A paradigm shift is when a new form of technology emerges that replaces the old, while a next generation technology builds on previous computing architectures (not replacing it, but rather growing out from it).  The difference between these two concepts may seem subtle, but it is this very distinction that may put an end to Microsoft.   

These “paradigm shifts” in IT rarely occur – a true paradigm shift happens when one form of computing completely replaces another.  In fact, there really has been only one true paradigm shift in recent history, when Supercomputer centers where replaced by on-site servers and desktops.  The advent of the desktop computer was a paradigm shift, whereas, the advent of servers that tie desktops together was a “next generation” iteration. 

There is a significant difference between a paradigm shift and iterative/evolutionary growth – the first is a complete replacement (flat world vs. round world), while the latter simply builds on what already exists (the introduction of laptops, which did not replace desktops). 

Today, it appears that we’re in the midst of a true paradigm shift, in which one form of computing may completely replace another form.  Cloud Computing, or “Software-as-a-Service,” is the new paradigm, and it will replace the current Server/desktop model due to efficiency and simplicity.

Microsoft’s miscalculation is the belief that Cloud Computing is evolutionary, or a next generation of computing, while there is growing evidence that this is a true paradigm shift.  Only time will tell, but it would seem a strong case could be made that we’re living in a historic moment (from a technology perspective).

I would seem that Microsoft is still trying to put old wine into new bottles, and their failure to understand the difference between an actual paradigm shift and an evolutionary/iterative shift will likely be their downfall (if, in fact, this is a paradigm shift):

Don’t Be Fooled…

It’s important to understand what this paradigm shift is.  The real paradigm shift is NOT about putting applications that were once on servers into the “cloud” (or Internet), which is what Microsoft’s Azure seems to be doing.  The real paradigm shift is in a multi-tenant architecture.  This kind of architecture utilizes limited instances of an application that is shared between many companies.  While the data for each company is stored separately, the application itself is shared.

Why Is Multi-Tenancy the Key?

Multi-Tenancy resolves the fatal flaws inherent in the current server/desktop paradigm – software upgrades, software patches, broken integrations, lost data due to upgrades, conflicting applications, hardware upgrades, managing thousands of desktop computers, etc.  IT departments are spending millions of dollars trying to maintain these infrastructures that continue to become more and more complex. 

The success of the current server/desktop model depends on complexity.  Revenue is derived from upgrades, patches, on-site installations, etc.  The more complex and difficult to manage this infrastructure becomes the more Microsoft and it’s developers earn. 

It would appear Microsoft’s Azure is simply taking this complex IT nightmare and moving onto a new platform.  All the issues described above are not resolved, but rather moved to a new place.  Software + Service (Microsoft’s approach to “SaaS”) is simply the same Emperor in new clothes, nothing more.  

Multi-tenancy, on the other hand, represents an entirely new form of computing.  Instead of computing power residing locally it is accessed via the Internet.  Instead of millions of different versions of a single application on hundreds of different servers and desktops, millions of companies can now use a single version on one Application – a single set of source code for all users.  The difference between these two approaches is night and day – one will ultimately replace the other.  

During the early stages of the Industrial Age factories created their own electricity.  This provided them with a competitive advantage and an entire industry grew up around creating on-site generators.  Each company spent a portion of their revenue developing their own infrastructure specifically to create electricity. 

Then, a new technology emerged.  This new “grid” technology allowed electricity to be created centrally and delivered via wires (sound familiar?).  Delivering electricity became far less expensive than a company could do on their own.  The entire industry who provided on-site electricity infrastructure practically vanished. 

It was a paradigm shift that is very similar to what we’re seeing today.  We’re in the early stages of this shift so there will be some hiccups and growing pains, but this does not mean it’s not a paradigm shift. 

I suspect the advent of “Cloud Computing,” or more specifically multi-tenant Cloud Computing, will ultimately replace our existing approach to computing.  Just like electricity was ultimately “outsourced and commoditized,” it would appear on-site computing will also go the way of on-site electricity creation. 

This shift is already taking place.  It’s only a matter of time before enough pressure builds and the dam breaks.  Cloud Computing is reaching a critical mass.  When it does, Microsoft will disappear (if it does not wholeheartedly adopt SaaS and walk away from their most profitable products and services).   

Helpful Links:

http://news.cnet.com/8301-13846_3-10079576-62.html

http://blogs.zdnet.com/microsoft/?p=1671&tag=mncol;txt

http://cloudenterprise.info/2008/10/29/microsoft-azure-vs-amazon-google-and-vmware/

One of the reasons I like SaaS (also known as Cloud Computing), is it levels the playing field for small and large companies alike. 

