May 28, 2023

Bits Blog: Microsoft Moves Further Into the Cloud

Satya Nadella, president of Microsoft Server and Tools Business.David Paul Morris/Bloomberg NewsSatya Nadella, president of Microsoft Server and Tools Business.

Microsoft just went further into the cloud.

The Redmond, Wash., software giant announced Tuesday the new version of its computer server software. The product, called Windows Server 2012, is designed both to work independently and to connect with some 200 online services that Microsoft offers through its Azure cloud computing system. That is in addition to the usual upgrades in things like storage and networking capability.

While expected, this is a pretty big deal, and not just because the servers business is Microsoft’s second largest division in terms of revenue. (It brought in $18.7 billion in the fiscal year that ended last June 30.) It may be the most significant effort to date in Microsoft’s plan to change with the times.

“The world is changing from client-server to connected devices and continuous services,” Satya Nadella, president of Microsoft Server and Tools Business, said in an interview. “We want to be a primary provider of operating systems for people who want servers both to connect to the cloud, and to build their own cloud systems.”

That is tougher than it looks for a company like Microsoft because Office and the Windows OS, mostly delivered in personal computers and on conventional corporate servers, remain Microsoft’s cash cows. Server and Tools is second in revenues behind the Business division, which makes things like Microsoft Office and SharePoint. It is third in profits, however, behind both Business and the Windows and Windows Live division.

The company has to transition to a world where Windows and Office matter less, and sell more services via the cloud. The new servers are priced between $425 and $4,800, depending on capabilities. The hope, however, is that Microsoft will be able to sell much more online, with services like data marts for performing analytics, or extra computing capacity for heavy one-time workloads.

It’s not clear whether this will be as profitable, but as Mr. Nadella noted, the world is changing and Microsoft has to adapt to interacting all the time with its customers. “All of our third-party workloads, like Bing, Xbox Live, and Azure are already running on this server,” he said. That means the new server is already running one of the biggest clouds around. “No corporate customer has a couple hundred thousand machines in their data center,” as Microsoft does in a couple of locations, he said.

New businesses also mean new competitors, and Mr. Nadella was quick to assert the superiority of Windows Server’s ability to increase the workload of a server, compared to the so-called virtualization capabilities of products from VMware, which just finished a big customer conference where it announced a kind of homemade alternative to Azure.

“We are not chasing VMware’s taillights anymore” in terms of performance, Mr. Nadella said. “Now VMware is talking about matching us. To me, that is a major shift.”

The shift is mostly in being able to address more of the kind of high-end customers for now, however. Microsoft will continue to sell its products to corporations by heavy reliance on hardware makers like Hewlett-Packard, Dell, and Cisco. These old giants are having their own struggle in transitioning to the cloud.

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