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 PaaS (platform-as-a-service) 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.
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IDG: How do you envision customers making the transition to the cloud?
IDG: How are you helping customers make the transition?
Muglia: 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.
IDG: How do you define private cloud?
Muglia: 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.
IDG: How can customers expect licensing to change in the cloud model?
Muglia: 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.
IDG: Do you think there's the potential for any surprise or risk for them? Could cloud end up costing them more over time?
Muglia: 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.
IDG: 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.
Muglia: 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.
There's a need for an incremental set of security capabilities to be added. Those are things that we are rapidly advancing. This environment still is nascent. There are still definitely areas where the cloud is not ready to take on all of the applications and services that customers want. I don't recommend [that] a banking customer move their core banking system to the cloud right now. I would not tell any bank to do that at this point, because the underlying facilities and services in the public cloud to handle the regulatory concerns, the security concerns, are simply not there. Five years from now, ten years from now, I think they probably will be.
Most of the areas where you look at a focused or a finished application, like messaging, for example, we are able to work through and provide the security that's necessary, the regulatory requirements that are necessary to handle just about every industry right now. So, in most countries around the world -- every country is somewhat different -- we are able to handle the needs of financial services organizations, pharmaceuticals, I mean the more regulated industries. We have examples of customers in all of those industries that are using our cloud services.
IDG: The cloud is kind of a misnomer. It's more like multiple clouds. What is Microsoft doing to drive interoperability and standardization across different cloud platforms to make it easier for customers to bridge them?
Muglia: There's obviously a number of emerging standards that are going to be important here. They're still emerging, so knowing which ones are important and which ones are not [is difficult]. We're involved in that. I think, in the end, people will say, 'The most important characteristic is that I need the cloud services that I have to fully interoperate. And then I also need to have choice of vendor." Those are probably the two main things. In both areas, we're investing significantly.
All of the services that we're delivering in our clouds are based on Internet standards, either Web services or REST-based protocols, pretty much exclusively. We've used those standardized protocols as we've been building out our clouds. The only things that I would say probably don't fit in that nature are areas like messaging and collaboration, where there are no standard protocols that have really emerged. If there is a standard, it turns out to be something like ActiveSync, which Microsoft has now fully licensed. That's what everybody uses now to synchronize their email. That's how an iPhone synchronizes, a Google, an Android. Also, there are protocols that we built and have now made available to people. We've built these proprietary systems, but have now fully published our protocols and everyone else is adopting them in the industry.
IDG: Talking about Google in particular, what do you think people should have learned from the City of Los Angeles' experience with Google Apps?
Muglia: That it's not so easy. The City of Los Angeles is an indicator of how complicated an enterprise and a business environment is. It speaks to one of the most fundamental differentiators that Microsoft has in this space, which is that we are the only company in the industry that has 20 years of experience working with enterprise customers and really understanding their needs, and 15 years of experience building massive-scale consumer services. Go through the industry. You can't find anyone that has both of those. IBM has more than 20 years' enterprise experience. I'll give them that, but really no consumer experience. Google has big consumer services, no industry experience in terms of the business.
I think what the City of Los Angeles found out was really some of the issues that come about when a provider doesn't have that experience of working with enterprise customers and understanding the complexity of that environment. One thing I think is really important -- if you look at the classic enterprise competitors, you know, the Oracles, the IBMs, the VMWares -- is that you gotta run this stuff yourself. And, you know what? Your engineering team has to run it. IBM says they're running these clouds, but it's their services organization that's running these things and building these things. That's really an outsourcing. It's a hosting sort of circumstance and an arm's-length thing. It's my own engineering teams that are running the clouds. It's my engineering teams that are getting called when there's a problem. It's my engineering teams that are dealing with and understanding what happens when you're running a service, day in, day out for a customer. I can't even imagine how a provider can deliver a cloud service unless they're operating that way.
To be fair, Google operates that way, an Amazon would operate that way. The consumer service companies have that experience. They know that. But they don't know the enterprise. They don't understand the needs that the enterprise has in terms of the complexity of their environments, the lifecycle associated with their applications. You see things with these consumer services guys. They release something and customers build apps and they say, "Oh, we're going to change that API in the next version completely." And customers have built and made investments. We've come to learn what sort of expectations an enterprise customer has. It's that balance of understanding what it means to run these services at scale and actually have your engineering teams live with it, and understand the complexity and the expectations in the enterprise.
