Motive

As the saying goes, people are motivated by either greed or fear. I think for many big companies, it’s more the latter. And Microsoft has a lot to be scared about.

If you poke behind its $71 billion in revenue and 39 percent operating margins, 30 percent of the goldmine comes from multiyear volume licensing agreements, which Microsoft calls Enterprise Agreements (EAs). According to industry analyst firm Forrester Research, “these profitable agreements bring in the kind of regular revenue preferred by financial-market analysts that monitor Microsoft’s performance.”

What motivates a customer to sign up for an Enterprise Agreement instead of simply buying Microsoft products, like Office, off the shelf? Well, historically, Microsoft pitched EAs as a way to ensure you can cover your workforce with Microsoft products at a discounted price level.

With companies investing in post-PC devices like smartphones and tablets, and evaluating alternatives to Microsoft productivity solutions, such as Google Apps or Salesforce.com, CIOs are starting to wonder whether renewing their EA is still a top priority.

In response to this threat, Microsoft is now pushing its Software Assurance (SA) licensing model, which allows customers to upgrade to newer products and also use its cloud services. The reason for the possible shift, Forrester says, is that “the twin revolutions of client mobility and cloud servers will kill device-based licensing, which is Microsoft’s existing model.”

So if Microsoft doesn’t embrace the cloud in a big way, the EA gravy train could come to an end.

Means

Apple is cool. Facebook is friendly. And Google isn’t evil. Yet look across a sea of computers in a typical company, and you’ll still see Microsoft everywhere.

And I’m not just talking about Windows. Microsoft has two key assets that will help it win the enterprise cloud:

• Office: While the Web and Web-based apps are fabulous for consuming content and even collaborating around it, Microsoft Office is still the standard in productivity to create corporate content. Love or hate those PowerPoint presentations, but they are still how most companies run. And for flexible analysis, Excel is unmatched. Heck, the Macintosh Business Unit at Microsoft (which is primarily Office for Mac) is a $350 million business on its own.
• Outlook/Exchange: For many workers, Microsoft Outlook (with Microsoft Exchange Server on the backend) is the first thing they boot up to start their workday, and the program they remain in all day long. According to industry analyst firm Radicati, 301 million corporate mailboxes used Outlook in 2010. Indeed, some companies have switched from Microsoft Outlook/Exchange to Google Apps and back, because users are too addicted to the interface and functionality of Microsoft Outlook.

So Microsoft still owns two of the key ways “knowledge workers” work with knowledge.

Opportunity

Microsoft isn’t working from a standing start. It actually jumped into the cloud relatively early in 2008 with its Business Productivity Online Suite (BPOS), a hosted platform for collaboration. While BPOS suffered from many challenges, mainly because it was based on a platform that wasn’t designed for the cloud, Microsoft made it clear several years ago that they are “all in” as a company in the cloud.

This year, after many delays and much anticipation, Microsoft finally announced its first platform built for the cloud, Office 365. The new version of Exchange is finally on par with its on-premise alternative. Microsoft SharePoint Online is now flexible enough to meet many enterprise use cases. And Microsoft Lync Online, a real-time chat and videoconferencing system, could be a game changer for company productivity.

In parallel, Microsoft is working away on Windows 8, its big bet on the tablet revolution. With all of Microsoft’s failed past attempts at mobility and tablets, some level of cynicism is expected. But some believe Microsoft’s conviction is real. If Microsoft even gets it 80 percent right on tablets, they will likely win in enterprises that are used to the manageability of Windows, and will be attracted to the inevitably deeper Office integration.

Conclusion

Don’t get me wrong: The innovation in the cloud is coming from all over, mainly from start-ups. For many of these start-ups and other non-enterprise organizations, a non-Microsoft approach will likely be the winner. But for the millions of you working in corporate America, Microsoft is probably the one bringing the cloud to a desktop near you.

Nick Mehta is CEO of LiveOffice and has served in senior operating roles in the enterprise and consumer technology markets for much of his career. He spent more than five years at Symantec Corporation and Veritas Software Corporation (now Symantec), where he served as vice president and general manager of the Enterprise Vault information archiving and discovery software business.

Here’s the direct quote taken from the transcript:

“IPhone continues to be adopted as the standard across the enterprise with 93 percent of the Fortune 500 deploying or testing the device, up from 91 percent last quarter and 60 percent of the Global 500 testing or deploying iPhone, up from 57 percent last quarter. A recent example of iPhone’s enterprise success is Lowe’s. Lowe’s is in the process of rolling out over 40,000 iPhones with a custom application to allow their store associates to execute real-time inventory checks, product orders and interactive customers with how-to videos.

