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CW+ a whitepaper from ComputerWeekly 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 and 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 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 and Microsoft applications with differing levels of integration and Microsoft (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, 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, Business Applications Explorer 9 and Office 2010. It is urging its massive installed base, running Windows XP/ 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, 7/8/9, Bing search engine, In addition, says Edwards, workers who have been using a particular version of Microsoft Microsoft Office Online, , 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. console and games, Xbox LIVE, , 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 , 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 and 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 and others in the ‘’, 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, , 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 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. In response, the company has always argued the case for using its own technologies and innovations as the way to produce superior software. Source: Microsoft CW+ Microsoft

In fact, not everyone sees enforcing proprietary standards as a bad thing. Farhan Mirza, a principal at global strategy consultancy AT Kearney says, “Microsoft has moved IT into the mainstream and established standards that were lacking in the early nineties.” He also notes that Microsoft has achieved “corporate acceptability, dominance in personal and corporate computing environments and a long track-record and experience in developing, delivering and supporting operating systems and office apps over 20 years. It has also developed a successful, profitable partnership model”. Microsoft UK Executives Operating system dominance Gordon Frazer, managing director Among Microsoft’s strengths as a software business are its massive installed base and its Microsoft UK, vice-president Microsoft wide market reach. Matt Healey, research manager for IDC’s software and hardware International - Frazer was appointed support services, says, “Microsoft has long been the dominant provider of client operating to the role in July 2006. Prior to this he spent four years as managing director environments in the enterprise market.” IDC models have shown Microsoft capturing in for Microsoft South Africa. He is on the excess of 90% of the annual client operating environment shipments each year for the past UK E-skills Industry Board and the UK decade, and Microsoft’s installed base exceeds 90% of the market total. CBI Higher Education Task Force.

According to IDC, Windows XP is “the most widely deployed Windows client operating system the industry has ever seen”. At the end of 2009, there were 435 million genuine (non-pirated) copies of Windows XP in use. Looking at commercial users only, by the end of 2009 Microsoft had an installed base of 318 million units, or three quarters of genuine Windows client operating systems installed globally.

In the mid-nineties, the term ‘Wintel’ was coined by the media to describe Microsoft’s close relationship with dominant processor maker Intel. It resulted in the vast majority of desktop PCs, laptops and servers being pre-packaged with an Intel chip and a Microsoft operating system and other Microsoft software. “This position has led to Microsoft growing a stun- ningly large installed base of Windows client operating environments, with nearly one billion Scott Dodds (above), general manager Windows operating systems in use as of the end of 2009,” says Healey. Ultimately, most of business strategy and