Ray Ozzie at Microsoft has gone and said the unsayable: the economics of Cloud Services will yield lower margins than packaged software for Microsoft. Uh, yeah. The company’s gross margin for the quarter ended March 31 was 79% - is that sustainable in a new industry paradigm which is relentlessly driving out efficiencies and economies of scale?
On the other hand, as Google and others have shown, when your technology scales to 1.4 billion users and counting, and supports a significant percentage of global commerce, then margins aren't everything.
Perhaps of most relevance is Microsoft’s key incumbent strength in this space: an estimated 5 million to 7 million developers who write software based on Microsoft technology (mainly .NET these days). MS isn't going away any time soon - however they will need to work out how to monetize Azure differently to the open source / EC2 crowd.