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Microsoft Sells the Cloud at Goldman Sachs Event

Bob Muglia's talk at Goldman Sachs technology event was chock full of forward-looking statements.

• By Kurt Mackie
• 02/24/2010

Bob Muglia's talk at a Goldman Sachs technology event on Tuesday was chock full of forward-looking statements.

Muglia, president of Microsoft's Server and Tools Business, answered questions from a Goldman Sachs software analyst and the audience, mostly about Microsoft's cloud computing and virtualization business plans. The Q&A talk, which took place at the Goldman Sachs Technology and Internet Conference in San Francisco, stepped over the sort of hard numbers beloved by the number-crunching crowd.

Instead, Muglia laid out Microsoft's broad vision for emerging technology trends in the next few years. Along the way, Muglia managed to work in a few digs against Microsoft's competitors.  For instance, Muglia had no kind words for Oracle, calling it the "back to the future" company. Oracle is highly vertical and limits customer choice, he said. "Some things Oracle is doing, I just shake my head at," Muglia said. "I just don't know what they are doing with SPARC." Muglia described the SPARC processor technology, which Oracle acquired when it bought Sun Microsystems this year, as "a dying architecture."

"It's fine if they want to go off and spend a lot of money on doing it," Muglia said. "We'll just continue to sell x86 systems to our customers."

Microsoft, in contrast to Oracle, has taken a more horizontal route, he pointed out. Oracle's approach provides an opportunity for Microsoft to strengthen its partnerships, such as with HP and Dell.

Growth areas for Microsoft over the next three years will include its Windows Server and SQL Server products, Muglia explained. He added that Microsoft's management products (such as System Center) are growing strongly. Moreover, security products (such as Microsoft's Forefront suite) are becoming substantive revenue generators.

Microsoft changed its price structure to move customers toward buying more premium products, and that change has driven revenue for the company, Muglia said. Enterprise and datacenter products have grown "north of 20 percent" since the price changes were made, he added. Microsoft is also looking for a rebound in Windows desktop sales as companies upgrade from Windows XP to Windows 7. Muglia said Microsoft expects to see that happen "over the next three years."

Muglia stressed the advantages of Microsoft's Windows Azure cloud computing platform during the talk. However, he cautioned that it represents a long-term prospect for the company. Cloud computing will not be a revenue driver for Microsoft over the next three years, he said.

The important aspect about the cloud, from Microsoft's perspective, is that it will transform "the way applications are built over the next five to ten years" and "create a new model for the way hardware is built," Muglia said. Applications should always be available and be capable of scaling upward to meet an organization's needs. Microsoft is aiming to help companies transition to the cloud and it will reduce some costs along the way, such as reducing the operator-to-server ratio. Systems need to run continuously and deal with failures, and that's what the cloud does, Muglia explained.

When pressed on the question of profit margins from cloud computing, Muglia said that Microsoft would be able to extract profits by providing value-added services. Windows Azure is a platform-as-a-service play, he said. It's a step above cloud computing leader Amazon.com's EC2 offering, he suggested.  "Amazon, in contrast, really provides a raw virtual machine and it's roll-your-own after that," Muglia said.

Lastly, Muglia answered a lot of questions about desktop virtualization, or the virtual desktop infrastructure (VDI) server computing model. He was very clear that companies should not engage in desktop virtualization to save money. Instead, the principal benefits of VDI include security and control, Muglia said. Additionally, few companies currently use VDI. Muglia said that about 1 percent of desktop virtualization is happening in the enterprise.

Muglia slammed virtualization leader VMware for suggesting that VDI saves organizations money. He said that studies do not back up such claims. There are some hardware savings, but the costs associated with managing desktops for users is the same, he said. VDI entails higher power costs as servers are built out in datacenters. Muglia also dismissed the idea of VDI for mobile use.

"The other point I'll continue to make is you don't use VDI for portables. So, for mobile workers, VDI is not a viable solution," Muglia said.

Muglia also claimed that in side-to-side comparisons between Microsoft's Hyper-V and virtualization offerings from VMware that Microsoft has a "90 percent win rate." Microsoft, although behind VMware, has a "substantial advantage" in the small-to-medium business segment, he asserted.

An audio recording of Muglia's talk can be accessed here, and a transcript (Word document) can be downloaded, too.