Windows 7 is a winner!

As we noted in our previous blog, Windows 7 officially celebrates its 1st birthday, today — October 22nd. And there are plenty of reasons to celebrate. Yes, Windows 7 has sold over 240 million copies, to date making it the fastest selling OS in Microsoft’s (or any vendor’s) history. And yes, many of those sales can be attributed to pent-up demand because the overwhelming majority of the Windows installed base elected to remain on Windows XP and skip Vista. Admittedly, many organizations would opt to remain on Windows XP indefinitely if Microsoft was not ending support for the nearly 10 year old desktop OS. Those disclaimers aside, Windows 7′s success is no fluke.

A three-quarters majority – 73 percent of the 400+ respondents to the latest joint Sunbelt Software/ITIC poll, gave Windows 7 an “excellent,” “very good” or “good” rating.
That’s very close to the 80 percent majority of beta and early adopters who gave the Windows 7 the same high marks in the 2009 survey. The latest responses, coming after corporations have used Windows 7 in production for a full year, provides the best evidence that the Microsoft operating system is living up to the hype and fulfilling business’ needs. Only a small three percent minority of survey respondents gave Windows 7 a “Poor” and/or “Unsatisfactory” rating.
And a 72 percent majority of survey participants say they have already deployed, are in the process of deploying or will shortly deploy Windows 7. Only 7 percent of those polled indicated that they are “unlikely” to deploy Windows 7 at all and none of the respondents said they plan on switching to a rival operation system.
Lack of funds was the chief reason cited by the remaining 21 percent of respondents who said they have no definitive plans to upgrade to Windows 7 over the next 12 months. Anecdotal user comments confirmed that many companies are still in the grip of a recession and will wait until they upgrade their desktop hardware to migrate to Windows 7.
Windows XP is still the most widely deployed desktop OS – with 90 percent of the respondents indicating it was present in their shops. But Windows 7 is catching up quickly: 83 percent of those polled say they’ve deployed Windows 7 compared to only 37 percent who have Windows Vista.
Interestingly, the Apple Mac is the most popular non-Windows operating system as mainstream enterprises continue to adopt it. According to our poll, Apple Macs are present in 28 percent of your networks – which is three times more than the two most popular Linux and open source operating system distributions. Nine percent of survey respondents indicated they use Red Hat Linux and Ubuntu – the latter of which has made steady gains in the last two years.
Among large enterprises, IBM’s AIX was clearly the most popular UNIX distribution, besting both HP UX and Sun Solaris (now owned by Oracle) by a 2 to 1 margin.
Nearly two-thirds or 60% of you indicated you will deploy Windows 7; 30% of you say you’ll migrate to the new Microsoft desktop operating system within the first six months while another 30% say intend to make the transition sometime within the year. Four out of 10 businesses – 40% — have no definitive migration timetable.

Microsoft by the Numbers
Profit Margin: 30.02%
Operating Margin: 39.51%
Return on Assets: 18.82%
Return on Equity: 43.76%
Revenue: $62.48B

Quarterly Revenue Growth: 22.40%
Gross Profit: $50.09B
Quarterly Earnings Growth: 48.40%
Total Cash: $36.56B

