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Ray Ozzie: Cloud Platforms Are Less Profitable

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bio_rayCloud services, such as Microsoft’s (s msft) Azure platform, will be less profitable for the company than its software sales, said Ray Ozzie, Redmond’s chief software architect. He said the same thing back in a March 2008 interview with Om as well. Ozzie made his latest comments at an event in Silicon Valley on Thursday, adding that while cloud computing had lower margins, it would result in increased sales.

“The margins at the low level, at the Azure level, are going to be lower than the top level, where you’re delivering a solution or something like Exchange,” said Ozzie, referring to Microsoft’s popular e-mail and calendar application. “You’re pricing that solution around a business value more than cost so the margins are still very, very good.”

I wrote last month about how Microsoft can boost profits if it delivers higher-value services on top of its Azure cloud. The desire for higher margins is why IBM (s ibm) has said it’s less interested in providing the type of infrastructure as a service that Amazon (s amzn) or Rackspace (s rax) do, but is eager to deliver services that run on top of the computing clouds. It’s also why vendors such as CSC and even Rackspace are trying to differentiate the bottom infrastructure-as-a-service layer of the cloud by touting security and “fanatical support,” respectively. Both are ways to charge a bit more and improve the bottom line. To understand the different layers of the cloud, check out our post Cloud Computing’s Three-Horse Race.

11 Responses to “Ray Ozzie: Cloud Platforms Are Less Profitable”

  1. What Microsoft says about cloud computing is similar to what Polaroid executives (I used to work for Polaroid) used to say about digital photography. They are delusional! The cloud is the future, and has less margins than the desktop applications. That is why Microsoft will be in trouble for the long run!

    David Robins Corporation

  2. Why would anyone in their right mind use a company (Rackspace) which claims fanatical support and the utmost security and send the root password to their customer via email? Fanatical stupidy and head in the clould is more fitting in my opinion.

  3. Marl Balou

    The monopoly rents tend to go away over time as the landscape changes. If you have built a cost structure that relies on high margins then it will be a painful restructuring.