Microsoft News Tracker

There was quite a surprise today as Microsoft announced that Jeff Raikes, president of the Microsoft Business Division (MBD) will be retiring in September and the replacement is Stephen Elop, current COO of Juniper Networks and former CEO of Macromedia before it was acquired by Adobe:

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This week Microsoft is holding its TechEd 2007 conference and there’s a variety of news:

Bob Muglia, SVP of Microsoft’s Server and Tools Business kicked off TechED 2007 by detailing the company’s strategy for Dynamic IT for the People-Ready Business (Dynamic IT). Apparently it was as bad as it sounds although there were some redeeming features.

More substantially, Muglia also announced assorted product news including the official names for Katmai and Orcas as well as revealing two acquisitions:

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In the internal Microsoft email announcing Friday’s aQuantive acquisition, Steve Ballmer also announced a significant reorganization:

Microsoft has reshuffled its organizational chart again, this time adding the Developer and Platform Evangelism team to its Server and Tools division, and then moving that merged entity into the Business division.

The server and tools business, which falls under the leadership of Senior Vice President Bob Muglia, was moved “intact” from the Platform and Services division to the Business division, whose president is Jeff Raikes, a Microsoft spokesperson told eWEEK.

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The developer and platform evangelism team, led by Corporate Vice President Sanjay Parthasarathy, has been merged into the server and tools business, and now reports to Muglia. The changes are effective May 18.

The Business Division is mostly Office although it also includes the old Microsoft Business Solutions and had already picked up Exchange Server as part of the Unified Communications push.

Various explanations are bring offered by Microsoft and the punditry (see above links) for the reorg including that Raikes has now been anointed as Steve Ballmer’s successor. More interesting to me than the executive kabuki dance is why Server and Tools doesn’t rate as a completely separate division as its financial performance would certainly warrant (e.g. here).  It still seems to be the Rodney Dangerfield of Microsoft business units. Anyhow, although there has been no indication to the contrary, one certainly hopes that the practice of breaking out Server and Tools financial results will continue.

Today at a business partner security event in Los Angeles, Bob Muglia (Senior Vice-President, Server and Tools Business) launched Microsoft’s Forefront Client Security and System Center Essentials 2007:

Launched today, Microsoft Forefront Client Security is designed to help protect business desktops, laptops and server operating systems from viruses, spyware, Trojans and other current and emerging threats. Microsoft Forefront Client Security delivers critical visibility into threats and vulnerabilities through central management, and integrates with System Center solutions, Active Directory® directory services and other Microsoft technologies.
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Muglia also announced the launch of System Center Essentials 2007, a unified management solution to help IT professionals in midsize organizations proactively and efficiently manage their IT environment. System Center Essentials 2007 provides the only unified solution to help simplify a broad set of tasks across the entire IT environment. The solution features a single console from which IT management can view and manage servers, clients, hardware, software and IT services.
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Forefront Client Security is licensed on a per-user, per-device basis, starting at $12.72 per user or device, per year for the security agent and at $2,468 per year for the management console. The product is available for purchase today as part of the Microsoft Enterprise Client Access License suite via Microsoft Volume Licensing, with stand-alone product availability in July via standard Microsoft volume licensing channels.

Microsoft System Center Essentials is offered as a management server with built-in support to manage 50 clients and 10 servers starting at $2,000. Customers can add up to 500 clients in increments of 20 or five Management Licenses (MLs), priced at $400 and $100 respectively, and up to 30 servers in increments of five and one ML, priced at $500 and $100 respectively. The product will be available in July via standard Microsoft volume licensing and retail channels. All prices are U.S. estimated retail prices.

There’s no shortage of entrenched vendors in either client security or infrastructure management so it will be interesting how Microsoft does as the new kid on the block. Their strength will obviously be in shops with both Windows clients and servers where they can claim unique knowledge, but that’s also their weakness in larger establishments which tend to be more heterogeneous.

Update: On a related note, Microsoft released Service Pack 3 (SP3) for Internet Security and Acceleration (ISA) Server 2004.