Total Debt: $5.97B

Source: Capital IQ

Instead, many industry experts and observers paint a grim picture of the 35 year-old Microsoft in a midlife crisis, well past its prime and unable to compete in new and emerging markets like smart phones, search engines, online search and advertising and the cloud against edgier rivals, most notably Apple and Google. Recent articles have made much of the fact that Microsoft garners far fewer headlines these days – about one-third to one-half as many mentions – as Apple, Dell, Google, Hewlett-Packard, IBM, Oracle, Research in Motion (RIM) and VMware to name a few.
Press of course, is relative, depending on the type of news one is generating. Still the prevailing sentiments in the news business are that “No news is not good news” and “It’s better to be damned than ignored.”
Microsoft executives are no doubt grateful that for a change, they are not one of the headliners in the increasingly vitriolic verbal volleyball that characterizes HP and Oracle’s disintegrating partnership. Similarly, press reports about Microsoft and its executives have been remarkably devoid of scandals – such as those that have recently rocked the HP board of directors.
That then begs the question, if Microsoft’s financials are so rosy, its core Windows and Office products in the black and thriving, why then are some industry observers writing the company’s epitaph?
A Tale of Two Microsoft’s
The answer of course, is that while the numbers aren’t lying, they don’t tell the whole story. For all intents and purposes, there are two Microsoft’s: one is the company that exists in reality and the other exists in the public’s perception. And the two Microsoft’s are indivisible.
The reality is Microsoft’s core businesses – Windows and Office continue to thrive – for now. The industry however, is inexorably changing. It is morphing from a fixed premises, subscription-based licensing model that has been the foundation of Microsoft’s astounding success and dominance over the past three decades to an increasingly mobile workforce that uses smart phones (Blackberry, iPhone, Android et al); tablets (the Apple iPad) and free Email and applications (Google Mail, Google Docs) to stay connected. In these emerging environments, Microsoft is playing catch-up and struggling to stay relevant as rivals like Google and Apple continually assault its core applications businesses.
It doesn’t help Microsoft’s case when high level executives decide to exit the company “to pursue other interests.” Chief Software Architect, Ray Ozzie, the iconic developer of Lotus Notes, is the latest high profile departure. Ozzie, who was touted as Bill Gates’ successor as Chief Software Architect, announced earlier this week that he was leaving Microsoft. No departure date has been publicly announced and until he exits Ozzie will lend his considerable talents to the entertainment division.
Ozzie’s exit follows on the heels of Robbie Bach and J. Allard’s departures earlier this year as executives in the entertainment and mobile divisions, respectively. Bach and Allard reportedly clashed with Microsoft chief executive and other executives on technology direction. Such divisions were made sharper by the flagging fortunes of Microsoft’s mobile and entertainment initiatives. After suffering the stinging embarrassment of pulling its KIN 1 and KIN 2 phones off the market on June 30, a scant six weeks after the product debuted to near non-existent sales.
The company is now regrouping around the Windows Phone 7, which it is targeting at business users. The new Microsoft mobile OS has garnered good reviews so far, now it has got to get users onto the platform. Microsoft will reportedly spend $400 in a fall and winter marketing campaign throughout the U.S. and Europe. Microsoft has more than just money invested in Windows Phone 7’s success. If it fails to gain tangible and significant traction, Microsoft may effectively be shut out of the lucrative but increasingly competitive and crowded smart phone arena.
Microsoft has other definite challenges – and they are daunting ones. It must:
• Make more headway in the search market. Bing is a very good search engine and does have traction. The latest statistics released by ComScore earlier this month, show Bing with an 11.2 percent market share. However, that is far behind Google’s 66 percent.
• Clarify its Azure and BPOS cloud strategies. Microsoft has made significant strides in its cloud offerings and strategies. But its marketing is still muddy. Microsoft must craft a cogent and cohesive cloud strategy and communicate it so that it resonates with the masses of existing Windows customers and potential users.
• Retain and attract top talent. Truthfully, the number and caliber of executive departures from Microsoft over the past several years has been no better or worse than the majority of high tech firms. But Microsoft is under a microscope and is judged more harshly than most of its rivals. Many of the departures were predictable; coming after decades of tenure and after the executives in question had made millions. That said Microsoft must retain and attract top talent. Easier said than done, I know.

The biggest blow of all of course, was Bill Gates’ decision to retire from day-to-day Microsoft operations to concentrate on his philanthropic pursuits. This is great for Gates and his charities but he’s as close as you get to the indispensable man. Remember how Apple’s stock stumbled when speculation was rampant during 2009 about Steve Jobs’ health? Microsoft has also taken a beating in the press with rumors that Ballmer may leave or be forced out of the top spot. The truth is every high tech firm needs a visible face like Jobs at Apple, the triumvirate of Larry Page, Sergey Brin and Eric Schmidt at Google and of course, Larry Ellison at Oracle. Right now, there are no obvious successors or heirs apparent to Gates or Ballmer. For Microsoft’s sake Ballmer should stay at the helm for the time being.
Despite Microsoft’s issues, it would be a big mistake to write the company off. There are lots of positives. They include:
• Revenue and entrenched market share and continued dominance in the Windows and Office markets which should continue for the next several years.
• The Xbox Kinect and Windows Phone 7 appear to be gaining real traction.
• Broad, deep portfolio of cloud products which has shown impressive growth in the past 12 months.
• Robotics: Microsoft is also a pioneer in another crucial emerging market: robotics. Microsoft’s Surface is a multi-touch, combination hardware/software product that enables users to manipulate digital content via gesture recognition, such as hand signals or real world objects. Available since 2008, it has racked up some impressive wins and is in use at Disneyland’s Tomorrowland, select Sheraton Hotels and Harrah’s Entertainment.
• Security and Reliability improvements in the core Windows products. Microsoft’s 2002 Trustworthy Computing Initiative has been a rousing success. According to the National Institute of Standards and Technology’s (NIST) Common Vulnerability and Exposures Database (CVE) SQL Server is the most secure of the major database platforms, with the fewest number of reported vulnerabilities associated with the platform since 2002. And the results from the ITIC 2010-2011 Global Server Hardware and Server OS Reliability survey indicate that 86 percent of respondents rate the security of Windows Server 2008 and Windows Server 2008 R2 as either “Excellent” or “Very Good.” Similarly, 50 percent of survey participants indicated that Windows Server security has “improved significantly” while 24 percent say it has “improved somewhat” over the last three years. At the same time, none of the survey participants indicated they were contemplating wholesale defections to rival platforms, although the number of individual users deploying Apple Macs and iPads is on the rise.

There is no question that Microsoft will survive and continue to thrive in its core markets. The looming question is can Microsoft get its groove back to aggressively mount a challenge to Apple, Google et al, in the lucrative mobile, online, entertainment and cloud markets. It must go back to its roots and aggressively play to its strengths. Microsoft’s $36.56 billion in cash should buy a lot of advertising and a lot of talent.

Regardless of the settlement, the underlying reasons that HP said it filed suit against Hurd for taking the Oracle co-Presidency: “…In his new position, Hurd will be in a situation in which he cannot perform his duties without necessarily using and disclosing HP’s trade secrets,” still exist.