When I was involved in a startup company, for example, we were able to create some incredibly sophisticated automated workflows and customer management applications on the salesforce.com platform.  In the past, these kinds of workflows and automation was only available to larger companies at a cost of hundreds of thousands of dollars.  In fact, one small company for which I worked was paying $170+K per year in technology development and the end-product was substandard and barely worked.

When I stepped in I was able to cut that budget by 50+% using salesforce.com and the end result was a multi-million dollar, highly sophisticated application at a fraction of the traditional cost.  They lowered their IT investment by 50% and had a far superior product.  This is the reality of the new world of technology.  Some companies are beginning to see this, and others are sticking with their older home-grown applications.

I recently talked to a VP of a 140-person company and they do not own a single server – anyone in IT should fear this fact.  They run their company on a platform that exists 100% on the Internet - salesforce.com and google apps.  The cost of their technology is a small percentage of other companies of similar sizes.

I’m convinced that we’re entering a new paradigm in the technology industry, and Microsoft has never been more vulnerable.  The reason is most of their revenue comes from the server/desktop model, and for them to switch to a SaaS model will destroy their revenue stream.  Later this month Microsoft will be launching their own version of a “SaaS” application to compete with companies like Google, Salesforce, Amazon, and WorkDay, which will include a blending of desktop/server model and SaaS.  This will be a huge mistake, and it could mark the first crack in the Microsoft armor. 

To me, this is like telling some people to ride on the right side of the street and others to drive on the Left.  There is no question that Microsoft (and the entire IT industry) is on the cusp of tremendous change.  While most industries like telecommunications, publishing, banking, etc, have capitalized on the efficiencies of the Internet, the IT industry has remained surprisingly in the 90’s. 

I believe this industry has remained so far behind because most people in this industry have a vested interest in the older technology model, which is anchored by Microsoft.  Here’s the deal.  If Microsoft moves into the SaaS marketplace, they essentially become less influential because they’re cutting off their main revenue stream and admits to a better deployment method (SaaS).  In order to survive, Microsoft needs companies to continue to use servers, desktops, software, software patches, homegrown applications, local networks, etc.  If these elements go away so do they. 

Let me repeat this, if all these hardware and software elements go away, so does Microsoft.  Think about that!  SaaS gives companies the tools to shed these expensive elements, and CIO’s are flocking to the SaaS deployment method.    

Microsoft is at a crossroads.  If they choose a pure SaaS deployment method, then it’s a huge leap of faith and has tremendous risk because their competitors are already well down the road to the cloud.  If they stay with the old technology, then companies like Google, Salesforce, WorkDay, and Amazon will continue to chip away at their market share until the industry hits the tipping point and the Microsoft way will be swallowed up in the new paradigm. 

I know this sounds a bit dramatic, but it’s absolutely true.  There is no middle ground here.  If Microsoft chooses the middle ground (which it appears that’s the direction as they coined the phrase Software and Service), then they choose the old technology, and will lose huge market share.  The two deployment models (server/desktop/software vs. Software-as-a-Service) do not mix, it’s a zero sum game.  Trying to bridge this divide is like MS asking CIO’s, “I know servers are expensive and keeping up with patches and upgrades are costly and risky, but we think you should stick with us even though the SaaS model is cheaper, better, and faster.”  

IT Departments are looking for ways to save in this economy and SaaS is what they’re looking at.   Fast deployment, lower cost of ownership, lower implementation costs, and a superior end-product.  The small company I described above is an example of what’s beginning to happen on a larger scale.  CIO’s are far more risk averse than small companies and are careful about making changes, but believe me it’s happening.   

Drip, drip, drip, drip…  it may take decades for small drops of water to break a giant stone, but when that final drop hits the stone and the first crack appears, it’s the beginning of the end – then each drop has more and more impact.  This is where we are.  The cracks are beginning to form.  The signs of these times are all around.  Microsoft’s SaaS strategy, which will be announced shortly, will tell us if MS will be in the game 10 years from now.  During times of transition the companies who have the big vision and are willing to take huge risks are the ones who prosper.  

I’m looking forward to Microsoft’s SaaS plan, and I hope you are too!!  They could go bold and change the IT world forever, or they could try to bridge the gap with incremental change and get eaten alive.  This should be an interesting few weeks.