Microsoft’s bid for the next generation of cloud startups

The Big Story

Going low

Every year, Microsoft devotes one of the major events on its annual calendar to its partners, who collectively generate the lion's share of its commercial revenue. This week, that event — Microsoft Inspire — rolled around, and the headline news was the unveiling of a long-awaited cloud version of Windows for business customers.

But another announcement could have a much bigger impact on enterprise tech. Starting immediately, companies that list software in any of Microsoft's storefronts will pay a 3% listing fee when one of their customers buys that software. That's down from the 20% fee Microsoft charged a month ago, which it said was an "industry standard" fee for such transactions across cloud marketplaces.

Cutting listing fees could make Azure more attractive. Enterprise tech companies have been selling software on the cloud equivalents of Apple's App Store for years, but businesses hawking cloud infrastructure or application-development tools tend to debut on AWS, which has the largest number of infrastructure customers.

• Microsoft's move could incentivize those companies to give Azure a closer look when rolling out new products designed to be used alongside customer applications running in the cloud.
• AWS and its partners keep their listing terms under wraps, but Google Cloud also charges 20% as a base cloud marketplace listing fee. However, partner listing fees vary based on volume and incentives, and according to several sources are usually negotiable.
• Still, the move puts pressure on AWS and Google to match that new pricing.
• If up-and-coming third-party software vendors find Azure a more hospitable place to grow their business, they'll bring their customers along with them and generate additional cloud compute and storage revenue for Microsoft.

The new pricing terms will also have an impact beyond Azure: Microsoft's new fee structure will also apply to software publishers that want to sell apps for Microsoft Office, Outlook and Teams.

• Microsoft AppSource contains thousands of free and paid add-ons to Excel and other tools within Microsoft Office from independent developers and massive corporations.
• AWS has a strong third-party network of infrastructure partners, but isn't on the radar in the office-productivity game.
• Google Workplace is definitely a Microsoft Office rival when it comes to its user base and features, but is a much smaller cloud infrastructure business without Microsoft's strong enterprise software track record.
• And this is where Microsoft's power over business spending in general comes into focus; it's an enterprise software gatekeeper, and playing nice with its platform participants seems like a shrewd way to deflect scrutiny of that power.

This is all clearly aimed at the next wave of cloud startups. Those startups — as always — should have a big edge over enterprise tech incumbents beholden to existing lines of business, and Microsoft wants a slice of their success.

• For the first 15 years of cloud computing, enterprise software startups were almost always built around AWS.
• While AWS isn't going anywhere, competition for those startups over the next 15 years will be much more wide open now that Microsoft and Google have fully committed to enterprise cloud computing.
• And there are probably a few SaaS companies thinking about their long-term cloud strategies after their venture-capital backers sent them a link to a16z's cloud pricing post.

— Tom Krazit

A MESSAGE FROM INTEL AND MICROSOFT AZURE

The confidential computing approach protects critical information by isolating sensitive data in a protected, hardware-based computing environment during processing. It allows governments to share the results of machine-learning inferencing on highly-protected or sensitive data sets without requiring them to share the data sets themselves.

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Join Protocol's Jamie Condliffe for a conversation with Zoox's Ashu Rege, Qualcomm's Alex Vukotich and Luminar Technologies's Christoph Schroeder for a discussion on autonomous tracking and the technology that enables it.
July 21 at 9 a.m. PT / 12 p.m. ET Learn More

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Five Questions For...

Tim Wagner, CEO and co-founder, Vendia

What was the first computer that got you excited about technology?

My first "computer" was a 1977 Radio Shack Tandy Science Fair "Digital Computer Kit." It wasn't an actual computer, but it did teach me about combinatorial logic. My first real programming was on a TRS-80 in 7th grade, and the first computer I owned was an Apple II+. I still remember "upgrading" it from 48K to 64K and migrating from cassette tape storage to a disk drive. These systems seem impossibly primitive today, but they revealed a whole new world of programming to me as a child — a world that has fascinated me ever since.

If Protocol gave you $1 billion to start a new enterprise tech company from scratch today, what would you do?

I'd go back to the drawing board on natural language AI. As exciting as ML advances have been, at the end of the day it's still not actual self-aware intelligence or learning, just clever parameter tuning. I think true silicon-based consciousness is within reach in our lifetimes, but it remains an undiscovered country that needs more explorers.

How can enterprise tech improve its current status around diversity, equity and inclusion?

There are a lot of obvious steps that we can, and must, take to improve inclusivity, starting with improved STEM education opportunities at the grade-school level. But I'll give you another, less conventional answer as well: Make software and software-based businesses easier to create and operate. Here's the rationale: The simpler software systems are to create, the more people who can create them, and the more diverse those makers and their ideas will be. Conversely, complexity breeds risk, and risk narrows opportunity by creating barriers to entry, where only the most privileged folks with Ivy League educations and corporate track records will receive the scarce funding and management opportunities.

Which enterprise tech legend motivates you the most?

Andy Jassy gave me my first opportunity to build a billion-dollar business, and I'm forever grateful for the opportunity. One of the amazing things he and others at AWS created was an innovation machine where people like me could come and turn ideas into businesses. I'm incredibly motivated by my personal experience there and by Amazon's concept of an innovation flywheel that rewards creativity and hard work with opportunity.

What will be the greatest challenge for enterprise tech over the coming decade?

Cross-party applications. Today, 80% of business data lives outside a company's four walls, with outsourcing, SaaS and increasingly complex supply chains driving that percentage ever higher. That means that classic IT approaches designed to address centralized applications, where the producer and consumer of data all work for the same company, are increasingly insufficient. Companies that get good at sharing information effectively with their suppliers, customers and business partners are the ones that will find transformative advantages over the next decade.

Around the Enterprise

• What's the fuss over a cloud version of Windows? ZDNet's Mary Jo Foley has been all over its pending debut for over a year, and explained why the old idea of the virtual desktop has new life.
• Avast confirmed it is in discussions about a sale to NortonLifeLock that could value the security company at around $7 billion, according to The Wall Street Journal.
• Hackers found another vulnerability in SolarWinds software that the company is urging customers to patch after Microsoft detected some abnormal activity.
• Did AWS relationships help it compete for the JEDI contact? While, sure, some Department of Defense employees appeared to have a cozier-than-proper relationship with AWS during the contract bidding process, it's a little amusing to pretend that's a major reason why the Pentagon considered the company for a huge cloud deal.
• Apparently Kazakhstan has become a big destination for bitcoin data centers after China cracked down on mining. The plot of the third Borat movie just wrote itself.
• The Bank of England is concerned about "secretive" cloud providers that are increasingly winning IT business in the country.
• There's no keeping AT&T away from the cloud. Weeks after it signed a big cloud deal with Microsoft, it also inked a pact with Google Cloud for 5G and edge-computing services.
• Google Cloud's Kelsey Hightower is switching things up. He will spend more time working internally with Google engineers on new features for its cloud service, a move he hinted at last year in our big profile about one of the most inspiring people on the cloud circuit.

A MESSAGE FROM INTEL AND MICROSOFT AZURE

The confidential computing approach protects critical information by isolating sensitive data in a protected, hardware-based computing environment during processing. It allows governments to share the results of machine-learning inferencing on highly-protected or sensitive data sets without requiring them to share the data sets themselves.

Learn more