Why Microsoft’s cloud matters: Hint the reason begins with “A” but it ain’t Azure

It won’t surprise you to hear that Microsoft (s msft) cloud chief Satya Nadella thinks Windows Azure is ready for primetime not only among the big and medium-sized companies where Windows and .NET are entrenched but among lean Mac-laden startups that have made Amazon(s amzn) Web Services the de facto infrastructure standard.

In his view, Windows Azure is already a major player in public cloud and will get bigger because Microsoft has the apps that prove Azure’s mettle day in and day out. In an interview following his Structure 2013 talk, Nadella conceded that Azure does not yet have an outside “poster child” for Azure — the role Netflix(s nflx) plays for AWS. But, it does have a ton of internal workloads humming away testing out the service.

azurescreenshotXbox Live, Bing and Office 365 all run on Azure now, Nadella, whose title is president of Microsoft’s Server and Tools group, told me. (Office 365 was a surprise to me  — but hey, he should know) “Our first party stuff is big. The fact that Xbox Live with 45 million subscribers– that’s more than Netflix — is fully on Azure shows the scale,” Nadella said.  Netflix claimed 29.2 million subscribers in April.

Earlier, during his fireside chat with Om, Nadella stressed that point. “If you’re in the infrastructure business, the thing you really need is apps and we have perhaps the biggest collection of first-party apps –Bing, Xbox Live, Office 365, Skype and Dynamics.” Cloud providers, he said, need to have many types of apps running because no one cloud will fit all. The thinking here is that Google is all about search, Amazon is all about e-commerce while Microsoft is all about everything.

“You can be hijacked by running just one webscale app. Having a diversity of apps — some statefull, some stateless, some transaction heavy, some media heavy” is critical, he said and is a big advantage for Microsoft.

Late to IaaS but making up ground

Nadella acknowledged that Microsoft got into IaaS late, releasing  AWS-like spin-up-and-spin-down capabilities and persistent VMs in April, but is happy with the early traction. “We didn’t have IaaS until two months ago, this is new but fast growing business for us,” Nadella said.

He cited a U.K. startup, Two10deg, that is building an alerting system for the Royal Navy –” a signaling mechanism to alert the Coast Guard when fisherman fall overboard. “It’s a sort of Internet of things meets the cloud application,” Nadella said. BizSpark, the Microsoft program to promote Azure use by startups is growing he noted.

Still the competitive landscape is, um, fluid. While Microsoft seeks startup cred, Amazon is aggressively targeting enterprise accounts, rolling out new services and even support offerings to appeal to that user base. The battle for those workloads is going to be tough with VMware(s vmw) also getting into the game along with Red Hat(s rhat), Rackspace(s rax) HP(s hpq), IBM(s ibm) and others.

He’s heard the criticism: That non-Microsoft technologies may be supported on Azure, but it’s as second-class citizens. In that instance, Windows is advantaged on Azure because of the surrounding development toolkits. “Our support of Linux is very good but then there’s no Visual Studio for Linux,” he noted.

He also noted that Microsoft offers more flexible pricing options than AWS along with guarantees. “We will always have a full range of packaging and options that people want to buy and we will be price competitive,” he said. Indeed, the biggest news out of Azure’s IaaS roll out was its per-minute charges (Amazon charges by the hour) and that if a user stops a VM, the charges stop as well.  Google Compute Engine, which became broadly available in May, also offers per-minute pricing on instances but with a minimum 10-minute buy.

To those who saw GCE jumping to second in line after AWS for public cloud,  Nadella said that is just one use case. When it comes to public clouds, folks will look at AWS, GCE and Azure. When it comes to enterprise class clouds, they’ll look at us, Amazon, Google and maybe VMware,” he noted.

Nadella makes a solid case for Azure, but Google’s growing presence in non-search applications has been impressive and might give it a leg up in enterprise cloud.  Google Apps for Business (i.e. the paid version) has shown pretty good traction. It was estimated to be about $1 billion business last year. Interestingly, earlier this year, another Microsoft exec claimed that Azure is also a $1 billion business.

GCE looms, given Google’s ability to scale and resources. But AWS remains the cloud to beat for Microsoft. And even skeptics have to concede that Microsoft has the wherewithal to make this a very interesting race.

Check out the rest of our Structure 2013 coverage here, and a video embed of the session follows below:

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