Can Cloud Service Make Intel and Microsoft Relevant Again?
Dana is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The cloud uses fewer Intel chips, and cheaper ones, because it can turn commodity hardware into a system of infinite scale. Microsoft's failure in devices is even better-known, although the company keeps trying. While its rivals make profits on devices, it's evident Microsoft is using other parts of its business to subsidize its efforts with tablets and phones – the ads make them a money sink.
But both companies, separately and together, have decided that open source can be an answer for them. Here is how.
Hadoop is an open source program for analyzing a cloud's worth of data, originally developed by Doug Cutting and made open source while he was at Yahoo. It was a way to make sensible Google's MapReduce, its own analysis tools. It essentially systematized Google and turned what the company was doing into the “cloud” we know today.
I interviewed Cutting a few years ago, after he became head of the Apache Foundation. (I took the picture at right during that interview.) I wrote about them as “knights at round tables,” and, whether they work for a big company or an open source startup – Cutting had by then moved to Cloudera, offering Hadoop support – they're all being paid to do what they do, contribute and de-bug code on Apache projects.
While the employers of Apache developers care most about profit, the developers themselves care mainly about the mission of the code base. They may write tweaks that benefit their bosses, or help them create proprietary extensions to the code. But their mission is the code base, and their community consists of their fellow programmers.
The point is, Intel and Microsoft both contribute the time and energy of programmers to the Apache mission. Both are familiar with the Hadoop code base. And both see it as essential to their comeback attempts.
Intel's Move is Hard
Intel, naturally, is focused on hardware. It wants to create incentives for developers to demand x86 hardware. The best way to do this is support cool software, like Hadoop.
So Intel is releasing its own Hadoop distribution. Some of it is open source, under the Apache license. Other bits are proprietary to Intel, specifically tools for distribution and tuning the code for use in the enterprise.
Hadoop now consists of a dozen different projects, aimed at easy to store, manage, and analyze huge pools of data, either looking for patterns or needles in haystacks. Intel has tweaked the distribution and tuning projects for its Xeon chips, including instructions for accelerated encryption, which is key to its target customers.
The idea here is that enterprises will continue to demand Xeon processors for their own premises, and demand compatibility in the clouds they support with the chip set. An all-Intel platform will, with these tools, run Hadoop applications 40% faster, the company claims.
There remains a middle ground in computing, between clouds and clients. Corporate servers are where Intel makes its big profits, and by making these more essential as pathways to the cloud, Intel hopes to remain relevant.
Microsoft's Move is Soft
Microsoft's move is subtler, and softer, quite literally. It has worked with HortonWorks, a major Hadoop contributor (Hadoop was named after a toy elephant beloved of Cutting's son, so many Hadoop-related companies use elephant themes in their names, in this case Dr. Seuss' Horton the elephant), to develop versions of Hadoop delivered over Windows Server and (just as important) Microsoft's Azure cloud.
In this case, HortonWorks is acting as a bridge between the Apache open source ethos and Microsoft's proprietary nature, even though there are many Microsoft employees who work on Apache projects. The cover is important, however, in Microsoft's effort to market itself to companies that see it as the enemy of open source, which it is no longer – the position is more that of a frenemy these days.
What's cool about this is that it allows use of common Microsoft tools on “big data” from a cloud cluster. You can download it into SQL Server and then analyze it with Excel. You're linking the unstructured data found in a cloud environment with the structures of SQL, again connecting the older enterprise infrastructure with the newer cloud infrastructure.
The integration of open source and closed source is key to Microsoft's efforts to remain relevant in a cloud-based world. It is pushing prices down on Azure as fast as it possibly can, while relying on that infrastructure to run its own Software in the form of services. If it can keep value in enterprise deployments despite the cloud's obvious economic advantages, it may be able to manage its customers' transition across the technologies. And this is a big, decade-long deal, as important in its way as the transition from mainframes to PCs was in the 1970s.
The Foolish Take
We're accustomed to seeing hardware and software companies as all one thing or all the other, as either all hardware or all software, as either proprietary or open source. And the valuations we place on companies is often based on these assumptions.
But these assumptions are not entirely true. The truth is more muddy, more nuanced. Intel and Microsoft both have very low valuations, relative to sales and earnings, due to these faulty assumptions. If their results can prove the assumptions faulty, if the assumptions start to change, both companies could be in for a long positive run.
I'd want to see more proof of success before jumping in, bottom line success, but at least it's clear that these two companies know the problems they're facing, and they're addressing them. Watch their next earnings reports closely and, if you see positive momentum, you can jump in confident it will last.
DanaFBlankenhorn owns shares of Intel and Microsoft. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!