CLOUD COMPUTING
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Microsoft

Microsoft’s cloud computing services growing sky high in China

Use of the company’s Azure platform, with customers including Coca-Cola China, General Motors and Haier Group, grew 115.6pc in the quarter to September, to corner a 17.3pc market share

PUBLISHED : Friday, 25 November, 2016, 7:31pm
UPDATED : Monday, 28 November, 2016, 10:29am

More than two years since introducing its cloud computing business in mainland China, software giant Microsoft aims to kick its development up a notch, through more strategic partnerships in the world’s third-largest enterprise information technology market.

Leading the way is Microsoft veteran Alain Crozier, who was appointed in July as the 41-year-old technology company’s new chairman and chief executive for Greater China operations.

“Partnerships are front and centre of our strategy to accelerate the growth of our cloud business in this market,” Crozier told the South China Morning Post.

The Microsoft of today is very different from the one [we had] five or 10 years ago
Alain Crozier, chairman and chief executive for Greater China operations, Microsoft

“The Microsoft of today is very different from the one [we had] five or 10 years ago.”

The steady decline in global personal computer sales in recent years has prompted Microsoft, which built its fortune on the Windows operating system, to sharpen its focus on the rapidly developing cloud services industry, and challenge the likes of Amazon Web Services, Google and computer pioneer IBM.

It was a pivot reminiscent of how Bill Gates spearheaded Microsoft’s quick shift to the internet era, which led to the wildly successful launch of its Windows 95 and Internet Explorer products 21 years ago.

The results of the company’s shift to that the cloud has so far been encouraging, especially on the mainland.

A survey conducted by Forrester Research earlier this month showed that Microsoft has already become the country’s second-biggest cloud services provider, with its Office 365 and Azure platforms.

It said the domestic market leader is Alibaba Cloud, e-commerce titan Alibaba Group’s cloud computing subsidiary. New York-listed Alibaba owns the Post.

Cloud computing enables companies to buy, sell, lease or distribute online, a range of software and other digital resources as an on-demand service, just like electricity from a power grid.

These resources are kept and managed inside data centres. “Cloud” refers to the internet as depicted in computer network diagrams.

Crozier said Microsoft, which entered the mainland in 1992, sees much room to expand its cloud business on the back of growing demand from its more than 70,000 enterprise customers there as of September 30.

Forrester said public cloud platforms, which operate over the internet like those of Alibaba and Microsoft, provide a standardised software foundation for companies to build and run complete applications, which are freely accessible by developers through a self-service interface and employs pay-per-use billing.

That business model allows enterprises to avoid the expense and complexity of buying and managing software licenses, while giving consumers the convenience of subscribing to online resources instead of buying software every few years.

Office 365 is a software-as-a-service platform that offers consumers and businesses the cloud version of Microsoft’s popular productivity program.

Azure is an infrastructure-as-a service platform that provides a virtualised computing infrastructure – including storage, servers and a data centre space on an outsourced basis – to support enterprise operations.

It is also a platform-as-a-service that delivers so-called middleware, such as development tools, business intelligence and database management systems, used by companies to build, test, deploy, manage and update their applications.

According to research firm IDC, the industries increasing their public cloud services spending around the world include manufacturing, banking and professional services. It predicted the media, telecommunications and retail industries to grow the fastest through 2020, when worldwide revenue for public cloud services is estimated to reach US$195 billion.

Crozier said Microsoft saw increased traction for Azure on the mainland, where the company estimated it has so far recorded “triple-digit year-on-year revenue growth”.

“We’re in a very good position now,” he said.

In one of the first cloud alliances under Crozier’s watch on the mainland, Microsoft signed earlier this month a memorandum of understanding with China Development Bank Capital (CDBC), the investment arm of the state-owned China Development Bank, and urban redevelopment specialist Global Green Development Capital to bring so-called digital transformation programmes in mainland cities over the next 10 years.

“The CDBC partnership involves creating technologies on our platforms for smart city projects that will help improve the quality of life of Chinese citizens in general,” Crozier said.

