Utility Computing and Profitability

In this month's interview [GigaOM Interview, March 10, 2008], Om Malik pushed Ray Ozzie to say something about the profitability of serving the cloud.

"It’s unlikely that we would get into it if we didn’t think it was going to be a profitable business. So we’ll just manage it to be profitable. It’s going to have different margins than classic software, or the ad (-supported) business. But, we have every reason to believe that it will be a profitable business. It’s an inevitable business. The higher levels in the app stack require that this infrastructure exists, and the margins are probably going to be higher in the stack than they are down at the bottom." (2008)

Let me repeat what Ray says here: "We'll just manage it to be profitable." It is certainly conceivable in some markets that a single dominant player can determine how the added value is shared between the layers in the stack. In our work on service-oriented business strategy, we look at some of the ways of influencing the value ladders in a complex stratified business ecosystem. So has Microsoft really got the power to exert that kind of hegemony over the Internet Cloud? Maybe not, but it certainly looks like it's going to try.