Barely five months after last year's event, Ignite 2021 was in some ways a timely opportunity for Microsoft to reconnect with customers in the throes of their digital transformation efforts. As the pace of digitization continues to accelerate in businesses, the event offered IT leaders announcements in several areas of interest: Teams collaboration, mixed reality computing, zero-trust security and developer productivity, to name a few.

However, a standout area this year was at the intersection of several of Microsoft's most important strategic domains: hybrid cloud and edge computing, artificial intelligence (AI) and industry clouds. Each of these areas are growing in influence in their own right, but it's becoming more and more important to watch where Microsoft's products cross paths. As the firm continues to strengthen the ties between its enormous flywheel of solutions, it's at these intersections where you can get a good glimpse of Microsoft's strategic direction and longer-term differentiation in the cloud market.

Let's take a closer look at this in the context of Ignite's highlights and what they mean for Microsoft.

Microsoft's Cloud Strategy and the Decade Ahead

The opening keynotes at Ignite 2021 balanced big-picture vision in areas such as cloud computing, mixed reality collaboration and AI at scale, with lauding the resilience of IT professionals and developers over the past year in helping their firms transform at an unprecedented rate.

Noting Microsoft's own, decade-long journey in cloud technologies, CEO Satya Nadella outlined five elements (see images below) that will enable cloud innovation over the next 10 years, driving Microsoft's overall cloud strategy and road map. The company's role, Nadella said, is to help customers build " tech intensity" — an ethos driving companies to adopt technology, break down silos, change culture and build up their digital capabilities — to enable their own digital transformations.

Microsoft CEO Satya Nadella introducing five key areas of focus for its cloud technology at Ignite 2021

Related Article: Microsoft's Flywheel Kicks Into Gear at Ignite 2020

Hybrid Cloud and the Expansion of Azure Arc

The first element, "ubiquitous, decentralized computing," is arguably Microsoft's greatest area of focus right now. This essentially calls out the new era unfolding for more distributed cloud computing, coming off the current "peak centralization" of the cloud and is a reincarnation of the “intelligent cloud and intelligent edge” concept Microsoft first introduced at Build 2017.

The hybrid cloud, and specifically Azure Arc, has become one of the core vehicles of Microsoft's cloud strategy over the past year and focus of several of the leading announcements at Ignite 2021 as a result. The firm announced the general availability of Azure Arc-enabled Kubernetes, allowing organizations to manage and govern Kubernetes clusters deployed on-premises, in the public cloud or at the network edge.

The flexibility that Arc-enabled Kubernetes provides will be welcome news for customers, especially as the platform matures. In the next few years, we expect over 40% of large firms will continue to run more than 40% of their IT workloads on-premises, with 46% of companies adopting multi-cloud strategies, according to CCS Insight's latest survey data.

Azure Arc Helps Artificial Intelligence Go Hybrid

Microsoft also announced a major move at the intersection of hybrid cloud and AI. Azure Arc-enabled machine learning allows customers to build machine learning models and run inference where data lives, whether in on-premises data centers, on dedicated AI hardware, in edge environments or in multiple public cloud environments, for example.

Customers are looking for more flexibility in the environments in which they run their machine learning applications, and want the option to use their existing hardware investments. This is where Azure Arc is squarely positioned. According to my firm’s "Senior Leadership IT Investment Survey, 2020," for example, close to a quarter of organizations said that the ability to support a hybrid IT or on-premises environment was the top consideration for their investment in machine learning, and 55% said they wished to pursue a multi-cloud approach for AI.

With the exception of IBM, which launched Watson Anywhere in 2019, Microsoft leads other players in this trend, giving it a unique window of opportunity against its cloud rivals. Google Cloud has announced a few hybrid AI capabilities this year, such as Speech-to-Text On-Prem, building on the 2020 release of BigQuery Omni, its hybrid, multi-cloud analytics solution. But so far, Google has fallen short within its core platform. Similarly, Amazon Web Services (AWS) has yet to announce compatibility between Amazon SageMaker and AWS Outposts, although I expect it will do so imminently.