Below are some selected highlights from yesterday’s Microsoft Financial Analyst Meeting 2006. As I mentioned previously, the list of speakers with copies of their presentations, and transcripts and/or Webcast replays are available here. (Bink.nu also has some candid snaps of the speakers.)

Steve Ballmer, Chief Executive Officer

Ballmer: Microsoft must be ‘multi-core’ :

Microsoft Chief Executive Officer Steve Ballmer said Thursday that his company must be able to operate successfully in multiple markets — a phenomenon he calls being “multi-core” — for the company to continue to grow well into the future.

Although Microsoft is best known for its desktop OS and software business, the company has managed also to carve out a successful business in server software, making it a two-core company, Ballmer said at Microsoft’s annual Financial Analyst Meeting in Redmond, Washington.
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But as Microsoft moves ahead, the company is fighting a war on several fronts, and Ballmer hopes it will develop more core businesses with its entertainment and online services strategies.

“There really is a Sony that lives inside of us,” he said. “There’s an aspiring Google or Yahoo that lives inside of us.”
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“You have to confront the question: Is it OK to get into some area of endeavor when you’re not first?” he said. “It’s always best in our business to be first. We want to be first. But are you prepared to get in and innovate and try to get growth in areas where you’re not first in the market. As investors, you have to understand that we think that’s important.”

And on a theme dear to the analysts’ hearts - Ballmer: Vista delays won’t be repeated.

Kevin Johnson, Co-President, Platforms & Services Division

Microsoft sees up to 10 percent sales growth from Vista:

Microsoft expects sales in its popular Windows division to grow 8 to 10 percent in the coming fiscal year, a senior executive said Thursday.

The No. 1 computer software maker expects sales of between $14.3 billion and $14.5 in its Windows operating system division in its current fiscal year, Kevin Johnson, co-president of Microsoft’s platforms and services division, said during the company’s annual financial analyst meeting being held at its headquarters in Redmond, Wash.

Since that’s the projected unit growth rate in PCs, Microsoft’s Windows client revenue is merely matching units. I guess that’s good news since it has lagged unit growth recently and presumably a match is the best they expect from the upselling and antipiracy initiatives:

Vista, with its multiple versions, has “something for everyone,” Johnson said, but Microsoft plans in particular to promote the purchase of its higher-end, or “premium” versions to consumers. Traditionally, higher-end versions do better among business customers than home users. “There is an opportunity for us to grow the premium mix,” he said.

Premium versions of Vista include Windows Vista Home Premium and Windows Vista Ultimate.

Microsoft also is investing in ways to encourage customers in emerging markets to purchase genuine copies of Windows Vista as part of an overall campaign to prevent people from using counterfeit or pirated versions of Windows, Johnson said.

To achieve this goal, Microsoft is “putting more feet on the street” and is providing more training for channel partners, especially in emerging markets such as China, to help sell genuine copies of Windows, he said.

Johnson also reiterated that Vista development continues on schedule although his caveat that it wouldn’t ship before it was ready inexplicably depressed investors since it’s clear that there’s no windfall there.

Bob Muglia, Senior Vice President, Server & Tools Business

Muglia went off on a Linux tangent for some reason, but I guess he’s entitled - his business is an earnings growth superstar even if it gets no buzz.

Jeff Raikes, President, Business Division

Most noteworthy:

Jeff had some interesting things to say about competitors. He referred to OpenOffice and IBM WorkSpace as efforts to “clone our old technological” capabilities. Whoa.

But it’s “good enough,” Jeff, as are old versions of Office and there’s the rub. Raikes also predicted a less than scintillating 7% CAGR for his business over the next few years.

Robbie Bach, President, Entertainment & Devices Division

No surprise that Microsoft game, device unit sees loss in ‘07, The big surprise is that they plan to make money in 2008.

Microsoft said investments for its new “Zune” media player and another year of losses at its Xbox game unit will continue to weigh on the entertainment and devices unit’s earnings this year. The division posted a loss last year.