Hurd and Oracle are highly unlikely to steal any of HP’s IP with respect to specific products and engineering. But there’s a lot of gray area surrounding IP and what types of knowledge are already in the public domain. You’d better believe that both HP and Oracle have set up war rooms in their respective boardrooms.
Make no mistake; there will be casualties of war.
And to quote the African proverb, the blades of grass in this fight are the respective customers, third party suppliers as well as the sales and distribution channels that support the enormous HP and Oracle ecosystems.
According to International Data Group (IDC) statistics, HP is the world’s largest technology company by revenue, and the top PC and server vendor and Oracle is the world’s third-largest software company.
HP and Oracle by the Numbers
On paper HP and Oracle appear evenly matched. The notable exception is in revenues, even after a five year multi-billion buying spree, Oracle sales still trail significantly behind HP.

From Collaborative to Competitive
Until recently the two firms did not compete head-on. Though HP and Oracle’s management and styles were/ worlds apart, their partnership thrived despite such differences.
Oracle is defined by the brash Ellison, while HP executives take a low-key and platform agnostic approach to most high tech competitors excepting IBM. For years Oracle and HP were bound by their mutual rivalry albeit in different product arenas – Oracle competed fiercely with IBM’s DB2 database while HP and IBM competed in just about everything else including, PC and server hardware, as well as the lucrative services market.
After decades of publicly hurling invectives at one another, Oracle and IBM in the last several days have done an about-face and are now engaged in an almost embarrassing display of public affection. This love fest would truly be gag-worthy if not for the realization that Big Blue and Oracle don’t hate each other any less; at this point in time they just loathe HP more. It’s truly a case of: “the enemy of my enemy is my friend.”
IBM chief executive Sam Palmisano decided to seize the opportunity to blast HP, publicly castigating them in a September 15 Wall Street Journal interview. Palmisano gave a detailed litany of HP’s faux pas. They included mishandling Hurd’s ouster by giving him a $40 million+ severance package which he said was “not a good use of shareholder money”; allowing Hurd to slash HP’s research and development budget to $2.8 billion – just 2.5 percent of total revenue and for getting in a bidding war with Dell over the acquisition of virtualization storage vendor 3Par and paying more that what it’s worth. Palmisano’s most acerbic statement was that HP was in such a weakened state that IBM no longer considered them a competitor. Not true of course, but it stings just the same.
It was Ellison and Hurd’s turn to heap praise on IBM during the Oracle September 16 earnings call. Ellison called IBM “a great services partner,” and said his partnership with IBM is “absolutely critical.” Ellison positively gushed while observing that “IBM’s mainframes add value because they aren’t commodity boxes and serve a real need.”
HP has remained characteristically mum about Palmisano’s and Ellison’s comments but it is undoubtedly plotting a counter attack. .
Collaboration and “co-opetition” between HP and Oracle may exist on paper and publicly but there is open enmity behind the scenes.
Merger Mania
The reality is that all of the top tier high technology vendors are on a collision course with one another spurred on by the need to grow by acquisition rather than organically. In a challenging economy it’s a dog-eat-dog fight for corporate and consumer monies.
Consider this: In the last six years Oracle’s Ellison has spent as much on mergers and acquisitions – over $40 billion (including the January acquisition of Sun Microsystems for $5.9 billion) – as the company’s profits over a 30 year span. In Ellison’s grand strategy scheme, the moves make sense because a bigger Oracle can more equally compete with the likes of IBM and SAP. HP is keeping pace with Oracle in the M&A sweepstakes – having bought Compaq, EDS, 3Com and most recently swooping down and outbidding Dell Computer for virtualization storage company 3Par for $2.4 billion and security vendor ArcSight for $1.5 billion. And now HP is in a bidding war with IBM to buy Israeli based Radware which makes application delivery, application security solutions and load-balancing switches.
Winners and Losers
Corporate customers are the biggest and most immediate potential losers. Partnerships, mergers and acquisitions may look like a game of Monopoly on paper but there’s a lot at stake. Even the best of circumstances – an amicable and well planned purchase with little or no product overlap – there’s a certain amount of disruption that follows an acquisition. In these cases, it takes six months to a year to integrate and assimilate an acquired firm into the fold. Oracle’s acquisition of Sun Microsystems which includes Sun’s SPARC server hardware, Solaris operating system and the open source MySQL database has a lot of users concerned about the future of those product lines, despite the company’s public reassurances.
And while few distributors or users will go on the record, many of them are understandably nervous about the potential ramifications when their major hardware infrastructure and software vendors fall out.
Imagine you’re the CEO, CIO, CTO or VP of IT who has to make purchasing decisions for the next three-to-four year upgrade cycle. Can you trust that HP and Oracle have truly made up? Or are worried about when hostilities between the two will break out again and that your firm might get caught in the crossfire? Can you trust the promises of your vendor(s) to retain an acquired firm’s product portfolio? And even if they do, will the top engineers and product managers from a company like Sun (to cite just one example) remain with the company post-acquisition? Will the licenses carry over or will your organization face steep price hikes in volume licensing? Service and support is another big issue in a post merger entity. Once again, corporate customers are wise to ponder potential changes.
Organizations also get rightfully nervous that their vendors will get distracted by the public wrangling and potential lawsuits. These issues frequently lead to product delays and quality issues. Oracle is the world’s Number One database vendor and the Oracle database also has the dubious distinction of being the platform with the most security flaws. According to the National Institute of Standards and Technology (NIST), the government agency tasked with monitoring security vulnerabilities, it recorded a whopping 321 security vulnerabilities associated with the Oracle database from January 2009 through June 2010. That’s six times more than the 49 vulnerabilities Microsoft’s SQL Server notched and nearly triple the 121 security vulnerabilities recorded by IBM’s DB2 database during the same eight and a half year period. Though there’s no proof of a connection, the security issues associated with Oracle’s database spiked sharply in 2006 – around the same time, the company embarked on its merger and acquisition campaign and they’ve remained elevated over the past four years.
Though reluctant to speak on the record, corporate customers and distributors have some trepidation about the impact of the growing competition between HP and Oracle, even though the immediate crisis appears to be over. If you have concerns, now is the time to voice them and also exercise your right to comparison shop. Speak frankly with your sales representatives and resellers. Use the confusion to your advantage to negotiate for better terms and conditions.
The biggest potential winners in this fight are HP and Oracle competitors. IBM, Dell and other hardware vendors have been openly wooing Sun’s SPARC and Solaris customers ever since Oracle first announced its intention to purchase Sun. Those efforts will continue unabated. IBM and Microsoft executives are also undoubtedly contemplating special sales promotions to lure customers away from the Oracle and MySQL database platforms.
IBM’s Palmisano was right about one thing: HP seriously erred when it slashed its R&D budget to just 2.5 percent of annual revenue. It should rectify that immediately.
There’s another apt African proverb: “When the music changes, so does the dance.” And when it comes to vendors, there’s no such thing as a permanent partner.

