Q&A: Microsoft's Flessner Sounds Off On Competition

Paul Flessner, senior vice president of Microsoft's Server Platform Division, this week sat down with CRN Editor In Chief Michael Vizard and Industry Editor Barbara Darrow to discuss developments at the software vendor's Tech Ed 2003 conference here as well as competitive challenges from IBM, Linux and Oracle.

CRN: IBM WebSphere has good brand recognition. How can you combat that? Microsoft is still a year away from the full release of Jupiter, its planned e-business integration suite.

FLESSNER: I can only win when I ship. I tell it like it is, but then nobody believes me until they see our integration. The fact is that IBM doesn't expend a lot of engineering energy--at least in R&D--to make those things integrate. They have a big services organization where they make a lot of money integrating that stuff. The reality is, we don't have a big services organization and don't want to make money integrating it. We want to make money on software.

CRN: But Microsoft has an army of partners that make a lot of money on integration.

FLESSNER: But they would rather make money on value-adds on top, rather than spending time on integration. Integration is quick, high turn.

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CRN: Tech Ed is a revival meeting for the Microsoft faithful. But when developers go back to their jobs, all of those organizations are under pressure to convert to open source or have IBM beating on the door about WebSphere/Java. What's your core message for these guys when they get back home?

FLESSNER: The story is two major things: Get connected using Web services, and we're the best platform for Web services because we pay attention to the total cost of ownership. Cost of acquisition is irrelevant over the lifetime of the system. The burden of proof is on the open-source community as to whether they really lower the total-cost-of-ownership value proposition

CRN: IBM would argue that you guys got to where you are by lowering the cost of acquisition with Windows.

FLESSNER: They might, but they'd probably be wrong.

CRN: I hear from dyed-in-the-wool Microsoft partners that, because of a confluence of things such as Microsoft licensing and security issues, there's a lot of pressure on companies to look at other options--even if it's a negotiating ploy.

FLESSNER: They should do that stuff. That's their job. I want to win their business. There's nobody that religious, and if they are, they won't be in their jobs very long because it's a competitive world. I'm happy with them looking at other people. They put pressure on us, and that makes us better. I'm very comfortable in the environment we're in. It has brought more competitiveness to our market. Customers seem to be benefitting, and that's good. Overall, I think our company is more focused

CRN: At JavaOne, Sun Microsystems and the Java guys will say that they own all of the data centers and will now reach out all the way to handhelds and everything in between. One could argue that Microsoft owns that space and is chipping away at the data center. People in the marketplace listen to both arguments and say 'ho-hum.' They are comfortable with the split between Microsoft owning the collaboration/productivity front ends and Java owning transactional back ends. Why would anyone want to switch?

FLESSNER: I wouldn't characterize Java as owning the transactional world. Sun has a big presence in the data center. We have a big presence in the data center. I think they've run most mission-critical applications in the past, and we're in what I call tier two and tier three--with mainframes and high-end Unix being tier one, [followed by] tiers two and three. The reality is, Linux has had a far more devastating effect on Unix than it has on Windows. The share for Linux is coming from Unix. We gained share this year, and Unix lost as Linux picked up. It's uncomfortable for a CIO today to be sitting on a RISC environment. The Intel platform has proven its economics and increasingly scaled up and out to everywhere I need between Linux and Windows. I'm totally fine competing in that kind of environment

CRN: So there's a tier one, and everyone's fighting for tiers two and three?

FLESSNER: No, I said there's huge erosion off Unix in tier one, and people don't think Linux is ready for that today. So Windows is the beneficiary. There are 80,000 mainframes in the world. There have been 80,000 mainframes for a while. They decline about 1 percent a year, mostly through consolidation. It's been a very slow bleed off the mainframe because most of that code was custom-developed.

With Unix, each year we have to figure out how much share we're going to take and where it's going to come from. Novell's been bleeding for years, and with Unix I thought this is going to take forever. This will be like a mainframe bleed. There are 3 million Unix servers, so it will take 50 years. Then you realize that Unix really only got hot in the '90s, the same time that ERP and big packaged apps came into play. Customers are running off this stuff. The shift from Unix is much more rapid than from the mainframe, and I think it's mostly because of the packaged apps vs. the custom apps. To pick on Sun, JavaOne [attendance] was down 50 percent, I think. It had us more than a little bit concerned. Our numbers are up 30 percent at Tech Ed. I think the vote has been cast, and it's off RISC and onto the Intel platform

CRN: What's your take on PeopleSoft buying J.D. Edwards?