marketing for these installations will end up being replaced by Windows 7 over the next few years through Microsoft UK - Dodds was appointed in a full replacement of the PC and its operating system, a replacement of just the OS, or the September 2010, having been general use of a virtualised Windows client. manager of SMS&P (Small, Medium Enterprises & Partners Group) since Microsoft now has a ubiquitous platform, says Clive Longbottom, service director, business January 2007. Previously, Dodds ran process analysis at Quocirca. “Microsoft has generated customer stickiness - if not quite the company’s OEM UK and Northern European divisions. loyalty. At least it has done a good job of not losing customers at the desktop OS and office suite level, or of losing commercial customers against the open source brigade,” he says. Simon Negus, director and general manager of the Enterprise and Partner Bo Lykkegaard, program director European enterprise applications at IDC identified several Group, Microsoft UK Negus has over 25 particular products as being lucrative for Microsoft. “Windows and Office remain cash-cows years of high-tech industry experience. and standards in the desktop space, and Sharepoint is now a $1bn business for Microsoft,” Prior to joining Microsoft, he worked at he says, adding that server software and tools, particularly Windows Server, SQL Server, Dell for 10 years in a number of senior SharePoint and SystemCenter, have also grown and taken market share in the enterprise management positions. software space. Neil Thompson, general manager, Entertainment & Devices Division, Scott Dodds, general manager business strategy and marketing for Microsoft UK, says that UK & Ireland – Thompson has overall in terms of revenue, the breakdown between enterprises, SMB and consumer, is “much responsibility for his division throughout more balanced than it used to be. There’s strength in all those areas, even across the UK, the UK and Ireland, including the sales and we are not massively reliant on any one of them. We see growth opportunities in all of and marketing of Xbox 360, Xbox LIVE, the areas, even in SMB, where small businesses are thinking about accessing enterprise- PC software, peripherals and Mac products. class applications in the cloud,” says Dodds. Toby Willson, finance director, Microsoft Pressure points Ltd Willson was appointed in July 2008 Microsoft argues that it managed to maintain its strong pipeline of products and its focus on and is responsible for all finance and developing new technologies. But Dodds admits these are challenging times in the accounting operations at Microsoft UK. downturn. “This year economically is not a lot different [to 2009] and it will continue to be a Prior to joining Microsoft he worked for tough environment for some years,” he says. “Customers are willing to pay if they see a Xerox, and Centerprise International. reason for using new technology. For example if it makes them more efficient and keeps Sarah Fisher, HR director, Microsoft Ltd their costs down, or increases sales revenues and helps them engage with customers in a Fisher joined Microsoft in October 2008 better way.” as HR Director. Her responsibilities include focusing on recruitment and However, several analysts feel that Microsoft is beginning to lose its innovative edge, despite retention, and improving employee its significant R&D investment. As a result, selling new technology to financially challenged engagement. Fisher joined Microsoft customers is growing ever more difficult. “I haven’t see Microsoft leading from the front for a from Toyota. long time. The last time it was leading the pack was in the office suite wars, fighting IBM and , and in upgrades with Office 95 and Windows NT Server,” says Edwards. Source: Microsoft CW+ Microsoft

