A (r) evolutionary conjuncture of factors has culminated in Canadian-based, Microsoft cloud resource lift-off. First announced last June, Canadian cloud capability has finally come into focus with release of an operational preview of Microsoft’s Azure to select “early adopter” customers out of data centre facilities located in Toronto and Quebec City. In Q2 2016, the company intends to expand on this initiative with launch of Azure from its two Canadian “cloud regions” – Microsoft’s name for cloud service delivery out of facilities serving a specific region – into general availability, followed by domestic delivery of Office 365, Dynamics CRM Online, and the AX Online ERP solution.
Microsoft’s decision to invest in Canadian facilities represents a reversal of its long held public stance on cloud provider economics (where are the most customers?), and cloud economies of scale (concentration of demand is the most efficient way to deliver IT compute resources) which until now dictated the service of Canadian demand from US-based facilities. It also represents further consideration of the argument that data privacy, and the legislative frameworks that govern it, need not be compromised by the traffic of enterprise data across borders into the US, and its storage outside country, or Canadian province. When Microsoft’s Canadian cloud was announced last year, spokesperson for local cloud strategy and National Technology Officer John Weigelt noted simply that the new direction was driven by “market forces.” But what precisely has changed, what does this say about the state of cloud adoption in Canada, and what will be the likely impact of Microsoft’s determination to enter the Canadian market as a source of local infrastructure?
According to Janet Kennedy, this is a “time of really heavy investment by Microsoft in this country”: over her three year tenure as president of Microsoft Canada, Kennedy has opened nine retail stores, helped ramp up the Vancouver development Centre of Excellence, and established Foundry internships to place 50 Canadian university students, in addition to presiding over opening of the new data centres. Though at the helm for these achievements, Kennedy gracefully attributed movement on this last issue to her public sector team, “which over the last six years continued to explain to headquarters that while cloud is coming to the world, the public sector in Canada is not going to come unless we have data centres in this country.”
For Microsoft then, a key factor in the decision to build infrastructure in Canada, may be found in acceptance of attitudes towards data sovereignty – whether perceived or real – that may have placed organizations with in-market Canadian resources at an advantage, within the government sector in particular. This vertical represents an important opportunity for Microsoft, in the federal government and due to the growing acceptance of cloud-based solutions at the provincial, municipal and government service levels. “A commitment to privacy and security for our customers is number one,” Kennedy observed. “Customers are going to move to cloud with the company that is protecting their data, so the fact that we have two data centres in Toronto and Quebec City that provide customers with the assurance that their data is going to stay inside Canada [is critical].” In siting decisions, she added that Microsoft Canada chose to locate in Toronto to capture the significant potential market this geography offers, and in Quebec City to take advantage of clean, cheap sources of local hydro power, but also address specific legislative needs of the province of Quebec around data.
In Kennedy’s view, a shift in thinking at Microsoft on the question of data centre build is part of a broader global trend within the organization: “Ten years ago, most people were thinking about large, regional data centres. But we’ve changed completely – we are so supportive of go local data centres that we have 22 countries that have data centres in country, 90 regions that we are supporting and we’re adding more. Our announcement last week was accompanied by one in Germany, and one for the US government.” The Canadian build specifically, is part of Microsoft’s plans for development of six new regions, backed by a US$15 billion investment in global data centre infrastructure.
Kennedy credits building activity to an “exploding” demand for capacity, an observation drawn from local experience (70 percent of Microsoft Canada commercial customers have already moved at least some of their services to cloud, she noted), that is also supported by recent research conducted by InsightaaS/Techaisle Research. Based on a cross vertical survey of 402 Canadian organizations, InsightaaS has found that nearly 40 percent of small (1-99 employee) Canadian businesses, and virtually all midmarket and large enterprise organizations (100/more employees) are using cloud in some capacity within their operations. On average, large enterprises anticipated total cloud spending of nearly $385,000 for 2015, and growth is expected to be strong across both IT infrastructure and end-user application categories.
