The Rooney Report

Microsoft layoffs coming? E-gads

You know it's a de....... re ... recession when big Red is tightening its belt. That's right: the venerable Microsoft Corp is  now considering layoffs as one of its cost cutting options. 

Currently, the Redmond, Wash-based company employs roughly 94,000 people worldwide, and roughly 56,000 of them in the U.S. 

In spite of the economic doldrums, it seems somewhat odd for a company that showed 18 percent revenue growth(to $60.42 billion) and a 26 percent leap in profit (17.7 billion) for the year ended June 30, 2008. 

Let's admit that there's likely lots of room for cuts considering the company's pro-employee policy. Few have been laid off in the 20 years I have followed Microsoft. After all, with a growth spiral like Microsoft, how could layoffs be justified in the past?

I am not really sure how it's called for given the company's rocket growth for the last year. I'm sure sales have slowed, yet Microsoft's licensing based financial model is favored by Wall Street for its deferred and predictable revenues stream. 

Is there something amiss at Microsoft? Something tucked deeply in the ledger that has executives worried about the company's financial health? 

The WSJ cited sources close to the company who also say that other cost cutting measures are being considered. Decision could come within a week, they say. Should be interesting to see what Steve B decides. Fill me in if you know. 

Microsoft-Yahoo deal over? Think Again

It's rare that Microsoft doesn't get what it wants, and it really wants Yahoo!

The Redmond brass withdrew its $33 per share offer this week after Yahoo king Jerry Yang balked at its updated proposal - but the negotiations are far from over.  Yahoo! Investors are fuming, so much so, that some pundits claim that negotiations are already back underway with Microsoft CEO Steve Ballmer -- and reportedly without Yang at the table.

And who could blame shareholders in such an unpredictable and uncomfortable economic climate? Microsoft's latest $33 per share offer was less than the $37 ante proposed by Yang but still a lovely premium for the $25 Yahoo! stock is selling for today. Microsoft's $47.5 billion offer for a company with a $33.7B market cap -- a 70 percent premium on the $44.5 billion originally offered -- is nothing to sneeze at and investors know that.

Jerry Yang is right in saying that Yahoo! is a premium brand but the online service's future success is not guaranteed. Former portfolio manager and BigTrends analyst Bob Lang points out correctly that Yahoo! had Geocities, Broadcast.com and search services up and running long before its rivals but failed to convert those Internet properties into hard cash. In the interim, newcomer MySpace snatched up the lucrative social networking business and Google ate Yahoo's lunch with YouTube and paid search.

C'mon Jerry: it's not the dot.com days before the bubble burst. The money actually has to be on the books or darn close to it before Wall Street will crown you king. Given Yahoo's track record on that front, Yang should have considered the $5 billion "enhanced offer" more seriously. Yahoo insiders may not love Microsoft but they know that flirting with the enemy -- as Yang has done with Google -- is dangerous and could translate into more customer defections than paid clicks.

Ballmer was no doubt pleased and quite clever to illuminate (and enumerate the negative impacts of) this foible in his withdrawal letter, a sudden and somewhat unexpected about-face to a rocky courtship that many thought would lead to a hostile takeover.

Microsoft's sudden passivity (especially on such an inordinately strategic deal) is suspect at best, and suggests to this humble observer that it is merely a prelude to -- or part I of -- negotiations 2.0. It appears many on Wall Street wanted this deal to happen and Microsoft's savvy and skillful walk from the deal has generated far more good will than a hostile takeover.

Ballmer's publicly-released Dear John letter to Yahoo! was belittling to Yang, no doubt part of a thinly-veiled campaign to have him removed from the negotiation table. And the tone of the note was far too cordial for a guy who hates to lose.

Bill Gates' reiteration of Microsoft's "firm" decision to retreat from the Yahoo deal at a Tokyo press conference today only reinforces my suspicion that there's chatter going on between Redmond and the other financial powers that be in Sunnyvale.

Microsoft's top brass are extraordinarily smart businessmen and skilled negotiators, and if they can't get something done publicly, they get it done quietly. When they were unable to persuade VMware to join the team, for examply, they moved on and did the next best thing, first striking a deal with VMware rival XenSource, and then ensuring that its closest software partner -- Citrix -- made an acquisition Microsoft simply could not do. XenSource is open source, after all. 

Bill Gates' day-to-day activities at Microsoft will end in July. I don't think a failed merger with Yahoo! is the way he wants to go out. And I'm sure it's not how he wants historians to cap off his business biography. A deal with that online services giant, or an acquisition of Facebook or other Internet property, is still in the cards.

