Will Amazon and Microsoft Fail in the Virtual Desktop Market?

Microsoft  (NASDAQ: MSFT  ) recently released a preview of a new product, called Azure RemoteApp, that delivers Windows applications from Microsoft's Azure cloud onto a variety of devices. This follows Amazon.com's  (NASDAQ: AMZN  ) release of a similar product in March called Amazon Workspaces, which is hosted on Amazon's AWS cloud.

These announcements suggest that the hosted application and desktop industry is heating up. But, are Microsoft and Amazon late to the party, or can they compete effectively against industry incumbents such as Citrix Systems  (NASDAQ: CTXS  ) and VMware  (NYSE: VMW  ) ?

What are Amazon and Microsoft offering?
Azure RemoteApp builds on Microsoft's existing RemoteApp product, which allows Windows applications to be hosted and run on a server and delivered to client devices in such a way that they appear to be running locally. The new update lets RemoteApp run on Microsoft's Azure cloud, so IT managers don't need to install or deploy anything on premises. Currently, Windows, Mac, iOS, and Android are supported as client platforms.

Amazon's Workspaces is a desktop-as-a-service, or DaaS, product. Rather than delivering individual apps, Amazon Workspaces delivers the entire Windows desktop, in this case, a version of Windows Server 2008 that's been skinned to look like Windows 7. Again, all the processing is really happening on AWS, but from the users' perspective, everything should work as though Windows was locally installed.

Will this catch on with users?
The basic functionality of what Amazon and Microsoft are now offering -- hosted desktops and applications -- has been available for years as on-premises services. There are several selling points for these technologies, including simplified IT management, reduced resource need, and improved security and productivity. While these are significant benefits, hosted desktops and applications have been catching on only gradually, due in part to the cost of the needed infrastructure.

The difference with Amazon and Microsoft's new products is that hosted desktops and applications are now available from the cloud, which reduces the upfront infrastructure investment. In addition, thanks to pre-configured available environments on Azure RemoteApp and Amazon Workspaces, enterprises can get going quickly and start a new deployment within an hour, instead of within weeks or months.

That said, there are some downsides to the new offerings. The first is that neither product currently supports GPU acceleration, limiting their use for graphics-intensive workloads such as design. The second is that the current simplicity of using the two products comes at the cost of not having the extensive configurability that is often needed for complex enterprise environments. But, given sufficient demand, these are concerns that Microsoft and Amazon could eventually address.

What about the competition?
The application and desktop virtualization space that Amazon and Microsoft are entering has traditionally been dominated by Citrix. Recently, VMware has also been making aggressive moves in the same industry, and it looks to this segment as one of its major growth drivers for the future.

The features and configurability that Citrix and VMware offer are currently much greater than that of Workspaces and Azure RemoteApp. Citrix, in particular, has said it sees very little competition from Amazon, and that it looks forward to Azure RemoteApp as another opportunity to continue its extensive collaboration with Microsoft.

Still, in spite of the feature gap and talk of partnerships, it seems to be an inevitable conclusion that VMware, Citrix, Microsoft, and Amazon are fighting for a share of the same underlying market. If the app and desktop virtualization industry continues to heat up, Microsoft and Amazon will probably work to upgrade their offerings, which can mean nothing good for VMware and Citrix.

Foolish bottom line
Microsoft and Amazon have released products that deliver Windows applications and desktops from their public clouds. While such environments have been available for years on-premises, cloud hosting will reduce upfront costs and might make the products interesting to enterprise customers. So far, the new products don't threaten industry incumbents Citrix and VMware very much, but that might change as Microsoft and Amazon upgrade their offerings.

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