Q&A: Preparing for the “Services Disruption”

REDMOND, Wash., June 11, 2006 – The ability to deliver software services is one of the most talked-about trends in the technology industry and the implications of this approach for delivering and consuming software are far-reaching. Tonight at Microsoft Tech•Ed 2006 in Boston, Microsoft Chief Technical Officer Ray Ozzie gave a keynote address in which he outlined his vision for how services will open the door to enterprise infrastructure and applications that are more flexible, agile and cost-effective.

Recently PressPass sat down with Ozzie and Bob Muglia, senior vice president of the Server and Tools Business at Microsoft, to talk about the growing importance of software plus services and to get a better understanding of how Microsoft is helping IT professionals prepare for services so they will be in a position to take advantage of the benefits services promise to deliver.

PressPass: Ray, your work has placed you pretty much at ground zero for many of the key technology upheavals of the last 25 or 30 years: you worked on minicomputer operating systems, helped with the first PC spreadsheet and follow-on products, laid the groundwork for the client/server era, and with Groove you helped harness the power of peer-to-peer technology for business. Now you are predicting the arrival of the next major technology disruption. What is it that you see coming?

Ray Ozzie: We are rapidly entering a new era in which Internet-based services will transform the way we create, deploy, manage and use information technology. I’ve been referring to this as the “services disruption,” and I believe it will give rise to a dramatic shift in the computing and communications landscape that will be felt across this industry and by every market segment, from consumers to small businesses to educational institutions and governments. In particular, I believe that the services disruption will have significant impact on corporate IT and the way we think about both infrastructure and business solutions.

PressPass: Why is this disruption emerging now?

Ozzie: Like previous technology disruptions, the services disruption is fueled by ongoing innovation and improvement in low-level, enabling technologies like processing power, storage capacity and network bandwidth. Today the telephone in my pocket has a processor that is 10 times faster than the supercomputers I used in college. A decade ago, the state-of-the art was a laptop with an 810-megabyte hard drive. Today you can buy a 1-gigabyte flash SD card for your camera for $25. Meanwhile, more and more of us have become addicted to our always-on high bandwidth connection at work and at home.

So far, the impact of all of these trends can be seen most clearly in the consumer realm – in areas like gaming and messaging. To meet the incredible growth in consumer demand for more and better service-based offerings, companies like Microsoft are building vast data centers that are designed to serve hundreds of millions of users, store petabytes worth of information and move trillions of e-mails. The key questions are a) what impact does the consumer services boom have on the way individuals want to work, and what does that mean for corporate IT?, and b) how can companies take advantage of the data center investments to reduce costs and grow revenue?

PressPass: You said that the services disruption is of particular importance for the enterprise. In what ways?

Ozzie: Combining software plus services is a powerful concept that is extremely well-suited to the needs of today’s business environment. Corporate IT departments continually look for ways to reduce complexity, and they are constantly asked to find ways to drive down costs while driving up agility. Meanwhile, they have to help their organizations adapt to the realities of the global economy, meet the needs of an increasingly mobile workforce, and fulfill the requirement to integrate more easily with partners and suppliers. We believe a blended client-server-services approach will help IT departments tackle these challenges with greater flexibility and efficiency.

Bob Muglia, Senior Vice President, Server & Tools Business

Muglia: I believe services are going to be critical for two main reasons. First, today about 70 percent of IT resources are spent just keeping existing systems up and running, while barely 30 percent go to creating new capabilities for the business. If you are running an IT department, that’s a pretty stark statistic. Nobody wants to be in the business of simply trying to find a way to cut costs by another 10 percent every year. IT professionals want to be seen as strategic partners who provide real business value. Taking advantage of services to provision your infrastructure and applications enables IT departments to spend less time managing and maintaining the systems they already have in place so they can shift their focus to creating new capabilities that deliver strategic competitive advantages.

And second, more than ever it is people who drive business success. No matter how much you automate processes, it’s still people who help companies innovate and create customer and partner loyalty. These people are increasingly mobile – and increasingly demanding access to e-mail, corporate information, line of business solutions and customer information on a wide range of devices, no matter where they are. IT must accommodate these demands. We believe that the success of any company depends on how well it unleashes the power of people with software that is dynamic, familiar, and widely used and supported. This is as true for IT pros as it is for end users. So we think software plus services is an important part of the way that companies will do that.

PressPass: Bob, as head of Microsoft’s Server and Tools Business, how do services affect the way you think about building Microsoft products?

Muglia: Services run on servers, right? Whether you’re accessing a corporate network from within or outside the firewall, in a client/server architecture or as a service, the fundamental requirements of the infrastructure – identity, access, management, security – still exist. So as we think about next-generation products, we’re constantly asking ourselves what we can do in the server to better enable the delivery of services. What can we do in Active Directory to make it better for services? What do we do to Microsoft SQL Server? That’s true around developer tools, too. So there’s work that’s being done in Microsoft Visual Studio and in the .NET runtime where we are thinking about how we can provide the basic programming of those runtime environments for services. And of course there’s a huge amount of work being done around security.