Lykkegaard adds that even with Microsoft’s latest cloud computing strategy, and its Windows Azure platform, it is arriving late to market. “Cloud offerings, Office Web Apps, Azure, CRM Online, Bing, have been late to market and particularly Google Apps have started to capture share, mostly against Microsoft Exchange,” he says. “Bing remains tiny compared to search market leader Google, and CRM Online has limited market share against leaders salesforce.com and Oracle CRM on Demand. platforms lost out to iPhone and Android. Now Microsoft is making a final push with Windows Mobile 7, a new mobile platform that aims to gain share against the current market leaders.”

Nevertheless, Azure remains a contender for leadership in the emerging platform-as-a-service market, and is helped by the use of Microsoft standards and technologies, which are used by the enormous .NET developer community. But Longbottom says Microsoft exhibits a certain Clive Longbottom, “hubris, laziness, [and] lack of vision for some of the big changes coming along, [and a] lack of service director business speed in bringing things to market fast enough in certain areas.” One example is Microsoft’s delay in delivering a management eco-system for its virtualisation product Hyper-V. process analysis,

Dodds, points out that Microsoft operates in many highly competitive markets, including Quocirca clients, servers, tools, online services, business applications, entertainment and devices. “We see tough competitors everywhere. Because of the breadth of our business we have a Customer list huge list of competitors. It keeps us smart,” says Dodds. UK customers include: In desktop operating systems, Microsoft faces continued pressure from Apple and open source platforms such as Red Hat . Companies such as Apple, Google, Mozilla and BAE Systems supply chain, HPC offer alternatives to Internet Explorer, with an increasing number of OEMs choosing to system work with Google’s Android mobile operating system for small form-factor mobile devices. Baker Tilly Hyper-V virtualisation, Google and other web application software firms continue to offer choice to users for online Windows 7 Barclays Bank customer satisfaction/ productivity, communications and collaboration tools. retention Bindmans LLP Sharepoint In Microsoft’s core developer tools and enterprise applications markets, the company has British Chambers of Commerce CRM any number of big-cat rivals, such as CA Technologies, Oracle, SAP and IBM. Then there is British Energy business intelligence cloud computing, with the whole industry moving to a model where applications and British Waterways IT refresh computing resources are accessed over a network, as opposed to buying and installing BSkyB messaging system packaged software. Microsoft is competing in this area with its new Windows Azure BT operating systems Cambridge University financial platform, as well as continuing to beef up its High Performance Computing (HPC) Server City Council business continuity 2008. The latter competes with Linux HPC servers and targets the financial services and City of London Dynamics CRM, other industries that use massive parallel computing. However, Microsoft has not yet Windows 7 managed to gain significant share in the HPC market. Coop centralised IT, embedded OS E.ON operating system upgrade Dodds reflects, “Our customers are changing fast. The way they want to interact with technol- easyJet collaboration, desktop gadgets ogy is changing. There will be new competitors all the time, but we are in this for the long term.” EDF infrastructure optimisation GlaxoSmithKline Online Services Godiva cloud computing Kleenex business intelligence London Borough of Lewisham Web Microsoft UK portal London Fire Brigade tools upgrade Despite the economic and competitive challenges that Microsoft faces. Scott Dodds, London Underground application general manager business strategy and marketing for Microsoft UK says business contin- development ues to grow in all areas. The UK is a key engine of growth for the company. Nationwide infrastructure refresh, data warehouse NHS Nottinghamshire PCT business The UK partner network is particularly vibrant, claims Dodds. He was general manager of intelligence Microsoft UK’s customer-facing Small, Medium Enterprises & Partners Group between Oxfam e-commerce 2007 and summer 2010. “We have over 30,000 partners in the UK, employing over half a Pfizer collaboration and note-taking million people, and generating well in excess of $20bn of money into the UK economy. We Severn Trent Water content take it very seriously that we have a huge network of people who expect [us] to innovate.” management, collaboration Tesco communication infrastructure, As well as the installed base of software users, Microsoft’s independent software vendor online ordering Thales database technology (ISV) and developer communities are also major assets, say analysts. The Microsoft .NET The AA collaboration and stack in particular has a large following among software vendors and most SMB applica- communication tions run on Microsoft infrastructure. In 1992, Microsoft started Microsoft Developer The Caravan Club online route-planning Network (MSDN) a vehicle for managing its relationship with developers and testers. These app include hardware developers interested in the operating systems, and developers working Times Online database archiving with various Microsoft software technologies, tools and standards. University of Dundee BI for gene Over time, through the use of blogs, social networking and forums, MSDN has changed research Yorkshire Water new billing system from being a one-way information service, to a vibrant, interactive developer community. For the broader group of Microsoft users and service providers, Microsoft has established its Source: Microsoft CW+ Microsoft

Microsoft Partner Network, which has over 640,000 registered users. Subscribers share technical and business expertise in numerous online forums.

Microsoft also offers certification to IT professionals, such as Microsoft Certified Professional (MCP), and Microsoft Certified Database Administrator (MCDBA) status. Meanwhile, industry service providers can gain certifications that include Certified Partner and Gold Certified Partner. These indicate a certain level of Microsoft technology expertise

