Microsoft eyes new turf to conquer

The Redmond, Wash.-based company plans to make deeper forays into the areas of security software and storage through two upstart divisions, according to Group Vice President Jim Allchin.

A new storage business unit, run by Bob Muglia, is "looking at products that corporate customers might use," Allchin said in an interview with CNET News.com. "They pay a lot (for storage) and are concerned with storage...That whole world is super-confusing, and there are some things we can do that customers would love."

Allchin didn't provide details about what types of storage products Muglia's division is planning, saying only that the division is "at ground zero right now."

The unit is charged with developing "a cohesive product and business strategy for the evolution of Microsoft file systems, network attached storage (NAS), storage area network (SAN), backup, continuous availability, and storage resource management," according to Microsoft's Web site.

Despite scant information on Microsoft's plans, analysts said the move could send shockwaves through the industry.

"Microsoft's entry into that marketplace could be very disruptive; they could change the way that marketplace does business," said John Webster, a senior analyst at research firm Illuminata. "If it decides it wants to be in the storage market, (storage makers) would really have to sit up and watch them."

Microsoft announced Muglia's new position--senior vice president of the Enterprise Storage Services Group--late last year, but provided few details about his role or about Microsoft's interest in storage. Muglia previously ran the company's Personal Services Group, which is building back-end infrastructure for the MSN Internet service and for the .Net Web services initiative, which is still under development.

Allchin said he started thinking about a move into storage last summer. "This is not an also-ran model. We think there is some innovation we can do here" in back-end storage plumbing for the enterprise.

Tough competition
With the move, Microsoft is entering a hotly contested area. Last week, rival Sun Microsystems announced a revamped storage strategy aimed at encroaching on territory held by market leader EMC. One day later, IBM named former Lotus unit head Michael Zisman to oversee its new data-storage software business.

But even with their long histories in the sector, Sun, IBM and EMC will face a challenger with a proven record of chiseling away at the market strongholds of dominant players, as it has done in the areas of database, Web browser and business application software.

Microsoft's move comes as the storage industry has begun to slowly shift its emphasis from hardware to software. Analysts said that companies like EMC and IBM have been turning to storage software to squeeze out a profit as the hardware business becomes commoditized and less profitable.

"If Microsoft comes into the marketplace and begins offering lots of storage software functionality at a very low cost, it will generate a profit with its tried-and-true model of mass distribution," Webster said. "Microsoft will make it difficult for hardware makers to find refuge in software for profitability."

Microsoft could offer additional storage management software as part of its Windows server operating system or linked to its SQL Server database. Unclear are the antitrust ramifications of such a move, analysts said.

Market researcher IDC estimates that the storage software market generated $5.6 billion in sales in 2001 and will reach $9 billion in sales by 2004. Microsoft, which rarely enters a new market unless it sees great potential for additional profits, could use new storage revenue to help offset a slumping personal computer industry.

EMC and IBM played down the threat from Microsoft's entry into the storage market. Both companies noted that they are already partners with Microsoft to provide network-attached storage systems.

"It wouldn't surprise me that someone with the skills like Microsoft, and with wide acceptance of the (Windows) NT operating system, would express interest" in storage, said Michael O'Malley, an EMC spokesman.

"Ground zero is an appropriate description of Microsoft's location in the storage space, as they're not even on our customers' radar," said James Staten, Sun's director of network storage.

A hunger for security
In the market for security software, Allchin is also overseeing the creation of a group focusing on new products. The group, currently in research mode under the supervision of Michael Nash, will take responsibility for development of Microsoft's Internet Security and Acceleration Server 2000 and unspecified future products. Nash was formerly vice president for content development and delivery.

The appetite for security software in general--and the ISA Server product in particular--could be big, Allchin said. "We think we can sell a lot more of it."

The ISA Server combines firewall features, Web caching and proxy services to speed content delivery and add security to corporate intranets. Allchin said that finding other products will be the goal of the group, not enhancing Microsoft's own security.

"This isn't about addressing issues in our products, but to manage the customer's networks in a secure manner," he said.

Two weeks ago, Microsoft Chairman Bill Gates sent a memo to the company's employees that made a top priority of securing the software giant's products. The company is spending the month of February reviewing the security of its products and training its developers in secure programming techniques.

News.com's Sandeep Junnarkar contributed to this report.