PDC Part III: Windows Azure – Will it Cast a Dark Cloud Over Your Hosting Business?

The big announcement made during Ray Ozzie’s keynote on Monday, Oct. 27, 2008 was Windows Azure – Microsoft Windows OS for the cloud. This is Microsoft’s big move to lay the foundation of their Software + Services strategy, which they have been telegraphing over the last year.

First, let me just state that Windows Azure is a game changer and I’ll come back to this thought toward the end of this post.

With Microsoft moving into hosting, are traditional Web Hosts Threatened?
No, traditional web hosts are not threatened by this move. Consumers and businesses will just have another choice for hosting, but this doesn’t mean that traditional web hosting is dead. Windows hosting makes up about 34% of the hosting market, according to Netcraft’s latest October 2008 Web Server Survey report.

As a Windows Hosting Provider, is DiscountASP.NET Threatened?
I did get some emails from other hosts regarding the Windows Azure announcement expressing their concern. We’ve also received emails in our sales queue and from customers asking if we were worried about Microsoft Azure. As a Windows host, of course, we must keep on top of what is going on with Windows Azure. But…

No, our business is not threatened.

Let me bring up a few points.

  1. Windows Azure is nascent technology. There is a LOT of work to do before you will see this thing get any significant uptake. Ray Ozzie didn’t even announce a revenue model for the cloud service yet. The full realization of the cloud is still many years away.
  2. There are other companies already providing Cloud hosting – Amazon and Rackspace/Mosso, for example. These players already have a revenue model and have customers. These players also have experienced well publicized outages. They are all in their infancy with this technology. We are still here and growing.
  3. Microsoft has been in the hosting business for a long time already, and us Windows hosts are still here. Microsoft ran bcentral, for example. Microsoft also run Windows Live and Office Live.
  4. Hosting has been threatened in the past and the hosting market is still here and still growing. Some of the past “threats” include:
    • Free ad-driven hosting
    • Domain Registrars moving into hosting
    • Functional hosts

This notion of a threat posed from the Cloud is another exaggeration. The entire hosting ecosystem is a very complex world and there is plenty of room for a diverse multitude of hosts that offer different types of services to meet the needs of different types of customers.

Many Unanswered Questions
There are a lot of questions that pop into my mind about Microsoft’s Cloud.

  • What is the revenue model?
  • How does a business budget for a utility hosting model?
  • Do businesses want to host their customer information with Microsoft? There are many people with issues hosting their stuff with Google, for example.
  • With data geographically distributed, how does this mesh with different international laws.
  • Will businesses feel comfortable putting important customer information at a service where they do not know where their information is stored?
  • How long will significant movement to the Cloud take? For example, SaaS is hot right now, but its earlier form, Application Service Providers (ASPs) was hot before the year 2000 and then had a meltdown.

So is Windows Azure still a Game Changer?
Yes, I do think this is a game changer. What I mean by this statement is that Microsoft will need to figure out how they will work with their Hosting Partner ecosystem moving forward.

Before the S+S strategy, when Microsoft was selling software to their hosting partners, the relationship was clear – the hosting partner ecosystem was a valuable channel and revenue source. Now that Microsoft is also getting into Cloud hosting in a bigger way, will they continue to value the Hosting channel the same as they did before? How will the dynamics of the relationship change? As a hosting partner, this is what I am concerned about. That is why I will remain engaged, vocal, and open to work to strengthen our partnership with Microsoft.

Takeshi Eto
VP Marketing and Business Development

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