Customers don't think your approach is defensive toward the cloud? No, it's not defensive at all. In fact, we've been so focused on investing in the cloud and driving new sets of value there, that customers see Microsoft taking very much a leadership role in terms of providing a set of services that really no one else can match. I think that's very true today. If you look at what we have with our Exchange Online services, our SharePoint Online services, if you look at what we're doing with Windows Azure and a new service we'll be bringing out next year, Windows Intune, nobody on the planet has services like that for business customers. They're highly differentiated.
At the 2010 Hosting Summit you used a reference to cloud being like rock climbing. It's exciting and scary at the same time. What scares you about the cloud?
The thing that's interesting about the cloud is you're running everything yourself. We are responsible for what our customers are experiencing. If we have a problem, it's a problem that's visible to our customers. We have to make sure we are world-class. We need to continue to improve every day. Anybody who runs an operations system has some moments anywhere from concern to terror. That's one thing.
But the reference I made at the time was really to the hosting partners about how the business model is transitioning here and how Microsoft has decided to jump in with both feet and embrace the change. That change will affect the partner ecosystem as well and certainly affects our hosting partners. I was encouraging them to embrace it and to drive their business forward, because it is where the future is going. We've embraced the future and are driving it forward.
So, from a business perspective, how do you smoothly make the transition from the big upgrade cycles, the big surges of revenue, to the subscription model?
The first thing to realize is that we don't really see that surge of revenue at the time of an upgrade anymore because the majority of our customers are buying on multi-year annuities anyway. We have to provide incentives for our customers to upgrade. One of the great things about the cloud is that it's a good business for us because it's a continuation of that annuity cycle. We're very confident that the cloud will drive down the cost of [customer] operations substantially and, thus, enable our customers to save money and, at the same time, actually be able to build a good business for ourselves.
Talk about the Azure appliance. What's the goal with that and what has the uptake been?
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