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Microsoft Executive: Customers Embracing "Cloud Computing"

By Jessica Hodgson, Of DOW JONES NEWSWIRES

SAN FRANCISCO -(Dow Jones)- Corporate customers are switching to "cloud"-based technology more rapidly than Microsoft Corp. (MSFT) expected, a senior executive at the company said Monday.

"People are embracing cloud computing faster than we anticipated," Stephen Elop, who heads Microsoft's business division - which includes the ubiquitous Office tools - said in an interview.

Cloud computing is a broad term for a shift in which organizations have their technology operations managed on a hosted basis by technology vendors, with data stored on huge servers and accessed on a metered basis over the Internet.

A number of companies, ranging from Internet giant Google Inc. (GOOG) to online software maker Salesforce.com Inc. (CRM) now offer tools that compete directly with Microsoft in this space.

Microsoft's challenge is to grab a greater slice of the burgeoning market for online software services without damaging the profitability of its products, the vast majority of which are still hosted and used on PCs or corporate servers.

Redmond, Wash.-based Microsoft is ramping up competition, offering hosted versions of familiar services like email and Office for its corporate customers. Last week, it cut the price of its Exchange Online email services. The move was seen as in part a reaction to some accounts Google has won recently, such as a contract to run 30,000 email accounts for employees of the City of Los Angeles.

Elop said wider take-up of services like hosted email had prompted Microsoft to introduce the price cuts, because Microsoft was increasingly able to offer such services at large scale without impacting profitability. He said Microsoft was confident it could offer such services profitably on an ongoing basis. Some analysts have expressed concern that the need to compete with rivals could lower margins.

North American and European customers are slightly ahead of their counterparts in the Asia-Pacific in choosing cloud services, Elop said, largely because these regions tend to have better-developed technology infrastructure.

-By Jessica Hodgson, Dow Jones Newswires; 415-439-6455; jessica.hodgson@ dowjones.com

  (END) Dow Jones Newswires
  11-09-091132ET
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