Microsoft

Microsoft has started testing the next version of its Exchange e-mail and calendar software, a product that Microsoft said is designed to run from the ground up as a hosted service that can work simultaneously with more than one business.

The new version, code-named E14, is in limited private beta testing as a traditional server product with "a select number" of businesses.

But Microsoft also recognized that traditional beta testing wouldn't help it much in getting a sense of the multi-tenant support. So starting in October 2007, the company started seeking out universities and schools willing to test E14 as part of Exchange Labs.

The move is important. Although Microsoft has continued to take share in recent years from longtime rival Lotus Notes, the company faces the prospect of growing competition from Web-based alternatives from Google and others.

Microsoft said on Tuesday that there are now more than 3.5 million people, including students, faculty, staff, and alumni, who are testing the next Exchange at more than 1,500 educational institutions.

Among the features is an updated Web client, Outlook Live. Among the changes from today's Outlook Web Access is support for managing distribution groups, setting up rules and viewing other e-mail accounts, things that typically have required the desktop version of Outlook.

It wouldn't say when to expect a public beta or the final version of E14, but I am told it will have more to say on the subject sometime this quarter. The company also plans to post a video on its testing experiences later on Tuesday.

Although Microsoft has taken steps to make Exchange better suited to hosting with E14, the software maker and some of its partners already provide hosted Exchange using the current version, Exchange 2007. Microsoft officially started offering the Exchange Online service late last year, after testing it for some time.

SAN FRANCISCO--One might think that as a CIO, it would be tough to have someone else running all of your desktops and many of your servers.

Not so, says Randy Benz, CIO of Energizer. For more than three years, Energizer has handed off much of those duties to Microsoft. And he'd be fine with Microsoft running just about everything, save perhaps for the company's iconic battery-powered bunny.

"If I never run another server in there for the rest of my life, I'm as happy as can be," Benz said over lunch last week following the launch of Microsoft Online, essentially the company's effort to turn the Energizer experiment into a business.

Initially, Microsoft is offering to host only a few of its server products--Exchange and SharePoint, although over time businesses will gain the option to run most of Microsoft server products as a service running from inside the software maker's data centers.

So, one might reasonably ask what Benz and his team are doing if they aren't running all the servers and managing desktops?

For one thing, his group now offers a much broader range of computer training for Energizer workers. Beyond just teaching how to use specific products, Benz said Energizer now has classes for different types of workers focused on their particular role. One recent creation is a specific program just for road warriors.

"It cuts across products," Benz said.

Of course, businesses that don't want to handle the more mundane IT tasks have had other options for a while, such as more conventional outsourcing in which a third-party company comes in and handles things like help desk and server management.

The problem, Benz said, is it typically doesn't save much money. Any efficiencies the outsourcer gets because of its expertise are offset by its profit margins.

By having Microsoft run its software from its own data centers, though, Benz figures that it will have enough scale to actually be more cost effective.

Not everything that Microsoft has been doing with Energizer is going to be offered broadly. But, Benz said, that has more to do with the fact that some of the things aren't good businesses for Microsoft, as opposed to the fact they didn't work out for Energizer.

"There's nothing we've done that I'm disappointed in," he said. Rather, he is looking to what he can hand over next. The two companies recently added a hosted business intelligence offering, something that isn't yet part of the services Microsoft is offering broadly.

Benz also knows the managed service route isn't for all customers. Even though it resembles outsourcing, he said it is actually more suited to customers that want to be on the cutting edge. Having Microsoft manage their software means that Energizer is always running the latest versions, for better or worse.

,p> "This has to be targeted at people that want to keep up," he said. "The reason we got into services arena is to avail (ourselves) of newer stuff."

One of the areas the company is looking at keenly, Benz said, is Microsoft's plan to offer Web-based versions of Office applications, the company licenses the full version of Office for every PC, but limits the number of PCs it gives out accordingly. Having a lower cost Web-only option for workers that only need light editing abilities might mean more workers get access to technology

"It may be a breakeven for us but we are reaching more of our people more appropriately," he said. "We'll revisit it when the products are out."

