The VAR Guy

The VAR Guy isn’t going to make many friends with this blog post. He thinks Microsoft Small Business Server (SBS) is past its prime. Even as Microsoft gears up this November to ship SBS 2008 and Windows Essential Business Server 2008, our resident blogger wonders: Do small businesses really want on-site servers with all that software?

First, a little background. The VAR Guy spent 2006 and 2007 working for a 15-person company in New York. Aside from a file-and-print server, there wasn’t much need for an on-site email server or database server.

Unless you have specific vertical-market apps that you need to run in-house, the time is right for small businesses to start outsourcing as many applications as possible to a service provider. Over on MSPMentor (our sister site), managed service provider Nick Vossburg of TechAssist posted a comment on July 7 that stated:

“If your business’s focus is maintaining and supporting Microsoft networks, then be prepared for a market that may not exist in 10 years.”  (Be sure to read Nick’s entire post for proper context.)

Nick has a point. But The VAR Guy thinks the shift away from network- and server-centric projects in small business will occur much more rapidly.

With the rise of hosted Exchange, on-demand CRM and even hosted databases, more and more small businesses don’t want the hassle of running and maintaining their own servers, The VAR Guy asserts. (In fact, The VAR Guy believes Microsoft will ultimately succeed in the Software as a Service market.)

Is Small Business Server truly dead? Admittedly, that’s quite a stretch by our outspoken blogger. Software, after all, never really dies. How else can you explain the thousands (millions?) of people still running OS/2, NetWare, Windows 98 and other legacy platforms?

Sure, SBS 2008 and Windows Essential Business Server 2008 will enjoy their share of sales. In fact, sales may even grow for a couple more years. Even the open source industry is following Microsoft into the small business server market. But real VARs have their heads in the cloud.

Is the party over at VMware and the virtualization market? Yes and no. In a surprise move, former Microsoft executive Paul Maritz has been named president and CEO of VMware, replacing ousted co-founder Diane Greene.

One possible reason, notes Barron’s: VMware’s revenue growth for 2008 won’t quite meet the 50 percent target that Wall Street was expecting. Plenty of companies would welcome such growth problems, but VMware shares are down more than 20 percent on the news.

At Microsoft’s Worldwide Partner Conference in Houston, most folks are focused on Microsoft’s Software as a Service (SaaS) strategy. But here’s a quick fact from the event that caught The VAR Guy’s ear: More than 2,500 Microsoft partners have achieved the “Unified Communications Solutions” competency. Should Cisco Systems be worried?

First, let’s put things in perspective. The VAR Guy has never been blown away by certifications, accreditations and other pieces of paper that claim VARs and managed service providers are competent. And earning Microsoft’s Unified Communications Solutions competency could be a rubber-stamp diploma.

But The VAR Guy thinks Microsoft is onto something here. In the world of networking certifications, Cisco Systems is king. And a quiet but strategic battle is brewing between Cisco and Microsoft: Microsoft’s best customers are ISVs (independent software vendors). Cisco’s best customers are VARs. With those facts in mind, Cisco is racing to recruit more ISVs, and Microsoft is taking aim at networking VARs.

Buried within this Microsoft press release, the software giant briefly mentions that 2,500 of its partners have earned the Unified Communications Solutions competency. It’s easy to dismiss such numbers, but plenty of Cisco rivals could never hope to make similar claims.

On the eve of Microsoft’s major partner summit in Houston, TechTarget is speculating that Microsoft may one day want to acquire Nortel Networks. Hogwash. The VAR Guy knows at least four reasons why such a deal will never happen.

First, here’s the speculation from TechTarget — which claims that some Microsoft and Nortel partners think such a deal might make sense. Here are four reasons why such a deal will never happen, according to The VAR Guy.

1. Embrace and Replace: Microsoft has spent decades partnering with second-tier companies (examples: Sybase, Novell) to infiltrate new markets or counter established industry leaders (examples: Oracle and Red Hat). By partnering with Nortel Networks, Microsoft can potentially learn how to compete more effectively against Cisco Systems in the unified communications market.