From here to ubiquity: the rise and inevitable rise of Microsoft Summer 1975/Spring 1976: Bill Gates works with Paul Allen December, Gates announces plans for Internet Explorer (IE 3 is to develop BASIC for the Altair. During this time, they start launched in August 1996). to call their venture Micro Soft or Micro-Soft, registering the trademark Microsoft in November 1976. 1996: Netscape asks the DoJ to investigate Microsoft’s discount to computer manufacturers that install IE3.0. December 1978: Microsoft’s revenues exceed $1m. 1998: DoJ and Attorneys General of 20 states sue Microsoft June 1980: Gates hires his old Harvard friend Steve Ballmer as for illegally thwarting competition. Gates spends three days the company’s first business manager. giving his deposition by video to the DoJ inquiry. Microsoft launches . Summer/Autumn 1980: Gates produces the OS for the PC being developed by IBM. Microsoft retains the right to license January 2000: Ballmer is appointed chief executive of the OS, MS-DOS, to other computer manufacturers. Microsoft. He and Gates later acknowledge they both had a difficult time adjusting to their new roles. July 1981: Microsoft is incorporated. Gates gets 53% of the company; Allen 31% and Ballmer 8%. June 2000: Following the inquiry, Judge Jackson rules that Microsoft should be split into two units: one to produce 1981: Microsoft’s revenues reach $16m. The company operating systems, the other to make other software employs 128 people. components. He calls Microsoft an “abusive monopoly”. Meanwhile, Microsoft’s revenues reach $229bn, with over September 1983: The first version of Microsoft Word 1.0 39,000 staff. for MS-DOS is released, the first word processor to make extensive use of the mouse. June 2001: The Court of Appeal overturns Judge Jackson’s order to break up Microsoft. But, it upholds his ruling that 1985: Microsoft’s revenue reaches $140m. The company Microsoft illegally used licensing agreements with ISPs and PC employs 910. manufacturers to block the . Microsoft releases the first retail version of Windows, with Also in 2001 Microsoft launches Windows XP and the Xbox. graphics. March 2004: The EC brings anti-trust action against Microsoft. February 1986: Microsoft moves to Redmond, Washington, where the company’s headquarters have been ever since. June 2006: Gates announces he will step back from Microsoft in two years, to concentrate on his philanthropic endeavours. September 1987: Microsoft PowerPoint 1.0 for Mac is announced, and hits $1m in its first year of sales. January 2007: Windows Vista and Office 2007 launched.

March 1988: Apple files a lawsuit against Microsoft, claiming 1 Feb 2008: Microsoft makes a bid of $44.6bn for Yahoo!, that the “look and feel” of Windows is too similar to the Apple which the search firm rejects. “graphical user interface”. The legal battle is to last six years and Apple eventually loses. February 2008: Microsoft is fined a record E899m by the EC for failure to comply with earlier anti-trust rulings. Microsoft 1989: Microsoft releases Office. appeals. Windows 3.0 launched and sells 100,000 copies in two weeks. Summer 2008: The Microsoft headcount is now almost October 1992: Forbes declares Gates to be the richest man in 90,000 worldwide. America, worth $6.3bn. 27 June 2008: Gates leaves full-time role at Microsoft to January 1993: Microsoft’s market value overtakes IBM’s. concentrate on the work of the Bill and Melinda Gates Foundation. February 1993: The Federal Trade Commission meets to rule on whether Microsoft has broken anti-trust rules. The matter is October 2008: Microsoft announces plans to deliver Office referred to the Justice Department in August. applications via the Web, signalling a shift towards web based software. October 1994: Netscape offers its Navigator as a free download on the internet. 2009: Microsoft releases SQL Server 2008, IE8, and Bing search engine, as well as online versions of Exchange, July 1995: Forbes again declares Gates the richest man in the SharePoint and Business Productivity Suite. world, a position he holds continuously until 2008. 2010: Windows Azure Cloud platform gains 10,000 users and August 1995: Windows 95 and MSN are launched, with Microsoft gears up for Windows 7, IE9 and Office 2010 “triple Windows 95 selling seven million copies by the October. In play”. CW+ Microsoft

