Microsoft COO Kevin Turner followed Bill Koefoed's talk with a look at Microsoft's business offerings. This was a counterpoint, of sorts, to Steve Ballmer's discussion about Microsoft's lackluster consumer solutions, and it shed some interesting light on which aspects of business computing Microsoft chooses to target.
Right off the bat, he tackled a pet peeve of mine: The small business market. I've always felt that this was the most "important" of the business segments, if you will, because it is the fastest moving and, from a unit perspective, largest of the business types. (The main others being mid-sized businesses, which is a tiny segment with tiny financial rewards, and the enterprise, which is a tiny segment with enormous financial rewards.) So I was happy to see him start with this comment: "I'll talk mostly about the core distinction that we have for small business, is it's the least publicized of all the businesses we have in the organization and it's also the most profitable part of our business as well." Unfortunately, it's unclear that he ever really fulfilled this promise in the talk.
Overall, Microsoft's offerings are diverse, geographically. "We have and cater to all the customer segments that you can think of, from end users and consumers, to the largest governments and businesses in the world," he said. "We sell products out of 190 countries around the world, we have over 107 subsidiaries -- very, very diverse as it relates to, again, the geographic distribution."
According to Turner, enterprise sales are 35.8 percent of Microsoft's overall business. Small- and medium-sized businesses are 20.5 percent. And OEM (PC maker) is 26.8 percent, with about a third of that constituting business PCs. So overall, businesses represent over two-thirds of Microsoft's business.
But Microsoft is in the middle of a transformation, a "reboot," for cloud computing. That is actually the software company's main goal right now, according to Turner: Not just adapting to this sea change, but positioning itself to be a leader in this era. And here's the most controversial bit, from my perspective: He immediately shot down something I've felt was always Microsoft's strongest selling point: It's ability to offer hybrid solutions to customers, where part of the infrastructure was on-premise and part was in the cloud. It's something the competition can't match. And it doesn't matter at all, Turner said.
"I don't believe that was a good move strategically, and it's one that I'm personally course-correcting us on as an organization," he stated. "We are going to lead with the cloud." And this is a bit tortured, but he then went on to say that, paradoxically, "leading with the cloud" (i.e. offering purely cloud-only solutions) would somehow "better position Microsoft to sell more on-premise products than we ever have before."
So how does that work exactly?
Stepping back and looking at cloud computing from the (business) customer's perspective, there are three main benefits: increased speed and responsiveness, minimizing system management, and increasing productivity. It provides simpler, cheaper, utilization-based licensing models. Lower overall costs and predictability. The ability to not have to purchase additional servers during peak times (the canonical holiday sales rush for retailers, etc.). "The cloud takes all of that load and burden off of businesses in a big way."
Maintenance: There is none. Microsoft (or whatever hosting company) handles patching and maintenance. Deployment times are faster. Reliability and fault tolerance, automatic.
How about increasing productivity? Today, most of Microsoft's customers are not running the latest versions of Windows, and Office, and other solutions because of various deployment blockers. By moving as much of a business's infrastructure to the cloud as possible, these issues are minimized, or at the very least can be focused on internally because the other common and time-consuming IT tasks are being handled externally.
In perhaps the most interesting statistic of the day, Turner announced that fully 70 percent of cloud computing "wins" the company had in the previous quarter were ... gasp ... new customers. "Yeah, new Microsoft customers," he said. "They were IBM Lotus Notes customers, they were Novell e-mail customers, they were all this other stuff, in addition to the Microsoft customers, that we're actually able to grow our portion of the pie this next year in a very dramatic way, because we can explode worker productivity."
And we're not talking Bob's Video Store here. It's Dow Chemical buying over 70,000 Business Productivity Online seats for e-mail, messaging, conferencing and collaboration. And Hyatt Hotels buying 17,000 Business Productivity Online seats for its headquarters, and another 40,000 desk-less licenses.
Microsoft's cloud computing solutions roundup is already pretty impressive. And it's not a roadmap. It's what's available now and throughout the coming fiscal year: Dynamics CRM Online, Office Web Apps, Office Live Meeting, SharePoint Online, Office Communications Online, Forefront, Windows InTune, SQL Azure, Windows Azure, and the Azure private cloud appliance.
So how does this differentiate from what the cloud competition is doing? According to Turner, it's not even close. Google and Salesforce "target software as a service and they dabble some in the platform as a service. But their capabilities are far short of what we're doing from an Azure perspective."
Amazon "is an infrastructure as a service, but it only provides a limited set of platform as a service capability and virtual machines that you manage with Amazon, that you maintain and update, not a full broad platform as a service, and there's no partner and no host or story with Amazon."
And VMWare "really is a virtualization provider. Their definition of cloud is they virtualize cloud. And the platform services that they talk about are very disconnected from the underlying infrastructure. In fact, one of the big advantages that we have versus VMware is that they don't run their own data centers. They're not getting the knowledge associated with what it takes to run a world-class global service that we get with Windows Azure and that we can then transfer those learnings to the service provider, our partners, and directly on to our customers. That's the strategic opportunity we have."
On the business front in general, Microsoft sees five key competitors: Google, VMWare, Linux, Oracle, and IBM. And there are some interesting stories to tell on each front.
Google, trying to placate customers shocked by how rudimentary Google Apps really is. And Microsoft winning back customers from Google.
VMWare, which was beating Microsoft 27.9 percent to 0 percent from a virtualization market share perspective two years ago, now winning by 30.9 percent to 15.2 percent. "Two years we were nowhere," Turner said.
Linux, and this one is priceless: "We just came through the toughest economic times since 1940," Turner noted. "How in the world are you guys going to compete with free, or the perception of free? Guess what, [with] the highest [server?] share gains in the history of Microsoft ... with Windows Server versus Linux." Over the past three years, Windows Server market share rose from 73.1 percent to 76.8 percent. Linux? It fell from 22.8 percent to 21.1. percent in the same time period.
Oracle. Microsoft's database-related revenues rose 6.2 percent, over 10 times faster than Oracle. "Customers don't want to be locked into Oracle."
IBM. It's no secret that Exchange Server has been kicking Lotus Notes butt for a long, long time. Sometimes, we forget how one-sided it is. Over 1900 business customers jettisoned Lotus Notes for Exchange over the past three years, for a total of 16.3 million new Exchange licenses.
Some of this stuff is smoke and mirrors. Revenue growth in database is great, but how do the SQL Server and Oracle markets really compare? And Google Apps is lame, sure, but for many companies, low/no cost is going to win, especially on the low-end of the market. What's the strategy for helping those small businesses? Turner never said.
In many ways, Turner's talk wasn't so much a look ahead as it was a look back, or a look at this slice in time. Taken in this context, Microsoft's business offerings are looking good. But it is indeed this cloud transition that raises all the questions for the future.