IDG: What other big shifts is Microsoft focused on with major corporate customers around collaboration, mobility, and business intelligence?
Our view is that [BI] is something that needs to be democratized and made available to everyone, every person who is working with information. Other folks are building these complicated, high-priced tools where there's a lot of training required. Our tool for business intelligence is called Excel. It's a tool that people really know. We took a massive step forward this spring with Excel 2010 and the PowerPivot capabilities that we put in there for people to analyze and work with business data. So now Excel can work with, essentially, information of any size, data sheets of any size, hundreds of millions of rows, with some very, very strong visualization technologies. People can view the data and pivot it in different ways. The path of innovation on that stuff is unbelievably exciting.
One of the things that excites me in general about this time is I that feel like the speed of innovation and our ability to bring technology to market is really increasing. I very much see that in the BI space. We have a SQL conference coming up at the end of this year, and there's a whole new round of interesting stuff that we'll be talking about.
IDG: Do you have any interest in NoSQL, the "big data" solutions?
Muglia: Absolutely. Let's make sure it's all clear. NoSQL has really become SQL and other ways of working with data. The only provocative thing about NoSQL is the name, right? People have been working with non-relational data sets since the beginning of time -- columnar databases, flat files. SQL relational databases are not the way to analyze Web logs. Nobody analyzes Web logs with a relational database. They may sometimes take information out and put it in a data warehouse, but it's an example of a data set that's not naturally suited to the relational model.
There's a new capability in SQL Server that we deliver called StreamInsight that's designed to do real-time analysis of business information that's not relational. And, for example, our Bing team is using that now to do ad serving based on what a user is actively doing. If you don't have any profile information about a user, you can, based on seeing what sites they're going to, use that information in real time to do better ad serving. That's an example of a NoSQL scenario. It came out of our research and it's used broadly in our Web services. There's a technology called Dryad that essentially does a sophisticated MapReduce on associated Web logs or, again, non-relational data. We're incorporating that into our high-performance computing products, making that available broadly to everyone. This is new in the sense that it enables you to work with this massive amount of data. The idea that you had relational and non-relational data is not new.
IDG: COO Kevin Turner said in July that leading with cloud helps better position Microsoft to sell on-premise products. What did he mean by that?
Muglia: Well, I think what he means is that by explaining the future and helping our customers to know where they're going in the future, they have confidence in what they're doing today. There's a path. No customer is going to cut over immediately to the cloud. That's impossible for any substantive customer to do. They may move their messaging system to the cloud, or they may move a given application to the cloud, but any large customer has hundreds, thousands of applications. The complexity of their environment is very high. But by helping our customers see where they can drive themselves into the future, where they can focus on their business advantage and not need to worry about these infrastructure components, it provides them with a level of security knowing what they're doing today can be brought forward. It's a good balance.
IDG: But what about the knock on Microsoft in the sense that you're not pure-play cloud? Some competitors can say: "Hey, we're all cloud. We're fully committed."
Muglia: This reflects the benefit that I was talking about a few minutes ago where Microsoft has 20 years of experience of working with our enterprise customers and providing them with the services and capabilities they need, and 15 years of experience writing consumer services. If we just had that consumer services experience, I mean if all we had was a hammer, everything would look like a nail to us, too.
But that's not the world our customers live in. Our customers live in a world that's very heterogeneous. There is no significant customer where everything they do is in the cloud today. The fact that we're able to meet the customers' needs with on-premises software, while providing them with these amazing new services that the cloud brings and allowing customers to move at their own speed is actually a huge advantage. It turns out all of our customers see that. Our engagements with customers about where they're going in the future, what they want to do as they roll out a new messaging collaboration service, they're very positive. And, in fact, we're winning the vast, vast majority of all those engagements.
IDG: At the 2010 Hosting Summit you used a reference to cloud being like rock climbing. It's exciting and scary at the same time. What scares you about the cloud?
Muglia: The thing that's interesting about the cloud is you're running everything yourself. We are responsible for what our customers are experiencing. If we have a problem, it's a problem that's visible to our customers. We have to make sure we are world-class. We need to continue to improve every day. Anybody who runs an operations system has some moments anywhere from concern to terror. That's one thing.