Microsoft has said it will have technology preview versions of the Office apps will be available later this year, but hasn't said when the product will be formally released or when the business version might be available. For consumers, the Office Web apps will be part of Office Live, while businesses will be able to provide access as part of Microsoft's SharePoint server software.

SAN FRANCISCO--For perhaps the first time in its history, Microsoft made the case on Monday that businesses shouldn't run its software. Instead, Microsoft argued that corporations should let it run the software for them.

During the past several years, Microsoft has been testing out the idea that it can host and run business software cheaper and more effectively than individual enterprises can do on their own. The effort started in 2005 with a single customer--battery maker Energizer--which had Microsoft essentially handle all of its PC desktops.

Over time, Microsoft narrowed the service to an option in which it hosts Exchange and SharePoint, runs the software in its data center, and charges customers on a monthly basis. Microsoft officially launched the products, known as Microsoft Online, at a customer event at the St. Regis hotel here.

"We can help you save money," Microsoft Business Division President Stephen Elop told the crowd, saying Microsoft estimates that companies can save at least 10 percent by letting Microsoft run their messaging and collaboration software for them.

One of the early customers is video retailer BlockBuster, which has been using Exchange Online for about six months. Blockbuster CIO Keith Morrow said in an interview that Microsoft's online services came at a good time for the company, which was on a several-generations-old version of Lotus Notes.

Morrow said the video rental company needed to make a change of some kind, and the option to move to Exchange without having to bring that skill set in-house was a key selling point, as was the ability to offer better mobile options, including Outlook Web Access and iPhone support.

Another Notes switcher in the crowd was Eddie Bauer, which has been a Microsoft Online customer for about five weeks. Chief Information Officer Rich Mozack said the clothing retailer wanted to move off Notes but couldn't make the numbers work to run Exchange on its own.

"We just couldn't justify the up-front investment," Mozack said.

Microsoft's Ron Markezich said about two-thirds of early customers are moving from Notes to Exchange. But even as Microsoft continues to target those moving from Lotus Notes, the company faces the threat of its own Exchange customers moving to other hosted options, including Google Apps.

Just last week, Serena Software said it was switching to Google from Exchange in a move it said would save it $750,000 a year, according to several reports.

At the event, Elop made Microsoft's familiar case that, while the cloud is great, customers are better served by an option that allows software to run on customers' own machines as well as over the Internet.

Elop said Microsoft is adding thousands of servers to its data centers every month. Although Microsoft Online is initially aimed at Exchange and SharePoint, the goal is to offer a hosted option for all of Microsoft's server software.

"We expect all of it be available in this way in the near future," Elop said.

The software maker said last year that it would offer the hosted option for large businesses, later expanding the offer to businesses of all sizes. At last month's Professional Developer Conference in Los Angeles, Microsoft also confirmed that it would offer Web-based versions of its Office applications, including Word, Excel, and PowerPoint.

While many of those at Monday's event were the company's early customers and partners, not everyone at the event was ready to sign off. I spoke with a municipality that was highly interested in Microsoft's product, particularly as it plans to move from GroupWise to Exchange. Still, with a dearth of other governments to point to, this CIO told me that he still faced challenges in getting the city's upper management and government to sign off on the deal.

Microsoft on Monday officially opened its San Antonio, Texas, data center, the latest in a string of giant facilities aimed at powering Microsoft consumer and business online services.

The company said the data center occupies nearly half a million square feet and cost $550 million to establish.

Microsoft touted some of the environmental features of the facility, including the fact that it is using 8 million gallons of recycled water per month as part of its cooling system.

"Microsoft looked at 31 variables in narrowing its site selection to San Antonio, including the availability of fiber-optic networks, affordable energy rates, and a work-life balance for our employees that the city offered," Microsoft General Manager Mike Manos said in a statement.

The facility joins other Microsoft data centers, including one in Quincy, Wash. Another site, due to open later this year in the Chicago area, will be Microsoft's first to employ containers of servers, in addition to traditional rack-based set-ups.

Microsoft also recently announced plans to build a center in West Des Moines, Iowa.

