Microsoft: Cloud Computing Will Raise Our Sales, ProfitMicrosoft: Cloud Computing Will Raise Our Sales, Profit

Microsoft business software president Stephen Elop says the company's June launch of Office 2010 will include a cloud-based version that will result in more revenue and profit for Microsoft because the company will end up "doing much more work for the customer."In a BusinessWeek.com article, Elop offered this completely rational scenario:

Rational? Absolutely. Likely to happen? Maybe, and maybe not.

It could happen if Microsoft is able to package enough value and flexibility into its cloud pricing model so that the majority of its massive base of Office users decides that the transition costs for switching to Google Apps are prohibitive.

And it could happen if those customers find other cloud providers are also setting prices in ways that take into account the provision of "your networking, your hardware, your operations, your customer support," as Elop put it.

The big challenge for Microsoft in that approach is setting price points based not so much on having its own revenue come out ahead, but rather on allowing customers to lower their cost of infrastucture, which is a top-level priority for CIOs in 2010. (Check out that and other urgent CIO priorities in our recent column, Global CIO: The Top 10 CIO Issues For 2010.)

But Elop's currently rational theory might not translate so well to reality if Google continues making aggressive product and pricing moves with its own suite of applications, which would likely siphon off an appreciable number of enterprise-level clients and blunt Elop's vision for more work resulting in more revenue.

On top of that, all manner of new cloud-based partnerships offering enhanced services could arise this year and further complicate the picture for Microsoft: for example, what if Salesforce.com and Google got together and offered a package that included Google Apps and Salesforce.com's new Chatter collaboration tool?

As we've seen repeatedly during other tectonic shifts in the technology business, the status quo rarely survives and it's pretty much impossible to project a steady-state future. So while Elop's expectation that more work for enterprise customers will logically mean more revenue and profit for Microsoft, I contend that his plan looks a whole lot better on paper here in February than it will when the cloud version of Office 2010 hits the market in four months.

Microsoft needs to think very carefully about what type of alternative scenarios from which its customers and prospects will be able to choose-and it should also think even more carefully about this seemingly innocuous statement issued by Google and cited in the BusinessWeek.com article. Because behind the Zen-y tranquility of the Google message lies a very clear promise to Microsoft that it is now competing on Google's home turf:

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