An important part of our approach is to factor in all the different things that customers do with our servers – what we call workloads. Examples of workloads include things like messaging, networking, security, collaboration and serving applications. Then we do a deep analysis to see how we can optimize appropriate workloads to run as services.

When we look at individual products there’s a range we need to consider – we have to decide how or where we want to extend a given product by enabling services versus whether we want to make certain feature capabilities available as services versus taking a product and providing it holistically as a service. In the case of identity or messaging, for example, where having a workload hosted outside the enterprise can provide a wide range of benefits to an enterprise, then we can work with partners to enable them to host the service, or, if it’s appropriate, we can host it ourselves.

Ultimately, our goal is to deliver a very rich platform that includes a development layer that enables developers and IT professionals to take advantage of services to reduce TCO and deliver value to the enterprise. Combined with the great client and server technology we offer today, that puts Microsoft in the unique position of being able to offer solutions that extend from the desktop to the computing cloud and provide the highest levels of flexibility and cost-efficiency. It also means that we are providing a foundation that will create new opportunities for partners across the industry to develop and deliver a broad range of new capabilities and services that add incredible value.

PressPass: Can you give me some examples of what Microsoft is offering right now in the software-plus-services area?

Ozzie: Windows Live Search, which is currently in beta, is a great example because it brings together the ability to find information on your PC, in SharePoint, in enterprise applications and on the Internet. What that means is that a sales rep, for example, can find all the relevant information about a customer that she needs – even from within enterprise applications – in one view with just one query.

Another example is the new version of our ERP solution, Microsoft Dynamics AX, which now enables you to create “business mash ups” that weave together Web-based services into rapid custom solutions. And Microsoft Exchange Hosted Services (EHS) offers cost-effective hosted solutions to help ensure the security and high availability of enterprise messaging environment while providing tools for satisfying internal policy and regulatory compliance requirements.

You can also see the power of services in Office Live, which combines the scale and power of the Windows Live identity and communications services, and the power of SharePoint for rapid Web-based solution development and deployment.

PressPass: How quickly do you expect that software plus services will become a standard part of the way that businesses build their IT systems?

Ozzie: As with most major technology transformations, there is a tendency to overestimate the impact over the short-term – say two years – and underestimate just how important it will be in 10 years. That being said, I do think that in about two years, companies that haven’t started to at least think seriously about how to adapt to the software plus services model will find themselves at a real disadvantage. That’s why Microsoft is making services such a major focus now – so that as companies begin to look at how they can take advantage of services in their infrastructure, the tools and capabilities will already be in place.

PressPass: Does the services disruption mean that businesses will eventually outsource all of their applications and systems?

Ozzie: Whenever you see a shift of this magnitude, you’re going to hear some pretty extreme predictions, and there are some people who say that in the future, every application will be accessed through the browser, and all data and storage will move to the computing cloud.

I think a more blended architecture is much more likely, and Microsoft is taking a very pragmatic approach that will enable enterprises to seamlessly run and manage client-server applications with services, depending on where they believe they can gain the most benefit and value. Our services won’t be disconnected from existing applications. Instead, they are designed to extend them to the Web. To do that, we are delivering a blend of desktop software, server-based software and Live services, along with offerings from partners, so that IT decision makers can more easily create the right mix of capabilities that enable the people within their organizations to get at the information they need in a simple, unified way, no matter where that information resides.

PressPass: As the services disruption takes hold, what will the enterprise of the future look like?

Ozzie: IT vendors and IT professionals have traditionally had a view that if it’s inside the firewall it can be managed and if it’s outside the firewall, it represents a potential threat to corporate security. Services will provide IT with new options to extend management outside the firewall to registered devices, software and systems, regardless of where they reside. This will be critical as people increasingly look to bring personal laptops, smart phones, and USB memory keys into the enterprise because they find them useful. Services will enable people to use a variety of self-supported devices that that they find useful while giving IT the tools to protect the company’s interests.

We’re entering an era where there is tremendous opportunity for IT in the realm of what I call Management as a Service or “MaaS.” These are Internet-based management services that can be federated with existing enterprise management systems and that can reach out and touch a wide range of software and devices. An example of the power and value of MaaS can be found today in our Microsoft Exchange Hosted Services, which includes anti-virus, anti-spam, archiving, disaster recovery and encryption capabilities, all of which can be delivered and managed purely as an Internet service.

Muglia: Services really support our promises to help IT manage complexity and achieve agility, protect information and control access, deliver solutions that help their companies achieve greater business success, and amplify the impact of employees by enabling them to take advantage of today’s mobile and collaborative work styles. To make that a reality, we’re focused on interoperability, heterogeneous solutions, choice and flexibility in all our tools and products – from client to server to services.

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