FLESSNER: I think it's pretty exciting. I think it's an interesting move for both companies. PeopleSoft has had tremendous difficulty in the high end competing with SAP, which is the big dog up there. None of the big vendors have successfully gone downmarket, and J.D. Edwards has been quite successful there with a good channel and a good reputation

CRN: PeopleSoft CEO Craig Conway said some pretty rough things about you guys when PeopleSoft launched its Linux push last last month.

FLESSNER: They're clearly feeling some of the sting of us entering this [business applications] market. Now I think I know why, more than I did a few days ago. I know [PeopleSoft CTO Rick] Bergquist and those guys pretty well. They're still selling a ton of PeopleSoft on our platform. Unix has collapsed for them. They were the biggest of the big Unix/Oracle shops, and they have nowhere to go except to Windows. They're not putting those big, high-end apps on Linux, and they don't want us to be alone up there. So they'll push on Linux to make sure we're kept in check.

CRN: Microsoft's business apps push is putting you--being in the Server Platform Division--in an interesting position, since ISV partners may now see Microsoft as an application competitor. How is your relationship with them?

FLESSNER: It's OK. I can't say some partners aren't uncomfortable. But we really are in the small- and medium-size business space, and anyone who thinks otherwise is just silly. We're just not in the enterprise space with MBS [Microsoft Business Solutions] products. It's never been a secret that my strategy for penetrating small and medium businesses is solutions. Customers there don't buy databases; they buy accounting systems. J.D. Edwards was pretty uncomfortable with MBS acquisitions, yet 40 percent of their installs end up on Windows and SQL Server. And they made a big deal with IBM and, six months later, they came back and said, 'Maybe we were a little too quick on that. We'd like to talk with you again.'

CRN: Are people ready to buy yet? Will the Windows Server 2003 and Office 2003/SharePoint wave spark buying?

FLESSNER: Sure. The server market is different. You don't have huge waves of upgrades. There are upgrades over a period of time. But believe me, there are plenty of people out there on NT 4 who are ready to move and plenty of people on Exchange 5.5. who are ready. They've seen enough proof points on Active Directory. Windows 2003 has it the way [they] want it: easier to implement, integrate. Part of the [user] base moves at any given period. Still, people are buying SQL Server 7.0. It's a phased kind of thing.

CRN: Microsoft is dribbling out products--beta one of Jupiter, wait for SQL Server/Yukon until late next year. One part slips, and then everyone freezes. Does that hurt?

FLESSNER: The arguments have occurred. Do we announce too early? Do we freeze the market when we announce a beta? The reality is, I don't live quarter to quarter. You shouldn't if you're in the business for the long haul. We make our numbers, or we don't make them. Living on a quarterly basis is never how Microsoft was managed. I've always respected Bill [Gates] and Steve [Ballmer] for thinking about the long haul. I have to do long beta cycles because I have to get the product right. I don't care how much testing I do; I never know where I'm at until customers have the product. If I slow sales for a couple of quarters [by long testing], so be it.

CRN: Has the uproar over Microsoft enterprise licensing subsided?

FLESSNER: Customers are happy about the [Software Assurance] changes we made last week. We'll win back their confidence slowly. They were angry at us for the changes. We kind of got through that. Salespeople are no longer spending 15 minutes in a meeting getting an earful on licensing. They unanimously say we're on different footing. But we still damaged what I call customer trust. They don't like surprises. No surprises are what we've been pushing on. We'll have to win [customers] back slowly. Incremental values in SA have been a big win. Still, it's a little early to tell.

CRN: Enterprise licenses are still three-year deals. So a cynic might say that by slowing down product rev cycles, Microsoft is saving itself money on creating and shipping upgrades.

FLESSNER: I was very worried about that and talked to customers. I was ready to offer a guaranteed-ship, and customers said to forget it. They don't want these releases all the time. What they want is super-high-quality product and free support, which is what we put into the offering.

CRN: Oracle has been really aggressive on the Linux front. And on the other end, are you worried about MySQL?

FLESSNER: I've always been probably more of a gentleman than I needed to be on Oracle. We are pounding Oracle in the market--that's the only way I can say it. Our revenues are up 28 percent. Oracle sales are down 4 percent. There's no question we're the absolute leader on the Windows platform in every dimension--revenue share, unit share, etc. We're not worried about responding to Oracle. They are not a market leader in my mind at this point. I do think about MySQL and what we need to do there. I think we'll have an entry there in about two years. [We're] probably not as well-marketed and as educated as we should be. We dropped the price on our developer edition today. While I have respect for [Oracle's] engineering, a lot of people have lost respect for the way they do business on a lot of fronts. And they're being punished in the marketplace for that.

CRN: Do you worry more about IBM in databases?

FLESSNER: I certainly think about IBM a whole lot. I think IBM has a better-rounded value proposition than Oracle.