Microsoft CEO Steve Ballmer says the software giant is "all in" when it comes to cloud computing and he's relying on Bob Muglia to play the hand in this high-stakes game. As president of the nearly $15 billion Server and Tools Division of Microsoft, Muglia controls key data center products like Windows Server, SQL Server and System Center, as well as the Windows Azure platform-as-a-service (Paas) offering that is a key underpinning of the company's cloud strategy.
In this interview with IDG Enterprise Chief Content Officer John Gallant and InfoWorld.com Editor in Chief Eric Knorr, Muglia talked about how customers are making the move to cloud and what they need to be doing right now. He also staked Microsoft's claim to leadership in the emerging cloud market, talked about the Windows Azure private-cloud appliance and explained what customers can learn from the City of Los Angeles' challenges using Google Apps.
How do you envision customers making the transition to the cloud? The thing about the cloud is that it really is the delivery of IT as a service and customers being able to adopt services to run their business. It's happening at somewhat different paces based on the workload. We see some workloads like e-mail collaboration that are moving very, very rapidly towards the cloud.
Virtually every customer that we're working with on e-mail is having a conversation about [whether it] is time for them to move those workloads into a cloud service. Many are choosing yes. We're being very successful with our business productivity online services and helping customers make that transition with those workloads. Some are saying, 'Well, maybe it isn't really the time for me. Maybe I have some regulatory issues. Maybe I feel like I run the operation efficiently myself and it's not my business issue at the moment.' But it is a conversation that is happening almost everywhere, and it is a set of workloads that is moving very, very rapidly. We see other workloads like CRM probably moving pretty quickly because of the distributed -- geographic -- nature of the force of people that work with CRM. There are other business applications that are very well suited for the cloud. I think about an application that requires significant amounts of computing horsepower for a period of time, but then may not require it all the time, like high-performance applications, simulations, modeling, things like that. Or they're areas where you're reaching out and connecting to your supply chain or to your partners -- your sales partners and distributors. Those are also good examples of business applications that need to be built. They're not standardized apps like e-mail, but they are business applications that are well suited to the cloud.
How are you helping customers make the transition? We're helping customers across virtually all of these workloads in the sense that we're providing world-class messaging and collaborative services that we deliver with our SharePoint Online and our Exchange Online. We're able to move customers that are on premises [into] those products, but also effectively move customers from other environments. Some legacy customers are coming from, say, a Notes environment, [where] the cost of ownership in running that is a bit higher -- significantly higher, actually -- than, say, an Exchange installation is. The economic case for moving from an existing on-premises Notes installation to a cloud-provided Exchange and SharePoint is a very easy business case to justify. That's one set of examples.
In the creation of business applications, we're working to make it simple for people to take their existing applications that they've written, many of which are running on Windows Server today, and help move them into cloud environments -- whether it be a private cloud or a public cloud like Windows Azure.
How do you define private cloud? The definitions of cloud have been something the industry has really struggled with. I think, first of all, it's helpful that the industry is really clarifying itself, saying that cloud is IT as a service, providing IT as a service. That by itself is a fairly big step in getting clarity. Then, I think the real question is where is the cloud running and is it dedicated to an individual customer? I think of a private cloud as something that is running inside a customer data center and is dedicated to their own business applications. Then you have public clouds, which are shared across multiple organizations. Windows Azure is an example of that. We have shared examples of our Exchange and SharePoint Online services, but we are also offering dedicated SharePoint and Exchange where we run it and, yet, it's dedicated to a customer.
What do you think IT leaders should be doing differently or better in the way that they're moving toward or viewing cloud? The most important thing is that customers begin to understand how cloud could be used to solve their business needs. Again, we are having that conversation with virtually every customer with workloads like messaging and collaboration. That's relatively universal. I'm not going to say to every customer, 'You should all move to the cloud right now,' because it may not meet their business needs. But I do recommend that every customer evaluate it for those sets of workloads.
When it comes to business applications, customers are in a different state of adoption. Some are really aggressively looking at applications that they can move into a cloud environment. Some are relatively aggressively looking at how they can build their own private clouds. And there are a number of organizations that are still more nascent there. What I would recommend that every organization do is take a look at their business applications pick at least one to move to Windows Azure in a public cloud. I was talking to a large financial services organization not that long ago that has about 4,500 applications. And my feedback to them was, 'Choose. I know you've got all these regulatory issues. You're global, all these things. [But] there's one of those applications that you could move to a public cloud. Choose it and really begin and start working on that.