Smart city projects serve as an important investment strategy for local governments. These initiatives focus on upgrading a city’s information technology infrastructure to improve the efficiency of government operations, such as automating tax collection, and the delivery of public services.

“The CDBC is also engaged in projects outside of the country, so Microsoft will also help Chinese companies develop and expand internationally,” Crozier said.

That represents the type of wide-ranging alliances Crozier has been keen to cultivate since joining Microsoft in 1994 and working in a variety of leadership roles at the company’s sales, marketing and services group, including as chief financial officer of that business unit.

He served as president of Microsoft France prior to being named to his new Greater China role, replacing Ralph Haupter who was promoted to Asia-Pacific president.

Microsoft launched its Azure service on the mainland in March 2014 in partnership with Nasdaq-listed 21Vianet Group, a major domestic internet data centre services provider headquartered in Beijing.

That partnership helped establish Microsoft as the first global public cloud company to operate on the mainland, according to Crozier.

With 21Vianet, Microsoft has secured major data centre locations in Beijing and Shanghai, and introduced Office 365 on the mainland. The company said it had more than 17,000 local partners, including information technology systems integrators, on the mainland as of September.

Some of its prominent Azure customers there are Coca-Cola China, General Motors and Qingdao-based Haier Group, the world’s largest home appliances maker.

A year after that landmark alliance with 21Vianet, Microsoft chief executive Satya Nadella set the company’s goal of reaching a sales run rate of US$20 billion for cloud services by its fiscal year ending June 2018.

Research firm Canalys estimated that global cloud infrastructure services revenue reached US$10 billion for the first time in the three months to September 30, with Microsoft’s Azure growing 115.6 per cent in the quarter to corner a 17.3 per cent market share.

“Customers continue to choose the Microsoft cloud to help transform their businesses and organisations,” Nadella said in a conference call with analysts last month. “Our commercial cloud annualised revenue run rate now exceeds US$13 billion.”

Run rate uses a snapshot of the current financial information of Microsoft’s cloud business and extrapolates that over a year. The reporting practise has been criticised by former Microsoft chief executive Steve Ballmer because it does not provide the actual revenue.

Forrester analysts Frank Liu and Charlie Dai said in a report early this month that “Microsoft’s key weakness is that it has only localised about half of its global [cloud] services for the Chinese market”.

Microsoft’s Dynamics 365, which Crozier launched in Hong Kong earlier this month, is yet to be introduced on the mainland.

Customers continue to choose the Microsoft cloud to help transform their businesses and organisations. Our commercial cloud annualised revenue run rate now exceeds US$13 billion
Satya Nadella, Microsoft chief executive Satya Nadella

The new cloud service unifies the company’s own customer relationship management and enterprise resource planning systems into applications that work seamlessly together across sales, customer service, field services, operations, financials, marketing and project service automation.

“In addition, Microsoft’s roster of technology and tool partners, data centres and local

support services are also relatively modest for a global leader intending to make a long-term

strategic investment in China,” the Forrester analysts said.

Crozier said Microsoft was still working on completing all the requirements to bring Dynamics 365 to the mainland. He added that the company was steadily building its cloud infrastructure for the domestic market.

But there is a more daunting challenge that Crozier must face on the mainland.

On November 7, the country adopted a “National Cybersecurity Law” that strengthens Beijing’s ability to freeze assets and take punitive measures against foreign companies suspected of violating cybersecurity regulations.

That also requires companies to collect personal data of their customers, retain that information and “other important business data” on the mainland, and submit to a security assessment in case such data must be transferred to another country.

More than two years ago, government agents swooped in on Microsoft’s offices in Beijing, Shanghai, Guangzhou and Chengdu to collect data as part of an investigation into its alleged violation of the country’s anti-monopoly law.

Unfazed by the work ahead, Crozier said that is why close collaboration with the government was very important for Microsoft.

“Having a relationship with the Chinese government means that everything we do and everything that we will do, is in partnership with China,” Crozier said. “This partnership is really about making our solutions available to all Chinese customers.”