Microsoft just announced a deal to provide the computing power for a big group of banks working on ambitious new blockchain-related projects.
Microsoft formed a partnership with a New York-based startup called R3 CEV, which is leading a group of more than 40 banks that includes UNICREDIT, BANCA INTESA, Goldman Sachs Group Inc., Citigroup, Bank of America Corp Morgan Stanley. Through the agreement, the banks will have open access to Azure, a cloud-based service for businesses, as well as dedicated staff and resources from Microsoft.
It’s another step deeper into the world of blockchain technology for Microsoft. Underscoring its importance to the company, the partnership is being unveiled on Monday as part of a keynote speech by CEO Satya Nadella at the company’s Envision conference in New Orleans.
R3 is a private startup, founded in 2013 and majority owned by banking veteran David Rutter, that established the blockchain-banking consortium in September with nine banks. It has since expanded that group to more than 40 banks around the world. The consortium’s goal is to test and build products that utilize the blockchain. That could be new trading and settlement platforms, or issuing financing and securities.
Microsoft is not taking an equity stake in R3. Financial terms of the partnership were not disclosed, but it will operate as any other client/vendor relationship Microsoft has on Azure. Under the agreement, Microsoft will offer its services and staff to the R3 group, operating as a “preferred” but not exclusive vendor.
The goal is to speed up the time it takes to build and release products that have the blockchain underpinning them, Mr. Rutter said. His broad expectation is that this year will be about getting a better understanding of the technology. It might take a year to 18 months before some commercial products are developed, and maybe 3 to 5 years before they are released.
Nobody knows exactly how it will all pan out, of course, but there is now a broad swath of financial and technology firms vying to capitalize on this technology. The partnership is the latest foray for Microsoft into the fast-moving world of blockchains, and it illustrates how lines are being drawn among competitors and industries, and also how soft those lines are. The race to build blockchain-based products and services in the financial industry has become an odd mix of competition and cooperation. R3’s consortium involves more than three dozen banks that usually are in competition with each other.
There is another consortium, the Hyperledger project, looking to build standards and platforms for blockchain-based products and services. That group includes International Business Machines, Intel, J.P. Morgan, CME Group, DTCC, as well as startups Digital Asset Holdings – and R3. Another startup, Digital Asset Holdings, is working on projects with DTCC and the ASX Ltd., Australia’s main stock exchange operator, and counts among its investors J.P. Morgan.
“There is plenty for everybody,” said Mr. Rutter. “It’s a huge market.”
Through this new partnership, Microsoft will be providing Azure’s online services, as well as dedicated tech support, project managers, and lab assistance at the technology centers it has in a number of cities, including New York, Milan, Beijing, and Sao Paulo. The fact that banks in the consortium can have physical places to meet and work on projects was “very important” to R3, Mr. Rutter said. The company explored using other platforms, including from IBM and Amazon.com before approaching Microsoft.
The goal for Microsoft, said Peggy Johnson, executive vice president of business development, is not just to experiment, but to become a central player in this industry. “We’d like to be the cloud infrastructure under all of them,” she said. In addition to this partnership, the company will continue to explore other ways to be involved in the space. Azure previously began integrating Ethereum, a separate blockchain-based platform, into its offerings. Microsoft first started experimenting in 2014, when it started accepting bitcoin in its online stores.
Microsoft is also looking at ways to incorporate this technology into its own products and services. The company announced last week that it was building support for an Ethereum programming language called Solidity into its Visual Studio.
“We’re all in,” Ms. Johnson said.