cloud services, Microsoft hopes to encourage businesses to choose Azure over services from the likes of Amazon and Google, which do not over such hardware. And at the same time, the company has laid additional groundwork in an effort to compete with these giants.

Set to open a new set of data centers in Australia later this month, Microsoft will soon operate cloud services in 19 regions across the globe, and in recent years, it has revamped Azure to ensure that it can run most any software, including the Linux open source operating system and the many tools that run atop it. This is in some ways a big change for the company, which traditionally tried to shut out Linux for fear that it would eat into the market share of Windows, and it’s a necessary one. Linux is now hugely popular among those building modern online software.

Indeed, Microsoft revealed today that about 20 percent of the computing power served up by Azure is now used to run Linux. As Nadella put it: “Microsoft loves Linux.”