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Microsoft's next major threat could be its own cloud computing strategy

We have heard this talk before, of course: Microsoft’s power and influence has peaked and the company is on a slow slide into irrelevancy.

The latest chatter about this started late last week with Roger McNamee, co-founder of Elevation Partners, in an appearance on CNBC. Asked what companies and technologies would dominate the Internet over the next few years, he said the coming tidal wave of Apple iPads and Android-based smart phones would sink the fortunes of PCs and, along with them, Windows.

“For Microsoft Windows, this is the cycle where it stops growing,” he said. “iPads and smartphones allow corporations to trade down and eliminate thousands of dollars per year in supporting Windows desktops. This is the year (2011) Windows has fallen below 50% of Internet-connected devices, down from 97% 10 years ago.”

Corporations could save as much as $100 billion by eliminating the support costs of desktop PCs and laptops over the next few years, McNamee said, with a lot of those savings expected to be used to purchase tablets and smartphones.

But to predict the rapid rise iPads and smart phones alone can crumble the Windows franchise in the next phase of the Internet, thereby relegating Microsoft to a second rate power, is a bit short sighted.

True, Microsoft doesn’t figure to have a strong offering to go up against the iPad and Android-based phones any time soon (sorry Windows Mobile). But what it does have are tens of thousands of corporations committed to long-term licensing agreements for its core Windows products — products corporations have invested billions of dollars in training users over the decades. And, oh yeah, the company has tens of billions in cash to buy its way into the next generation of Internet computing.

But here is the real threat to Microsoft: Microsoft.

Over the past few years Microsoft has steadily increased its financial and philosophical commitment to establishing a meaningful cloud strategy, introducing significant platforms such as Azure and Office 365. The company will eventually deliver cloud versions of its core Windows products if it hopes to keep pace with its major competitors. If it continues along this path Redmond could cannibalize sales of its existing desktop and server products that generate the bulk of its $67 billion in revenues.

In a recent conversation with one of the most respected (if not most entertaining) Microsoft observers, Mark Minasi, he summed it up this way:

“Microsoft is making this huge on the cloud, which could prove to be a Windows desktop killer. They want to have both Azure for its apps stuff as well as keeping its current platforms for hosted or SaaS kinds of things like Exchange and SharePoint. It’s like they are carrying their favorite son in hopes of adopting a bigger, better one. This could make for an interesting Harvard Business Review case study in the future.”

If the Microsoft visionaries have worked out a smooth transition between its on premises/hosted/SaaS-based products and their upcoming cloud-based versions that doesn’t devastate its revenue flow, they’re not saying. And perhaps it is unfair to expect them to offer up details of such a transition this early on. But with both cloud computing technologies and user interest in them growing rapidly, Microsoft should shed some light on this sooner rather than later.

For now, I think it’s fair to assume that iPads and smartphones alone won’t topple one of the elite suppliers of enterprise technologies any time soon. Only Microsoft can do that.

Ed Scannell is Executive Editor with He can be contacted at

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