How Microsoft morphed into a cloud company Watch Now

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Microsoft didn't magically become a leading cloud company during the 2010s. But this past decade has been marked by Microsoft's launch of loads of new cloud/subscription services and increased visibility of its cloud-centric strategy across its entire portfolio. As the 2010s come to a close, Microsoft is ensconced as the No. 2 enterprise cloud vendor by most analysts' estimates, and is winning $10 million-plus customer contracts for Azure.



It was ten years ago, in February 2010, that Microsoft first made generally available ts public cloud service -- originally known as Windows Azure and later just plain Azure. Microsoft had announced publicly its plans for Azure, codenamed "Red Dog," two years earlier at its Professional Developers Conference, at a time when Amazon already had been selling Amazon Web Services for two years. Three of the original Azure founding team are still at Microsoft today and two of them recently shared their observations and lessons learned from the past decade with me here.



Azure wasn't Microsoft's first cloud service. In the mid-2000s, Microsoft began working on a version of Exchange that the company planned to run as a service (Exchange @Edu), as noted by Tony Redmond, owner and principal of Redmond & Associates consulting. Microsoft launched its Exchange-anchored BPOS, or Business Productivity Online Suite, in 2008.

BPOS' successor, Office 365, was launched in June 2011 as "a loose collection of three mildly cloudified applications (Exchange, SharePoint, and Lync) connected by a mish-mash of administrative tools," Redmond said. (For more Office 365 history, plus a regularly updated version of current Office 365 content, check out Office 365 for IT Pros, from lead author Redmond and colleagues.)

Microsoft's Executive Vice President of Azure Jason Zander echoed the idea that Microsoft's ramp-up to become a leading cloud vendor started much earlier than 10 years ago.



"We didn't just become a cloud company in the past decade. We had BPOS, Bing. A lot of that work was done in the previous decade," Zander said. "The core of Azure has borrowed from things from Bing and Xbox. What is Azure today gets benefits from (the original Microsoft big-data system) Cosmos and Autopilot. We could take all the awesome systems tech from around the company."



But the past decade is when Microsoft's Azure and Office 365 work gained traction with external customers. Microsoft grew its cloud footprint substantially worldwide, currently claiming 55 regions worldwide (which includes some new regions that are not yet operational).



Here are just a few of the Microsoft cloud milestones from the 2010s:

June 2012: Microsoft begins offering Linux on Azure. Microsoft originally launched Azure as a Platform-as-a-Service play only. Later, officials saw the money -- and potentially the low-hanging customer fruit -- was in the Infrastructure-as-a-Service space. June 2012 is when Microsoft began offering Linux and Windows Server on Azure. As of the fall of 2018, more than half of all the virtual machines on Azure were running Linux.



December 2015: Microsoft responds to cloud privacy concerns by offering customers in Germany an extra layer of cloud protection. The move was one of the first the company made in its quest to stay on top of cloud privacy and security issues.



November 2016: Microsoft launches a public beta of Teams, its Azure-hosted group-chat service, which quickly becomes its newest Office 365 star (at least on the marketing front). As of this year, Microsoft officials said the company has 20 million active Teams users -- compared to 200 million commercial Office 365 customers.



July 2017: Microsoft launches Azure Stack. Microsoft and a handful of server partners started selling Azure Stack, "an extension of Azure," preloaded on servers which customers and/or partners could run in their own datacenters. Microsoft cloud rivals Amazon and Google downplayed the customer need for hybrid computing until fairly recently.

July 2017: Microsoft unveils its Microsoft 365 subscription bundle, which brings together Windows 10, Office 365 and Enterprise Mobility + Security.(As of this writing, Microsoft is still selling Office 365 without the other two pieces, but it's sounding like Microsoft's plan may be to replace the O365 brand with M365 as soon as 2020.) Microsoft also is expected to announce its Microsoft 365 Life consumer subscription bundle in 2020.



September 2018: Microsoft launches Microsoft Managed Desktop. MMD is a white-glove service via which Microsoft provisions, deploys and manages companies' Windows 10 devices as a subscription. Microsoft follows this up with a new managed meeting-room service, which it announced at Ignite this year.



October 2019: Microsoft kicks off Project xCloud public beta. Project xCloud is Microsoft's Azure-based game-streaming service that is meant to bring games to Microsoft and non-Microsoft devices.



October 2019: Microsoft wins the $10 billion, 10-year Joint Enterprise Defense Initiative (JEDI) cloud contract, besting favorite Amazon to grab the winner-take-all project. Amazon is legally contesting the JEDI award, claiming that politics played a big role in Microsoft's win.



Fall 2019: Azure growing pains? Complaints increase among some Microsoft customers of capacity constraints in the Azure cloud in 2019. In the East US2 region, as well as a number of other U.S. Azure regions, customers reported they've been hitting VM and other limits. Microsoft's response, courtesy of Azure chief Zander: "We're always adding more capacity."



The past decade wasn't only one of new products and strategies. Microsoft also made some cloud-related marketing and sales moves that, in hindsight, were savvy in terms of how the company was perceived by customers, Wall Street and analysts.



From the get-go when he became CEO in 2014, Satya Nadella made "cloud first, mobile first" his rallying cry. Later, this slogan became "intelligent cloud, intelligent edge." In both cases, the message was clear: Microsoft's new mission was largely about the cloud, not Windows. A couple years into his CEO tenure, Nadella also changed how Microsoft would compensate its sales team by rewarding them based on cloud service usage, not sales.



In April 2015, Microsoft officials set an official goal of hitting a $20 billion run rate for its "commercial cloud" by 2018. Commercial cloud didn't correspond to Microsoft's organizational or reporting structure. It was a new category officials created that included Azure, Office 365 business services, Dynamics 365 services, Enterprise Mobility + Security and other Microsoft cloud products.



Microsoft surpassed its own $20 billion commercial cloud run-rate goal by October 2017. Officials have continued to decline to specify how much the various products in the category contribute to the total, but most figure Office 365 contributes the lion's share. Estimates for Azure's contribution to Microsoft's commercial-cloud run-rate average around $4 billion a quarter, or $16 billion per year. In Q1 FY20, Microsoft's commercial cloud revenues hit $11.6 billion; its FY19 commercial cloud run rate was $38.1 billion. (While Microsoft's seeming intent continues to be to get company watchers to focus on cloud, not Windows, it's worth noting that Windows is still generating a substantial chunk of Microsoft's overall revenues, but its growth is slowing compared to Microsoft's cloud services growth.)

Microsoft has continued to add more products and services to its commercial cloud bucket, including certain commercial LinkedIn services. Microsoft's LinkedIn unit finally and unsurprisingly announced in 2019 that it is planning to move off its own datacenters and to Azure in the coming years.

As the next decade begins, Microsoft looks poised to continue to play up its stance as a cloud privacy/security champion, as well as an alternative infrastructure provider for customers wary of Amazon competing with their core businesses. It doesn't take a crystal ball to say we'll likely hear lots more about "partnerships" (customer wins); AI's increasing role in Microsoft cloud services; and how Microsoft is making its cloud services more reliable and multi-cloud capable.