Microsoft Taps Citrix, Calista To Prove It Has Viable Virtual Desktop Infrastructure Plan

As it puts the final touches on its Hyper-V hypervisor for Windows Server 2008, Microsoft is trying to convince the business masses that it has a sound desktop virtualization strategy, too.

That’s pretty important for a company whose fortune was built on – and whose future depends upon (in large part) – the desktop. And for a company that is behind VMware in the Virtual Desktop Infrastructure (VDI) space.

To that end, Microsoft this week announced it would offer technical support for Office running in virtual mode and cut the price of its Vista Enterprise Centralized Desktop by 50 percent. But that's only a stopgap measure since its enterprise centralized desktop is tied to Microsoft’s outgoing Virtual Server 2005 R2.

At the company's virtualization summit this week, Microsoft filled in the business masses on its long term strategy for VDI. First was its announced acquisition of San Jose, based Calista Technologies, which will provide graphics technologies for “next generation” desktop and presentation virtualization solutions using Microsoft's Hyper-V.

Calista’s technology enhances the user experience of 3-D and video content in virtualized desktop deployments and server-hosted virtualized desktops and applications using Windows Server Terminal Services. Over the long term, Microsoft said it plans to incorporate Calista technology into its Remote Desktop Protocol that wil be integrated with HyperV.

That deal -- combined with Microsoft's acquisition of Boston-based application virtualization provider Softricity in 2005, and Microsoft’s own Hyper-V virtualization work – gives the company a solid technological base on which to start its battle plan against VMware’s VDI.

At first glance, Microsoft’s deal with Calista (or any VDI solution for that matter) would appear to imperil Citrix, one of Microsoft’s closest ISV partners. Microsoft’s Bob Muglia said this week Citrix is not able to deliver the video support needed for a virtual desktop. Calista technology will, in Microsoft’s own words, enable remote workers to receive a “full-fidelity” Windows desktop experience.  Hosting and delivering Windows desktops from a central server is Citrix’s traditional bread-and butter revenues. Isn't Microsoft's wholly own subsidiary Calista a catastrophe for Citrix?

Hardly. Microsoft’s vision for its desktop virtualization story is compelling but it will be some time before all the pieces are integrated together and with Microsoft's System Center.

In fact, It’s the deal announced today with Citrix that will help give Microsoft a fast way to play catch up in this early but fast growing market.

Citrix, which acquired XenSource late last year, and is preparing to ship its first version of XenDesktop at the end of the second quarter, has been appointed Microsoft’s first authorized VDI provider – at least in the interim, while Microsoft builds its own technology.

Microsoft and Citrix have once again teamed up, this time to give VMware a run for its money on the desktop front -- sooner rather than later. As Microsoft looks out to 2009 for delivering its first Calista extensions, Citrix has a solution just months away from release.

“Microsoft had no homegrown VDI solution. XenDesktop is Microsoft’s Go-To-Market for VDI,’"said John Bara, vice president of business operations and planning for the Virtualization and Management Division at Citrix. He said Microsoft told him it won’t productize Calista’s stuff until 2009.   “Citrix has experience delivering secure high performance and reliable desktops so it’s our core competency.”

Per the terms announced on Monday, Microsoft and Citrix will co-market a portfolio of client scenarios based on Windows Server 2008, Windows Optimized Desktop offerings, Citrix XenDesktop and Citrix Presentation Server.

For example, Citrix XenDesktop connection broker will interoperate with Microsoft’s Windows Optimized Desktop solutions (available through Microsoft volume licensing) including Windows Vista Enterprise Centralized Desktop and Microsoft SoftGrid Application Virtualization.

Microsoft and XenSource announced a pact before the Citrix acquisition – a controversial one -- that would ensure that Xen-based virtual machines would run well on Hyper-V. Citrix and Microsoft will take that a step further, Bara said. As part of a project code named “Menju,” the two are developing another layer of interoperability that will enable full portability between VMs on XenServer and Microsoft’s Hyper-V.

Citrix’s acquisition of XenSource makes more sense every day.

Not only does it keep the Ft Lauderdale, Fl company afloat as the VMware-Microsoft war moves into full swing, but it also enables Microsoft to get a quick start in the VDI game without the kind of protest that would have erupted if it attempted to buy a rising open source star such as XenSource.

Citrix’s acquisition of XenSource no doubt gives Microsoft a more intimate view and knowledge of the open source company’s source code than it had pre-purchase.

Strategy: Microsoft is now in the stage of purchasing, assembling and integrating all the technological pieces it need to build a homegrown VDI solution capable of competing against VMware’s VDI. Citrix's purchase of XenSource wa a big step forward for Microsoft. In the interim, Microsoft has appointed Citrix and its XenDesktop solution to fill the gap.