In market launch as in comedy, timing is everything, and Microsoft’s entry into the Canadian market with local capacity is well placed to capture the burgeoning normalization of cloud services in enterprise and SMB organizations. But Microsoft is not alone in building local capacity with an eye to capitalizing on interest in cloud and in local cloud in particular. In fact, many global providers as well as local companies have established cloud operations over the past five years with a similar agenda. But Kennedy remains positive about Microsoft positioning within this competitive landscape. This confidence is based on several differentiators that she outlined, beginning with Microsoft Canada’s extensive, established partner network that can direct appetite for cloud-based productivity and collaboration tools to the Microsoft cloud. “One thing that I have been working really hard at is making sure we have the partner ecosystem ready,” Kennedy added, “and we have been spending time on developing things like Azure skills.”
Also, with the addition of local infrastructure resources, Microsoft Canada is experiencing demand from new use cases. “We support hybrid computing, which most of the hyperscale providers don’t,” Kennedy noted, and hence are able to support customer demand for DR and backup in Microsoft facilities. “So we are getting a lot of new workloads that Microsoft probably never talked to before,” Kennedy explained. In other instances, Microsoft’s customers may be multi-national organizations looking for data redundancy or to host branch data in another region, a requirement that can be more easily fulfilled through the company’s extensive, global network of cloud regions.
Generally, Kennedy expects to see the greatest onboard of Canadian customers via deployment of Microsoft’s collaboration suite, including Exchange, Office 365 and Skype for Business, where the ROI is clear and significant, and where customers will realize an additional benefit in not having to upgrade in cloud. She also believes that advanced applications will play a role – IoT Analytics, for example, which will allow users to innovate based on cloud scale and efficiency, as can solutions like Delve or Power BI, available within Office 365. These expectations mirror findings from InsightaaS research: according to InsightaaS principal analyst Michael O’Neil, “Business intelligence and marketing automation will top new cloud-based application workloads [in the coming year], and IT departments are expected to substantially increase reliance on hosted software platforms and file sharing/collaboration solutions.”
However, Microsoft’s new Canadian clouds will be about more than running Microsoft products. “Sometimes people think because it’s Microsoft, it’s what I view as the ‘old Microsoft’ – so Windows and Office. In today’s world, we expect in Canada to have at least 40 – 50 percent open source: we have already made a big announcement that we support Red Hat Linux...” Kennedy stated. “If you think about it, most of the science and services in this country have heavy Linux workloads and the opportunity for them to take that off their data centres and move it to public, secured cloud is a huge opportunity. We support other people’s solutions: we support IBM, we support Oracle, Salesforce.com and SAP.” The goal, she explained, is to support multiple vendors looking to exit the data centre business.
Microsoft’s bold open stance may also be viewed as a defensive tactic, aimed at carving out space in a marketplace populated on the one hand with established players like IBM which has had significant data centre capacity in country for some time now (as well as an open cloud platform that supports hybrid), and new market entrants such as Amazon, the cloud market juggernaut that addresses many of the same markets Microsoft targets (ex. the developer community) and which has announced its intent to build cloud facilities in Quebec. For Kennedy, this potential for increased competition is good news for consumers: “Competition in Canada is great for Canadians. There are many studies suggesting that Canadians are behind in terms of productivity, and much of this had to do with the fact that they were taking less advantage of more agile, cheaper, public cloud-based services. So the fact that we, and others have announced is great, because increased competition brings the cost down.”
If this is good news for cloud users, is it good news for Microsoft? Certainly the company is driving momentum in its cloud offerings. If the market as a whole is growing, Microsoft’s public cloud growth is also impressive (though with close to a third of the overall market, AWS continues to dominate, according to analyst firm Synergy Research). Kennedy would also point to advanced service delivery in its cloud offerings, which has been recognized by Gartner as a differentiator that will serve the company well in upcoming contests. “I welcome competition,” she added, “and I think Canadians should also welcome it because we are going to totally change the cost of infrastructure in this country – to drive innovation. It’s about taking money back from cloud-based solution so businesses and government have the money they need to compete globally. I’m really excited about the potential – I think this is a transformational time for industry, and for the Canadian government, for which digital infrastructure is going to become very important.”