SAN FRANCISCO--Last week, Microsoft Chief Information Officer Tony Scott was in town for an environmental conference and he took some time out to chat with me about his still relatively new role.

Since I hadn't had a chance to talk with him since he moved from Disney to take Microsoft's top IT job earlier this year, I was excited to get some time to get his thoughts on how he likes being a guinea pig for every new Microsoft product that comes down the line.

One of Scott's main missions--and that of his predecessors--is a process called "dogfooding" in which Microsoft becomes a major customer for every new product that comes down the pipeline.

Scott said he doesn't see that mission changing, but he did say he wants to shift that role so that Microsoft's experience, at least some of it, better reflects what its customers go through. Here's an edited transcript of our conversation:

Q: You've been in the job for a few months now. I'm curious to get your thoughts on what it's been like.
Tony Scott: It's been an interesting transition. I was CIO at Disney for three years before coming to Microsoft. I thought I would be there forever. So this all came about kind of suddenly.

The CIO at Microsoft really has three roles. One is to do all the classic IT stuff that probably every CIO at every company does. There's the role of working with our product groups where we do the "dogfooding." And then there's working with our customers because everyone who comes to Microsoft wants to know 'How does Microsoft do it?'

What I am trying to do is improve our world in all three areas. On the dogfood side, I think this is where maybe I bring some value as an outsider. I've been going to Microsoft for years...What I was always disappointed in was the relative degree to which Microsoft could talk to us as external CIOs about what the upgrade experience was like.

It turns out the reason why most of the former CIOs couldn't talk about that is that, internally, Microsoft used a very different process than what customers would use.

We never historically went from production bits to production bits in terms of the upgrade process. We went through a series of betas.

One of the changes I am trying to bring is--we'll still do all the dogfooding; we'll still do all the betas--but we are going to take some segments of the company and use them to experience what customers experience and go through the normal upgrade process. I think by doing that we can be more relevant to the ultimate consumers of Microsoft's products.

Everybody thinks Microsoft runs all on Microsoft and there is no other stuff there. That turns out just not to be true. We're predominately Microsoft but not exclusively. I want to take some of the learnings we have in those other environments...and make those experiences relevant to our customers. I'd say what I am trying to do is small changes like that. This isn't a sharp right turn in terms of IT strategy but it is trying to make what we do inside Microsoft more relevant to our customer base.

What was the biggest surprise when you actually got into the job versus what you expected?
Scott: I think the complexity of the company was startling. Disney was a very big company. I thought of Microsoft as a big software company and I expected it to be more like General Motors was or maybe even Sun when I used to work there. I didn't fully appreciate all of the complexity of the company--the breadth of products, the different ways in which the company markets itself, distributes, supports, consults...There was just a lot more complexity there than what I realized as an external customer.

Some of your predecessors also had to run Microsoft Online, selling services. You don't.
Scott: It's an interesting model. We run all of Microsoft Mail on the services we sell to customers. So, I have very few people in the IT organization that directly work with the mail, although it's a service we obviously provide to all Microsoft employees. Right now, the mail that we use is kind of an outsourced-but-insourced model. We're going to also launch soon the mail-in-the-cloud service which will be even more mail as a service versus mail as a hosted sort of thing. We'll put substantial numbers of Microsoft employees on that.

When will that happen?
Scott: We're doing it internally first. I think we have some limited customers on it now, even. But we have lots of billing things to create and lots of other systems to create before we roll it out as a big scalable service to end customers.

When you were at Disney or any of your past IT roles, what was your biggest pet peeve about Microsoft?
Scott: We hear from customers all the time, the complexity of our licensing models. It remains a big issue for, I think, most customers. There's just a lot of products there. It's just constantly a topic of discussion and I think that's something we have to just go tackle.

What are some of the big projects you are working on?
Scott: The big ones right now are a lot of investment in enterprise data warehouse strategy, also in what we think of as our core CRM (customer relationship management) underpinnings. Those two are probably the big bets right now. Emerging as a platform is PLM (product lifecycle management) or product management capability, which would include licensing simplification and some of those things.