The correct answer is Microsoft’s SQL Server. In fact, the Oracle database has recorded the most number of security vulnerabilities of any of the major database platforms over the last eight years.

This is not a subjective statement. The data comes directly from the National Institute of Standards and Technology.

Since 2002, Microsoft’s SQL Server has compiled an enviable record. It is the most secure of any of the major database platforms. SQL Server has recorded the fewest number of reported vulnerabilities — just 49 from 2002 through June 2010 — of any database. These statistics were compiled independently by the National Institute of Standards and Technology (NIST), the government agency that monitors security vulnerabilities by technology, vendor, and product (see Exhibit 1). So far in 2010, through June, SQL Server has a perfect record — no security bugs have been recorded by NIST CVE.

And SQL Server was the most secure database by a wide margin: Its closest competitor, MySQL (which was owned by Sun Microsystems until its January 2010 acquisition by Oracle) recorded 98 security flaws or twice as many as SQL Server.

By contrast, during the same eight-and-a-half year period spanning 2002 through June 2010, the NIST CVE recorded 321 security vulnerabilities associated with the Oracle database platform, the highest total of any major vendor. Oracle had more than six times as many reported security flaws as SQL Server during the same time span. NIST CVE statistics recorded 121 security-related issues for the IBM DB2 platform during the past eight-and-a-half years.

Solid security is an essential element for many mainstream line-of-business (LOB) applications, and a crucial cornerstone in the foundation of every organization’s network infrastructure. Databases are the information repositories for many organizations; they contain much of the sensitive corporate data and intellectual property. If database security is compromised, the entire business is potentially at risk.

SQL Server’s unmatched security record is no fluke. It is the direct result of significant Microsoft investment in its Trustworthy Computing Initiative, which the company launched in 2002. In January of that year, Microsoft took the step of halting all new code development for several months across its product lines to scrub the code base and make its products more secure.

The strategy is working. In the past 21 months since January 2009, Microsoft has issued only eight (8) SQL Server security-related alerts. To date in 2010 (January through June), there have been no SQL Server vulnerabilities recorded by Microsoft or NIST. Microsoft is the only database vendor with a spotless security record the first six months of 2010.

ITIC conducted an independent Web-based survey on SQL Server security that polled 400 companies worldwide during May and June 2010. The results of the ITIC 2010 SQL Server Security survey support the NIST CVE findings. Among the survey highlights:
• An 83% majority rated SQL Server security “excellent” or “very good” (see Exhibit 2, below).
• None of the 400 survey respondents gave SQL Server security a “poor” or “unsatisfactory” rating.
• A 97% majority of survey participants said they experienced no inherent security issues with SQL Server.
• Anecdotal data obtained during first-person customer interviews also elicited a very high level of satisfaction with the embedded security functions and capabilities of SQL Server 7, SQL Server 2000, SQL Server 2005, SQL Server 2008, and the newest SQL Server 2008 R2 release. In fact, database administrators, CIOs and CTOs interviewed by ITIC expressed their approbation with Microsoft’s ongoing initiatives to improve SQL Server’s overall security and functionality during the last decade starting with SQL Server 2000.

Strong security is a must for every organization irrespective of size or vertical industry. Databases are among the most crucial applications in the entire network infrastructure. Information in databases is the organization’s intellectual property and life blood.