Conclusion: Once again, Microsoft is behind the technological curve but has a close ISV ally to keep it relevant while it chisels away on its solution. And as observers pointed out, it’s still early in the VDI game. VMware has a growing number of customers deploying VDI solutions but Microsoft can easily catch up by offering VDI with all of the value added integration aspects customers are accustomed to -- tight integration with Windows server and Windows management infrastructure. But that is all contingent on market acceptance of Hyper-V. If Hyper-V fails, Microsoft might have to shell out more than $1 billion to buy Citrix.

Microsoft's Push To Replace The Business Phone Won't Be Easy

The long awaited launch of Microsoft’s unified communications software platform will usher in a new era of business communication, free of phone tag, voice mail hell and asynchronous e-mail pileup in favor of real-time click-to-communicate experience within familiar Office and business applications, company chairman Bill Gates said.

That’s the theory, anyway.

On stage for what will be one of his last product rollouts, chairman Gates announced availability of Office Communications Server 2007, Office Communicator 2007 client, Microsoft Office Live Meeting advanced conferencing services and Microsoft RoundTable, a camera –enabled videoconferencing platform that provides an immersive experience: a panoramic view of meeting participants in a room, live video of remote participants, who collaborate real-time on documents and within business applications.

Gates and Jeff Raikes, a 26-year Microsoft employee and president of Microsoft’s Business Division, pointed to identity and presence as two foundational services in Office Communications Server 2007 that allows for seamless interactive communications among iWorkers.

For instance, the server gives a busy CEO a quick way to schedule communications and select appropriate method for each meeting, while a group of iWorkers harness identity, presence and VoIP services along with Office Live Meeting and RoundTable to meet in real-time online and together view and resolve an inventory glitch within an ERP application. Microsoft SharePoint Server 2007 is already enabled for the task.

As part of the rollout, Microsoft also announced plans to integrate its next version of Dynamics ERP and Microsoft CRM with Office Communications Server (OCS) 2007 while ISV partner SAP AG announced its intent to integrate Duet with OCS’ Voice-Over-IP, video, instant messaging, conferencing and presence services. Duet, jointly developed with Microsoft, exposes SAP business processes within Office.

Gates called the platform’s delivery a significant milestone that will put an end to the PBX era, much the way the PC replaced the mainframe and word processors replaced typewriters.

“Software is being brought to the business phone experience,” Gates said, chiding the ineffectiveness and user unfriendliness of business telephones. "Consider the business phone in your office. It still looks pretty much the same, with a fairly small display. They do have a lot of buttons and you look and say, ‘Wow I wonder who uses those buttons. It’s so opaque what’s going on so people don’t use the features there … it jumps out as the thing that needs to be changed.”

Surely, UC’s click to communicate features will no doubt make it easier for millions of Office users worldwide to integrate their data and communications and begin moving beyond their voice silos.

And it is a solid first step on the path to PC–telephony convergence, which has been a twinkle in Bill’s eye for more than a decade.

But it's only a first step. Even as the technology may save customers millions of dollars in communications and travel costs, implementing the software and training users will also cost.

Microsoft was wise to point out that it will take a village to make his dream come true. During today’s announcement, Microsoft identified systems integrators, telephony providers, ISVs and telephony vendors as essential members of its ecosystem.

Citing telephony giants Nortel Networks, Ericsson and Mitel Networks, Gates emphasized that the path to UC is an evolution and pointed out that his platform can be deployed alongside traditional PBX systems.

While pointing out that customers don't have to rip and replace their existing infrastructure to use Communications Server, Microsoft failed to address testing and training requirements for its new software.

When it comes to business communications, reliability always outstrips ease-of-use. Dropped calls, blue screens and mistaken identity won’t play well. In spite of the increase in dropped calls over cellular networks, and less-than-ideal directory services proferred by carriers, UC must prove itself rock solid reliable or corporate users will hang up in a hurry. Ensuring this quality of service through extensive testing will cost customers but is well worth the investment.

Investing in technology training -- and corporate training -- must also be considered. It may not be necessary to invoke a quick telephone call from Outlook but giving iWorkers the confidence to exploit advanced communications services within the context of a CRM application will be even more difficult than asking them to transfer a phone call.

Gates maintains that business workers are mystified by the numerous buttons on a telephone keypad, but I would submit that the same is true of Word and Excel, which are very feature rich, and perhaps user friendly, but fall under the 80:20 rule that governs software use – that users typically employ fewer than 20 percent of all product features.

Corporate training is another investment to consider. We've all heard of inappropriate text finding its way into an IM. Who wants to find themselves in the electronic presence of an angry CEO who's just been woken up by your wayward IM. RoundTable technology is here today but i Workers won't likely take to it unless they are trained how to use it.