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293/366: Risk!Breaking down the different aspects of a cloud computing platform can be no simple feat. That’s especially true with Windows Azure. The service has multiple components.

Ray Wang, an industry analyst, broke down the different components in a research report for companies in the vast Microsoft partner ecosystem gathering this week in Washington, D.C. for the Worldwide Partners Conference.

About 14,000 people are attending the event. Microsoft executives said the record attendance is due to a few factors, in particular the interest in how Windows Azure will play out for the future of their businesses.

Wang breaks down Azure into its three categories:

  • Microsoft Windows Azure
  • Microsoft SQL Azure (formerly SQL Services)
  • Microsoft Windows Azure Platform: AppFabric (formerly .NET Services)

He points out that companies need to really focus on what layer of the service they plan to focus their energies. Those four layers include infrastructure, orchestration, creation, and consumption.

Wang spoke to 71 partners for the research report they produced, which details the benefits and risks of the new models that come with Windows Azure.

The Advantages

Wang provides six benefits of Windows Azure:

  1. Faster deployment times and client adoption.
  2. Greater pool of development resources.
  3. Recurring revenue streams.
  4. Improved TCO and margin for differentiated IP.
  5. Opportunity to break out of the Microsoft client base.
  6. Lower application lifecycle costs.

And six risks:

  1. Potential loss of account control to Microsoft.
  2. Increased competition for development resources.
  3. Shift to volume business.
  4. Decline in upfront profit and revenue collection.
  5. Accelerated globalization and market competition.
  6. Increased self-hosting and integration costs.

In terms of advantages, the potential for a recurring revenue stream and the total cost of ownership and differentiated IP are clear opportunities.

On recurring revenue streams:

„A key component of SaaS/Cloud is utility pricing. Partners that build IP and solutions will move to a more stable subscription revenue model. Most billing will move from upfront to monthly or quarterly.“

And total cost of ownership:

„The cost of development and time to market will decrease. The result – improved margins and better ROI for new product development. Partners can test scenarios with the Microsoft Azure ROI calculator.“

As for disadvantages, costs and competition are going to be a huge struggle, especially as pricing models change. Subscriptiopn services provide long-term benefits but the changes are signiicant for companuies used to getting half of its revenues up front. Competition will only intensify, making mindshare a critical aspect of drawing customers. That’s a sign that community management will become increasingly important.

Risks associated with self-hosting:

„Partners that self-host will face long term cost challenges. As Microsoft, Amazon, and Google build out large scale data centers, their cost of delivery will reach 1/10th of a partner’s ability to host by 2015. Moreover, data, process, and metadata integration among various cloud platforms remains the most complex challenge. Partners who can not scale in integration and data center costs will find themselves burdened with a new legacy cost structure.“

And with increased competition:

„With SaaS/Cloud, every partner, ISV, and SI solution offering is competing for mind share. Competition for solutions goes global, cross-platform, and cross industry. Partners must prepare to compete for mind share among all the technology vendors offering solutions.“

Wang’s ultimate point is that everything has changed. The business model is different. The need to differentiate IP has new importance. All barriers are breaking down, be they cultural, geographic or architecturally.

It’s all a different game. And there will be all kinds of affects, including a lot of people finding that they don’t fit in this new world of the cloud.