Additional examples of companies around the world supporting iPhone on their corporate networks include L’Oreal, Royal Bank of Scotland, SAP, Texas Instruments, Jacobs Engineering Group, Tenet Healthcare, Jaguar Land Rover, Takeda Pharmaceuticals, Lincoln National and CSX Corporation. And of course, we’re thrilled to begin shipping iPhone 4S this month.”

And later, a similar section devoted to the iPad:

“Every day, we learn about innovative new ways our enterprise customers are using iPad. The airline industry is a great example of the momentum we’re seeing. United Continental Holdings is putting iPads in every cockpit to replace heavy, paper-based flight bags. In Japan, All Nippon Airways is now using iPad in training programs for flight attendants.

Sonic Automotive is using iPad for customer check-in at the service department and also to provide analytics to regional managers. Aflac, Biogen and General Mills have developed internal apps that their field sales teams leverage daily, and technicians of Siemens Energy are bringing iPads along when they do maintenance work at the top of their wind turbines.”

It turns out that it’s not a new thing, exactly. Cook has recited similar lists on Apple conference calls before. But as recently as 2008, when Businessweek published its cover story called “The Mac in the Gray Flannel Suit” (which, full disclosure, I worked on), Apple was generally considered an outsider in the enterprise IT business, and Apple products a novelty in the office. In broad brushstrokes, Macs tended to show up at media and advertising companies, and in the creative and marketing departments of other companies. The iPhone, and later the iPad, changed all that.

Here’s about as good an indication of that trend as I’ve ever seen: Intermedia, a company that operated a hosted Microsoft Exchange service for small and mid-sized businesses, said earlier this month that among its 41,000 customers, 78 percent are using Apple devices to get their mail, contact lists and calendars.

Meanwhile, look at all the companies that have developed enterprise applications for iOS: Salesforce.com, NetSuite and Citrix immediately come to mind. And Tidemark — the business intelligence start-up I wrote about yesterday — is iPad-ready from the start. There are probably hundreds, if not thousands, of examples I’m missing.

Apple has cumulatively sold 40 million iPads since the device launched last year. The company doesn’t offer much in the way of a data breakdown of how many of those are sold to businesses, but it almost doesn’t matter, because in so many cases, people buy one and just take it to the office. When you hear the phrase “consumerization of IT,” which already feels pretty worn out to me, it refers mostly to people who want to use iOS devices at work, and to a lesser extent, Google’s Android. A recent survey of 750 IT managers found that the iPhone led the pack of personal devices used at work, followed by Android Phones and the iPad.

I probably shouldn’t be surprised by all this, but when I heard Tim Cook list all those big companies using iThings to get things done, it finally dawned on me: Apple is as much an enterprise story as it is a consumer story.

Of course, if Ballmer’s exhortations aren’t enough, here’s another enticement: Cold hard cash. Microsoft said today that it has committed $5.8 billion in incentives, training and tools for members of its Microsoft Partner Network to get accustomed to the new products and services and to encourage them to sell them to their customers.

One big place where it’s putting that cash is behind messaging. It’s an area where Microsoft’s Exchange platform and Outlook desktop software has been under attack lately from the likes of Google Apps, and it’s a key component of Office 365, the new cloud-based version of Microsoft Office. Partners can train up in the newly created Messaging and Communications competencies and learn all about deploying Exchange and Office 365 and its video conferencing software Lync.

In August, Microsoft says it will offer new services in software assurance and planning, essentially paying partners to help their customers deploy Microsoft’s private cloud, and its Azure public cloud service, which competes with, among others, Amazon’s Web services and IBM.

Another area of focus: Dynamics CRM, an area where there’s stiff competition from Salesforce.com, plus longer-term CRM players like Oracle and SAP. Partners are being offered 40 percent of the sale of each new subscription to Microsoft Dynamics CRM. Microsoft is just a bit player in the online CRM world for now, but as history shows, it rarely stays in that position for long.

I am going back to school in the fall and I contacted the school to see which laptop or tablet I should be using. They replied I would need the Adobe Flash Player to run the lectures. While I love Apple, I understand the newest Apple laptops and the iPad do not support Flash. Is this correct? If so, what should I buy?

