Over the past several years, the impact of “the cloud” on traditional ISVs has been made abundantly clear. Blindsided by the runaway growth of hosted technologies which were simply glints in the eyes of the open source community in 2000, virtually all ISVs have scrambled to stay relevant.
At this point, the move from on-premise software delivery to consumption of cloud-hosted options such as SaaS and PaaS appears to have stabilized. IT organizations have sorted out which types of solutions are best hosted off-premise and which to keep in house. And to be fair, enterprise-sized companies—the “bread and butter” of ISVs such as CA Technologies, IBM, BMC, and HP—are still firmly planted in the on-premise hosted versus cloud-hosted world.
At the same time, the move to the cloud is being reflected in the declining revenue numbers of virtually every business-facing ISV in the enterprise management space. I believe this trend will ultimately reverse and that these companies will eventually bounce back—albeit with a very different product mix than was the case “pre-cloud”. However some are more successful than others in making this transition and, based on past trends, Microsoft appears to have had particular difficulty in doing so.
The results of my latest survey supporting upcoming research entitled “APM in the Digital Economy: What’s Hot, What’s Not and What’s On the Horizon?” have just come back (thanks, by the way, to Riverbed, BMC, and Apica for sponsoring). I am currently in the midst of the analysis process, and in many ways the findings do not bode well for Microsoft’s offerings in the server business. Combined with recent announcements from Google which, in my opinion, threaten to erode MSFT’s seemingly irrevocable hold on the desktop software space, it appeared that Microsoft was on a fast track to dwindling relevance. Prior, that is, to today’s acquisition announcement.
The survey numbers are showing that high-growth companies traded in MS Servers for Linux servers eons ago and I believe that trend will continue. Today, the percentage of ultra high growth companies (defined as revenue growth of 75% or more in the prior year) running Linux outweigh those running windows servers by two to one. Heck, twice as many high growth companies are running mainframes as windows servers. While the analysis could go on and on, open systems are eating the rest of the world, and MSFT’s long history of being a closed system is coming back to haunt it.
Again to be fair, there are other vendors in this bucket as well. Apple is suffering the same fate versus Android in the phone space, and Larry Ellison referred to cloud computing as “complete gibberish” as recently as 2008. (Oracle’s latest earnings announcement (in March of this year) reported that while Oracle’s cloud earnings were on an upward trend, earnings in on-premise software, services, and hardware declined).
Back to Microsoft, you may also have noticed Google’s recent announcements around merging its chrome OS (which runs on devices) with the chrome browser. There are also rumors to the effect that Google is in the process of merging chrome OS with Android. While I’m not a Google insider and am speaking from my own opinion at this point, I believe that is Google’s ultimate plan. What this could mean is that the thousands of android apps currently running on mobile devices will become available on (Linux-based) Android desktops/laptops as well. This will be an end run around advocates of desktop Linux, but at the same time achieve their ultimate objective—a far cheaper, more open alternative, not only to the desktop windows OS, but also to Microsoft’s almost legendary Windows apps.
The transition will take a while, even after Google makes its move—due to the millions of devices running Windows, Office, and .NET front ends. But I believe that Google (as Android) will ultimately assume leadership in the desktop market, starting primarily with the non-US market and ultimately making significant inroads into North America as well.
Based on these factors, and prior to the LinkedIn acquisition—for more than $27 BILLION, and yes, that’s billion with a “B”—it appeared that Microsoft was on its way to server and desktop oblivion. That still may well be the case. However with Azure and now with LinkedIn, Microsoft has a chance to assume new stature as an agile company sporting a revamped, modernized product lineup. My hope is that Microsoft will now be able to assume the “mantle of innovation” that Apple appears to have relinquished (at least for the time being) and allow LinkedIn to continue to evolve as a brilliant platform reflecting a brilliant idea.
Bottom line: the LinkedIn acquisition was a brash, unexpected, and very smart move on the part of Microsoft that is a far cry from the ill-fated Nokia acquisition (and ensuing phone craziness). Does this signify a new direction under Satya Nadella? Hopefully, this is the case.