The entertainment and devices division encompasses much of Microsoft’s consumer-oriented products, such as Windows-based smartphones, the Xbox 360 game console and its upcoming “Zune” media player, but it has not been a consistent earnings driver.

“Fiscal ‘07 will be a loss. We think that turns to profit in 08,” Robbie Bach, president of Microsoft’s entertainment and devices division, said at Microsoft’s annual analyst meeting.

As for Zune:

The software giant said it will invest “hundreds of millions” of dollars to develop and market Zune, due to hit the market later this year.
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Bach encouraged investors to be patient and not expect an immediate return on its outlay for the device.

“It is something that is going to take time,” said Bach. “This is not a six-month-investment time horizon,” he said, adding that it may take three, four or five years to succeed.

Zune’s differentiating feature from Apple’s iPod will be built-in Internet connections that allows users of the devices to connect with their friends and other music fans.

On the Xbox 360:

Though competitors Sony and Nintendo are slated to launch rival game consoles this fall, a Microsoft executive predicts his company’s next-generation game machine should have a 10 million unit lead by the end of this year.
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Microsoft’s next-generation Xbox 360, which launched last year, starts at $299, and Bach said he sees no price changes through the holiday season.

That presumably lays to rest the persistent rumors that there will be an Xbox 360 price cut when Sony ships the PS3. Microsoft also touted Windows Mobile based phones as gaining share from Research in Motions’ Blackberry. There’s more on Bach’s presentation here including:

When asked whether Microsoft was abandoning its PlaysforSure digital-media-connectivity initiative in favor of developing its own end-to-end Zune solution, Bach said Microsoft is planning to continue to back PlaysforSure.

“PlaysforSure continues as it is today,” he said. In fact, the Zune team “will work with the same (PlaysforSure) interfaces,” Bach said.

He likened the PlaysforSure/Zune paradigm to the PC/Xbox console one. The two teams will continue to work in parallel, with the hope that the two different environments ultimately will work together, Bach said.

What else could he say?

Ray Ozzie, Chief Software Architect

Ozzie’s presentation was described as “visionary” and “a high-level, theoretical look” which I take to mean that there were a lot of glazed eyes among the financial crowd. On a slightly more down-to-earth note - Web services to aid, not kill, software:

Web services, delivered alongside classic software, will complement rather than replace the existing software industry, Microsoft Corp.’s chief technologist said on Thursday.

Chief Software Architect Ray Ozzie told investors and reporters attending the annual financial analyst meeting at Microsoft’s headquarters that the company is looking to convert its existing software franchises into Web-delivered services.

“The overall services opportunity is largely additive, increasing revenue opportunities for both our existing software licensing model as well as our services business model,” Ozzie said.

Microsoft’s strategy is to connect a wide range of devices onto various networks to allow consumers to enjoy the same information and entertainment not only on their computers but also via mobile phones, televisions and gaming systems.
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In response to a question, Ozzie declined to say how much revenue per user could come from new Web services or how these might compare to license revenue streams from Windows and Office software that generate the bulk of Microsoft revenue.

Yusuf Mehdi, Microsoft’s Chief Advertising strategist

Microsoft Demos Next Version of adCenter

Kevin Turner, Chief Operating Officer

Turner delivered some bromides.

Craig Mundie, Chief Research & Strategy Officer

Microsoft shows off cell phone-PC prototype. It’s called FonePlus and is intended for emerging markets and rivals Nicholas Negroponte’s “$100 PC” as we have mentioned previously. It’s merely a research project but drew disproportionate press interest.

Chris Liddell, Senior Vice President & Chief Financial Officer

Microsoft acquires more, but R&D still the focus:

Chief Financial Officer Chris Liddell said Microsoft was in “high investment mode” and very acquisitive over the past year, spending $649 million to buy 23 companies. He said it acquired four companies in July.

But its acquisition spending is still dwarfed by the billions it plows into research and development every year and Liddell said it was unlikely that will change.

And Microsoft executives underscored that they are contemplating no change of strategy that would lead to a major acquisition anytime soon. It has spent less than $30 million per company, on average, on its buying streak over the past year.