A:

There’s a lot of confusion about this, so here’s the story. Apple’s Mac laptops and desktops do indeed run the Adobe Flash Player, and thus Flash videos and websites, just like Windows PCs. While they no longer ship with the Flash software pre-installed, you can quickly and easily download and install it free of charge. Once you do, Flash videos and websites will work on your Mac.

By contrast, the iPad won’t accept the Flash Player in its built-in browser and thus cannot run Flash videos or websites. There are some third-party browsers for Apple’s tablet, such as Skyfire and Puffin, that do run Flash on Web pages, albeit clumsily at times. The latter are available in the iPad app store. If you want a tablet that runs Flash natively, you could buy one of the newer Android models, or the HP TouchPad, but be aware that some Flash videos and websites don’t run properly on the current generation of Flash-enabled tablets.

Q:

I am thinking about upgrading from an old cellphone to something where I could send/receive email, make calls in the U.S. and overseas, plus run some apps of interest such as financial, investment and GPS. Seems like an iPhone or an Android would work. Getting the lowest monthly rate is important, as usage is very low. What do you advise?

A:

First, I agree that an iPhone or Android phone would work. But, if you expect to make a lot of calls from outside the U.S., you’d be better off with a phone from AT&T or T-Mobile, although such overseas calls are very costly.

If you go with AT&T, you can get either an iPhone or an Android phone. T-Mobile doesn’t offer the iPhone. As for costs, there are so many rate plans out there, that I strongly suggest you visit each carrier’s website or store and carefully compare plans that you feel will fit your needs. A few things are worth noting. AT&T charges extra for heavier data usage. T-Mobile doesn’t, but it slows down your data speeds when you use over 2 gigabytes a month. And you shouldn’t buy a cellphone that doesn’t work well where you live, work and frequently travel, so choose a cellphone from a carrier that does.

Q:

Please advise how I can transfer my calendar and contacts to my iPad in the most efficient manner possible.

A:

There are two ways to do this. You can use iTunes and the included cable to sync your contacts and calendar from your PC or Mac. Second, you can maintain your calendar and contacts in a Web service like Google or MobileMe or Microsoft Exchange, and sync them to the iPad automatically when you are connected to the Internet.

Email mossberg@wsj.com.

According to Intermedia, the largest Microsoft Exchange hosting provider globally, 61 percent of the ActiveSync-based smartphones activated on its service are iPhones. Just 17 percent are Android handsets. And while Android’s share is growing–in April, for example, it rose to 33 percent, it’s still far exceeded by the iPhone, whose April share grew to 64 percent.

In tablets, the gap between the two operating systems is even more vast. Of the tablets activated on Intermedia in April, 99.68 percent were iPads. The remainder were Samsung Galaxys, Motorola Xooms and Huawei S7s, which accounted for a piddling .16 percent collectively.

*And Research in Motion’s BlackBerry dwarfs them both. However, it was not included in Intermedia’s study, which focused solely on ActiveSync devices.

Today’s the day we all find out. The two are showing the first fruits of their combined quarter billion dollars worth of labor. The pair announced they have built four enterprise-focused appliances that they say will combine applications, infrastructure and productivity tools into a single unified system. The first half of this quartet is being announced today, with more to follow.

One is the HP Business Decision Appliance, which is intended to run business intelligence applications. The appliance, they say, greatly reduces the time and effort for companies to deploy and manage business intelligence, which is a fancy way of saying you’re analyzing the data from the operation of your business, and looking for patterns or trends that might not otherwise be apparent. It’s optimized to run for Microsoft’s SQL server database software and its SharePoint collboration software, and takes less than an hour to install, they promise.

The second is the HP Business Data Warehouse Appliance, a data store designed for small- and mid-size companies that they say delivers performance that’s suitable for a big enterprise, but doesn’t require an administrator to run it. It’s a smaller version of the HP Enterprise Data Warehouse Appliance, which the two first previewed in November and is available now.

Next up is a messaging appliance geared toward making it easy to install Microsoft Exchange 2010, the server piece of Outlook, Microsoft’s all-purpose email, calendar and contact software that’s so widely used in companies around the world. Its formal name is the HP E5000 Messaging System for Microsoft Exchange Server 2010, and the two companies say it’s the industry’s first self-contained server for enterprise-class messaging that can be deployed in only a few hours. It comes pre-configured and with “best practices” designed in. The mailboxes are large, centrally archived and available to any device. It will be available in March.

