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Gates Speaks On Oracle-Siebel Deal, Channel Opportunities

Microsoft Chairman Bill Gates sheds light on partner opportunities, the Oracle-Siebel deal, the next-gen Windows and a range of other topics in a QandA with CRN at the software giant's Professional Developers Conference.

Microsoft Chairman Bill Gates sat down with editors Barbara Darrow and Paula Rooney after his keynote address at the software giant's Professional Developers Conference in Los Angeles, where the company previewed for the first time Office 12--and its new interface--running on the upcoming Windows Vista client, as well as new infrastructure such as Windows Workflow Foundation.

CRN: Can you talk about how partners -- VARs and integrators as well as developers -- can make money off the technology you showed today?

GATES: The fundamental framework stays the same, which is that the magic of software is when it gets mapped into a solution where you have a trusted person who understands that solution and is evolving it for you and giving you support around that solution.

And that's why Microsoft has always had a partner-centric strategy. It's a key asset for us. In a lot of competitive situations over the last several decades we've learned and evolved our strength of the things we do with partners.

Today's focus is really on developers. How does that affect these partners? It means that when they go in to build solutions, they're starting at a somewhat higher level than they did in the past. And their ability to be more ambitious is furthered because of things like how do you do rich presentation, how do you do rich communications flows, how do you do workflow. Instead of building a lot of that plumbing themselves, they're starting on that higher foundation, and so every year what they can do is better.

Workflow is a good example of that. In Jim [Allchin's] speech he's going to show a language innovation where you write a lot less code when you bind a program to the data. So nothing here alters the role we have relative to our partners. It just means that they are starting with a richer platform. Obviously they have customers, their customers don't have Vista today, but a year from now that's going to start to roll out and so we're giving them early visibility. This is our hardest-core event that we do. I mean, we have the highest percentage of machine code developers here, device driver developers here, and then we add to that TechEd that we do a lot of those.

And so I'm sure our partners, some of our partners are here, but the message out of this to them should be evolution of the platform, same business framework.

CRN: On the MBS side there's this perennial worry, you know, Doug [Microsoft Senior Vice President Doug Burgum] always talks about white space on top of your applications so that you're pitching MBS as A platform. But a lot of ISV-type partners are very worried that you guys are coming up and eating their lunch. Can you say anything to these people?

GATES: Well, the size of the software business is growing and so the pie we participate in, as you get digitization of the economy and digital work style, digital lifestyle, the total size of the opportunity is bigger. That might seem paradoxical because as packaged software incorporates in printer drivers and now workflow-type things, some of those lower level pieces are just there, you can assume those. But the fact is the market expands every time the platform gets richer.

And so we let people connect in very low [level] into our platform. The place you get the biggest concern are people who do security add-on software, because we are so active building more and more security capabilities into the software. And so they have to look at our roadmap and see where they can add value on top of that.

As you get higher up the stack, the concerns about overlapping with us go down. I'm sure they're always there, because if you do accounting software, obviously we're doing more with Small Business Accounting and hopefully driving the share of the Business Solutions type products we have. If you're a vertical though, we do almost nothing there. In fact, other than our Retail Management solution, we rely on partners for verticality and we always will, so you're not seeing a big change in that.

Last week was a big week in terms of the commitment to the small business with the introduction we had there in the medium-size business. But you didn't see anything where we're doing vertical type stuff there.

So in horizontal spaces people do watch what we're doing and make sure they're complementary. That's why we're so open about our strategy.

CRN: So the CTP of Vista that you showed today, how is it different from beta 1?

GATES: It's not dramatically different. I'm sure somebody who knows Vista better can go through it. See, the whole point of CTP is it's not a one time thing. CTP, the acronym means that I think every six weeks or so they'll be giving out new Vista builds to people. So even between now and beta 2, which is the first really broad beta, there will be a number of additional releases. So CTP is a process. The first one is not dramatically more than beta 1.

CRN: OK. So for developers is there an SDK or something they can be working with?

