Microsoft: We're not afraid of the cloud

Bob Kelly, Corporate Vice President for Microsoft Infrastructure Server Marketing

Microsoft has been busy this year, rolling out Windows Server 2008 and SQL Server 2008 in a push to expand its presence in the corporate data center. To be successful, the company must overcome an economic environment that appears increasingly difficult as well as tough competition from rivals Oracle and VMware, among others

Bob Kelly, Microsoft's corporate vice president of infrastructure server marketing, sat down with IDG News Service to discuss the adoption rate of Windows Server 2008, Microsoft's plans for cloud-based services, and the recent declaration by Paul Maritz, an ex-Microsoft executive and current president and CEO of VMware, that the traditional server operating system "has all but disappeared."

What follows is an edited transcript of that interview:

We haven't heard much from Microsoft about user adoption of Windows Server 2008 and SQL Server 2008, can you give us an update on how things are going? For example, are you finding many customers switching from Oracle?

At the end of the day, our job is to build software that customers choose to run their businesses on. My job is not out there to beat Oracle, to take Oracle's business. I just want to do a better job of satisfying the customer and, ultimately, they'll choose me for that reason.

The products have been exceedingly well received. We've never had faster adoption of the OS as we've seen with Windows Server 2008, for lots of reasons: the quality of it, the workload focus that we have, some of the efficiencies that are built into it around things like power management, that sort of thing.

When you say this is the fastest adoption you've ever seen, can you quantify that for me?

We're taking more share than we've ever taken of the x86 server world, whether you look at IDC or Gartner. We will probably make it to that magical million licenses per quarter run rate very quickly, and that's a phenomenal rate of adoption.

The other thing that's happening on Windows Server 2008 is our mix of premium SKUs (stock keeping unit), driven almost exclusively by virtualization and the rights around virtualization that we've put in those SKUs. Just think of it this way: We have three main SKUs for Windows Server 2008. If you want to run one virtual machine, you choose Standard. If you want to run four virtual machines or fewer, you run Enterprise Edition. If you want unlimited virtual machines you run Datacenter Edition.

Our premium SKU mix, on a global basis, has more than doubled over the last two years since we made the licensing change, and over the last six months it's been unbelievably fast.

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Last week we saw Paul Maritz, the CEO of VMware and a guy who knows Microsoft pretty well, proclaim that the server operating system is obsolete and his company will build a virtual data center OS to manage applications. How should we interpret his comments? Is there substance to his claim?

The death of Windows has been foretold many times. It's in their best interests to position it that way.

Secondly, as I told some internal folks the other day, I know Paul and he's a great guy. I don't envy him where he is right now, because he just entered into a hornet's nest. Not so much because of Microsoft; we treat virtualization as an enabler. It's a feature of the operating system, as it's always been in mainframes and as it is in Linux distributions. What he's just done is enter a space that's crowded by his partners, and I'll give you the one that's canonically challenging for him: Hewlett-Packard.

HP has spent, literally, billions of dollars buying companies that would allow them to be the governor of the data center. They bought Opsware, they bought EDS, they bought Neoware. They bought a whole bunch of interesting assets for themselves. VMware came out and said, "We want to displace them." That's a very tough spot to be in.

As they try to move out of what's quickly becoming a commoditized world, where all these very high margins go away, VMware has stomped into a space where all of their partners are scratching their heads. The buzz on the show floor last week was, "Oh, that's our stuff. That's what we do. Now they want to do this?" It's a fascinating thing, actually. I don't envy Paul.

The news coming out of Wall Street has been pretty grim lately. How does Microsoft view the economic situation? Do you see foresee a point where a worsening economy hurts user adoption of Windows Server 2008?

At the core of what we're trying to do is help customers deliver a whole new set of experiences at the lowest cost possible. The first job is help them strip out cost, because that's what they live with every day. We also have to help them deliver new capabilities, because that's what drives their business. Everything is about helping customers move from a high cost, maintenance-focused IT environment to a much more dynamic, business-responsive IT architecture.

When times get tough, customers are constantly on the path to do more with less. Software really delivers the best bang for the buck. Customers tell us when their IT department is strapped, they start asking whether this next machine, this next application or maintenance check is the right way to spend their IT dollars. Or should they move to the economic platform, the one that's actually driven the innovation over the last 10 or 15 years and get on that wave now?

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But is the investment required for companies to replace their existing systems with new ones going to be less than the marginal cost of maintaining those existing systems until the economic environment improves?

It depends on the customer. A great advantage of Windows Server 2008 is our virtualization technology. It used to cost you $3,000 to buy the Enterprise Edition license and then you had to pay another $3,000 for each virtual server running on top of that, up to four. Now, because of the licensing rights change we allow you to run four virtual machines on top of that for no additional cost. Now, for $3,000, you can run five machines, the base plus four virtual machines.

If you're a Windows customer, for a very marginal outlay of price you can consolidate your physical environment into a virtual environment, which reduces your total footprint of servers. You get a huge power savings and your management costs go down.

Oracle and Amazon announced a deal that makes Oracle 11g and other products available as part of Amazon's Elastic Compute Cloud service. Is Microsoft headed down the same path?

We're telling everybody to hold their horses, wait until the PDC. At the Professional Developers Conference in late October we will be more concrete about what our plans are, what our offers are in the cloud. But you could probably guess to a large degree. We are a platform company and we are going to offer platform elements in the cloud.

From a developer's standpoint, it will be coherent across the on-premises experience and the cloud-based experience, so you can leverage the learning you already have. If you're a customer, it's a consumption model. I want to consume an application, but do I want to consume it on the premises or in the cloud? We'll make it coherent.

Without giving away a whole bunch of interesting secrets and all that stuff we're holding for PDC, there is nothing that is frightening to us about the cloud. It's just a different delivery vehicle. There's nothing frightening to us about other vendors getting into the space. We believe in the platform and we believe that because we have a platform that customers have chosen with their feet, and their dollars, in the on-premises world, we will be able to deliver that same value proposition in a cloud-based world.