What’s after that? HP and Microsoft are also working on something they call the HP Database Consolidation Appliance, which can bring hundreds of databases into a single appliance. This one will run SQL server and Microsoft’s Hyper-V Cloud.

It’s all about making IT projects easy to deploy, says Mark Potter, HP’s senior vice president and general manager for industry standard servers and software. “It can take anywhere from one to 18 months to roll out a sophisticated service to end users,” Potter told me in an interview yesterday. “About 32 percent of all IT projects are rated a success. It takes our customers a lot of time, planning and risk. We’re trying to bring a solution to the market that does for business applications what Microsoft Office did for desktop productivity.”

Why spend so much to team up? Microsoft and HP think that by 2015 there’s a combined market worth $55 billion for business intelligence, data warehousing, messaging and online transactions, making that quarter billion potentially worth it. Now they just have to prove these appliances can sell.

The promise comes in a blog entry posted by Matthew Glotzbach, product management director for Google Enterprise. “Unlike most providers, we don’t plan for our users to be down, even when we’re upgrading our services or maintaining our systems,” writes Glotzbach. From now on, all downtime that does occur will be counted and applied toward the customer’s service level agreement. In fact, the entire section of its SLA that covers scheduled downtime is being removed. This includes periods of 10 minutes or less, which under the terms of its old agreement didn’t count as downtime.

Google also released some data about the availability of Gmail, both the consumer and enterprise versions. It says that in 2010 it managed to maintain uptime 99.984 percent of the time. This, Glotzbach says, works out to about seven minutes of downtime per month. Citing data from the Radicati Group, he says that makes Gmail 32 times more reliable than the average on-premise email system and 46 times more reliable than Microsoft Exchange.

Over the years, Google Apps has taken some criticism for downtime issues and for not meeting the level of availability spelled out in its agreement. Shortly after it introduced its premier version in 2007, there were reports of availability problems. And there have been occasional Gmail outages like this one in 2009. As services we use daily migrate to the cloud, downtime seems an unavoidable by-product, as this list of incidents in 2010 from Data Center Knowledge suggests. It may seem like a small thing, but Google is making a strong statement here. It will be interesting to see if any of the other cloud providers respond in kind.

Over time, CIOs everywhere got over their skepticism of the cloud, and Salesforce.com went on to become a billion-dollar company that is widely used in numerous industries.

But he knew there was more to it. Lots of other small companies where adapting the Salesforce software-as-a-service model to other job functions besides tracking sales relationships. There’s SuccessFactors, which tracks employee performance, and Workday, which manages basic company operations like payroll and benefits.

For companies large and small that are embracing the cloud, that’s a lot to manage. McKinnon’s plan with Okta, a start-up company that’s received investments from Andreessen Horowitz, Floodgate and SV Angel, is to make it easy for companies to take advantage of cloud applications and services by giving them a single place from which to manage it all.

I caught up with McKinnon last week in Menlo Park, Calif., at the Sand Hill Road offices of Andreessen Horowtiz, which in July invested $10 million in Okta, its first cloud investment. The company is planning a big launch in January.

NewEnterprise: So your last job was at Salesforce.com, but it led directly to you starting Okta. Tell me about that.

Todd McKinnon: I went to Salesforce at the time their engineering team was really small. Their engineering team was only about 10 or 15 people. They brought me in to be the first non-founder VP of engineering. They wanted me to scale the company and scale the group.

NE: So you got into Salesforce early, and things look pretty good over there now. Why did you leave?

TM: We had a booth at Dreamforce, and I saw a lot of my old friends there, and they asked me the same thing. I was at the tip of the spear in terms of seeing this transition in the industry. When I first started at Salesforce, companies were first starting to adopt the cloud and the software-as-service approach, but they were really skeptical. They had to scrutinize everything about it before they would buy it. One time I spent an entire weekend–I remember because it was my birthday–reviewing the code line by line with a big bank, for security. Over the years, that attitude changed. Rather than view it as something risky, they viewed it as beneficial, and they got more comfortable with the risk.

That to me was an important moment. When the industry shifts, that creates an opportunity, the kind of opportunity that small companies can take advantage of. I couldn’t sit there knowing there was so much opportunity and so much disruption going on and watch someone else go out and do it.

