Microsoft exec sees lower margins from "cloud"

PALO ALTO, California (Reuters) - Microsoft Corp's chief software architect said on Thursday the profit margins on providing online services -- broadly known as cloud computing -- would likely yield a lower profit margin than the company's existing software business.

"The margins on services are not like the margins on software, so it (cloud computing) will increase our profit and it will increase our revenue, but you won't have that margin," said Ray Ozzie on Thursday at a Silicon Valley technology event.

Ozzie is the main driving force behind the world's largest software company's gradual move toward a cloud-based approach to its products. He has been in charge of Microsoft's long-term technical strategy since co-founder Bill Gates announced he was stepping down from day-to-day involvement with the company three years ago.

Microsoft has made only tentative steps into the cloud arena so far, but has been investing in data centers to house customers' data and later this year is expected to unveil its 'Azure' platform, which will allow developers to write applications to work on Microsoft's cloud.

"The margins at the low level, at the Azure level, are going to be lower than the top level, where you're delivering a solution or something like Exchange," said Ozzie, referring to Microsoft's popular e-mail and calendar application. "You're pricing that solution around a business value more than cost so the margins are still very, very good."

Companies have historically run their software locally, on servers, but as the Internet has grown in speed and ubiquity, some are starting to use the cloud to run their applications. In theory at least, customers save money on hardware and maintenance while suppliers get a new source of fees by storing data and providing services online.

Early pioneers of cloud computing have been Amazon.com Inc, Google Inc and Salesforce.com Inc, which may eventually pose a threat to Microsoft, whose software is still chiefly run on local systems.