The yin and yang of Microsoft's strategy

I'm just wrapping up at the Microsoft STB (Server and Tools Business) Analyst Summit at TechEd down in hot and stormy Orlando this week. It was a generally good event--always good to get an overall strategy pulse and spend a fair bit of time chatting one-on-one--if a bit redundant with the other two Microsoft events I've attended in the recent past, the Microsoft Management Summit and MIX08.

Unsurprisingly, one of the areas Microsoft hit on hard at this event was virtualization--especially its upcoming Hyper-V hypervisor for Windows Server 2008. However, also on display were its various other virtualization flavors, including the application virtualization that came from its Softricity acquisition. (I'll be delving into Microsoft's virtualization strategy in depth in an upcoming report, complementing recent reports on the corresponding strategies at Citrix and VMware.)

Today, though, I'm going to keep things at a higher level. Coming out of this Microsoft event and the others I've attended, I have two broad observations about the company's strategy--each of which represents a considerable strength and opportunity. But, simultaneously, also holds within them key challenges for Microsoft going forward. Let's take the points one at a time.

Better together but more monolithic.

The first observation is that Microsoft does a mostly admirable job of portfolio-level design that results in a suite of products that integrate with and cross-support each other. SharePoint works closely with Exchange and other Microsoft products. Visual Studio and Expression Studio present two different views of the same code for developers and designers respectively. Microsoft technologies such as Active Directory permeate its products. No company's suite of software truly works together "seamlessly"--no matter what the marketing literature says--but Microsoft comes closer together than anyone with comparable breadth.

The flip side of this togetherness, though, is that Microsoft products then tend to play less well with the other children than is the norm. Microsoft has improved in this regard in recent years (how could it not?), but any number of proprietary protocols and undocumented interfaces make plugging and playing with a Microsoft environment far more difficult than with products that use more standardized approaches.

Embrace the cloud--as a means to extend licensed software.

Microsoft claims to embrace software in the cloud. It points to the massive amount of code pushed out by Windows Update, to online platforms like Virtual Earth, to Xbox LIVE, to 50,000 Microsoft servers returning search results. In absolute terms, Microsoft is already doing a great deal with cloud computing in its various forms. Indeed, based solely on the quantity of bits that it's pushing around for network-based computing, there's an argument to be made that Microsoft is already a big player in this space. At the least, if one listens to speeches by Ray Ozzie and other Microsoft execs, it's clear that Microsoft is well-tuned into the notion that more and more software is going to be delivered from the network.

At the same time, Microsoft is also clearly determined to approach cloud computing in a largely non-disruptive way. Most of Microsoft's cloud-related products and initiatives are adjuncts and complements to traditional licensed software, not a replacement for it. Thus, we have teaming features for Microsoft Office, online extensions for Exchange, and hosted offerings for a number of their standard licensed products. Thus, Microsoft is primarily focused on either increasing the value of their licensed software using the network or in simply offering alternative ways to consume the same bits. It's not nearly as interested in radically changing the economics or use models associated with its existing, and very lucrative, business.

Which shouldn't surprise anyone.