Today at the kickoff of its TechEd event, Microsoft announced the upcoming releases of several software products and services, along with updates to the Azure cloud computing service including per-minute billion, and a free usage tier for Microsoft Developer Network subscribers.

Launching into preview during June are Windows Server 2012 R2, SQL Server 2014, and System Center 2012 R2. While the software will be up for testing likely during or directly after the coming Build conference – Microsoft’s recurring developer confab – Windows Server 2012 R2 and System Center 2012 R2 won’t see the light of general availability until later in 2013. Microsoft, in a blog post, promised that SQL Server 2014 will be released “shortly thereafter.” Given the ambiguity of the release date of the two R2 products, we could see SQL 2014, in 2014.

In Microsoft’s eye, the new products are essentially hybrid systems, working with both on-premises systems and public clouds. While smaller companies, most especially younger firms and startups are quickly transitioning, or being born on public clouds such as Azure and Amazon’s AWS suite, larger companies have proven slower to move completely off-site. Microsoft professes a ‘cloud-first’ model, and is in that spirit working to align its traditional on-prem software with the growing reality that cloud architecture could become the dominant solution in the next decade. More on that later.

TNW was provided with an early copy of an internal memo sent to Microsoft employees this morning by Satya Nadella, current president of the company’s Server and Tools division. In the note, he states that the “central architectural paradigm” that cloud computing provides brings together both the potential benefits of working with massive data sets – the vaunted ‘big data’ meme that we have all heard so much about from every enterprise IT provider – and the elastic computing needs of companies of every size.

Windows Intune is also set to receive a refresh, unsurprisingly, designed to help it better manage devices that are brought into the workplace by employees. The ‘bring your own device’ trend, usually denoted as ‘BYOD’ also extends to services. Box, a popular provider of cloud storage and document syncing to large corporations well explained this trend recently by stating that enterprise products and services now must be ‘consumer grade.’ The implication is that enterprise technology has become democratized enough that employees expect their use to be on par in terms of simplicity with consumer services.

For more, Microsoft published short notes on the Windows Server update here, and SQL Server here. If you need more than an overview, get to it.

Turning to Azure, Microsoft announced three changes to the PaaS and IaaS product that it hopes will drive demand and usage. Subscribers of the Microsoft Developer Network (MSDN) will now receive a $150 monthly credit to use Azure. Microsoft is quite openly hoping that this free tier, what is essentially room for toe-dipping, will bring new trial users to Azure, and thus, longer term, generate more regular customers. The $150 sum isn’t large, and it remains to be seen if it is enough to bring MSDN users into the Azure fold.

For those already on Azure, the company now offers per-minute billing for what Microsoft describes as “key-services.” This new flexibility, along with no minimum expense threshold, will likely help smaller users of Azure control costs; this could harm short-term Azure revenue among some current customers, but the bet appears to be that happier users become longer-term, bigger users in the end, allowing the economics to bear out.

Finally, Microsoft released a public preview of BizTalk for Windows Azure providing integration tools for both on-prem and cloud situations.

Satya Nadella: In conversation

Nadella2 print 220x308 Microsoft announces updates to Windows Server, SQL Server and Azure as it pushes deeper into the cloudAs mentioned before, TNW recently caught up with Nadella to discuss the larger cloud market, and the above announcements. Without drowning you in text, a few key points from our discussion are worth repeating, as they help describe how Microsoft views the cloud. Every firm has at least a slightly different take on cloud computing, the future of on-prem systems, and how long a hybrid model might reign among enterprise-level companies. Microsoft is one voice in this, albeit an important one, given its work and market share in the area.

We’ll begin with a few notes on the day’s news, and conclude with a discussion that Nadella and I had on the future market dynamics between on-prem systems and what is, in my view, the rising hegemony of public cloud systems as the best way to manage modern computing needs.

