GartnerGroup Conference Addresses Challenging Issues Head On

Is software merely a feature of hardware? Sun Microsystemschairman Scott McNealy, always one to thumb his nose at the Microsoft model,offered up this concept at the October GartnerGroup Symposium/ITxpo in Orlando,Fla.

Ideally, applications should be wrapped up and packaged so usersdon't have to worry about installations and upgrades, he said. "Softwareis a feature, not an industry," McNealy observed. "An automobile has100 processors -- it's iron-wrapped software. When was the last time you bought'left-blinker' software?"

Steve Ballmer, president and CEO of Microsoft, could barelycontain his laughter when asked to respond to McNealy's declaration."That, my friends, is why you should steer clear of Sun! That is the mostpatently absurd thing I've ever heard in my life. Software is the thing thatlets you do ERP [enterprise resource planning]. Software is the thing that letsWeb sites talk to other Web sites."

And the Web is where these companies will fight their battles inthe coming years. The IT world is moving to a Web services infrastructure,where components, tools, and applications are available online. The leaders ofthree of the largest vendors -- Microsoft, Sun, and Hewlett-Packard (HP) --have different visions of how this will come about. Ballmer promotesMicrosoft's .NET vision -- which employs XML and SOAP to extend Microsoft solutions.McNealy, for his part, is putting forth the concept of a service he calls"Big Freaking Webtone Switch," to be delivered by 200 servicepartners. Sun customers would be able to "buy power by the hour" fora range of IT needs, from transaction processing to storage. Pricing would beincremental.

In a clear departure of its hardware strategies of the past, HP isaggressively stepping up its role as infrastructure and services provider toapplication service providers and corporations. Carly Fiorina, president andCEO of Hewlett-Packard, outlined HP's strategy to expand into IT and e-businessservices. HP will concentrate on its e-services offerings, centering around an"always-on" architecture supported by servers, storage, software, andservices.

Also addressed at the conference was a concern over Microsoftpricing. Ballmer defended Microsoft’s product pricing trends and industrypractices, emphatically rebuffing a contention put forth by Gartner analyststhat per-user costs for Microsoft server products have risen by 300 percent to500 percent in recent years. "The value we deliver in our software overthe past five years has increased. But our pricing hasn't," he said. Healso noted that software prices have risen across the industry. In many cases,additional functionality in server products has required price increases,"reflecting additional skin in the game that we require, and ourenterprise customers expect of us. We're trying to stop leakage in oursoftware," he said. "We have balanced and changed around ourlicensing terms, but the average cost has not increased by 300 to 500percent."

Analysts on the scene say there has been a definite trend towardhigher pricing. "Our view is that [price increases] are there in therevenues, you just don't know where it is," says Tom Bittman, vicepresident and analyst at GartnerGroup. "They definitely are gaining moreand more revenue from changes in their terms and conditions and licensing.Microsoft is finding ways to make more revenues over time by tightening, maybereinterpreting, maybe just changing their terms and conditions and licensingpractices."

Much of this increased pricing, however, may be coming fromMicrosoft's sales force, and not top down from Ballmer, Bittman adds. "Iwouldn't be surprised if some of this was sales driven, trying to make thenumbers."

Ballmer also noted that a highly competitive software market keepsprices at bay. "We face competition from StarOffice for Office, as well asfrom our own installed base," he added. "We don't take products withan existing definition and keep raising prices year to year. We're in acompetitive market. We have to deliver value and earn customers' business everyday."

Ballmer also defended the software giant's inclusion of its .NETstrategy in most recent product announcements over the past few months."We'd rather err on the side of being over-liberal with ourannouncements," he said, adding, "It will take a few years before wehave all of .NET rolled out." The next version of Windows -- code-namedWhistler -- will leverage .NET to a greater degree, he added. "All ourproducts are headed toward this model of new programming models, new userinterface, and new applications."

While saying that Microsoft supports open standards and protocols-- such as XML and SOAP -- Ballmer defended some of Microsoft's closely guardedindustry practices. "We need proprietary formats in our applications thatprotect our intellectual property," he said. He also defended Microsoft'spolicy of restricting customers' discussion of server performance. "Wehave good reasons for this policy," he said. "At OracleWorld, forexample, Larry Ellison tried to publish performance data that wasincorrect." Ballmer said Microsoft "has never denied any legitimate customerpermission to discuss these results." He urged any customer wishing toshare performance data to first clear it with their account representative.

Ballmer acknowledged that Linux looms as one of the company'sgreatest competitors in the near term. He said Microsoft has no plans to workwith Linux solutions at this time, even though it has taken an equity stake inCorel Corp., which has rewritten its solutions for Linux. "The Microsoftenvironment and Linux is messy enough. It's a confused environment," hesaid. Ballmer cited copyright and licensing issues as a major obstacle.However, he noted, "We've expressed a willingness to be open toLinux."

Ballmer also said he is unfazed by the software giant's currentantitrust troubles. "Certainly, on some days, it's no fun to read thenewspapers. It's like watching a ball game, and somebody scores a touchdownagainst your team." However, he said morale remains high at the Microsoftcampus, and there has been no significant change in corporate culture."Our people come to work every day to do great software," he said."We're trying to push accountability all the way back to the guys whowrite the code," he said. "The goal of Microsoft is to make productsthat add value, or people won't buy them. That's the ultimate test."

Microsoft Corp., Redmond, Wash.,

SunMicrosystems Inc., Palo Alto, Calif.,

Hewlett-PackardCo., Palo Alto, Calif.,

GartnerGroupInc., Stamford, Conn.,

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