Ray Ozzie: Cloud Platforms Are Less Profitable

Cloud services, such as Microsoft’s 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 has said it’s less interested in providing the type of infrastructure as a service that Amazon or Rackspace 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.