But the reference I made at the time was really to the hosting partners about how the business model is transitioning here and how Microsoft has decided to jump in with both feet and embrace the change. That change will affect the partner ecosystem as well and certainly affects our hosting partners. I was encouraging them to embrace it and to drive their business forward, because it is where the future is going. We've embraced the future and are driving it forward.
IDG: So, from a business perspective, how do you smoothly make the transition from the big upgrade cycles, the big surges of revenue, to the subscription model?
Muglia: The first thing to realize is that we don't really see that surge of revenue at the time of an upgrade anymore because the majority of our customers are buying on multiyear annuities anyway. We have to provide incentives for our customers to upgrade. One of the great things about the cloud is that it's a good business for us because it's a continuation of that annuity cycle. We're very confident that the cloud will drive down the cost of [customer] operations substantially and thus enable our customers to save money and, at the same time, actually be able to build a good business for ourselves.
And when we created Bing, we knew we were going to create a massive -- we needed to create a massive scale service because that's what an internet search system is. It's a service that's measured in hundreds of thousands of servers, you know, not even tens of thousands. If we ran that in a traditional way, it was going to be non-viable. So, we built a system with Bing that was a proprietary system designed to enable us to roll out thousands and thousands of servers with very low operations costs. And it worked. It was not general purpose, however. It was not something we could take and offer to our customers or even, frankly, apply broadly within Microsoft.
So, we used the technologies that were pioneered with Bing, and we built Windows Azure with the fundamental idea that the application is what you focus on. You don't focus on the infrastructure. With Windows Azure, the application never thinks about a virtual machine. To me that's the definition of PaaS. With infrastructure as a service, you're managing virtual machines and there are benefits to managing virtual machines at scale. With PaaS, you never see a virtual machine. You focus on the application. With Windows Azure that's the design point we built. The whole system, the infrastructure is all self-maintaining. All you worry about is how you write that application so it scales out and uses these underlying services.
When customers looked at that in our public cloud environment, many said to us, "We love that, but we want to run it in our own data center." Or, hosters and systems integrators have said, "This is a great model to enable applications to be built, but we want to provide it to our customers as well." That's why we are creating this Windows Azure appliance -- to essentially package what we've learned, the service that we run every day, and deliver it together with hardware that you acquire from one of our industry partners, one of our OEM partners, and run it in a customer or a service provider data center.
The reception, basically, is that, at the moment, I have way more customers that want this than I can fulfill. Way more. But we started with four customers because it's a service we're delivering. We're starting an extension of our existing Windows Azure public service. We're working with those four customers to understand what capabilities they want to take on. When an alert comes in, how do you want to manage that alert? What level of visibility? How does Microsoft get involved in that? We're hearing different things.
Some customers, for example, want a hardware failure to be reported directly to them or directly to their OEM. Others want us to aggregate those things. Those are options we may wind up providing. That's what we're learning right now as we deploy this. But as I talk to different service providers, different enterprise customers, we have a fairly long list of customers that would buy one of these things tomorrow if I could deliver it. Next year we'll expand and bring on a few more and then over a period of time we'll make this very broadly available. But remember, these things are not small. Today, a Windows Azure appliance with the first four customers is about a thousand servers each. This is not a toaster. It will never go down to just a handful of servers. How small is a question we're still working on.
IDG: So it's not all on top of .Net?
Muglia: No, Windows Azure is language agnostic completely and the services can be built using any language. And then, of course, we're writing a set of services and those services expose Web services or REST protocols, so they actually can be consumed by any language. But then, of course, we provide a .Net platform that's a very sophisticated platform for people who want to build using Microsoft tools.
IDG: Just one other really quick follow-up about Azure appliance. Was there a resistance to a public cloud offering that you've now overcome by turning it into an appliance?
Muglia: There are definitely customers that want to run it themselves, in their own data centers. If you're a hoster, obviously, you want to run it yourself or a service provider. Obviously, you can't get the scale we can, providing tens of thousands of servers within our own environment that are available for use. You may not be able to get the geolocation either, where we have data centers in every region around the world. But for some customers, that's not what they care about.
IDG: But you can provide a gateway to that through the applicance....