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Microsoft's magic bullet for Azure: Red Hat Linux

Cloud biz falls short of $80m revenue target

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Analysis If Microsoft loves money, and it does, then making Linux publicly available on its proprietary Azure cloud can't come soon enough.

Last June Microsoft ran a build of Linux on its Windows Azure compute fabric in the labs of the Server and Tools division, which is responsible for its cloud.

What flavour of Linux? Red Hat, sources close to the company now tell The Reg.

That's a critical pick given North Carolina's favourite brand of Linux continues to reign as the market's number-one distro and is a preferred choice for Windows shops when going Linux.

Microsoft knows Red Hat is important: as much as it hurt his eyes, in 2005 Steve Ballmer presided over a demonstration of Microsoft's Virtual Server at a Microsoft Management Summit running Red Hat and managed through Operations Manager. This rapprochement came five years into a Redmond campaign to dismiss and vilify Linux with Ballmer saying his company had listened to customers who'd demanded better support for non-Windows machines.

Microsoft now loves Linux when it's running as a virtualised instance on its gear.

By embracing Linux, Microsoft managed to contain the Penguin's once rapid advance in the server room and, according to IDC, Windows now accounts for nearly 50 per cent of server revenues compared to just under 20 per cent for Linux.

The closed, controlled environment of the server room however is no longer Microsoft's big problem: it's the cloud.

We knew that several years into Windows Azure, Microsoft's cloud platform was struggling, only we didn't know by how much. Now we have some unofficial figures.

Sources tell us the revenue target for Windows Azure in Microsoft's current fiscal year, which started on 1 July 2011, is $80m - a relatively modest number for a company the size of Microsoft. Halfway in, it looks like the target will be missed and come in at $60m, The Reg has been told.

We asked Microsoft to comment on the numbers, but the company declined.

How that $80m figure compares

To give some perspective: Microsoft's Server and Tools division, which runs Azure, raked in an overall $4.7bn for the most recent quarter, up 11 per cent. Amazon, the game everybody wants to beat, in October reported $407m revenue for a business segment it calls "other". That segment contains money made from EC2 as the retailer doesn't break out cloud figures.

Amazon also doesn't release customer data, but does tell you how much data is pouring through its cloud: 566 billion objects by the end of 2011, almost double the number of 2010. To help contain that and grow, Amazon opened three data centres in 2011.

Microsoft's struggle towards cloud revenue is believable. In the last year or so, Microsoft's been tweaking and re-working Windows Azure pricing with the direction consistently towards cheaper at the low end as an on-ramp for new developers. Microsoft claims to have more than 10,000 Windows Azure customers; if that's correct then they are either paying tiny amounts of money for the service or paying nothing because Microsoft is giving it away to existing Windows shops.

Microsoft's been trying to emulate Amazon as a haven for developers of all languages and tools: it's made Azure friendly for Java and PHP in addition to .NET. It's used startups and internet companies as poster children to lure consumers and web entrepreneurs to Azure.

There's no business like Node.js business

The latest sexy sign up is Node.js, the JavaScript-for-the-server effort by Ryan Dahl. Cloud9, an IDE maker, has announced its Node.js development environment will now deploy apps built using the server-side flavour of JavaScript to Azure. Microsoft corporate vice-president Scott Guthrie was also speaking at the Node.js conference in San Francisco, California, this week. It was Guthrie who developed Microsoft's Silverlight media player and who was recently pulled into the Azure unit, it's understood, to improve the experience of building apps for Azure.

Based on the numbers, the developer strategy isn't paying off. Amazon already has a critical mass-based brand and awareness, choice and openness. Amazon lets you run actual virtualised editions of the software you know and like, such Windows, SQL Server, Linux, Oracle and MySQL, not hybrid versions that lock you in to a compute fabric and storage layer.

If Microsoft wants to make it big, however, it needs to capitalise on its strengths and that brings us back to Linux. Microsoft needs more workloads running on Windows Azure before it can really start to talk real user numbers and before it can start charging for the service.

Mary-Jo Foley notes here, it's the ability to run Linux on Windows Azure that's been a big ask among Microsoft customers. Experience in the server room would reinforce this and it suggests the quickest way to get those workloads is by fully embracing Linux.

The plan is for a test preview of Linux on Azure this spring. Based on how much Azure isn't making, Microsoft should accelerate the pace. ®

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