Related Article: IBM and Microsoft Sign 'Rome Call for AI Ethics': What Comes Next?

Azure Percept Brings Artificial Intelligence to the Edge

Another big move targeted the intersection of AI, the internet of things and edge computing, strengthening Microsoft's play in industrial settings.

Learning Opportunities

The Azure Percept hardware and services platform aims to solve the challenges of using AI on low-power, connected devices in factories and warehouses, spanning device management, machine learning model development and analytics. Microsoft released two hardware development kits as part of the solution, pre-integrated with Azure IoT Hub for secure deployment and management, as well as with Azure Cognitive Services, Azure Machine Learning and Azure Video Analytics.

The move is part of a bigger push by Microsoft to infuse AI everywhere: in its products, in its research and in its operational practices. Together, these give customers options to forge their own paths with the technology, whether it's a classical big data and machine learning path through enhancements to Azure Machine Learning, a modern AI approach through its large-scale models through Project Turing and its supercomputing resources in Azure, or with edge solutions for industries such as Azure Percept. This flexibility and variety of options is quickly becoming a hallmark of Microsoft's differentiation and strategy in AI.

Microsoft Adds to Its Stable of Industry Clouds

Above all though, Ignite 2021 also showcased Microsoft's growing commitment to industry verticals. It's here that we see several products meet, spanning several of Microsoft’s clouds including Azure, Microsoft 365 and Dynamics 365.

In the days before the event, the firm introduced three new industry cloud offerings, adding Microsoft Cloud for Financial Services, Microsoft Cloud for Nonprofit and Microsoft Cloud for Manufacturing to its existing solutions for healthcare and retail. The launch is its response to customers pushing Microsoft harder to integrate and align innovation between its entire portfolio with industry outcomes and data protection standards.

Unlike other industry clouds, Microsoft's approach combines its infrastructure services, software-as-a-service applications for individual sectors, co-development initiatives with industry customers and a partner ecosystem to address specific business processes and industry challenges. Although it's early days in the shift to industry clouds, Microsoft's solution-centric and integrated approach to its cloud offerings will be a big part of how it plans to differentiate against other industry offerings.

CCS Insight has predicted for the past several years that 2021 will be the year of vertical clouds, as cloud providers ramp up activities to make their largely horizontal platforms more relevant to various sectors. In the past 12 months, we've seen IBM launch its Cloud for Financial Services, AWS deepen its capabilities in government, telecommunication and industrial sectors, and Google Cloud announce a focus on several industries for its AI solutions. In my view, Microsoft's announcements in this area leapfrog many of these efforts at this early stage of the game.

Related Article: Choosing a Cloud Provider for Business Innovation

The Final Take: Is Financial Innovation Next?

Microsoft's relentless focus on achieving greater synergy and strengthening the connective tissue between its growing portfolio of products is perhaps its greatest strength in the market right now given the improved differentiation, product "stickiness" and customer value this strategy affords it. The area is also becoming an important source of innovation as well, especially at the intersection of some of its most important domains such as hybrid cloud and edge computing, AI and industry clouds as well as other areas including Teams and security, all of which came alive at Ignite 2021.

But as Microsoft continues down the right strategic paths in 2021, a new economic reality faces swathes of companies, putting pressure on IT budgets around the globe. How Microsoft complements this innovation with improvements to its commercial and licensing models to help customers reduce financial risk will be a vital new area on which it must now focus. Areas such as new bundling options across its clouds, more dedicated SMB offerings and above all, as it pursues industry solutions, a deeper focus on outcome-based pricing models should all come into play.

With many businesses across the globe struggling, helping customers find new ways to finance and consume its products will be just as important moving forward as the integration and intersecting areas of its portfolio are to Microsoft's strategy today.

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