Software // Enterprise Applications
11:15 AM

Microsoft's Got A New Go-To Guy For Server Software And Justice Relief

Senior VP Bob Muglia is expected to rev up the vendor's server software business and make quick work of final Justice Department requirements.

When Microsoft needed an executive last fall to manage its third-largest and fastest-growing business, it tapped senior VP Bob Muglia to build bridges between the company's rough-and-tumble engineers and sometimes overlooked marketing staff. This month, Muglia, an 18-year Microsoft veteran who took over the company's key server software and development tools business in October, took on more responsibility, becoming the point man in Microsoft's still-simmering antitrust battle with the Justice Department that's dragged on for more than a decade.

Customers move to the head of the line with Muglia

Customers move to the head of the line with Muglia

Photo by Andy Reynolds
Muglia, 46, is taking on a higher profile at Microsoft as the company tries to settle its legal problems with the U.S. government, tamp down antitrust concerns in Europe, and better-position products such as the Windows Server operating system, SQL Server database, and Visual Studio development tools in a war of attrition against IBM, Linux, Oracle, and other open source software.

Muglia will be center stage next year, when Microsoft ships the long-awaited update to Windows for servers. During a keynote speech at Microsoft's Windows Hardware Engineering Conference last week, he introduced a second test version of Longhorn Server, the next version of Windows for servers. "There's a trend towards industry standardization, it's unstoppable, and Windows is leading in that space," he said.

On June 11, he and Microsoft CTO Ray Ozzie will kick off the company's TechEd conference in Boston, introducing a new version of Windows for supercomputing clusters. Meanwhile, Muglia is spearheading an effort to market more effectively to CIOs by demonstrating how Microsoft's server products can address business problems, from logging users securely into networks to merging IT systems after an acquisition.

One goal is to counter IBM's enormous presence in the business market. "They know how to speak to those customers and have a business conversation that Microsoft has struggled with," Muglia says. "We've been criticized, and rightly so, for saying, 'We have this cool new technology and why don't you take advantage of it?'" without sufficiently explaining how products fit into a company's operations.

Alan Nunns, general manager of global technology and strategy at Chevron, says the oil company has been working with Microsoft to assemble "customized stacks" of server software that can manage its roughly 100 million documents and engineering files. Microsoft's business products have become more flexible, Nunns says, letting Chevron use common software components in applications that track safety and production at oil fields around the world. "Those capabilities are really being driven by products that Microsoft creates," he says.

Where The Growth Is

Revenue in Microsoft's servers and tools division grew 16% to $2.8 billion during its third quarter, ended March 31. That outpaced the company's 13% overall revenue growth during the quarter, and put the server group's sales behind only Microsoft's flagship desktop Windows business and information worker group, which contains the ubiquitous Microsoft Office line. But while the server division is nearly as big as the Office group, which generated $2.9 billion in revenue during the quarter, it's only half as profitable, mostly due to the longer time it takes to close sales of its complicated products. It's a business Microsoft is counting on for growth, though, on both the top and bottom lines.

"Our growth potential is very strong in this organization," says Muglia, who predicts double-digit percentage growth in revenue and profit margins in years to come. Windows Server's installed base grew nearly 18% from 2004 to 2005 to just over 15 million, according to IDC. That's faster than the overall growth rate for shipments of Intel- and AMD-based servers. Windows on x86 affords customers wide price advantages over Unix, and differences in the performance between x86 hardware RISC continue to shrink. Microsoft's SQL Server database also is capturing share from IBM's DB2 and Oracle. Microsoft released a new version of SQL Server late last year; sales of the database were up a whopping 30% last quarter compared with a year ago.

Microsoft remains vulnerable to open source databases and other applications running on Linux, which runs on the same industry-standard hardware as Windows and SQL Server. And one other risk: Any slowdown in x86 server sales could stunt Microsoft's server software growth.

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