Microsoft Steps Up R&D on Cloud Computing

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A cooling module is placed atop a Microsoft IT-PAC unit containing servers at the new cloud computing data center in Quincy, Washington.

It‘s official: Microsoft is planning to put a large majority of its R&D budget into cloud computing this year. According to a Bloomberg interview with Microsoft International President Jean-Phillipe Courtois, Microsoft will spend 90 percent of its $9.6 billion research and development budget on cloud strategy in 2011.

This commitment shows the tremendous effort and determination that Microsoft intends to put into cloud computing. While the large budget share is somewhat surprising, the focus is certainly in line with Microsoft CEO Steve Ballmer‘s claim that Microsoft is “all in” the cloud and that 90 percent of Microsoft‘s software developers will be working on cloud related projects by the year‘s end.

Microsoft is clearly expanding beyond the on-premise software model that has been the foundation of the company thus far. It still remains to be seen how Microsoft is devoting the research budget among its cloud initiatives. Will it primarily be Windows Azure and Office 365 – or some other products? No details have been highlighted so far.

What has been disclosed is that in order to strengthen its cloud computing and Internet search capabilities, the company will increase its R&D presence in China significantly by hiring 3-400 new R&D staff in mainland China.

Azure‘s growing impact

Comparing the three major cloud PaaS offerings, Windows Azure has typically appealed to .NET developers, while Python or Java developers prefer Google AppEngine and Ruby developers go to Amazon AWS. More lately though, Windows Azure has added Java and Ruby SDK‘s as well and is therefore positioned to attract a much broader range of application developers.

In fact, Windows Azure seems to be getting increasingly more attention from enterprises. Only a few days ago, Microsoft and Toyota announced a partnership to build a global platform for Toyota‘s next-generation telematics services using the Windows Azure platform. More specifically, the two companies aim to develop and deploy telematics applications that will be implemented in new Toyota electric and hybrid cars, with a goal of achieving worldwide service coverage by 2015.

The Office 365 strategy

When it comes to Office 365, the successor of Microsoft‘s BPOS cloud service plus Office Professional, it still remains in beta. It has been speculated that Office 365 will be launched around July 1, in time for the annual Microsoft Worldwide Partner Conference (WPC), held in Los Angeles from July 10-15. Office 365 is expected to be a big hit with enterprises and SMEs alike due to its aggressive pricing strategy and cloud-based provisioning.

In fact, many Microsoft Service Providers have expressed concerns, believing that their potential margin will become increasingly thinner – comparing Microsoft’s Office 365 strategy to Google Apps. Prices will start from around $6 per user a month. To warm up for the official release, Microsoft has kicked-off an aggressive Office 365 advertising campaign that includes billboards in New York. However, Microsoft still has to explain further the role of channel partners and VARs.

Microsoft is clearly putting a ton of resources into the cloud – with special focus on Windows Azure and Office 365. It will be very interesting to watch their progress in the long-term and see if the software giant’s investment in research will translate into leadership in the cloud computing domain.

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