GATES: Oh, absolutely. Yeah, I mean, the CTP, you can write code that runs against it, and...

CRN: But is there a Vista platform SDK?

GATES: Actually, we package the tools vs. Vista itself. We have to get somebody to clarify that. I think the SDK doesn't get revved at the same rate that the Vista thing itself does. I think we ship those -- that SDK, which we already have, I think asynchronously we update that. I'm not sure we update that again until beta 2.

CRN: You guys have been more partner-centric than IBM and Oracle. However, both of those companies are trying to paint themselves as the ISVs' best friend vs. you guys. I would love to get your comment on the Siebel-Oracle deal and how that might change the competitive situation.

GATES: Well, [Oracle CEO] Larry [Ellison] predicted that the software industry would consolidate. Through billions of dollars of his spending, he's managed to make his prediction come true.

Historically, the main company that we really competed for partners with was Novell. They had that as a huge asset and because of some missteps in their software strategy we've been a huge beneficiary. As they didn't generalize their platform, we picked up a lot of those partners.

I think if you go out there numerically in the world, there still may be more Novell partners than there are Oracle partners or IBM or SAP partners. Anything Microsoft does that's successful gets -- whether just purely in rhetoric or in actual execution -- gets our competitors thinking, hey, that's a good thing.

I don't think they'll find it particularly easy to do, because you actually have to be willing to give up a substantial part of that revenue stream and generate more dollars for your partners than you generate yourself. And if you've got a services organization that's quota driven and a substantial part of your P&L -- which in the case of IBM and Oracle those are huge parts of their P&L, even more so for IBM than Oracle, but very large for Oracle -- you just get a basic conflict there.

Where we've taken our consulting services and said: 'No, we'll always keep that constrained to serve a strategic role and not a substantial P&L [profit and loss] role.' CRN: Microsoft Services is a P&L though, isn't it?

GATES: It's a P&L in the sense that we add up the numbers to try and make sure it breaks even, but we've never said to them,'Hey, you're going to be a measurable part of our P&L. And the metric for them is--it's a very different philosophy.

The big customer says: 'Hey, have Microsoft consulting come in.' We measure ourselves by how quickly we can leave. That is, that between the skill sets we build up in the customer and the partners, that we're no longer necessary. Whereas IBM and Oracle, just naturally it's economics because they've got a P&L goal, they measure themselves by how long they can stay.

And so keeping the partners that are effectively service competitors, in their case, and the customer as uneducated as possible works to their advantage.

But that really -- you see that in a deep way in terms of product design. IBM doesn't mind a product that there's a lot of piece parts that consulting comes in and says, 'Okay, don't use that piece, use this piece'. And if you look at WebSphere, there's a lot of pieces. I mean, I dare you to name all the pieces in WebSphere.

We have to make things more coherent and that's why I loved our medium business event last week, because even though our product line is way more, you know, just install and use, here is the thing you need for this, you need for that, really couching it in those solution terms, which pieces give you business value, we can do even better at that.

And so with the survey thing where we went out and looked at businesses and which activities they do and the benefits of that, that was a fantastic piece of work for us, to review ourselves and say, hey, our product line is still, even though it's way simpler than Oracle or IBM, it's still way too complex for a medium business to have this clear thing that they go and do.

CRN: Does Oracle buying Siebel open the door for Microsoft to reconsider purchasing SAP on the enterprise front?

GATES: That hasn't come up.

CRN: Siebel is a big Microsoft ISV partner, right now and I'm sure you hope in the future. But on the enterprise CRM front, what is Microsoft going to do to counter?

GATES: Well, we have a CRM product, we're scaling that up to more demanding situations. We'll continue to work with Siebel, we'll continue to enhance our product. SAP is in that space as well, they're a very good partner of ours. We have regular meetings with SAP. I'm sure working together better in CRM will be again just a little bit more extra energy because of that.

You know, these mergers don't really change all that much overnight. I didn't expect Oracle to buy Siebel, but they did so….

CRN: So it was a surprise to you?