Databases are essentially a company’s electronic filing system. The information contained in the database directly influences and impacts every aspect of the organization’s daily operations including relationships with customers, business partners, suppliers and its own internal end users. All of these users must have the ability to quickly, efficiently and securely locate and access data. The database platform must be secure. An insecure, porous database platform will almost certainly compromise business operations and by association, any firm that does business with it. Any lapses in database security, including deliberate internal and external hacks, inadvertent misconfiguration, or user errors can mean lost or damaged data, lost revenue, and damage to the company’s reputation, raising the potential for litigation and loss of business.

It’s also true that organizations bear at least 50 percent of the responsibility for keeping their databases and their entire network infrastructures secure. As the old proverb goes, “The chain is only as secure as its weakest link.” Even the strongest security can be undone or bypassed by user error, misconfiguration or weak computer security practices. No database or network is 100 percent hack-proof or impregnable.Organizations should consult with their vendors regarding any questions and concerns they may have about the security of ANY of their database platforms. They should also ensure they stay updated with the latest patches and install the necessary updates. Above all, bolster the inherent security of your databases with the appropriate third party security tools and applications. Make sure your organization strictly adheres to best computer security computing practices. At the end of the day only you can defend your data.

Registered ITIC site users can Email me at: ldidio@itic-corp.com for a copy of the full report.

One of the biggest challenges facing Microsoft and its customers as it stands on the cusp of what Bob Muglia, president of Microsoft’s Server & Tools Business (STB) unit characterized as a “major transformation in the industry called cloud computing,” is how the Redmond, Wash. software giant will license its cloud offerings.

Licensing programs and plans—even those that involve seemingly straightforward and mature software, PC- and server-based product offerings—are challenging and complex in the best of circumstances. This is something Microsoft knows only too well from experience. Constructing an equitable, easy-to-understand licensing model for cloud-based services could prove to be one of the most daunting tasks on Microsoft’s Azure roadmap.

It is imperative that Microsoft proactively address the cloud licensing issues now, and Microsoft executives are well aware of this. During the Q&A portion of one cloud-related TechEd session, Robert Wahbe, corporate vice president, STB Marketing was asked, “What about licensing?” He took a sip from his water bottle and replied, “That’s a big question.”

That is an understatement.

Microsoft has continually grappled with simplifying and refining its licensing strategy since it made a major misstep with Licensing 6.0 in May, 2001, where the initial offering was complex, convoluted and potentially very expensive. It immediately met with a huge vocal outcry and backlash. The company was compelled to postpone the Licensing 6.0 launch while it re-tooled the program to make it more user-friendly from both a technical and cost perspective.

Over the last nine years, Microsoft’s licensing program and strategy has become one of the best in the high-technology industry. It offers simplified terms and conditions (T&Cs); greater discounts for even the smallest micro SMBs and a variety of add-on tools (e.g. licensing compliance and assessment utilities), as well as access to freebies, such as online and onsite technical service and training for customers who purchase the company’s Software Assurance (SA) maintenance and upgrade agreement along with their Volume Licensing deals.

Licensing from Premises to the Cloud
Microsoft’s cloud strategy is a multi-pronged approach that incorporates a wide array of offerings, including Windows Azure, SQL Azure and Microsoft Online Services (MOS). MOS consists of hosted versions of Microsoft’s most popular and widely deployed server applications, such as Exchange Server, PowerPoint and SharePoint. Microsoft’s cloud strategy also encompasses consumer products like Windows Live, Xbox Live and MSN.

Microsoft is also delivering a hybrid cloud infrastructure that will enable organizations to combine premises-based with hosted cloud solutions. This will indisputably provide Microsoft customers with flexibility and choice as they transition from a fixed-premises computing model to a hosted cloud model. In addition, it will allow them to migrate to the cloud at their own pace as their budgets and business needs dictate. However, the very flexibility, breadth and depth of offerings that make Microsoft products so appealing to customers, ironically, are the very issues that increase the complexity and challenges of creating an easily accessible, straightforward licensing model.

Dueling Microsoft Clouds: Azure vs. BPOS
Complicating matters is that Microsoft has dueling cloud offerings; the Business Productivity Online Suite (BPOS) and the Windows Azure Platform. As a result, Microsoft must also develop, delineate and differentiate its strategy, pricing and provisions for Azure and BPOS. It’s unclear (at least to this analyst) as to when and how a customer will choose one or mix and match BPOS and Azure offerings. Both are currently works in progress.

BPOS is a licensing suite and a set of collaborative end-user services that run on Windows Server, Exchange Server, and SQL Server. Microsoft offers the BPOS Standard Suite, which incorporates Exchange Online, SharePoint Online, Office Live Meeting, and Office Communications (OCS) Online. The availability of the latter two offerings is a key differentiator that distinguishes Microsoft’s BPOS and rival offerings from Google. Microsoft also sells the BPOS Business Productivity Online Deskless Worker Suite. It consists of Exchange Online Deskless Worker, SharePoint Online Deskless Worker and Outlook Web Access Light. This BPOS package is targeted at SMBs, small branch offices or companies that want basic, entry-level messaging and document collaboration functions.

By contrast, Azure is a cloud platform offering that contains all the elements of a traditional application stack from the operating system up to the applications and the development framework. It includes the Windows Azure Platform AppFabric (formerly .NET Services for Azure), as well as the SQL Azure Database service.