Still, anyone who thinks Microsoft wants to start selling big networking iron — routers, switches, PBXes, telecom gear, etc. — doesn’t understand Microsoft’s corporate DNA. Microsoft can’t even keep the Xbox 360 from overheating, and the company’s home networking hardware products were dead on arrival. Do you think the software giant would attempt to manage global telecom phone systems?

2. Alcatel-Lucent: So far, the merger of Alcatel with Lucent has deeply disappointed investors. In the networking industry, big mergers of equals (examples: SynOptics with Wellfleet, 3Com with US Robotics, etc.) never work. While the merging companies are busy sorting out their executive perks, Cisco Systems hums along and crushes them in the market. Microsoft knows this. Instead of buying a big networking company, Microsoft will partner with all of them.

3. That Was Yesterday: Why — oh why — would Microsoft buy a legacy telecom company as the world increasingly moves to open source PBXes like Asterisk from Digium, software as a service (SaaS) and Web 2.0 technologies?

Sure, Microsoft may eventually compete with Cisco Systems. But companies like Google, Salesforce.com, Red Hat and Oracle represent far more immediate threats to the Microsoft empire. Surely, Microsoft won’t risk getting distracted on a big network hardware acquisition.

Nortel has done a nice job cleaning up its accounting problems, current management has stabilized Nortel’s business, and the company remains a major telecom equipment supplier. Yada, yada, yada … where’s the growth? One of Nortel’s closest watchers — Blogger Mark Evans — notes that the company is still looking for its “growth” opportunity.

4. Direct vs. Channel Support: Microsoft generally relies on partners to sell, service and support its software. Nortel’s big telecom customers demand responsive, real-time, world-class support directly from Nortel. That’s not exactly Microsoft’s strong suit.

Well, The VAR Guy has certainly set himself up for a big fall here. If Microsoft ever buys Nortel, The VAR Guy will have to eat a big serving of crow. In the meantime, he isn’t swallowing TechTarget’s theory about a potential Microsoft-Nortel combo.

Microsoft is scheduled to bury Windows XP today — basically forcing Windows customers to buy Vista instead. Yet, Dell’s channel blog actually has the guts to show VARs how to continue offering XP to customers. Don’t underestimate the significance of Dell’s move.

Yes, the so-called XP loophole — which enables customers to receive XP even as Microsoft forces Vista onto systems — is well-known.

But Dell’s decision to promote the licensing loophole (in this Dell channel blog) is a significant one. As Dell states simply:

The short version is that Dell can sell what we’ve branded “Windows Vista Bonus” which allows us to preinstall XP Professional with a Vista license (on select system categories). This lets customer’s upgrade to the Vista platform when they’re ready. And yes, Dell will support both OSs.

Read between the lines, and Dell is basically saying that it no longer fears Microsoft. The customer — rather than recently retired Bill Gates — now calls the shots in the PC market. And Dell continues to promote customer choice to its corporate buyers and channel partners.

Remember: Dell actually had the nerve to introduce Ubuntu Linux on selected PCs and laptops — the very year that Microsoft began shipping Windows Vista.

Some folks argue that demand for Windows XP remains strong because it’s such a solid operating system.  That may be true for some customers. But The VAR Guy argues that XP remains a contender because Vista has been such a major disappointment.

Matt Asay, author of The Open  Road blog, is telling the world how Macs are replacing PCs at corporate meetings. But that’s not all, Asay notes. Check out this photo from the Missouri School of Journalism. Look at all those Macs. The Kids Are All Right! So, what does all this mean for Microsoft?

Okay, let’s not go overboard, Mac fans. Microsoft still holds more than 90 percent of the desktop market. And get this: The VAR Guy believes Microsoft is going to get Windows 7.0 right — because Ballmer & Co is so embarrassed by Vista bloat.

Either way, there’s a key theme here: The desktop is now open to competition and third-party innovation. Instead of bowing to Microsoft’s desktop icon demands, PC makers can now choose Linux (and often do) as a pre-install option on some systems. And unit sales of the Mighty Mac jumped 50 percent in May.

