CW+ a whitepaper from ComputerWeekly Microsoft heads from the desktop to the clouds By Arif Mohamed The name Microsoft can induce strong reactions in technology users, fans and critics alike. But the fact remains that the company founded by Bill Gates and Paul Allen in 1975 has grown to become one of the most successful software businesses in the history of comput- ing, with an enviable global installed base of users. Microsoft commanded impressive annual revenues of $62,484bn in fiscal 2010, with an operating income of $24,098bn (£39,703bn). This allowed it to continue to lead the industry in ploughing high levels of cash into research and development. During 2010, 2009 and 2008, Microsoft’s R&D investment was $8.7bn, $9bn, and $8.2bn respectively, accounting for between 14% and 15% of revenue a year. Driving the R&D spend is a culture that encourages innovation and continually brings new technologies to market. These are consumed by three core groups of constituents: enterprises, SMEs and consumers. Microsoft’s core products include the Windows family of operating systems for desktop PCs, servers, mobile phones and handheld devices. Its enterprise and SME products include the SQL Server database, Exchange Server and Dynamics range of business applications. It also produces developer tools such as Visual Studio and Silverlight, for streaming media content to the web. The consumer technology line includes the Xbox 360 games console and a host of video games. Meanwhile, the company works hard to serve its massive partner network, often referred to as the Microsoft ecosystem. These partners - systems integrators (SIs), value added resellers (VARs), independent software vendors (ISVs) and web service providers - rely on Microsoft to innovate constantly. This allows them to create value - in other words make money - from the new technologies it produces through installing, extending, supporting and hosting Microsoft software. Products Upgrade fatigue Microsoft’s huge product family However, this relentless drive to present businesses with the latest technology has become includes: an additional pressure for many IT organisations. Most businesses just want a stable and uniform IT system that works. But instead, companies end up with multiple versions of the Operating Systems Windows operating system and Microsoft applications with differing levels of integration and Microsoft Windows 7 (including Home Basic, Home Premium, Professional, functionality, making the IT infrastructure costly to maintain. Ultimate, Enterprise and Starter Edition), Windows Vista, Windows XP, Windows So, with each refresh of an operating system, office suite or business application, Microsoft Mobile enters a tug-of-war with its customers to convince them that the latest features are worth the cost of upgrading. Its latest sell is what it terms its “triple-play” of Windows 7, Internet Business Applications Explorer 9 and Office 2010. It is urging its massive installed base, running Windows XP/ Microsoft Office 2003/2007/2010, Vista, and Office 2003/7, that now is the time to upgrade. including Excel, Word, Outlook, PowerPoint, Windows Server System, Microsoft Commerce Server, Microsoft But analysts think it is a particularly tough sell this time around. “Microsoft is struggling to Dynamics ERP and CRM, Microsoft find a toehold in the mindsets of corporate IT,” says Richard Edwards, principal analyst at SQL Server, Microsoft Exchange Server, Ovum. He argues that many enterprises have settled on Windows XP and do not want to Microsoft BizTalk Server, Microsoft face the pain of another operating system and Office upgrade in a hurry. As for IE9, he adds, Virtual Server, Microsoft System Center, “Corporate IT mangers have more fundamental upgrade issues to think about. They are still Microsoft SharePoint trying to decide if Windows 7 is worth the cost of upgrade, so thoughts of rolling-out IE9 are a long, long way off.” Tools and Web & Cloud Software Visual Studio 2008/2010, Internet Explorer 7/8/9, Bing search engine, In addition, says Edwards, workers who have been using a particular version of Microsoft Microsoft Office Online, Windows Live, Office for the best part of a decade could become less productive if they have to learn how Windows Azure Cloud Computing to use Office 2010’s new user interface and features. “Microsoft’s greatest strength is its platform, Silverlight, MSN huge customer base, running Windows on the desktop. But this is also its weakness, because Microsoft has to maintain and gain revenues from legacy software, while encour- Consumer aging customers to adopt the latest trends,” he says. Xbox 360 console and games, Xbox LIVE, Windows Phone, Windows Embedded device operating system Microsoft was at the sharp end when businesses and consumers reined back their technology spend during the downturn. In its financial report for fiscal 2009 the company Source: Microsoft CW+ Microsoft said it was facing “the most difficult business environment since the Great Depression.” Lower PC sales and corporate IT investment meant that Microsoft saw its first