Will Cloud Computing Make Microsoft Richer?

I read in BusinessWeek that Microsoft business software president Stephen Elop expects the giant’s launch of Office 2010 in June, which will include a cloud-based version, to pump up revenue and profit.

I quote: “In that cloud environment, we are not only selling them [cutomers] software but we are also saying, ‘We’ll take care of your networking, your hardware, your operations, your customer support.’ “We’re doing much more work for the customer. What that does is increases revenue and allows us to participate in more profit.”

But Bob Evans of InformationWeek raises some important questions and injects a bit of doubt into Elop’s sunny scenario. Bob says: “Rational? Absolutely. Likely to happen? Maybe, and maybe not.

His theory is that, of course, it could happen if Microsoft can package enough value and flexibility into its cloud pricing model so that its huge base of Office users “decides that the transition costs for switching to Google Apps are prohibitive.”

So Microsoft’s big challenge is to set its prices not so much to grow revenue at a remarkable rate, but instead to allow customers to lower their cost of IT. But if Google continues to aggressively innovate with new products and price them competitively, that could put a serious crimp in the number of large clients that Microsoft is hoping to be the boosters of its cloud-based revenue.

Plus, who knows what kind of business collaborations that offer enhanced cloud services, such as transaction and platform monitoring services, will form in the future? That could add a bit of complexity to Microsoft’s business plan – and Google’s, too, for that matter.

Says Bob: “As we’ve seen repeatedly during other tectonic shifts in the technology business, the status quo rarely survives and it’s pretty much impossible to project a steady-state future. So while Elop’s expectation that more work for enterprise customers will logically mean more revenue and profit for Microsoft, I contend that his plan looks a whole lot better on paper here in February than it will when the cloud version of Office 2010 hits the market in four months.”

Well, I guess we’ll just have to wait and see what Microsoft’s new suite looks like, and how businesses and end-users take to it, too. Will it be more robust, more dependable and easier to use than Google’s apps? And will it be strong enough to withstand potential new competition from constantly evolving and innovating cloud players?

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