Azure Blues

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It isn't very often I get to apply Moore's Law to a non-Information Technology business and rarer still that I can then relate the whole thing back to Microsoft, so I'm going for it. Here's what the solar power industry can teach us about Microsoft:

The wonderful thing about Moore's Law is what the lady at the bank called the "miracle of compound interest." That halving of manufacturing cost every 18 months (the OTHER way of looking at Moore's Law that we generally don't use) has little apparent impact in the first few years, but eventually the halving and re-halving takes a real bite out of the cost side until substantial performance is very, very cheap. That explains why there is more computing power -- a LOT more -- in your iPod than was required for the Apollo Moon missions. Well this applies to ALL silicon-substrate photolithography applications, not just computer chips. It applies equally well, for example, to silicon solar cells.

There are many types of solar cells. Some solar cells involve crystalline silicon just like computer chips and others use amorphous silicon, but all types benefit from Moore's Law. In fact one especially good aspect of solar cells is that they can make use of older process technologies that are obsolete for computer work. So every time Intel or AMD builds a new fab there is a market in the solar industry for their old machines. Look at those round solar cells used in many arrays today and you'll notice the smaller wafer sizes favored in Silicon Valley 15-20 years ago. That's no coincidence.

The result of this relentless application of Moore's Law to the solar industry is that we can see a time in that near future when the cost of producing a watt of electricity from a solar cell on your roof will be approximately the same as the cost of delivering that same watt over a power line from an electric utility. And of course that means that 18 months after that point the solar watt will cost HALF of what the same power would cost from the electric company, which will completely change the game.

The time when that electricity cost parity will be reached, I'm told, is seven years from now. Just think of the impact that will have on electric utilities! Why would any of us continue to buy our power from them? We might use them as a giant storage battery and possibly for backup on cloudy days, but why would we use them at all for power if we can generate it cheaper at home? You can bet that's a question the electric power generating industry is asking itself.

The whammy for the power companies is two-fold, because not only will power be cheaper but, by definition, the cost of building and installing solar panels will be substantially cheaper, too, than it is today. If it costs $40,000 on average to refit your house today, a lot of homeowners can't afford that, but what if it becomes $10,000? That's what worries electric companies that are used to having easier access to capital than do their customers. But once installing solar power costs relative chump change (the cost of a nice Ski-Doo or remodeling a bathroom), we'll see massive conversion and the power companies know that.

So what can they do? They can find ways to get us to use more power than can possibly be generated from the roof of a typical American home. And that's why this week the Electric Power Research Institute proposed that we all get plug-in hybrid cars. It would save billions of barrels of oil, they say, lower greenhouse gas emissions, clean the air, oh and by the way require more electricity than your solar cells can produce, thanks.

And it will work -- for a while. But Moore's Law is relentless, you know, and the role of electric utilities will change dramatically over the next decade as a result. As far as I can see, this is all for the better.

But what does it have to do with Microsoft?

Well that brings us to Windows Azure, which was still called Windows Cloud when I first mentioned it a couple weeks ago. Like all Microsoft strategies, Windows Azure is a reaction to external competitive pressures. And it is important, VERY important. Here's how a source of mine at Microsoft put it a few days ago, before the Azure announcement: "The cloud stuff isn't just another enterprise product. It is going to impact everything we do -- all of the product groups -- consumer and enterprise -- are going to have to figure out where they fit in to the cloud paradigm. The shift to cloud-based computing is analogous to our shift to the Internet in the late '90s. It changed the direction of the company and impacted everything we did."

Wow, that's a big deal! Yet based on the Microsoft announcement this week, all Windows Azure looks like to me is Microsoft's effort to sell web services or maybe cut the sticker shock for smaller businesses adopting SQL Server. But more properly, it likely means Microsoft's acceptance that computing clients may eventually be free or nearly so. In short, Windows Azure is an insurance policy against the possible Vista-like failure of Windows 7.

Last week, for example, I wrote about Microsoft's Windows Mobile technology, predicting that it would die simply because Redmond would realize that it could never be first or second in market share. That was no big scoop from me, though some news people took it as one -- it was just common sense. And so what happened this week? Well here's a report from a reader attending Microsoft's Professional Developer Conference, where Windows Azure and Windows 7 were introduced this week.

"Windows Mobile has (a) near zero presence at MS PDC," wrote the reader. "Their Live Mesh platform has Windows Mobile as an integral component but otherwise no mention, no sessions. There was one session scheduled but it was cancelled at the last minute. Hmmm."

When the body is under stress, it eventually sacrifices entire limbs to keep the internal organs working. Windows Mobile is just an appendage to Microsoft and always has been. Yet mobile is clearly the client of the future, so what's to be done? Windows Azure. Control the back end through industry standard -- even open source -- protocols. Make money from subscriptions and ads -- make money any and every way in the hope of leveraging a global infrastructure investment into a continuing business strategy.

Can you see the connection here? There is almost no difference between Microsoft trying to become our computing utility and the electric company trying to power our next-generation cars. Both are coping strategies, both are risky, but neither Microsoft nor the electric utilities see that they have any real choice. And maybe they don't.

For Microsoft, at least, it could be a strategy with legs. While the utilities will be undercut more and more by Moore's Law, Microsoft as a computing utility won't be. But that doesn't mean they'll be any good at the job. It means fighting a war on two fronts -- with Google as a provider of applications and with Apple as a provider of content. MAYBE Microsoft has a shot against Google, which is becoming more Microsoft-like itself by the day, but to compete with Apple as a content provider? Forget it. Microsoft simply isn't the class act it needs to be to dominate that space, so look for acquisitions to (maybe) fill that void.

And all this means that Windows 7 had darned well better hit a home run or Microsoft is in BIG trouble.