Server & Tools Poised for Continued Growth

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Once considered a niche player, Microsoft’s Server & Tools Business is now a robust and growing business, and one of the company’s most promising.

By Joshua Isaac

January 25, 2008 Microsoft will celebrate the releases of Windows Server 2008, Visual Studio 2008 and SQL Server 2008 on February 27 in Los Angeles.

Microsoft’s formal launch of its next generation of server and tools software next month will help solidify the Server & Tools Business’s position as a formidable and growing competitor in this crucial market.But it wasn’t always this way.

At the Windows 2000 launch eight years ago, Microsoft demonstrated its commitment to the enterprise business by lining the stage with servers powered by Windows Server 2000. The launch foretold a breakthrough for STB, which would grow into a market leadership position.

The launch in San Francisco in February 2000 conveyed Microsoft’s willingness to bet big on the server business despite doubts voiced by the press and a crowded field of competitors.

How wrong those skeptics were.

An InfoWorld article from the week of the launch captured the prevailing sentiment. One analyst said Microsoft’s growth rate was tapering off in the server space. Another commented that with the range of options now available, such as Linux and hosted applications, Microsoft wouldn’t be able to rely on the dominance of Windows with hardware manufacturers and ISVs to be successful.

Indeed, with established players in the server marketplace like Oracle and IBM and the open source movement gaining steam, Microsoft faced huge challenges.

“We were literally being laughed at by two different groups,” said Dave Mendlen, director with Developer Marketing. “The Linux guys thought that we would never take their market share because they were free. The established companies like IBM said, ‘You want enterprise? Then don’t compromise.’”And the marketplace turned away from Microsoft, too. While business decision makers fretted over going with established companies or using free open-source software, developers preferred Java to Microsoft’s .NET offerings. But “Microsoft kept coming,” said Mendlen, who described the Windows Server 2000 launch as a tipping point. “That was when our aspirations to be an enterprise company took off.” For the February 27 Server & Tools launch, Microsoft is focusing its message on IT pro and developer customers as Heroes of their businesses for building solutions that solve real-world problems.

Through the Get the Facts campaign, Microsoft countered the notion of “free software” by focusing on the total cost of doing business. In addition, the benefits of consistent upgrades to Microsoft’s server and tools offerings helped the company make significant headway. In just 10 years, STB grew from virtually nothing to an $11.175 billion annual business and approximately one-fifth of Microsoft’s revenue. This includes 20 consecutive quarters of double-digit percentage growth led by SQL Server, which now sells more units than Oracle and IBM combined.

“Starting from not much of anything, we quickly became established players,” said Udai Kumar, strategy manager of data and storage with Server Finance. “This shows a different success story for Microsoft than Windows and Office – that we are not a one-trick pony. We can cover the whole breadth of our enterprise customers’ needs.” Our aspirations with the Windows Server 2000 launch was to compete in the enterprise business, said Dave Mendlen.

If STB were a standalone entity today, it would rank in the top half of the Fortune 500 and would be one of the largest software companies in the world. Yet, even now, its success is not solidified. A recent Microsoft-commissioned worldwide study shows that the threat from free software remains formidable.The next wave in Microsoft’s march into the enterprise software market, intended to solidify STB’s position, will come on February 27 in Los Angeles, with the formal launch of Windows Server 2008, Visual Studio 2008, and SQL Server 2008. The event is billed as the Heroes Happen Here launch.

“This launch should fuel the next wave of STB growth and momentum,” said Mendlen. “It positions us to keep building on a rich Internet experience for our customers.” And the positive momentum helps propel Microsoft’s business as a whole.

“The success of the server and tools business in general is amazing,” said Carlos Gonzalez, a senior finance manager with Server Finance. “But part of the success of STB is that we are one Microsoft altogether. So the success of STB certainly helps Windows and Office, and vice versa.”

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