GATES: Well, I guess if you look at who they put into the Oracle management team, it's a very sort of deal acquisition [group]-- you know, the three people below Larry never wrote code. That's a different structure than we have.

CRN: On the Google front, that's a big focus for Microsoft, and can you talk about WinFS bits and MSN search? What is the future of Microsoft search technology, particularly in Vista, and how do you plan to counter Google's advances?

GATES: Well, search, of course, is a very broad set of things. There's the desktop search, which we have that as a free add-on to Windows, the best reviewed product, this Windows desktop search. With Vista that's just built-in and there's APIs there for apps to use. In Office 12 you just saw how Office 12 uses those search APIs. So the fact is it's going to be built into the operating system and it's the best reviewed desktop search. Now, that's different than corporate search. Corporate search, SharePoint has done very well there, a lot of corporations don't have great search, it's a huge advance in Office 12, that SharePoint Portal search capability. Corporate search requires very different algorithms because you have rights issues and you don't have a lot of links and things. And so we love comparisons between our corporate search and what Google or anyone else has done there.

Then you get the Web search, which is the area where Google has done very well, and we let people obviously connect up to that, but we're building a Web search that we think is better. You'll see at this conference the developer's kit that lets people do pretty extensive things with the MSN search capabilities. And we'll just keep making that richer, there's a very healthy competition there.

CRN: How will the corporate search integrate with WinFS?

GATES: WinFS. WinFS is the idea of taking the file system and the database and the directory and the mail store and bringing those together. In this wave we still have a directory store, we have an Exchange mail store, we have a database store, we have a file server, so that dream of unifying those things, you know, people can see the technology we're building for that.

It's really the next round of SQL on the server where you could get that deep unification. And now we'll have it on the server and the client, we've got people helping us do the design of those things. So that doesn't really relate to Google in any way, because they're just Web search.

CRN: When you say the next wave, you mean the SQL Server after SQL Server 2005?

GATES: After. The next major one after that, that's right. I mean, we always use our codenames and Yukon was the codename of SQL 2005, and now there's this codename Katmai. I think it's a national park in Alaska.

CRN: We just have to touch on the managed services stuff as well.

GATES: Sure, sure.

CRN: It sounded last week like you guys are getting into the hosting business. Is that the case, are you going to do your own Salesforce.com competitor? Or are you going to still rely on partners to be the hosting venue for that?

GATES: Well, I think there are two things there that very separate. One is how much you rely on partners to get into the customer, do the customization for the customer, and be in the front line of that relationship, vs. actually where is the hardware that the software is running on. We're certainly architecting the software so that more and more it -- we use this phrase "server equals service."

So you can run it in the customer premise or you can run it outside the customer premise. And we want people's choice of where they run the software to be orthogonal to everything else, to not bias the idea of the role of the partner in there. If it's more efficient, if they choose not to run it on premise, great. If they choose to run on premise, great. That's a technological thing that we want to support.

The idea that partners really need to come in and -- except for the most sophisticated customer -- actually be the one who pulls together the solution, it doesn't really change that piece.

You can say we've been in the hosting business forever. Hotmail, you know, the world's biggest e-mail system is hosted by us. And as we've put more features in there and even have you pay for subscriptions to get at some of those advanced features, that's Exchange in the cloud. And so you'll have Exchange in the cloud, Exchange running in partners like mostly telcos, and then Exchange running on premise. And you've got to have a spectrum of choices people have there.

SharePoint today runs primarily on premise, we have some partners who are doing hosted SharePoint, we are looking at what our role is in helping people with SharePoint. So technologically the server equals service thing year by year is making good progress.

CRN: I guess the big question is will you guys host the server farm for this stuff going forward?

GATES: And in the case of Hotmail, we have that. You know, there are scale economics for certain things. It's not like we wake up in the morning and say, hey, let's go buy some more servers. But where the scale economics make that the most effective thing for the customer, we and the partners should want to have it work that way. The value-added of the partner isn't reliant on the software running on the server on premise.

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