Case Study 2
"Turbulent Air in Those Azure Clouds"
Case Study
1. In your own words, summarize Microsoft’s problem.
The market is starting to focus on cloud computing which is a big problem for Microsoft because the idea of cloud computing would render some of their most successful services as outdated or obsolete. In turn, they are have to create software to compete in this cloud computing era, and by doing so, they are taking business away from their own services.
2. Explain the meaning of the following: “. . . you can purchase an hour of a mid-range server for 24 cents. Let’s assume the cost of running that server is a little less than half, say, 10 cents. Because Rackspace can sell an hour on a bare server for a penny and a half, it’s likely that a big part of that 24 cents is a license for Windows Server, and the true marginal cost to Microsoft is probably much less than 10 cents as well.”
The mid-range server purchase has a portion of the this 24 cent charge that is directed towards the Microsoft licensing fee. Since Microsoft owns this, they then keep the profit to take the place of the money lost by users not having their own on-site Exchange server.
3. How does the example Office 365 marginal revenue analysis change if the cost of running that server is 1 cent, not 10?
If the running cost is 1 cent instead of 10, the marginal revenue will increase substantially.
$1,440 – (8760 * $.01) = 1,440 – 87.60 = $1,352.40
4. How does the example Office 365 marginal revenue analysis change if that server supports 2,000 users, not 20?
The marginal revenue analysis would increase dramatically going from just 20 users to 2000 users.
2,000 * $6 = $12,000 $12,000- $876 = $11,124
5. As of this writing, Microsoft had just purchased Skype. Its reasons for doing so are unclear at present (August 2012), but most likely involve the problems addressed in this case study. By the time you read this, Microsoft’s Skype strategy should be clear. Describe what
Case Study
1. In your own words, summarize Microsoft’s problem.
The market is starting to focus on cloud computing which is a big problem for Microsoft because the idea of cloud computing would render some of their most successful services as outdated or obsolete. In turn, they are have to create software to compete in this cloud computing era, and by doing so, they are taking business away from their own services.
2. Explain the meaning of the following: “. . . you can purchase an hour of a mid-range server for 24 cents. Let’s assume the cost of running that server is a little less than half, say, 10 cents. Because Rackspace can sell an hour on a bare server for a penny and a half, it’s likely that a big part of that 24 cents is a license for Windows Server, and the true marginal cost to Microsoft is probably much less than 10 cents as well.”
The mid-range server purchase has a portion of the this 24 cent charge that is directed towards the Microsoft licensing fee. Since Microsoft owns this, they then keep the profit to take the place of the money lost by users not having their own on-site Exchange server.
3. How does the example Office 365 marginal revenue analysis change if the cost of running that server is 1 cent, not 10?
If the running cost is 1 cent instead of 10, the marginal revenue will increase substantially.
$1,440 – (8760 * $.01) = 1,440 – 87.60 = $1,352.40
4. How does the example Office 365 marginal revenue analysis change if that server supports 2,000 users, not 20?
The marginal revenue analysis would increase dramatically going from just 20 users to 2000 users.
2,000 * $6 = $12,000 $12,000- $876 = $11,124
5. As of this writing, Microsoft had just purchased Skype. Its reasons for doing so are unclear at present (August 2012), but most likely involve the problems addressed in this case study. By the time you read this, Microsoft’s Skype strategy should be clear. Describe what