How can customers expect licensing to change in the cloud model? The biggest change as we move to the cloud model is it's a subscription-based model. It's an ongoing payment structure, because, obviously, you're running the service for the customer. If it is a well-defined service, like messaging or collaboration or CRM, it will typically be a per-user fee of some form that's paid, which is fairly consistent with the way they buy today, although they typically don't buy it by subscription. They buy it as a one-time purchase, but they, again, pay a per-user fee.
For business applications, the cloud model is based on instances or capacity-based, so it's based on the usage of the application. The model changes somewhat. Obviously, one of the implications is that, particularly if you're moving to a public cloud environment, there's a transition from having upfront cap-ex costs associated with purchasing hardware. That is not a software licensing issue, but it's very significant [change] to the customer, to an op-ex and ongoing charge.
But probably the most dramatic change that affects the customer in terms of the costs associated with this has nothing to do with licensing. It really has to do with their overall cost of operations. The promise of the cloud is that by running these things at very high scale, by using software to standardize and deliver a consistent set of services to customers, we can reduce the cost of running that operation very substantially. We know that the majority of cost in IT is the people cost associated with operations. That's where the cloud really brings the advantages. The main advantage in terms of getting better business value at a lower cost is because the cloud standardizes the way operations is done and really dramatically reduces that.
If you look at most of our customers, they will have a ratio of somewhere between 50 to 100 servers per administrator. A world-class IT shop might get that up to 300, 400 servers per administrator. When we run these cloud services, we run them at 2,000 to 4,000 servers per administrator internally. By running it ourselves, we are also able to really engineer the software to continue to drive out that cost of operations in a way that I don't think the industry's ever seen before.
So, two questions on the shift to that kind of pricing. One, do you think customers are prepared for that? Do they have a good handle on a budget that goes from projects and cyclical upgrades to a subscription flow like that and are they understanding the long-term implications of that shift? I think they love it. I think they're not just prepared, they're demanding it. This came home to me when I was at a CIO event -- it was large companies, top 100 U.S. companies. It was one of those vendor events where you're kind of getting beat up by about 20 guys. It's like dental work without any Novocain, basically, for an hour. One of the CIOs said to me, 'Bob, you don't get it. We never want another software update from Microsoft again. We want the features. But you put all the burden on us. You put all the operations costs on us. You make us do all the work. I want you to handle that. I don't want to take care of it.' That's really the key to software as a service and the cloud all around: how we can provide the services to our customers and then keep them up-to-date. We can keep the value associated with the new technology flowing into the IT organization, into the company, and, thus, generate the business value. But they don't have to pay all the cost and have all the training and everything.
Do you think there's the potential for any surprise or risk for them? Could cloud end up costing them more over time? Well, there's always [that] potential. I'm sure there will be cases. But I think, in general, it will really be transformative to enabling businesses to focus more on what they can add value to. That's part of the promise of the cloud, that the customer can focus on their business and adding value through IT and things that make a difference to the business versus the things that they have to do now that are not differentiating. Customers are able to achieve a larger focus on the things that enable them to differentiate.
There will be problems. There will be failures. There have always been those things. Throughout all of the history of IT, whatever promising new technology comes in brings with it some set of challenges, but it also advances things. Because of the focus on the business and business results [with cloud], the net benefit will be substantial.
Going back to the licensing, how does Microsoft navigate that change? The model has been that you gather together a bunch of new features and new capabilities into a new release, which has big revenue associated with it. Now people are going to expect these features to just become part of the product to which they subscribe. Well, it's actually great for us, because our biggest competition with our new product releases is always our old product releases. We still have a lot of XP. XP is pretty much still ruling the world and we're seeing people now move to Windows 7. There's Office 2003 and Office 2007, and we've shipped Office 2010. That's always been our biggest challenge, the complexity customers have associated with moving forward is an impediment to our being able to license them new software. The cloud will eliminate that because it's our job to move them forward. We'll deliver a service to a customer that is evergreen. It's always up-to-date with the latest set of features. We need to provide customers with some level of control. I mean we don't want to update a retail customer from just before Thanksgiving until after Christmas. But we will commit to keeping and maintaining the software for the customers, one of the main differentiators. That's a huge advantage to us, because our sales force today spends a lot of time explaining the advantages of the new release and why a customer should go through the upgrade themselves.
When we talk to readers about cloud, management is always an issue; security's always an issue. Can you talk about what Microsoft is doing to address those big worries about cloud computing? We've invested very heavily in both of those areas for quite a number of years. Let me take them separately because I think the issues are somewhat different.