NE: Clearly we’re seeing Salesforce broadening out from its original offering. We’ve seen it launch Database.com and acquire Heroku in recent days. It didn’t occur to you to try and build this within Salesforce?

TM: It did. But there’s challenges there in terms of what the company is going to focus on and how long to focus on the primary mission before it branches out. I wanted to build a company. I wanted to have an impact, but I also wanted to build a company.

NE: So explain how you got from there to starting Okta.

TM: I had been thinking about building a monitoring system for big companies rolling out their mission-critical cloud services, like call centers. The idea was to monitor performance and gather compliance data in a way that was similar to what companies were already doing with the systems they had in-house.

I called a bunch of people who said that monitoring was a good idea. But one thing I heard was that it would only make sense to large companies. The other thing was that there were a lot of companies, some big, some small, that were deploying cloud applications. I started to see companies who were running most of their IT infrastructure outside the firewall. Once you think about a world where the center of gravity is outside the firewall you have to solve a lot of problems in the cloud that have already been solved inside the firewall.

I kept running into a simple example: If you have a Windows network, you have file servers and print servers and email. Microsoft has made that work well. But if you’re trying to build your corporate IT in the cloud, there’s a bunch of unsolved problems. You have some file utility, and email from Google or a hosted Microsoft Exchange, and maybe a print driver on your copy machine. What I learned is, before anyone needs monitoring, there were all these basic problems that needed solving.

NE: What kind of basic problems?

TM: There’s the the most basic problem of identity. How do you get users authenticated in a consistent way across all these cloud services? How do I make sure that when someone joins the company they get access to what they need to do their job? And more importantly when someone leaves the company, how do I make sure that they don’t have access to all the things they did when they were an employee?

When you run your corporate IT in the cloud, all your files and services are out there on the Internet and so you have to make sure you de-provision that user’s access. There’s a great bonus with the cloud that files are accessible from everywhere, on your PC or your phone. The downside is that they’re available everywhere and so you have to manage that. If you’re truly going to reap all the benefits of the cloud, like lower costs, in the next five to 10 years, companies are going to have to rethink how they build their networks.

NE: And that’s where Okta comes in?

TM: Right. We set out to build a domain controller for this new type of network–we call it a Cloud Area Network.

NE: At most companies there’s a mixture of infrastructure that’s in the building or in a managed data center, mixed with some cloud services. What you’re saying is that if I want to manage my infrastructure on things like Amazon Cloud Services or Microsoft Azure or Google Apps, some combination like that, then you’ve got to have a way to control who can access what.

TM: Exactly. Okta sits in the middle of your services, and knows what you use. Right now it’s focused on applications: Workday, Taleo, Success Factors, GoToMeeting, Salesforce. We have hundreds of prepackaged combinations. You tell it which ones you have, and you get three very concrete benefits right out of the box. The first is that your users get a single dashboard to access them all, with a single sign-on. Administration staff gets a single point to create accounts across all of your services. And then, most importantly, when someone leaves you can automatically de-provision them, so you can cut them off from the services all at once.

NE: So what are your launch plans?

TM: We’ve been selling in the marketplace for a while now, and the main thing we’re going to talk about is customers.

NE: That was my next question. What kind of companies are you going to be talking about?

TM: These are known companies. They’re not huge. Our biggest installation is about 1,500 seats. But when companies deploy it they want to give it to every employee because it manages so many applications. One customer has 21 applications in there, and one had 15. It crosses all the job functions, and touches all employees.

NE: So if you counted up all the active seats in use right now, how many would it be?

TM: We’re going to be announcing that in January too! (Laughs.)

NE: So what’s the business model?

TM: It’s a subscription model just like all the other software-as-service companies out there. It’s based on per user, per month. The default is that they choose to license for the whole company so we get a lot of broad deployments.

NE: So where do you want to be a year from now?

TM: The big thing a year from now, we need to start to position ourselves toward our bigger vision of becoming a platform. The initial product is easy to understand. Over time we need to turn it into something bigger. We want to get beyond the applications and turn it into a platform-as-service. We’re starting with applications, because that’s where the adoption is right now. Ultimately we want to be the controlling layer for a lot more: Programming tools like Heroku and Force.com and Google App Engine, and then there’s the infrastructure-as-service layer like Amazon. Our ambition is to be a domain controller for all of it.

Froyo brings a number of enhancements to the OS, among them better support for Microsoft Exchange, improved performance and the ability to turn phones that run it into mobile Wi-Fi hotspots.