The new server tools announced today come less than a year after the last round, and, in Nadella’s view are “focused on [companies and individuals] building cloud infrastructure.” This might be a company building an internal cloud, or a firm building a larger cloud that could compete with AWS or Azure. Microsoft does appear sincere in its wish to service both on-prem and external clouds, as well as a mixture of the two in theoretical harmony. It might sound inherently awkward to straddle that particular silicon fence, but for firms with large on-prem legacy systems and a mindset that dictates caution over progress, it could be the only partial solution available. The non-cynical way of phrasing that is simply that firms who are currently on-prem may want to use some cloud tools to bolster what they currently have in place.

Azure now has 250,000 customers, and has attracted 30,000 to its Infrastructure as a Service product, which reached general availability around 1.5 months ago. Azure is currently adding around 1,000 new customers daily. To meet that demand, Nadella mentioned that Azure has doubled both its storage and compute capabilities in the last 6 months. It’s worth noting that not all that expanded capacity is being used to service third-party demand, as Microsoft’s first-party usage of Azure is ramping as its other products – Windows 8 and soon to come, the Xbox One – lean on Azure as well.

SQL Server is quickly melding into Azure. Or as Nadella put it, “there is no such thing as a SQL Server team anymore. There is, in fact, no code base called SQL Server. There’s only one code base, which is the Azure database code base.” I highlight this fact to make a larger point: traditionally on-prem software is becoming hybrid at least, and cloud-focused in many cases.

Where is the public cloud market headed? In Nadella’s view, flexibility between on-prem and cloud solutions will lead to companies buying more “servers at the premium SKUs to run their own cloud as well as [increase their] use [of] Azure.”

Looking ahead, in Nadella’s, and therefore Microsoft’s view, “there will be a few large public cloud providers, and there will be service providers as well as private clouds.” The total number of servers that currently reside in public cloud as compared to private solutions remains “a small percentage.” To highlight how that could change, Nadella conjectured that even if the ratio becomes a 50-50 in five years, half of all servers will still land “outside of the big cloud” players.

In my view, the ratio only managing to reach the 50-50 mark in the next half decade feels cautious. My perspective is certainly colored by the simple fact that I spend the majority of my time speaking with smaller companies, often based nearly completely on public clouds. However, I could be underestimating the pace at which larger firms, which I suspect by the current large majority of servers, adapt. I ventured 70-30 split between new servers landing on public clouds as opposed to being purchased for private, on-prem use.

Nadella went on to note in response to my point that he isn’t worrying whether the ratio is ” 90-10 or 70-30 or 50-50.” His view is that if the market remains at a 70-30 split, Microsoft still sells to both pieces. Put another way, Microsoft makes money regardless of how quickly the market moves. The risk in that strategy, perhaps, is that if Microsoft overly devotes resources to the declining, ‘legacy’ portion of the market, it could put insufficient focus on the cloud, and thus lose momentum against the larger market. The easy response to that is simply Azure’s progress over the last two years.

That’s a quick cut of select points of our lager conversation. The nub of the issue is that Microsoft is working to improve its own cloud offerings, and tailor its traditionally on-prem tools to fit a cloud future, even as it remains perhaps unsure when all but cloud-only reality could come about.

Provided that it can execute on that goal, it may be able to address the front of the cloud trend, and keep its large, enterprise customers on its software until they are ready to make the leap. A corrollary to this is the work that the company has done with Office 365 to bridge the gap from desktop productivity software and cloud services in the same area, such as Google Docs; Office 365 is a blend of Word, and the Word web app, to make a crude analogy.

I’m would not call myself an expert in this area, I’ll be the first to admit, but servicing both ends of the market as theoretical equals in terms of investment, while helping older technology meet a new operational future gut checks as intelligent.

Memo

For fun: here’s the internal memo that went out to around 90,000 Microsoft employees this morning. It hits on much of what we discussed above, but is worth reading if you interface with Microsoft and require an even deeper peer into its thinking.

Today at TechEd North America we’ll unveil key developments that signal just how far we’ve come as a leader in the enterprise cloud. We are announcing a new wave of Windows Azure services, a significant update to our server line-up (Windows Server, System Center, SQL Server) and new tools (Visual Studio) all built for the cloud.

