Weekly Update

Announcements from Microsoft and Amazon that will impact the world for decades

Last week we witnessed the reorienting of two giant work technology players — Amazon and Microsoft — with enormous impacts for the industry, and the marketplace.

Amazon announced Zocalo, its entry into the enterprise distributed core sector (also called file storage, and file sync-and-share; see Amazon enters the distributed core market, competing with Google Drive, Box, Dropbox, and a few dozen others). Amazon is one of the most respected players in the cloud computing space, and has built its S3 file storage service into one of the most successful platforms, ever. Indeed, Dropbox, with hundreds of millions of users, is built on top of s3.

Amazon Web Services has become an enormous disruptor for several reasons. First, the service scales in a way that most companies couldn’t concoct for themselves because of the technological challenges, and it is elastic, so that as users applications or websites need more resources, the service scales automatically. Second, Amazon is playing a long game, and as a result is merciless in cutting its margins to the point that competitors — except the really large ones — can’t afford to compete. As just one example, Amazon launched the Fire Phone recently, and offered unlimited photo storage to those buying the phone, for life.

So, Amazon isn’t just rolling out a new service: they are intending to disrupt the sector for enterprise distributed core, from top to bottom. And they probably will.

What is the impact of this going to be?

Let me step back for a second, and describe what the enterprise distributed core market was, immediately prior to the announcement. There were a great number of players — 20 or more — that had come into the market from different vectors.

  1. Dropbox, Box, and a number of others were consumer-oriented start-ups only a few years ago, and after raising hundreds of millions of dollars in our frothy investment climate, had developed enterprise-style administrative capabilities, and even some of the security provisions that some enterprises require.
  2. Companies like Intralinks, Egnyte, Accellion, and others were always oriented toward the enterprise security value proposition, and in many cases developed a distributed core solution on top of earlier secure capabilities, modeling their newest offerings on the Dropbox-style user experience.
  3. The majors — like Google, Microsoft, and Apple — developed distributed core capabilities as an aspect of a wider strategy: to own the user experience of consumers and business users of their devices, productivity suites, and cloud services.

All of these players stand to be disrupted.

The last group — the giants — are playing a long game and have billions to invest to achieve their aims, and each of the three has control of key elements of the stack. Google has Android, Chrome, Google Play, Google Drive/Docs, and Google Apps. Apple has iOS, OS X, iPhone, iPad, Mac, the App Store, iTunes, iCloud, iCloud Drive (coming), and the Apple productivity tools. Microsoft has Office, OneDrive, and a long list of enterprise solutions that integrate: Yammer, SharePoint, Analytics, etc.

Amazon has only a tiny foothold in the device world, with Kindle and the recently announced Fire Phone. But their position in cloud services is a direct challenge to Google and Microsoft’s enterprise position. Especially if they follow up with enterprise email and productivity apps. So I expect they will.

Apple is the player least impacted by Amazon’s announcement.

Those in group two are going to have to move quickly to differentiate their offerings, or they will wind up like Bambi in Bambi Meets Godzilla.

And group one? I think they are going to be cut to pieces, because of Amazon undercutting their enterprise legitimacy, and the giants undercutting their consumer play.

And what about Microsoft’s non-announcement? The fire behind all the smoke in Satya Nadella’s memo to the troops last week (see Satya Nadella wants to focus on the core of Microsoft’s business, which is… everything). The clearest part of Nadella’s somewhat fuzzy and very, very long memo was that Ballmer’s repositioning of Microsoft as a ‘device and services’ company need to be rerepositioned. Microsoft is now a ‘productivity and platforms’ company.

Considering that Ballmer’s repositioning required a top-to-bottom reorganization of the company and the acquisition of Nokia, we might prepare ourselves for a similar series of events in Microsoft’s near future.

Jean-Louis Gassée wrote a funny and telling piece about Nadella’s memo, which he rips for Nadella’s lack of clarity and a seeming desire to conceal the implicit, wrenching change lurking between the lines. Then, Gassée rewrites the memo:

Tortured statements from CEOs, politicians, coworkers, spouses, or suppliers, in no hierarchical order, mean one thing: I have something to hide, but I want to be able to say I told you the facts.

With all this in mind, let’s see if we can restate Nadella’s message to the troops:

This is the beginning of our new FY 2015 – and of a new era at Microsoft.

I have good news and bad news.

The bad news is the old Devices and Services mantra won’t work.

For example: I’ve determined we’ll never make money in tablets or smartphones.

So, do we continue to pretend we’re “all in” or do we face reality and make the painful decision to pull out so we can use our resources – including our integrity – to fight winnable battles? With the support of the Microsoft Board, I’ve chosen the latter. We’ll do our utmost to minimize the pain that will naturally arise from this change. Specifically, we’ll offer generous transitions arrangements in and out of the company to concerned Microsoftians and former Nokians.

The good news is we have immense resources to be a major player in the new world of Cloud services and Native Apps for mobile devices. We let the first innings of that game go by, but the sting energizes us. An example of such commitment is the rapid spread of Office applications – and related Cloud services – on any and all mobile devices. All Microsoft Enterprise and Consumer products/services will follow, including Xbox properties.

I realize this will disrupt the status quo and apologize for the pain to come. We have a choice: change or be changed.

Stay tuned.

If Gassée’s hypothesis is right, the other shoe is about to drop, and Nadella is not really planning just a repositioning around a new marketing message — productivity and platforms — but is really planning to focus the company on a smaller number of winnable markets. Note that the word ‘devices’ is one that was clearly left out of the new word salad. So,  is Nadella planning to end the fight in devices? Will he milk the Windows cow on the PC as long as possible, but drop the so-far-fruitless efforts with Windows phones and tablets? We’ll have to wait for the next long and tortured memo, but perhaps the next one will actually tell a tale instead of concealing one.

So then, two major events: one which is as clear as a slap in the face, the other as opaque as a foggy morning. But both represent watershed events, and their repercussions will be felt for decades to come.