Microsoft’s CFO says hybrid cloud computing is a ‘funnel of opportunity’ – and a benefit the company uses to convert customers could be bad news for Amazon Web Services (MSFT, AMZN)

  • The hybrid cloud acts as a funnel for Microsoft’s Azure cloud business, Chief Financial Officer Amy Hood said.
  • Microsoft offers a benefit to convert Windows Server and SQL Server customers to its cloud. One-third are starting to use Azure, she said.
  • The hybrid cloud is key in the cloud race – and so is converting Windows Server and SQL Server customers, which Microsoft rivals including Amazon Web Services are also trying to do.
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While companies are increasingly moving to the cloud, many still have a need for computing on-site in their own servers or data centers. This mix is often called the “hybrid cloud” – and Microsoft Chief Financial Officer Amy Hood said it acts as a funnel for the company’s Azure public-cloud business, the leading rival to Amazon’s cloud dominance.

Microsoft offers its customers what it calls an Azure Hybrid Benefit, intended to convert customers who have licenses to use Windows Server and SQL Server, two of Microsoft’s flagship traditional server products, to the Azure cloud. 

One-third of customers who have that benefit available have started to take advantage, Hood said, speaking at Morgan Stanley’s Technology, Media & Telecom Conference on Monday. 

She described it as “a funnel of opportunity for us, with customers who are already committed to our platform, to convert and help them start projects and be successful with Azure as the most cost-effective platform for them.”

The hybrid cloud is key as Microsoft seeks to upend market-leading Amazon Web Services. Microsoft, according to analysts, is “uniquely positioned” to get future cloud business because of its “best-in-class hybrid cloud offerings.”

Microsoft’s hybrid cloud

Microsoft thinks of itself as a hybrid cloud pioneer.

“The reality that compute will need to exist at the edge and in the cloud…is a reality that now people are beginning to see,” Hood said on Monday. “We’ve been architecting that way from the beginning.”

Microsoft CEO Satya Nadella has repeatedly said the company’s cloud was designed around the idea cloud will work in tandem with devices at the “edge,” meaning devices that process data locally, instead of offsite in the cloud. Self-driving cars, security cameras, and heavy industry robotics will have a need both for powerful processors onboard, but also the ability to tap into mega-clouds like Azure for the more powerful infrastructure that underpins modern AI.

Nadella even said he thinks Microsoft won the Pentagon’s $10 billion cloud computing contract because of what it has to offer when it comes to hybrid cloud computing.

“We are the only guys today who have the ability to distribute computation, dispute data and then have consistency of management, security and data across those two plates,” Nadella recently said, apparently referring to on-site and cloud computing. “That’s a hard thing.”

Amazon, meanwhile, is challenging the Pentagon’s decision alleging political intervention. A judge recently told the Pentagon to hit pause on the contract.

Windows customers are important in the cloud race

Converting over Windows Server and SQL Server customers is important for any cloud provider.

Microsoft created the Windows Server server operating system and SQL Server database management system years ago — Windows Server was introduced in 2003, while SQL server goes all the way back to 1989 — and they’ve since become the cornerstone to the IT infrastructure at companies large and small. But while they were Microsoft inventions, both products are supported on rival clouds including AWS and Google Cloud Platform.

Microsoft and AWS often debate which cloud is cheaper for those customers. Most recently, AWS attacked a Microsoft-sponsored study that found the Microsoft Azure cloud is faster and cheaper than AWS in a certain common scenario. 

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