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Exec: Microsoft Plans to 'Cloud Optimize Every Business'

In Microsoft's last fiscal third quarter, Server and Tools delivered $4.57 billion in revenue to the company, up 14 percent. The division is large, growing and increasingly profitable.

• By Kurt Mackie
• 05/10/2012

The entire IT industry is moving at breakneck speed to the cloud, and Microsoft is at the front of the pack, says a Microsoft executive.

Bob Kelly, a corporate vice president on Microsoft's Windows Azure marketing team, dished out plenty of stats to back up his claims. He spoke mostly about Microsoft's Server and Tools business at the Bank of America Merrill Lynch Technology Conference in San Francisco (audio recording here).

In Microsoft's last fiscal third quarter, Server and Tools delivered $4.57 billion in revenue to the company, up 14 percent. The division is large, growing and increasingly profitable, according to Kelly, adding that "up until a year ago, no one asked us about Server and Tools business."

The Server and Tools business consists of three elements, including efforts around the private cloud (System Center plus Windows Server), the data platform (SQL Server) and the public cloud (Windows Azure), Kelly explained.

Moving to the Cloud
Kelly said that "our strategy is to cloud optimize every business." In addition, Microsoft is increasingly moving its software technologies into the Windows Azure cloud.

"Microsoft has first-party services that are delivered as services: Office 365, Microsoft Dynamics CRM Online and Windows Intune are our first-party software-as-a-service offerings," Kelly said. "Increasingly, those are being built onto the Windows Azure platform directly. For example, MS CRM by the end of 2012 will be a native application on Windows Azure; Office 365 takes technical dependencies today, including the Azure Active Directory service -- it takes dependencies today and, over time, more and more of it will be built on the Windows Azure platform."

While Kelly said that "MS CRM" will be a native application on Windows Azure by the end of this year, veteran Microsoft observer Mary Jo Foley believes he misspoke and meant to say that Dynamics ERP will be on Windows Azure. Many of Microsoft's newer Dynamics products are expected to appear in the fourth quarter of this year, and the company plans to cloud-enable Microsoft Dynamics NAV 2013 and Microsoft Dynamics GP 2013 at that time. Dynamics CRM Online is already offered as a hosted service.

No exact stats on Windows Azure were provided, but Kelly provided some generalities. He said that Microsoft's cloud platform "today is running more servers than the entire planet did in 1999." He added that Windows Azure over the last six months has had "a doubling of storage consumption" and "a doubling of compute capacity." He claimed that Microsoft has seen "nearly 60 percent growth in subscription of Windows Azure in the last six months."

When pinned down on the subscription numbers via an audience-generated question, Kelly said that "we have tens of thousands of customers on the [Windows Azure] platform today and we're adding hundreds a day." He said that the figure was in the "high" tens of thousands.

As a platform-as-a-service offering, Microsoft's strategy with Windows Azure is to help bring the .NET Framework and Java to the public cloud for developers, Kelly said. Developers just want to build apps and forget about the infrastructure, so Microsoft is "meeting developers where they are and we will support any app development environment to support that." He claimed that there are "five million .NET developers on the planet."

Also on the cloud strategy front is Microsoft's next service update to Dynamics CRM Online. Kelly didn't mention it, but Microsoft plans to add native mobile CRM support across different platforms with its next update. Microsoft has indicated that its Q2 Service Update to Dynamics CRM will add such support for the iPhone, Android and BlackBerry mobile devices, as well as for Microsoft's Windows Phone 7.5.

Windows Server, System Center and SQL Server
Kelly claimed that Windows Server runs on over 75 percent of servers on the planet. He said that Microsoft's System Center business grew 20 percent in the last quarter. SQL Server deployment shares are at 50 percent and SQL Server is growing at nearly two times the market, he said.

SQL Server premium licensing is growing at more than 20 percent, he claimed. Microsoft increased the pricing on SQL Server 2012 licensing by about 27 percent and it still expects to take revenue and unit share from Oracle, he said.

System Center supports desktop management and configuration, as well as datacenter management and configuration. Kelly said that on the desktop side, System Center manages "about 60 percent of all the enterprise desktops." In addition, Microsoft has added support in System Center for Linux and Mac desktops. On the server side, System Center is "attached to more than 50 percent of all the Windows Servers running in enterprises," Kelly claimed.

No Cannibalization
Kelly took the position that Microsoft's online services are not cannibalizing its on-premises server businesses.

"If you look at Office 365, it is growing eight times the offering that we had before, which was called Business Productivity Online Services." He added that 90 percent of all customers coming to Office 365 have never before deployed a Microsoft server product, "so we're getting net new customers."