Overview Microsoft’s $62bn business has grown since 1975 through product innovation, a fiercely competitive mindset, a keen focus on software usability, strong marketing and careful and frequent acquisitions of specialist technology firms. As a result, the company now has over 90% of the desktop operating system market, putting Windows, and its Internet Explorer browser, on almost one billion computers. Microsoft has also gained either a foothold or dominance in markets that include office productivity tools, developer tools, and competence. The qualifications also enable service providers to work more closely with business applications, online apps, consoles and games. Microsoft’s application teams. • Revenue: $62,484bn for year ending June 2010 In the UK, Microsoft works very closely with its partners, says Dodds. For example, • Specialisms: Enterprise, SMB and Microsoft UK embarked upon the Britain Works initiative in September 2009, along with its consumer operating systems and partners. This aims to give 100,000 young people the opportunity to kick-start their careers, software and to assist 500,000 into work by 2012. • Employees: 89,000 as of June 2010. 2,700 UK, 54,000 US, plus 32,300 The three-year initiative was met with “a fair amount of cynicism”, Dodds says. But he claims internationally. • Customers: Consumers, SMBs, it has already resulted in 104,000 people being helped through apprenticeships, internships enterprises, governmental and and the BizSpark programme, and digital literacy programmes and NGO partnerships. educational institutions, ISPs, “From a UK perspective we want to be known as a responsible business,” says Dodds. application developers and OEMs. Investing in the future • Microsoft has operational centres in Ireland (supporting EMEA), Singapore The UK business itself was established in 1982 and now employs 2,700 people, including (Japan, China and Asia-Pac); and workers associated with other Microsoft European ventures. These include the Microsoft across North America. It also operates data centres throughout the US and Research Centre in Cambridge. It was opened in 1997 and has 150 staff. Europe. • History: Microsoft was founded in is evidence that Microsoft is committed to R&D, and forges partnerships 1975 by Bill Gates and Paul Allen with academics to achieve its goals. Current areas of investment include natural user inter- faces, the next-generation of technology interaction using gestures, handwriting and speech recognition. Researchers are also focusing on natural language processing, enabling machines to follow vocal instructions in the form of simple and natural language. There is also something that Microsoft’s terms “new scenario innovation”, which covers speedy and ubiquitous networking. Microsoft Research Centre is investigating ways it could benefit healthcare, education, financial services, manufacturing, engineering and aerospace.

Microsoft Annual Revenue n and Operating income n

2010 $62,484 $24,098

2009 $58,437 $20,363

2008 $60,420 $22,271

$51,122 2007 $18,438

2006 $44,282

$16,380

2005 $39.788 $14,576

source: microsoft source: microsoft CW+ Microsoft

Dodds says, “We are committed to technology and the way it transforms the way we live, Microsoft UK Offices work and play.” He described a controller-less camera system that uses face recognition, and was developed in Microsoft’s research labs. “It’s coming out in the gaming environment Microsoft Reading, Microsoft Campus, first, but will one day be translated into a business environment, though it may be viewed as Thames Valley Park, Reading, RG6 1WG science fiction at the current time.” Sometimes it may take 10 years to get a particular Tel: +44 (0) 844 800 2400 concept technology into the form of a commercial product, and this requires big investment and a long-term view, says Dodds. Consequently, some critics have accused Microsoft of Microsoft London, Cardinal Place, 100 not capitalising on its R&D resources as much as it should. Victoria Street,London, SW1E 5JL Tel: +44 (0) 844 800 2400

Bo Lykkegaard, programme director for European Enterprise Applications of IDC, says, “In Microsoft Manchester, Manchester terms of blue sky innovation, Microsoft must clearly improve R&D efficiency, including Business Park, 3000 Aviator Way, cross-division collaboration, as shown by the many years of work on Tablet PC, which was Manchester, M22 5TG suddenly eclipsed by Apple’s iPad, which had a much faster R&D execution and rapidly con- Tel: +44 (0) 161 932 6141 quered the tablet market.” Just as with the iPad, Microsoft also skipped a beat with the Fax: +44 (0) 161 266 1001 smart phone. At Microsoft’s Worldwide Partner Conference in San Francisco in July 2010, Microsoft Edinburgh, Waverley Gate, 2-4 Microsoft boss Steve Ballmer admitted, “On the phone side we missed a generation with Waterloo Place, Edinburgh, EH1 3EG Windows Mobile.” Tel: +44 (0) 844 800 2400

But Microsoft now wants to make it clear that it is back on fighting form, to compete with Microsoft Research Cambridge, Roger Apple’s ubiquitous iPhone and Google’s popular Android smart phone, based on Linux. In Needham Building, J J Thomson Ave, September 2010, a few hundred Microsoft employees acted out a mock funeral for Apple’s Cambridge, CB3 0FB, UK iPhone at the Redmond, Washington campus. The ritual marked the completion of Tel: +44 1223 479700 Microsoft’s software, and indicated the company’s intentions in the highly Microsoft Chertsey, Microsoft UK, competitive phone market. Culverdon House, Abbots Way, Chertsey, Surrey, KT16 9JZ In the clouds Tel: +44 (0) 1932 581 800 Like all of its main enterprise competitors, such as Oracle, IBM , Google and Salesforce, Microsoft has thrown its weight behind cloud computing, even though it potentially chal- Source: Microsoft lenges the very core of Microsoft’s business: shrink-wrapped and OEM-installed software.

