This week I was talking with a CIO about her thoughts about Cloud Computing and how communications are changing. Conveniently the same day, I got a stock market newsletter (read marketing piece) about how Microsoft (NASDAQ:MSFT) is going to be irrelevant. I was quite interested and read the entire piece. We both bit and ended up watching the 20 minute video that was attached via a link.
It seems that some analyst is saying that Google(NASDAQ:GOOG) is going to be the king here very soon and Microsoft’s cash business will go away. They pointed out that Microsoft lost money for the first time ever. Nearly $500 Million in fact.
At first, you think “WOW, Microsoft lost $500 Million, isn’t that how much American Airlines lost? Isn’t American Airlines bankrupt? Maybe the Fool is right and I should sell my Microsoft Stock.”
If you dig a little deeper you find that Microsoft wrote off a $6 Billion dollar purchase of another company, and ONLY lost $500 Million. That means they made $5.5 Billion dollars that they could spend. That was $5.5 Billion in one Quarter by the way.
The entire point of the newsletter was that Google (at $600+ per share with no dividend, 70% of the income of Microsoft, and only 30% of the profitability for the year even with a Microsoft $6 Billion write off) was a steal because of cloud computing and their “secret” investments. The video said everyone is going to the cloud and Google is going to be the king. The example they used to describe this massive shift was power companies.
Before the electric light, all homes were self powered. Then companies started building power stations and “the grid” so we could all get cheaper power and light up our homes. The video portrayed Google as the new power company, and that we would all be getting our software and storage from Google.
So how does that relate to Google being a bargain, and Microsoft becoming irrelevant. How does sheep dog competition relate to Cloud Computing?
Remembering to follow the advice of my success coaches and “be careful who I listen too.” I looked a little closer at Google and the cloud computing world for my CIO friend. To begin with the power generation analogy, lets look at how many power companies their are in the US. There really isn’t one company providing power throughout the US. Deregulation, allowing anyone to sell power has made it more confusing than ever.
Today, going off grid is a viable option in many areas in the southwest. Solar power production from home and business rooftops in California is said to be enough to replace one nuclear power plant, with less than 1% of the homes participating. Power storage is the next horizon in that industry.
In the digital world, we have already lived through the first cycle. Cash registers were the first “computers”, and they could do basic calculations. Next came the mainframe. Data was centralized and the power of computing exploded. Next there was Apple and Microsoft giving the world desktop computing. Now we have come full circle back to cloud computing or so they would like you to think.
Using the power plant analogy, there is room for Google, Microsoft and Zoho in the cloud computing space. In fact there are already hundreds of players in the online storage and backup business, and hundreds of large commercial applications that rely on cloud services such as Salesforce.com, and all of the software suites from 37Signals.com. There will also always be a place for a home server, office server, desktops and mobile devices that don’t have to be “connected” in order to be useful.
The other flaw in the power analogy is portability. Power plants were built to power homes and businesses that don’t move. The infrastructure is very stable. PC’s and people on the other hand move like the wind, as do their information and communications needs.
Cloud computing is based on the premise that you need access to your data, anywhere and anytime. This is a great concept for marketing the cloud instead of portable storage devices like thumb drives but it can get very expensive to stay connected. $4.99 for an hour at a coffee shop, $39 a month for the cellular data plan that may or may not work, $14.99 for WiFi on the airplane and maybe $9.99 for that hotel WiFi because your hotspot doesn’t work. Soon you are paying several hundred a month to access your data that could be in your pocket on a $100 portable drive if your apps are on your laptop or tablet.
The CIO I talked with also mentioned that the EULA scared the pants off of her security team for all of the cloud based platforms they reviewed. Without exception, the formats are proprietary too. If the company fails, your data is gone and backups may be unreadable. Funny because this is half the reason I don’t use Quickbooks online in our business. The other half is simply cost. Quickbooks, Freshbooks, and even SAGE online are all too expensive for what you get in my opinion and the risk of them losing your data is too big. They don’t have to sit with the IRS or pay your CPA when the data center goes down.
She also mentioned that in the EULA, the hosting company can also scrub and analyze your data and what you do. For now her team has decided to keep site licensing and hosting applications on site.
Maybe Scott McNealy of Sun was right when he said “Give it up, privacy is dead.”
At the end of the day, Google and Zoho have made inroads into online storage and maybe taken a little market share from Microsoft in the online office suite market. For now though, I’ll keep my shares of a company sitting on $63 Billion in cash, and I’ll keep my software and my data on my servers and computers. Microsoft isn’t dead or even dying. Google still hasn’t even caught up. Yes Google is a jaugernaut, and with all of the Microsoft bashing out there, Microsoft has had a solid, steady growth since the word “personal” was added to computing. Windows 8 might be an over bloated dud, but it might also be another Microsoft cash cow that makes it into two out of three homes in America.
What do you think?