Two years ago we bet our future on the cloud and quietly refocused our 19 billion-dollar software business by completely transforming our products, culture and practices to be cloud-first. We knew the journey would be long and challenging with plenty of doubters. But we forged ahead knowing that the cloud transition would change the face of enterprise computing.

As it turns out we were right to take this risk. Because of the fundamental shifts the cloud brings, more than 2 trillion dollars of overall IT spend is now up for grabs. It starts with the rapidly exploding world of devices and a new generation of connected apps that are revolutionizing life and business. Software-driven datacenters are making access to computing resources infinite and elastic. Big Data is changing the way we gain insight and act in business, science and society. Cloud is the central architectural paradigm that makes all of this possible.

By applying this architectural approach to Microsoft’s own diverse set of internet-scale properties (Bing, Xbox Live, Office 365, SkyDrive, etc.) we’ve gained priceless insights into what it means to be truly enterprise-grade. By living this new paradigm first-hand, we have been able to build a cloud platform that spans IaaS, PaaS and SaaS. We also are unique in that we make our “secret sauce” of cloud infrastructure available to customers and partners to build and operate their own clouds. This is THE most encompassing vision in the industry and far exceeds what our competitors can say.

To enable this transformation we had to make deep changes to our organizational culture, overhauling how we build and deliver products. Every one of our division’s nearly 10,000 people now think and build for the cloud – first. Our engineers live a “live-site” first culture to better respond to our customers in real time. And we are laser-focused on building more complete end-to-end service scenarios, or modern workloads, to deliver more value to our customers and partners.

We are already seeing this bet deliver substantial returns. Windows Azure is going through hyper-growth. Half the Fortune 500 companies are using Windows Azure. We have over 1,000 new customers signing up every day and over 30,000 organizations have started using our IaaS offering since it became available in April. We are the first multinational company to bring public cloud services to China. Ultimately we support enormous scale, powering some of the largest SaaS offerings on the planet.

By providing the power of Azure in our server offerings we are able to take share from enterprise incumbents. For example, Hyper-V has taken 4 points of competitive share in last 12 months and our Datacenter Editions across Windows Server and SQL Server continue to grow in double digits. This all adds up to an enterprise cloud business that is at significant scale.

The announcements this week at TechEd are great examples of the above strategy and culture continuing to pay off. At TechEd we will demonstrate how we are enabling customers to:

  • Transform their infrastructure through software-driven datacenters across private clouds, service provider clouds and Windows Azure
  • Get more insights from data with a complete data platform, the powerful in-memory capabilities of SQL Server Hekaton and rich new BI capabilities
  • Build applications using new services like business process integration, tools for dev-test, cloud-based source control, build, load testing and team collaboration capabilities
  • Adopt new devices in the enterprise with unified device management for Windows 8.1 and all other modern devices

This is an incredibly exciting time. While this week’s announcements demonstrate just how much progress we have made in the last two years, the journey is far from over. We have a huge opportunity as a company serving our enterprise customers with our devices and services. Together we can lead the enterprise cloud era.

As a final thought, Microsoft faces real risks in the cloud market, given that Amazon’s products retain a current market and mind share lead. To combat that, Microsoft is working to expand internationally, but it won’t quickly pull ahead, especially in its home market.

And, for all its progress, Azure is on a $1 billion per year revenue rate, while Server and Tools is a $19 billion per year business; its cloud work is therefore just over 5% of its single division revenue that it helps comprise. Thus, while its vision may be in place, Microsoft has oodles of execution in front of it before Azure becomes the pillar that Microsoft wishes it to be.

Caveat to that is that it remains unlikely that Amazon and Microsoft will remain so unopposed as they currently do; just as search became big business once it became known how much money Google was generating from it when it filed to go public, if cloud services become as dominant as many expect, the competitive landscape will thicken.

For now, Microsoft has released a set of upgrades to its server products that are for it on a quick release schedule, and continues to improve Azure. This is Microsoft’s 2013 battle strategy. It’s now the next company’s move.

Top image credit: Robert Scoble. Body image credit: Microsoft