Lykkegaard believes that Microsoft has finally managed to join up the dots on its emerging cloud technology platform. “Server and Tools has been reorganised to support Azure, and it is this type of commitment to new platforms that is needed for Azure to pursue market leader- ship,” he says. Other analysts, on the other hand, see Microsoft as relatively late to market.

Dodds is philosophical about the direction computing is taking, away from self-install software. He describes it as a shift in the way software is delivered, which still depends heavily on skilled software engineers, creating innovative programs. He argues that there is clearly a massive transition taking place across the industry, but as businesses move from on-premise comput- ing to cloud-based IT systems, Microsoft still has many opportunities for growth.

In addition, the mushrooming cloud computing market is great news for Microsoft’s partner ecosystem of ISVs, value added retailers and online service providers. For example, with Microsoft’s Azure cloud computing platform, partners can charge for applications on demand, or for running the physical data centre hardware. All the while, customers continue to use Microsoft’s software. It’s a win-win for the Microsoft camp.

Cloud computing also enables Microsoft to target new SMB users. Many of these may use Windows and Office on the desktop. But they may not necessarily run Microsoft’s midmar- ket business applications, such as CRM or business intelligence. The cloud strategy already seems to be paying off for Microsoft. In June 2010, it signed up its 10,000th customer for the Windows Azure platform. Users include a mixture of enterprises, small independent software vendors and application developers.

Doug Hauger, general manager of Windows Azure, says that 50% of its customers are using Azure as a replacement for on-site/on premise software, signalling the way that computing is likely to go over the next few years.

Heading into the future, Lykkegaard says, “I think Microsoft must go into cloud computing while somehow protecting its existing revenue sources: enterprise, SMB and consumers. With platform-as-a-service Microsoft has been bolder and faster and this could pay off, as opposed to Office Web Apps which is a few years late to the game compared to Google Docs.”

The future of Microsoft could go one of two ways says Richard Edwards, principal analyst at Ovum. “In five years time, it could go the Novell route, going to the scrap yard with parts of it CW+ Microsoft being sold off. That would be a shame.” The second way it could go is to adapt to the chang- ing competitive landscape, says Edwards. “Apple has shown true leadership that it can reinvent itself, and this is what Microsoft has to do now. If the right people can get involved, we may see something happening. I can’t quite see Bill Gates coming back. But he hasn’t severed all ties. Microsoft is at a crossroads and the decisions and directions it takes now will be significant. It needs to carry its legacy business through the next five years, just as Novell found. But I also expect more innovation to come out of the huge fortune it spends on R&D.”

As Microsoft moves towards cloud computing, the company faces a huge battle in winning enterprise and SMB customers over to its bigger vision. Granted, it has the operating system and office productivity market sewn up. According to Microsoft, Windows 7 was the fastest-selling operating system in history – running on 93% of new consumer PCs as of September 2010.

However, when it comes to enterprise applications, high-performance computing, smart phones, and software-as-a-service, it’s a different story. Discerning enterprises will continue to find competitive technologies coming from Oracle, IBM, SAP, CA Technologies, web pure-plays such as Google and Amazon, and suppliers including RIM (Blackberry) and Apple.

Consequently, IT directors would be wise to listen carefully to what Microsoft has to offer, but be prepared to shop around for a solution that is tailored to their requirements. After all, the Microsoft operating environment uses open standards, and it’s prudent to take a best-of-breed approach and not be tied to a single supplier – even if they offer to supply all your IT needs.