And one look at the Missouri School of Journalism suggests tomorrow’s bloggers will all be running Macs. Just like The VAR Guy.

Some folks say VARs are dead. After checking his own pulse and web site traffic, The VAR Guy disagrees. Instead, he believes channel pros are reinventing themselves via managed services and new software stacks. In fact, a new survey by Channel Insider suggests that Red Hat Linux is now the most popular platform among VARs.

The VAR Guy isn’t surprised. We’re in a tricky economy. CIOs and small business owners want VARs who can innovate yet save money. Linux is the rare technology that achieves both of those goals.

Not that The VAR Guy agrees with all of the Channel Insider survey findings. Sun Microsystems and Novell server operating systems placed second and third in popularity among elite VARs, noted Matt Asay, author of the Open Road blog.

That sounds a bit misleading: How can Sun be more popular than Microsoft on the server? Sure, The VAR Guy is a Unix and Linux fan. But he doesn’t deny Microsoft’s success in the server market.

I’m feeling a bit like Hillary tonight: Can I get a recount? Both Bills (Clinton and Gates) would appreciate it.

Side Note: Did Channel Insider really need to develop a 33-page slide show to tell us about their channel winners? One quick list on a single page would have been nice.

Officially, Microsoft isn’t saying much about Windows 7.0, the forthcoming successor to Windows Vista. But Mary Jo Foley’s All About Microsoft blog has compiled an interesting list of potential Windows 7.0 features, functions and design goals. Take a look.

We’re heading into a holiday weekend. Wonderful. It’s always nice to unplug a bit. But be careful: Technology companies are notorious for announcing bad news late on Friday or even on Saturday during a holiday weekend. Also, three-day weekends are a great time for companies to hammer out big partnerships or acquisitions in quiet solitude. If Yahoo and Microsoft are going to break bread, The VAR Guy believes it will happen this weekend.

First, watch for alarms: Tech companies often hope bad news will get softened and stretched out over the holiday. By the time everyone plugs back in Tuesday morning, so the theory goes, the bad news won’t feel quite so bad. The old Computer Associates used to leverage holiday weekends frequently for bad earnings announcements. (Thankfully, the new CA is far more transparent.)

Meanwhile, holiday weekends are a great time for high-profile CEOs, boards, financial advisors and lawyers to huddle up without many people noticing. Microsoft and Yahoo, for instance, seem interested in talking again. A Friday night dinner date that stretches into a weekend romance could be in order.

The VAR Guy will be watching…

Conventional wisdom says Google — armed with open source, software as a service (SaaS) and Web 2.0-centric tools — will trounce legacy players like Microsoft. If that’s really the case, then why has Microsoft’s revenue grown more than Google’s since 2002? Skeptical, take a look at this chart and some data culled by The VAR Guy.

Sure, in terms of pure percentages, Google is growing much faster than Microsoft. Revenue at the search giant surged from roughly $439 million in 2002 to a lofty $16.59 billion in 2007. Absolutely amazing.

But Microsoft actually has Google beat. Thanks to some dominant brands (Office, Windows, Exchange, etc.), Microsoft’s revenue has surged from $28.37 billion in 2002 to $51.12 billion in 2007.

Here’s a chart showing both company’s annual revenue (in billions) since 2002:

Translation: Microsoft’s top-line has grown roughly $23 billion since 2002, compared to Google’s top-line growth of about $16 billion.

So, a few takeaways:

• Yes, Google is growing faster than Microsoft in terms of pure percentages
• Yes, Google’s annual revenue growth (in terms of actual dollars) may beat Microsoft’s revenue growth this year
• Yes, the world is infatuated by open source, SaaS and Web 2.0
• But sorry, Microsoft bashers: The software giant isn’t collapsing.

Much like IBM’s transformation from mainframe monopolist to a successful company on multiple fronts in the 1990s, Microsoft increasingly resembles a solidly successful company that continues to grow in numerous areas.

The VAR Guy is no fan of Windows Vista. But there’s no denying Microsoft’s fiscal power.