Are things like mobile devices big? What are the kinds of things the average Microsoftie is clamoring for?
Scott: The pressure is to make things more mobile, more portable. I think you see it even surface in our products, Outlook Anywhere and Outlook Web Access--the degree of fidelity that you now have in terms of that mobile experience is just one indicator of the pressure that is on.

Also, I think when you think about where the next billion customers come from to Microsoft. What is it that they are going to buy? Increasingly it's likely to be gaming platform, phone platform...devices that look different maybe than what today's customers' (devices) look for.

What do you think is going to be taking up the bulk of your time when you look out?
Scott: It's probably three things. One is the continued simplification of our infrastructure and application portfolio. We have the legacy of richness of too many applications that are too fragmented across the company on a global basis. Simplification and consolidation onto globally scalable platforms--I think I will be doing for years and years--it's a big deal. The second is developing a set of apps that Microsoft will need two, three, four, five years out to engage in the businesses we want to engage in. We're in the middle of thinking through all of that right now. The third is just developing people.

You are here for an environmental conference, EcoForum. I'm curious what is going on in that area? I know power is a big issue
Scott: Most CIOs have come to recognize that both their employees and the customers of the company want to know that the company that they are either working for or buying products from is acting in an ecologically responsible way and that you take these issues seriously. From a Microsoft standpoint, we have some great products on virtualization. We're also here talking about that and here learning what other companies are doing.

In our own space we've gone from 8 percent to 25 percent virtualization in our data centers in just a year. Next year we think we are going to hit 50 percent. That's as dramatic a progress as I've seen, any company anywhere.

One of the things I am convinced of is that the entire technology community is going to have to come together to solve some of these issues. I came out of automotive. There was a day when if you wanted to know car gas mileage you had to write down the mileage, then drive and write down the mileage again. Then you went to the gas station and did long division to figure out what your gas mileage was. Eventually as the world got interested in this a chip got built in every car. Most cars have a chip built in to tell you what your miles per gallon is.

We don't have the functional equivalent to that in the IT world. As a CIO, you really want to know, what is this app costing me, all up? It's the people resources and the energy costs. The tools to do it are emerging but we are not there yet.

It shouldn't be that hard. If the technology community works together and develops the right standards and interfaces, one day you will be able to say here's my compute factor or my miles per gallon in terms of the technologies we use. With that we should be able to do a better job of managing our resources. I'm hopeful we could get that done.

Microsoft is again trying to convince the partners that sell its software that they can make money in a world in which customers are getting their software as a service directly from Microsoft.

At its annual partner conference, which is taking place this week in Houston, Microsoft offered more details on the finances that buttress that claim. For example, partners that sign up customers for the new $15-per-month bundle of hosted SharePoint, Exchange and Office Communications Server can get a 12 percent referral fee. The partners can also get a 6-percent cut of renewal fees provided they continue to be associated with the customer and get positive evaluations.

"We expect that to be a competitive entrant," Microsoft partner program VP Allison Watson said in a telephone interview following Tuesday's keynote speech

There's also room for companies to make money hosting Microsoft's products, she said. The key, she said, is for companies that want to host the same products Microsoft does to make sure they are either tailoring their product to a specific market, combining it with other elements of their customer's workflow or offering additional uptime guarantees that aren't part of Microsoft's product. "Our partners are not offering just a vanilla service," Watson said.

As part of Tuesday's keynote, partners also got to see a series of demos of unreleased products, such as efforts in robotics, Microsoft's online telescope, and Silverlight running on Windows Mobile (though that is still a year a way from being on the market, Watson said.) The company also showed off something it dubs a "replaceable PC,"--basically a combination of SoftGrid application virtualization and other technologies used to allow businesses to replace a worker's computer with new hardware and have them up and running in a few minutes' time.

Microsoft has a few more announcements scheduled for Wednesday, including a program designed to help fill the talent gap by connecting partners with the students who take part in the company's annual Imagine Cup.

And, as it is doing in many of its units, Microsoft is creating a "labs" component to its partner program. The first effort there is a social networking tool that will allow partners to collaborate and share ideas with one another. Microsoft is also announcing a new version of its online tool that connects customers with all of the thousands of partner-created tools in a vast database.