While BPOS is aimed squarely at end users and IT managers, Azure targets third-party ISVs and internal corporate developers. Customers that build applications for Azure will host it in the cloud. However, it is not a multi-tenant architecture meant to host your entire infrastructure. With Azure, businesses will rent resources that will reside in Microsoft datacenters. The costs are based on a per-usage model. This gives customers the flexibility to rent fewer or more resources, depending on their business needs.

Cloud Licensing Questions
Any cloud licensing or hybrid cloud licensing program that Microsoft develops must include all of the elements of its current fixed premises and virtualization models. This includes:

1. Volume Licensing: As the technology advances from fixed premises software and hardware offerings to private and public clouds, Microsoft must find ways to translate the elements of its current Open, Select and Enterprise agreements to address the broad spectrum of users from small and midsized (SMBs) companies to the largest enterprises with the associated discounts for volume purchases.
2. Term Length: The majority of volume license agreements are based on a three-year product lifecycle. During the protracted economic downturn, however, many companies could not afford to upgrade. A hosted cloud model, though, will be based on usage and consumption, so the terms should and most likely will vary.
3. Software Assurance: Organizations will still need upgrade and maintenance plans regardless of where their data resides and whether or not they have traditional subscription licensing or the newer consumption/usage model.
4. Service and Support: Provisions for after-market technical services, support and maintenance will be crucial for Microsoft, its users, resellers and OEM channel partners. ITIC survey data indicates that the breadth and depth of after-market technical service and support is among the top four items that make or break a purchasing deal.
5. Defined areas of responsibility and indemnification: This will require careful planning on Microsoft’s part. Existing premises-based licensing models differ according to whether or not the customer purchases their products directly from Microsoft, a reseller or an OEM hardware manufacturer. Organizations that adopt a hybrid premises/cloud offering and those that opt for an entirely hosted cloud offering will be looking more than ever before to Microsoft for guidance. Microsoft must be explicit as to what it will cover and what will be covered by OEM partners and/or host providers.

Complicating the cloud licensing models even further is the nature of the cloud itself. There is no singular cloud model. There may be multiple clouds, and they may be a mixture of public and private clouds that also link to fixed premises and mobile networks.

Among the cloud licensing questions that Microsoft must address and specifically answer in the coming months are:

• What specific pricing models and tiers for SMBs, midsize and enterprises will be based on a hybrid and full cloud infrastructures?
• What specific guarantees if any, will it provide for securing sensitive data?
• What level of guaranteed response time will it provide for service and support?
• What is the minimum acceptable latency/response time for its cloud services?
• Will it provide multiple access points to and from the cloud infrastructure?
• What specific provisions will apply to Service Level Agreements (SLAs)?
• How will financial remuneration for SLA violations be determined?
• What are the capacity ceilings for the service infrastructure?
• What provisions will there be for service failures and disruptions?
• How are upgrade and maintenance provisions defined?

From the keynote speeches and throughout the STB Summit and TechEd conference, Microsoft’s Muglia and Wahbe both emphasized and promoted the idea that there is no singular cloud. Instead, Microsoft’s vision is a world of multiple private, public and hybrid clouds that are built to individual organizations’ specific needs.

That’s all well and good. But in order for this strategy to succeed, Microsoft will have to take the lead on both the technology and the licensing fronts. The BPOS and Azure product managers and marketers should actively engage with the Worldwide Licensing Program (WWLP) managers and construct a simplified, straightforward licensing model. We recognize that this is much easier said than done. But customers need and will demand transparency in licensing pricing, models and T&Cs before committing to the Microsoft cloud.

