What's become of the Microsoft 365 bundle?

Welcome to Runtime! Today: Microsoft's array of AI and security add-ons is making its bundling strategy harder to navigate, Digital Ocean tests the low-cost GPU waters, and the latest enterprise moves.

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Microsoft 365 Plus Extra Supreme Edition

Back in 2020, Microsoft folded the iconic Microsoft Office productivity suite into a single commercial bundle called Microsoft 365, which included licenses for Windows PCs and arrived right around the time enterprise software buyers were looking for ways to simplify their spending. Fast forward a few years later, and big companies that want to buy productivity software from Microsoft aren't finding it quite so simple.

That's the conclusion from a new report from Directions at Microsoft, the venerable analyst firm that has been tracking Microsoft's product strategy since the early 1990s. Most enterprises buy Microsoft 365 as one of two packages — the $36 per user per month E3 bundle, or the $57 per user per month E5 bundle — but over the last several years the company has introduced dozens of add-ons that aren't included in those bundles.

• "In December 2019, Directions counted 14 such available add-ons. By December 2023, we found 61," wrote Mary Jo Foley, who covers Microsoft's enterprise strategy for the firm.
• That includes the array of Copilots that Microsoft has launched this year to recoup its investment in OpenAI, some of which are very expensive: the Microsoft 365 Copilot is another $30 per user per month on top of the basic subscription.
• It also includes security features that aren't available as part of either bundle, such as Defender Vulnerability Management, which helps companies find vulnerabilities in their own software and prioritize the repair process.

The add-ons also create a software management problem for companies that adopt them, given that they fall outside the well-understood E3 and E5 bundles.

• "Microsoft has created a dilemma no one is talking about: Who’s going to evaluate, implement, and manage all these new security tools inside Microsoft customer organizations?" said Directions on Microsoft analyst Michael Cherry in the report.
• One of the main promises of a software bundle is that the individual pieces were designed to work in concert with each other, and when companies start introducing outside variables, things often start to get weird.
• Directions on Microsoft is divided on whether or not Microsoft will decide to roll out a premium E7 bundle that includes the Copilots and some of the add-ons discussed in the report, which could help solve some of the integration problems but probably limits the amount of upselling Microsoft can currently do with these add-ons.

As former Netscape CEO James Barksdale famously said, "there’s only two ways I know of to make money: bundling and unbundling."

• Microsoft is well-positioned to capture the increasing number of software buyers that are fed up with the "best of breed" era of piecing together enterprise tools from dozens of vendors, and just want to deal with one bundled package from one vendor.
• In fact, Takeshi Numoto was just promoted to chief marketing officer at Microsoft in large part for his work designing and implementing those bundles.
• But the confusing array of add-ons — which looks a lot like unbundling — threatens to complicate Microsoft's relationship with its customers, especially after it raised prices on the basic bundles in 2022.

Boiling the ocean

Digital Ocean's $111 million acquisition of PaperSpace last July bore fruit Thursday with the release of access to Nvidia's coveted H100 GPUs on its boutique cloud. The idea is to serve startups and small-to-medium-size businesses with affordable access to the chip that is driving the AI revolution, but it comes well after several other GPU providers have taken aim at this market.

"NVIDIA H100s are available as on-demand compute which means if there is available capacity, your NVIDIA H100s are immediately accessible once approved by Paperspace," Digital Ocean wrote in documentation accompanying its press release, stretching the definition of "on-demand compute" to mean "once approved by Paperspace." In a banner across the top of its website, Digital Ocean said the H100s were available for "as low as $2.24 per hour" but it seems like you have to contact sales to get specific pricing.

One of the most interesting knock-on effects from the generative AI boom has been the rise of the specialized GPU provider, including companies like CoreWeave and Lambda Labs. Those companies are targeting customers that have trouble getting the attention of the Big Three cloud providers, and Digital Ocean will have to catch up to that momentum.

Enterprise moves

Paddy Srinivasan is the new CEO of Digital Ocean, joining the company after serving as CEO of GoTo and general manager of data and machine learning platform services for Amazon's Alexa.

Brett Hannath is the new chief marketing officer at Intel, after holding similar roles at Trellix and former Intel security subsidiary McAfee.

John Felton is the new chief financial officer at AWS after 19 years with its parent company, the last 12 in its operations unit.

Archana Vemulapalli is the new head of commercial sales for AMD, joining the chip company from AWS.

Charles Wuischpard is the new vice president of North American and Latin America sales at Nvidia, after a recent stint as CEO of Ayar Labs.

The Runtime roundup

Meta will have spent upwards of $10 billion on Nvidia's H100 chips by the end of this year, Mark Zuckerberg said Thursday.

AWS and Microsoft login credentials are the target of a new malware campaign targeting Apache servers, CISA warned.

The Broadcomification of VMware continues apace, as plans to kill 56 separate VMware products point to a windfall for Nutanix to sweep up disaffected customers.

Google Cloud plans to add a second data center region in the U.K., investing $1 billion in a new facility north of its current U.K. region in London.

Thanks for reading — see you Saturday!