ever drop in annual revenue, from $60.4bn in 2008 to $58.4bn in 2009, a decline of 3%. Its operating income was also down 9%, to $20.4bn. The same year, Microsoft made 5,000 redundan- cies across the business, including 58 UK staff. The UK operation suffered a further blow more recently, in July 2010, when the government scrapped the long-running NHS Connecting for Health enterprise agreement software licensing deal with Microsoft. It decided that there was no business case or budget to renew the agreement, which had already been pared back from the original £80m value to just £21m. But despite the setbacks, Microsoft continued with its acquisition strategy and massive R&D spend through 2009 and 2010. It also brought a number of products to market during the “When it comes to period. These included SQL Server 2008, IE8 and the Windows Azure cloud platform, as well as a new raft of web-based business tools such as Microsoft Exchange Online. The the cloud, we’re all following fiscal year, ending June 2010, saw the software giant bounce back to achieve record revenues ($62,484bn) and earnings per share ($2.10). in” 2010 could be viewed as a defining year for the company. It has now firmly positioned itself Steve Ballmer, CEO, as a cloud computing supplier with the debut of Windows Azure, which allows businesses Microsoft to run applications over a network using Microsoft-hosted data centres. “When it comes to the cloud, we’re all in,” Microsoft chief executive Steve Ballmer said. At Microsoft, we firmly believe the impact of cloud computing will be as big as – or bigger than – the previous waves of technology change. The opportunities cloud computing will create for our customers, our partners and our company will be immense.” Currently, over 10,000 corporate customers have adopted Windows Azure, according to Microsoft. That thousands of business and government entities, representing millions of people, have purchased Microsoft’s online productivity services. Customers include 13 of the top 20 global telecoms firms, 15 of the top 20 global banks and 16 of the top 20 global pharmaceutical companies. However, with traditional software moving online, analysts question whether Microsoft has what it takes to successfully transition into an internet company. After all, web pure-plays like Google and Amazon continue to nip at its heels. Media coverage Big product launches have always been a hallmark of the company. Flashy industry events, big parties and slick advertising campaigns frequently accompany landmark launches such as Windows 95, Xbox 360, and more recently the Windows 7 (“Windows 7 was my idea”) and Office 2010 products. But the company has also gained media coverage for less positive reasons. For example, Microsoft was the subject of the infamous anti-trust investi- gations in the US and EU, which undoubtedly inspired the 2001 movie thriller Antitrust. It also took on Netscape and others in the ‘browser wars’, squared up to Apple, with its polished Mac OS, and pursued a controversial acquisition strategy of its smaller rivals, ending life for Microsoft Global Executives the likes of browser enemy Netscape. Chairman of the board William H Gates III Microsoft’s culture of hiring super-intelligent programmers, who work long hours and own Chief executive officer company stock, was celebrated in Douglas Coupland’s Microserfs, a novel about the lives Steven Ballmer of software engineers at the company’s Redmond, Washington, campus. Then there are all Chief financial officer the Bill Gates stories and the intense focus on his personality, personal wealth and philan- Peter S Klein thropic interests. In June 2010, Gates and Warren Buffett made the headlines yet again President, Windows & Windows Live Division when they called upon their fellow billionaires to pledge half their wealth to charity. Steven J Sinofsky Senior vice-president, human resources The truth is that under Gates’ leadership, and later under Ballmer who took the helm in 2000, Lisa E Brummel Microsoft ruthlessly and successfully pursued market opportunities. It fought a tight battle in President, Server and Tools the marketplace and followed an acquisition strategy to win or end technologies from dozens Robert L Muglia of competitors. Such acquisitions include Vermeer Technologies in 1996 for its FrontPage Senior vice-president, general counsel software; WebTV Networks in 1997 which is now MSN TV; Hotmail in 1997; and GIANT and secretary Bradford L Smith Software in 2004. GIANT AntiSpyware was developed to become Windows Defender. President, Microsoft Business Division Stephen A Elop Microsoft has also been accused of locking vendors and consumers into its products whilst Chief research and strategy officer locking the competition out. These resulted in the European Commission finding Microsoft Craig J Mundie guilty in 2004 of abusing its dominant market position. The business has also been accused of Chief operating officer not following and complying with existing standards in its software, but rather adding propri- Brian Kevin Turner etary technology to open standards.