• The Microsoft Virtual Desktop Access (VDA) License Plan. Organizations that use Thin Client devices which are not included or covered under Microsoft’s SA maintenance plan, can now purchase the VDA licenses at a retail price of $100 per device per annum. This targets end users who travel or telecommute and need to use personal devices or public networks to access their corporate data. Microsoft also made another move towards simplifying its virtualization licensing plan. Starting July 1, Microsoft SA customers will no longer be required to purchase a separate license to access Windows via a VDI.
• The “Rescue for VMware VDI” (the name says it all) this promotion is a direct attack on VMware. Like the VDI Kick Start program it runs from March 18 through December 31, 2010. Under the terms of this deal, any Microsoft Software Assurance licensing/maintenance customer can replace their existing VMware View licenses for free. VMware View users who opt out of that platform in favor of the Citrix and Microsoft offerings will receive up to 500 XenDesktop VDI Edition device licenses and up to 500 Microsoft VDI Standard Suite device licenses free for an entire year once they trade in their VMware View licenses.
Dai Vu, Microsoft’s director of virtualization marketing said the announcements were all about delivering more value to desktop customers and simplifying and extending organizations’ licensing rights.
The Citrix/Microsoft announcements also cement the close working partnership and the “enemy of my enemy is my friend” relationship the firms have enjoyed for many years. By bundling their respective VDI offerings together, the two companies should also ensure integration and interoperability which are crucial components for each and every layer in a virtualized data center environment.
VMware and EMC: Not Standing Still
VMware and EMC executives have yet to publicly respond to the Microsoft/Citrix initiatives. However, it’s almost certain that VMware will have to offer its current and prospective VDI accounts incentives to counter the Microsoft/Citrix alliance. Cash strapped corporations and IT departments are all on the lookout for top notch products at bargain basement prices. And it doesn’t get much better for customers than the free Rescue for VMware VDI program.
VMware built up a commanding lead in the server virtualization arena over the last five years by virtue of being first to market and delivering leading edge features and performance in its signature ESX Server product. VMware’s competitors have spent the last several years playing catch up in server virtualization. This allowed VMware to charge a premium price for its premier offerings. Depending on the size and scope of the individual organization’s server virtualization deployment, customers paid on average 35% to as much as 75% higher for VMware server-based offerings. There were surprisingly few complaints.
The emerging VDI and application virtualization markets are a different story. Only about 5% to 8% of organizations worldwide have fully virtualized their desktop infrastructure. So it’s too soon to declare a clear market winner. It’s safe to say that Citrix, Microsoft and VMware are all market leaders in this segment. This time around though, Microsoft and Citrix are determined not to let VMware and EMC run away with the race by building an insurmountable lead.
Meanwhile, VMware and EMC have not been idle. Former Microsoft executive Paul Maritz succeeded VMware founder Diane Greene following her 2008 departure as the company’s president and chief executive officer. Since then he has made tangible moves to bolster VMware’s position in the VDI and application virtualization arenas. Maritz and EMC CEO Joe Tucci make a formidable combination, as do EMC and VMware. EMC purchased VMware in 2004 for $635 million and it owns an 86% majority stake in the server virtualization market leader. In the past several years, VMware’s fortunes and revenues have risen faster than EMC’s. VMware’s year-over-year (YoY) quarterly revenue growth stands at 18.20% compared with EMC’s modest 2.10% Y0Y quarterly sales. Another key indicator is net earnings and in this regard, VMware experienced negative YoY quarterly earnings growth of -49.4 0% . By contrast its parent EMC recorded a very robust and positive 44.70% jump in YoY quarterly earnings. It is also worth noting that VMware’s annual revenues of $2.02 billion represent only 15% of EMC’s annual sales of $14.03 billion. And to date, EMC’s solutions have only been related tangentially to VMware’s VDI products. For practical purposes, this may continue to be the case. From a PR standpoint though, EMC and VMware are presenting themselves as a sort of virtualization “dynamic duo.”
At an EMC Analyst event at the company’s Hopkinton, MA headquarters on March 11, Pat Gelsinger, president of EMC’s Information Infrastructure Products group described the combination of EMC and VMware – specifically with respect to storage virtualization, virtualization management and private cloud infrastructures — as the “Wild West” of the virtualization market, saying “we want to be disruptive and change the way people fundamentally think of IT.” Though Gelsinger mainly confined his comments to EMC’s core bailiwick in the storage arena, it is clear that EMC and VMware are pro-actively presenting a united front.
In February, the two firms moved to reposition some of their assets; EMC and VMware inked a deal for VMware to acquire certain software products and expertise from EMC’s Ionix IT management business in an all cash deal for $200 million. EMC does retain the Ionix brand and gets full reseller rights to continue to offer customers the products acquired by VMware. Maritz said VMware’s acquisition of the Ionix products and expertise promises to further establish VMware vCenter as the next generation management platform for private cloud infrastructures.
The agreement also calls for VMware to take control of all the technology and intellectual property of FastScale, which EMC acquired in 2009. The FastScale Composer Suite incorporates integrated software management tools to enable organizations to maintain peak performance in a virtualized environment.
Also, recently, VMware introduced ThinApp 4.5, a new version of its application virtualization package designed to simplify enterprises’ migration to Windows 7.
End Users are the Biggest Winners
What makes the latest competition for VDI market dominance noteworthy is the extreme actions the combatants are willing to take in order to retain and gain customers’ at their rivals expense. With last week’s joint announcements and deepening partnership, Citrix and Microsoft have signaled their intention to lead but it’s still too early to call the race.
The joint Microsoft/Citrix initiatives to cut costs and simplify virtualization licensing plans remove two of the more significant barriers to VDI adoption. The largest looming challenge remains the willingness of corporations to embrace a new technology model as their organizations and IT departments continue to grapple with the lingering effects of the ongoing economic crunch. In this regard, all of the virtualization vendors in concert with OEM hardware vendors like Dell, Hewlett-Packard, IBM, Stratus Technologies and Wyse who partner with them must convince customers that transitioning to VDI will provide tangible Total Cost of Ownership (TCO) and Return on Investment (ROI) benefits. This entails providing organizations with the necessary guidance – including tools, training, documentation, Best Practices and solid technical service and support – to ensure that a conversion to VDI can be accomplished with minimal disruption. Admittedly, this is a tall order.
Hardware vendors like Dell, HP, IBM et al all have a stake in the future success of the VDI market. Organizations that migrate to VDI will seek to upgrade to newer, more powerful desktops (PCs, notebooks) and servers, which in turn, potentially boosts the hardware vendors’ individual and collective bottom lines. Additionally, both HP and IBM boast huge service and support organizations, which also stand to benefit from an uptick in VDI adoptions. So the hardware vendors have every reason to partner with Citrix, Microsoft and VMware to promote and expand the VDI market segment. Regardless of which vendor(s) prevails, the biggest winners will be the customers. When several big name vendors vie for the hearts, minds and wallets of customers, it usually means that feature-rich, reliable products get to market sooner at more competitive prices. Let’s hope the VDI race is a long one.

