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 Microsoftin 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
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 andand 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...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
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, 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: 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.
Muglia: Awesome. Some may come from us, some may come from others, and that's fine. One of the things to remember is that services run on servers. Hopefully they run on our servers. If they do, we make money on that. If they don?t, then we don't. It's up to us to build something compelling so they do. Can you give us an update on the status of WinFS, the new file system originally intended for Vista and Longhorn Server?
Muglia: It's going into beta 2 in early fall. People are playing with it. I think WinFS is one of those examples where we clearly got ahead of ourselves; there's no ambiguity on that. It never went through the appropriate incubation phase. The right way to build a technology like WinFS, and certainly the way we will do that in the future, is to spend a couple of years in incubation and gather some feedback. Where we're going with it is that we basically see many of the WinFS technologies very clearly as being important to incorporate into our overall database product line, into SQL Server. So you will see some of those features being incorporated into SQL Server over time. And some of the other pieces which may not be appropriate for SQL, we're looking to see where and how it's appropriate to bring them to market.Possibly into the operating system?
Muglia: Possibly into the operating system, maybe into the Office products even.How did WinFS get ahead of the process, so to speak?
Muglia: It's part of the Longhorn wave of getting ahead of ourselves. A little overambitious. We learned from that.Looking forward, does Microsoft envision doing these monolithic operating system releases, or will you adopt more of a downloadable model of adding onto the base kernel?
Muglia: We've done a lot of downloads and we will continue to do those. An example of where we need to do those is when the industry moves and you've got to be there. So for example, we just did this scalable networking pack for Windows Server 2003. The industry was there. We needed to do that as an out-of-band release. So we will continue to do those. That one was relatively easy because we're attached to the hardware community. What we've learned is that out-of-band releases have a hard time getting customer acceptance in the enterprise. Businesses don't like lots of little things.
It's actuallyin an interesting sense, in that open source has this continuous development philosophy, which has some advantages to it. But it's not a great consumption approach for organizations. They need to run things through their test processes, standardize on them, and then run them for a long time. So having releases actually turns out to be a better way to get things out to the market. That's why we introduced this R2 concept (with Windows Server). These are interim releases that customers pick up and consume. We'll do more of that for businesses. Maybe it's not the right vehicle for consumers who (want things more quickly).
The other part of what we're asking is, does it make sense for Microsoft to rewrite the kernel for every new release of Windows?
Muglia: Well we don't rewrite the kernel every time, let me be clear. We do make substantive updates to it. Frankly, you have to. The answer, kind of, is 'yeah.' Let's take, for an example, virtualization, and the impact virtualization has on our core infrastructure. There are kernel implications to it, and we made a bunch of those changes in Longhorn and we made many, many changes in the operating system to prepare us for Windows Server virtualization. The idea that we would go back and do that to Windows Server 2003 is just sort of unthinkable for our customers. It just wouldn't work. So you kind of do need these opportunities to get in and take the engine apart and put it back together again.
Let's talk a bit about your responsibility for technical documentation related to the U.S. Department of Justice consent decree. Is the documentation up to snuff now?
Muglia: We were confused about this, and frankly everybody was confused about this...The feedback was clear from the government agencies and others that we had to rethink this. When we went in and took a look, we realized that we thought of this as doing documentation and we put people who are quite qualified at doing technical documentation on the job. But it ain't that. It's an engineering project. It's especially an engineering job because it isn't a core part of our development process yet. It will become part of the core process moving forward.
But the first piece of work that needs to be done is an archeology project to go through the protocols that are in the system, some of which date back 15-plus years, many of which (were written) by engineers that are no longer with the company, and we've had to pull quite a few of our key engineers onto this and they're working to get standardized formats in place and all of the basics. We're making really good progress on it and we are working as hard as is humanly possible and we'll be doing that for a bit of time now.How much of your time does that consume?
Muglia: I meet on it every week. I have multiple meetings and I'll be going back to Washington, D.C., every quarter or so to meet with the DOJ. How will this change the documentation? What's the end result of all of this?
Muglia: We have an agreement with the (European Union). We're hopefully days away from having an agreement with the DOJ on a standardized format for delivering the documentation. Hopefully, they will be very much the same. We think the result will be 90 percent the same. We'll have that coherent view of what the documentation should look like. So the next time we have a new protocol, we'll send out that document as part of the process. It will be a lot easier when they're doing it as they invent it, as opposed to 15 years later.