Microsoft Grounds its Azure Cloud With an Enterprise Appliance

Updated: Microsoft (s msft), feeling the heat from some of its rivals such as VMware, (s vmw) is starting to focus its cloud computing efforts on hybrid and private clouds. In an effort to capture the nascent market, the company says it is going to start offering a Windows Azure Platform–based cloud appliance that can offer a cloud equivalent of one hundred to one thousand servers. The news of this new appliance was first revealed by Microsoft’s President of Server and Tools Business, Bob Muglia, at a Microsoft partner event in Washington D.C.

For now, the appliance will be in limited production release — Microsoft-speak for “available to chosen partners.” Microsoft says eBay (s EBAY) is an early appliance customer. Dell (s dell), Fujitsu and Hewlett-Packard (s hpq) are going to implement the appliance inside their own data centers, and eventually will manufacture and sell the Microsoft appliances to their customers. Think of the appliance as a way to create a “platform as a service” inside a corporate data center.

Microsoft’s decision to launch an appliance is a tad confounding — and perhaps reflective of the fact that its Azure platform hasn’t quite been adopted by enterprises as widely as the company would have hoped for. (Update: Microsoft says that nearly 10,000 companies — big and small have signed up for Azure.) I couldn’t quite get any clarity on the decision during a conference call with Microsoft executives.

Research Report: Defining Internal Cloud Options: From Appistry to VMware

“Public cloud isn’t going to be an only choice for government and corporate infrastructure,” said Amy Barzdukas, GM, Server and Tools Business at Microsoft. She pointed out that most companies want the scale of Azure but are still looking to control their infrastructure because of legal, security and other corporate reasons. This is one of the reasons, Microsoft has launched this appliance, she said.

Her views dovetail with my one big takeaway from our Structure 2010 conference earlier this summer: Most large companies were focusing their attention on private clouds, which are being viewed as a way to optimize the internal IT infrastructure and slowly transition to a hybrid model — where they use internal cloud environments in tandem with a public cloud service.

VMware CEO Paul Maritz, in a fireside chat with me, said that his company was betting big on helping large companies make the transition to private cloud with its new offerings. Microsoft’s strategy seems closer to IBM’s, which has both hardware (CloudBurst) for companies that want to build their own clouds, and a variety of workload-specific platforms on offer to clients, as opposed to VMware, which is building platforms as a service with no hardware in sight. This strategy also puts Microsoft in competition with Cisco Systems (s CSCO), which is working on its own strategies to compete in the emerging cloud marketplace using specialized and easily configurable hardware. Microsoft, it seems, is merely following what is en vogue these days.