To recap, HP and Microsoft said they will invest $250 million into their Frontline Partnership. The deal aims to deliver full, integrated stacks that support Microsoft’s Exchange Server and SQL Server, including management, virtualization and cloud implementations. The resulting product offerings will consist of pre-packaged application solution bundles that incorporate the aforementioned management and virtualization capabilities. The two companies said the pact calls for them to partner on engineering, R&D, marketing and channel sales.
Still, the announcement left many industry watchers with more questions than answers. As my colleagues Charles King and Merv Adrian noted in their Breaking News Review in the January 14 special edition of Charles King’s Pund-IT, HP and Microsoft “have worked closely for years, share tens of thousands of common customers and channel partners and have long supported each other’s interests.”
So what’s new about this announcement? That question should be answered during the coming months. A $250 million investment is considerable even for two high technology titans. It now remains for HP and Microsoft to execute on their promise to produce solutions that thoroughly integrate the two companies’ infrastructure and applications stacks to ship pre-configured and optimized solutions for Microsoft’s Exchange Server, and SQL Server, virtualization, cloud computing converged infrastructure and pre-packaged application tools.
But perhaps the most immediate and daunting challenge is for HP and Microsoft to deliver a product roadmap that also includes specific details about the pricing, training and services the two firms will commonly deliver. Above all, companies must market and sell this deal to the legions of skeptics. The high tech industry has witnessed numerous high profile partnership deals announced amidst much industry fanfare never to be heard from after the initial press releases.
Remember the Cisco Systems/Microsoft Directory Enabled Network (DEN) initiative of the late 1990s? No. Not many people do. Announced with great fanfare, this dream team was supposed to incorporate the functionality of Microsoft’s Active Directory into Cisco routers and provide network administrators with a more comprehensive means of managing various devices on their network. In reality, the Cisco/Microsoft DEN initiative was a partnership on paper only. There are dozens of similar examples. Hence, the skepticism that greets such announcements is understandable.
This is all the more reason for HP and Microsoft executives to follow up on last week’s announcement with quick, decisive action and not just more fodder for the PR Newswire. For example, when can we expect to see the first fruits of the so-called “deeply optimized machine environment” that will provide turn-key, pre-packaged and pre-integrated server, application, networking and storage solutions? Who are the specific target users and how will they benefit? How will Microsoft and HP license and service these products? Those are just a few of the questions that need to be answered.
Non-Exclusive Partnerships Sometimes Make Strange Bedfellows
The partnership also has especially intriguing implications for HP which now has pacts in place with all of the major virtualization providers, including Microsoft’s biggest rival, and VMware. The new HP/Microsoft Application-to-Infrastructure is a non-exclusive three year partnership. It’s worth noting that HP already has a deal in place with VMware, whose ESX Server is the market leader in server virtualization. Microsoft also gets a boost from this deal. Microsoft’s Hyper-V has been gaining ground, particularly among small and mid-sized corporations. However, it has a long way to go to catch up to ESX Server’s installed base, particularly among large enterprises, so this pact helps keep Microsoft competitive. Additionally, HP also delivers a full suite of management solutions that integrates VMware’s vCenter offering with HP’s Insight management product. HP and Microsoft intend to similarly integrate HP’s Insight and Microsoft’s Systems Center. So again, this helps Microsoft broaden the appeal of its virtualization appeal to its existing base and makes it a more attractive solution for prospective customers.
The partnership with Microsoft put’s HP in the proverbial cat-bird’s seat: it now has a full line of its own servers that runs all the VMware products and similar plans to support Microsoft’s SQL Server and Exchange Server. This gives HP the ability to offer a full line of integrated hardware and services customers their choice of virtualization vendors, while remaining agnostic.
From Microsoft’s perspective, the partnership with HP also has immediate value: it allows Microsoft – at least on paper – to keep pace with VMware, by working with HP, a top OEM hardware vendor and services provider, which is no mean feat. Former Microsoft executive Paul Maritz who now runs VMware is intent on rejuvenating that company and he knows that the way to solidify and expand VMware’s influence is to increase its stake in management and applications. Just last week, VMware purchased Zimbra, the open source Email and collaboration unit of Yahoo for a rumored $100 million. Not coincidentally, Zimbra describes its Collaboration suite as the “next generation” Microsoft Exchange server.
Microsoft clearly felt the need to respond in kind.
The plethora of technology and partnership deals such the HP/Microsoft Application-to-Infrastructure pact, serve as a reminder of the intensity of the IT industry’s competitive landscape – particularly in burgeoning markets like virtualization and by extension, nascent markets like cloud computing. No vendor can afford to rest on its laurels. They must continue to upgrade their product and services offerings to keep pace with the competition.
Microsoft and VMware will continue to try and top one another, and HP is the beneficiary of this ongoing rivalry. Let’s hope the end users are also winners, too.