Data Doubts

Microsoft Builds Castles in the Clouds

Microsoft is forecasting a cloudy spell.
  • Why it matters

    Why it matters

    The IT industry’s drive to sell cloud-based services was hit hard by the NSA spying affair as it raised questions about snooping.

  • Facts


    • Microsoft is calling for governments to better regulate their intelligence agencies.
    • The company has recently unveiled a strategy focused on cloud-based services.
    • It is also investing in consumer products, with the new Surface 3 tablet selling well.
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The message was clear: Speaking about widespread U.S. and British spying via the Internet, Christian Illek, head of Microsoft’s German operations, warned that the entire information technology industry must respond and “get out into the open.”

When customers ask for special security features about how and where their information is stored, he said, “we cannot stand in condemnation. We must be responsive to these wishes.”

The first revelations of a vast global surveillance network began to emerge last year, triggered by the leaks from Edward Snowden, a U.S. National Security Agency employee turned whistleblower. They showed that the NSA has access to all kinds of personal information compiled over the Internet and mobile phone networks, and possibly could use it to snoop into everyday lives.

Since then, more and more details have come to light – with massive consequences for IT companies. “The NSA affair has inflicted lasting damage on trust, especially among commercial customers,” said Mr. Illek.

Speaking at a recent U.S. Senate discussion on digital surveillance, Google’s executive chairman Eric Schmidt echoed that sentiment. He said he feared it could “end up breaking the Internet.”

Twitter, the web messaging service, has also responded – it is suing the U.S. government for not allowing the company to reveal details of inquiries made by intelligence services.

For firms such as Microsoft, the digital spying disclosures came at a bad time. Satya Nadella, the new head of Microsoft, recently announced a new strategy that concentrates on mobile devices and so-called cloud-based services – information-storing and sharing software that is subscribed to and can be called up from anywhere. But the growing lack of public trust is making it difficult for cloud-computing to gain acceptance.

Mr. Illek is convinced that public relations work is not enough to counter that mistrust. He acknowledges that when it comes to data security, transparency is key.

“Here in Europe, we have never turned any customer information over at the demand of the authorities, as is certified in our semi-annual transparency report,” the Microsoft executive said.

He added that the situation calls for clear regulations governing intelligence. “We need political agreements between governments as to what the intelligence services are allowed to do and what not. We cannot do this as companies. That is the responsibility of politics.”

Mr. Illek said that, in spite of customer reservations, the cloud business in Germany went well in the first half of this year. “We are seeing a strong demand for cloud services and devices,” he noted. Microsoft will soon be releasing its current business figures.

“We need political agreements between governments as to what the intelligence services are allowed to do and what not.”

Christian Illek, Microsoft Germany

Many firms, however, are not immediately switching to cloud computing. Some IT facilities are frequently kept on company premises, and that could be an advantage for Microsoft, since both software models – on-site and cloud – can be offered.

“We profit from the fact that we can make hybrid solutions available,” Mr. Illek said. “Customers can be sure that we will continue to support our solutions that are installed on-site at individual companies.”

Soon after Microsoft announced its new cloud strategy, critics expressed fears about their investments in individual, on-site Microsoft services – especially among German companies.

Mr. Illek is trying to address those fears. He assured customers that Microsoft would continue to develop products for private consumers: “We have a highly developed muscle for company customers and a somewhat less developed one for private customers. That doesn’t mean we are only walking on one leg now.”

Likewise, there will continue to be hardware featuring the Microsoft logo in the future. So there will be one Windows operating system for all pieces of equipment, in addition to a clear commitment to consumer business. “The acquisition of the games company Mojang is an example of this sort of commitment,” he said.

Mr. Illek also reported that the new tablet computer, Surface 3, is selling well. In Britain, the device was out of stock four weeks after being introduced on the market.

Mr. Illek said Microsoft hopes to incorporating some of the spirit and speed that thrive in start-up companies.

Sales also seem strong in Germany. “We started with Surface 3 at the end of August, so I can’t yet say anything about the trend. But you see me relatively relaxed here,” said Mr. Illek.

In the tablet market, the company is concentrating on the high-end segment. “With Surface 3, we want to demonstrate what is possible by combining software and hardware. But we will continue to leave the lion’s share of the tablet market to our partners,” he said.

Microsoft’s move into the tablet market alarmed some of its hardware-producing partners, because for many years the company focused mostly on software.

Cooperation with partners is important, but Mr. Nadella wants the company to keep expanding in the future. The earlier strategy of doing as much as possible by itself is a thing of the past. More than before, Microsoft intends to listen to and build upon ideas from outside.

This includes, for instance, supporting start-ups. The goal is something more than just acquiring a share in these young enterprises. Instead, said Mr. Illek, it’s a matter of Microsoft incorporating some of the spirit and speed that thrive in start-up companies.


Jens Koenen is Handelsblatt’s bureau chief in Frankfurt and also in charge of covering the IT sector. To contact the author:

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