The company's Office and desktop Windows divisions have long been the primary revenue engines for the company. Now the server and tools business--expected to top $10 billion in revenue this year--is approaching those divisions in size, although it is less profitable.
Bob Muglia, an 18-year Microsoft veteran, was tapped late last year to head the server and tools business, a move that expanded his internal influence. He replaced Eric Rudder, who became a special technical assistant to Chairman Bill Gates.
Muglia faces a host of competitive threats, from open-source databases to IBM's steady presence among CIOs and other high-level IT executives. Another concern: Google poaching developers away from Windows and .Net.
In an interview with CNET News.com at the Microsoft TechEd conference in Boston, Muglia made his long-term perspective clear. Rather than pitch technical features to business customers, the company is seeking to spell out the areas in which it will focus its engineering efforts--from security to services--over several years.
Q: Where are you headed with online services for businesses? You're not going to have a hosted version of SQL Server database, will you?
Muglia: SQL is a building-block component in almost every hosted solution we put together. Is it interesting to host independently? Perhaps not. On other hand, what's the future direction of hosted messaging? How can we simplify general management and how can we provide management services?
Because of the Watson (bug reporting) logs we get, we have this phenomenal amount of data that flows into the company. How can we get that data back to corporations to use that and tune and manage their environments and do correlations? Services are quite interesting in terms of tying those things together.
How would this take shape as a service?
Muglia: Our software distribution from a services perspective is very mature with Windows Update, Microsoft Update, and Systems Management Server (SMS). So we have this broad mechanism of getting software into customers' hands.
(But) we have this other feedback loop coming back with things like Watson. Now we're advancing that technology to get more profiling information. It's not user-based, but it's very broad in terms of understanding how people, on an opt-in basis, can provide customer improvement information to us. We get this amazing amount of data, but how do we move that through? That's the kind of things that services can provide...Office did a lot of pioneering work but it's spreading throughout the company
Will these be fee-based services?
Muglia: It'll certainly be part of our enterprise-level agreements. Undoubtedly it'll be fee-based at some level. It'll probably be part of programs we already offer to Software Assurance customers.
This would seem to be best to tie into your systems management products.
Muglia: Yes, the way the architectures are going to work, the systems management tools will be the vehicle where data gets collected in the organization. And then it's consolidated there and the organization will work with it.
Muglia: Sure, in the long run. There's a lot of work to think about that. We do believe that services will be a broad platform that can be used for a variety of things and, of course, we'll connect to Visual Studio. The infrastructure from a development tools perspective is in pretty good shape. What we need to talk about now is what services we'll provide and why.
People talk about how Google is building tools to make their Web sites into a development platform. How would you contrast what you're doing with what Google is doing?
Muglia: The biggest contrast is that we have 6 million developers spending 80 percent of their lives in front of our tools every day. We'll make sure we'll extend those developer tools so they'll work very well with what we're doing.
Google's had a very bizarre sort of view of Web services and where it's going. I think the industry is clearly moving to the WS (Web services) standards, which is the vehicle we'll clearly use. We've made it incredibly easy to write apps that talk to services and to write services. We have this very, very rich, extremely powerfully infrastructure we can leverage, and the tools work seamlessly with that.
The question, of course, will be (around the idea that) obviously people have to write great services. That has to emerge. It's still early in the stakes for that. But the approach we're taking--which is to use a widely adopted, broadly accepted industry-standard vehicle for doing communications with widely used development tools--is a pretty strong advantage. I don't know what Google is going to do because they've been less than clear.
What's the status of Microsoft's efforts to sell to CIOs and other high-level IT executives?
Muglia: It's very critical. We're fundamentally a technology company--those are our roots--and we've tended to talk technology to enterprises. Enterprises care about that, but they also care about how they can partner with companies to deliver business value.
There's an important transition and a shift we're trying to evoke: thinking beyond the technology, focusing on partnership with customers. That doesn't mean technology doesn?t go away. It's an augmentation of that conversation.
We historically have had conversations with the people who are doing the actual implementations, as opposed to the CIOs. IBM has been very good at engaging in the top-down way. We've been good at bottom-up approach. We kind of want the best of both worlds.
Where, or how, does Microsoft make money on business mash-ups, those combinations of online services?
Muglia: We'll make money where we've always made money. We sell servers, we sell tools, we sell applications. It's very straightforward from our point of view. There's no business-model issue--I should say it that way.
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