Number of the Week

7%

That's how much Microsoft stock gained Monday, after it released a deeply misleading statement over the weekend about demand for its services during the coronavirus pandemic, on a day when the Nasdaq rose 3%.

The Big Story

The big problem with big vanity data

If there's a lesson to be learned from Microsoft's enormous unforced error over the weekend, it's this: No one should ever look at a stat like "a 775% increase" without raising an eyebrow.

Last Saturday, Microsoft published a blog post describing how its services had been affected by the COVID-19 pandemic. Like many cloud and enterprise software companies, the huge shift to remote working this month has sparked new demand for Microsoft's products, including its heavily promoted Teams workplace collaboration tool.

• Microsoft initially reported a "a 775% increase of our cloud services in regions that have enforced social distancing or shelter in place orders." That would have been an astounding surge in demand, and it was dutifully repeated in news stories over the weekend and on Monday.
• But that number was too good to be true. Turns out Microsoft actually saw "a 775% increase in Teams calling and meeting monthly users in a one month period in Italy, where social distancing or shelter in place orders have been enforced," it said in an email sent to reporters Monday evening.
• That is a rather different data point, and Microsoft was forced to correct the record with the SEC on Tuesday.

It's fair to say that business will be forever changed by the events of the past month. And enterprise software companies in particular are swiftly adjusting to a new normal that will influence their product roadmaps and go-to-market strategies for months, if not years to come.

• Microsoft certainly has a role in this new world: Many of its products are allowing companies to conduct business more-or-less-as-usual, and companies that didn't use workplace collaboration tools in 2019 will be spending hefty sums of money on such products and services in 2020.
• But no business software company is going to "win" the COVID-19 era, despite the efforts of nearly all of them to position themselves as the backbone of the coronavirus economy and highlight the growth they've seen.

Microsoft's misstep also exposes a potential problem for the company as this disaster slowly evolves.

• COVID-19 has Microsoft a little nervous about its infrastructure. In its blog post, the company also said that it continues to manage Azure capacity more closely than before the outbreak, restricting some offers and asking customers to file requests if they need additional capacity for some resources.
• Microsoft customers might have been amazed at the thought that the company could shrug off a 775% increase in demand across all of its cloud services over just a few weeks.
• But the reality inspires far less confidence. When customers realize the 775% surge in demand was limited to the use of one part of one product in one country, they might start to wonder why Microsoft is having to manage capacity across its network in ways that its competitors have not. Microsoft has been taking great strides to improve the performance and capacity of Azure over the last year, but it's no secret that it has tended to be the creakiest cloud of the Big Three.

Microsoft expects to add "significant new capacity" to Azure in the coming weeks, and it has the cash reserves to follow through on that promise. But it will need those extra resources given all the new business it's winning — first impressions are important.

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Last Week On Protocol

There's a cloud app for that: One often overlooked fact about cloud computing is that there's more to the cloud than using someone else's server: Wholesale changes in the way companies develop software for internal applications are often required to run properly in the cloud. We assembled a panel of experts last week for our weekly Virtual Meetup to discuss this topic, and you can watch our socially distanced conversation here.

Ready in Redmond: The day before that Microsoft mistake, I took a look at how the company might fare during what's expected to be one of the worst quarters in U.S. business history, which starts today. Bottom line: Microsoft is in better shape to weather the storm compared to its advertising-reliant counterparts like Google and Facebook — but no one knows exactly how bad it will get.

Funding secured: It's always a good time to be in the cybersecurity business, and that's unlikely to change this year despite the economic concerns. Protocol's Adam Janofsky reports that security companies are finding it easy to raise money right now, especially companies that focus on cloud security.

Around the Cloud

• AWS implemented social distancing policies at data centers, according to a report from Business Insider — but some employees are still worried about going into work.
• Other data center operators are making tough decisions about who counts as an essential employee, and how much they can limit access to their facilities.
• AWS released some details about Bottlerocket, an open-source operating system designed to be used with containers. It's another attempt to shore up the cloud leader's relationship with the open-source community, which has had its … rocky moments.
• Microsoft rolled out a version of Teams for consumers and rebranded most of its Office 365 productivity suite under the "Microsoft 365" brand. Just to confuse everyone, professional customers will still refer to this product as Office 365.
• HashiCorp joined the Cloud Native Computing Foundation, promising deeper integration between its cloud infrastructure tools and Kubernetes.
• TechCrunch suggested cloud providers consider granting "cloud relief," letting startups defer their cloud costs for a few months during this unprecedented business climate.
• Google Cloud will host public datasets related to COVID-19 exposure along with a repository of research, for scientists and others working on the crisis to access.
• Enterprise software companies are very keen to integrate their products with other enterprise software companies, even rivals: Slack will integrate with Microsoft Teams to provide another voice calling option inside Slack.
• Microsoft made another cloudy 5G move last week, snapping up Affirmed Networks for a reported $1.35 billion. The deal adds another piece to Microsoft's evolving edge computing strategy.
• The Big Three cloud providers joined Akamai, Netflix, Facebook, and others to co-develop security standards for managing how traffic flows between big networks.
• Palo Alto Networks picked up cloud security company CloudGenix for $420 million (nice!) to help companies extend their network security policies to new locations, such as ... well, everyone's home office.

JOIN US ON THURSDAY

This Thursday at noon PT/3 p.m. ET senior reporter Issie Lapowsky interviews California Rep. Ro Khanna (D-CA) about what Washington and Silicon Valley are doing to address the COVID-19 outbreak.

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