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5/20/2004
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Microsoft Cutting $100 Million From Internal IT Budget

While other companies fill its coffers with licensing fees, Microsoft scrimps with its own IT spending.

Microsoft may be getting fat on other companies' software spending, but its own IT budget is notably lean. When revenue jumped 17%, to $9.18 billion, in Microsoft's most recent fiscal quarter, CFO John Connors explained in a statement that "overall corporate IT spending continued to improve." But "improve" is a subjective term, and when it comes to Microsoft's own IT budget, an improvement is considered spending less, not more. The vendor is in the second year of a three-year effort to cut $100 million from its IT expenses. "Our goal is to bring total spending down every year," Microsoft's new CIO, Ron Markezich, said in an interview earlier this month when his promotion was announced.

Microsoft will spend $750 million on its internal IT operations in fiscal 2004. That's less than 2% of estimated revenue for the year, which puts the company decidedly into the penny-pinchers camp. By comparison, other companies invest on average about 8.7% of annual revenue on IT, according to an InformationWeek Research survey of 333 business-technology professionals conducted in March.

How does Microsoft's IT department get by on so little? For one thing, that budget doesn't reflect any internal charges that accrue for using the company's own products. And a company spokeswoman argues that measuring IT spend as a percentage of revenue isn't a good gauge, anyway. "The amount of revenue that a company makes may or may not be proportionate to the amount of infrastructure needed to support its operation," she responded via E-mail to an inquiry about it.

That's a fair point, but Microsoft also could argue it's merely practicing what it preaches. One of the marketing themes around last year's launch of Windows Server 2003 was "do more with less." Indeed, Markezich says a major thrust of the company's IT strategy is to find efficiencies in what he calls "sustainer" systems--those that merely keep the business running--to free resources for forward-looking "builder" projects.

Microsoft, for example, has consolidated the number of data centers running Exchange servers from 74 down to seven. In the process, availability of the company's E-mail system increased to 99.99% uptime, compared with 99.9% earlier. And employees now get 200 megabytes of E-mail storage, twice what was previously allotted.

Markezich took over as CIO from Rick Devenuti, who was promoted last December to corporate VP of Microsoft's worldwide services organization. Prior to his promotion, Markezich was manager of global technology services, where he was responsible for the company's technology infrastructure. In all, about 3,900 IT staffers--1,700 employees and 2,200 contract workers and partners--help keep Microsoft's computer systems in good working order.

As CIO, a major part of Markezich's job involves being an early adopter of Microsoft products. Already, he says, thousands of company PCs are running the next-generation Longhorn operating system, which has yet to go into public beta testing. "That's our top priority--being Microsoft's first and best customer," he says.

Microsoft's IT infrastructure comprises 150,000 PCs and laptops and 7,000 data-center servers. With 55,000 employees around the world, that's a nearly 3-to-1 ratio of PCs to workers. Markezich explains it's not unusual for software developers to use two, three, or even four computers in their work. In all, some 300,000 computing systems and devices are part the company's IT fabric. Tablet PCs are the mobile computers of choice. In fact, they're the only choice--Microsoft no longer issues laptops to its employees. And virtually all of Microsoft's internal systems run the latest versions of Windows. "As a policy, we don't run competitive technology," Markezich says.

The company is prolific, some would say notorious, in its use of E-mail, with employees generating 3 million intra-company messages each day, or more than 50 per person. As if that weren't enough, Microsoft workers log 20,000 hours of online meetings each week using the company's Live Meeting conferencing platform.

The company's IT department manages 1,800 different applications, with 400 of those being global in scope. The largest database is a 1.5-terabyte SQL Server system underlying an SAP implementation used to run part the company's business.

Top projects for Microsoft's IT department include consolidating data warehouses using some of the new business-intelligence capabilities built into SQL Server 2005, which is scheduled for release next year, and establishing a companywide software architecture that incorporates Web services.

Microsoft's IT department is well aware of the hassle involved in patching the company's systems every time a Windows vulnerability is discovered. In the same way customers are forced to patch their systems, Microsoft's IT department deploys Windows updates as often as they're issued. Because of the testing involved, it can take up to 72 hours to roll out a patch across the company. Markezich says his organization doesn't get any head starts; Microsoft's IT department gets Windows fixes at the same time you do.

The diligence to patching has paid off. The last time Microsoft's internal computer systems got nailed by a companywide virus was the Slammer attack in January 2003. Since then, Blaster, MyDoom, and Sasser have been non-events, at least internally.

If Microsoft's own experience is a guide, it's possible to create a secure, full-featured, global Windows environment on a lower-than-average IT budget. That would suggest Markezich just stepped into one of the easiest of CIO jobs. Or one of the toughest.

[This story first appeared on InformationWeek's Windows Weblog.]

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