Microsoft Server and Tools

Market Analysis and Future Outlook

Team 2

Situational Analysis

Problem Statement Cloud Market RecommendationsStructure

Business ModelIntegration

DiversificationRevenue GeneratorFinancial SolidityNadella’s Leadership

Follower in InnovationOrganizational structureHigh capital requirements for cloud

Integration of Cloud ServicesExisting growth potentialsService provider

Competition with AmazonOther Competition

SWOT

External

Internal

Acquisitions

Situational Analysis

Situational Analysis

Problem Statement Cloud Market RecommendationsStructure

Business ModelIntegration

1. •Cloud Integration

2. •Organizational structure

3. •Cost and Labor

Problem Statement

Situational Analysis

Problem Statement Cloud Market RecommendationsStructure

Business ModelIntegration

• Amazon’s projection of 33% growth to 158,000 servers [3]

Google was the leader in the size of data centers and servers (projected close to 900,000 servers) [2]

The Competitors

[2] Report: Google Uses About 900,000 Servers

Situational Analysis

Problem Statement Cloud Market RecommendationsStructure

Business ModelIntegration

Cloud Market

Gartner 2013 [1] - http://www.gartner.com/newsroom/id/2352816

2010 2011 2012 2013 2014 2015 20160

50

100

150

200

250

77 93 110130

160180

210

Cloud Market Projections

Situational Analysis

Problem Statement Cloud Market RecommendationsStructure

Business ModelIntegration

The Target Market

Microsoft a leader in cloud: IT Pro [4]

Small businesses: The unbundled buyers

Smaller packages at a time, few licenses, more purchases

Support and customization teams required – lifetime value goes upBig one-time investment – loyalty

Pay-as-you-go plans[6]

Fortune 500 companies: [5] These are the big revenue generators

Big packages and software supportLong-term contracts

Discounted added applications on Azure

Need for customization – higher paying client

Annual or monthly plans [6]

[4] Microsoft Case Study: http://advertising.microsoft.com/en-us/cl/651/microsoft-cloud-case-study

Situational Analysis

Problem Statement Cloud Market RecommendationsStructure

Business ModelIntegration

Compatibility

Merging Azure

Cloud Services

Setback faced due to incompatibility of applications with Azure

• Merge Azure into STB• Team collaboration

crucial

Categories: [7]

1) Execution Models2) Data Services3) App Services4) Networking5) Store

One Cloud – The Success Recipe

Universal Compatibility[8]

Application Platform

Data Layer

Modern Data Center

What’s Required?

•Three-year term•Billed Monthly

Contract Terms

•Monthly•Annual

Cloud-based Services

•Pay-as-you-goWindows

Azure Subscriptions

Service License Agreement[9]

Situational Analysis

Problem Statement Cloud Market RecommendationsStructureBusiness

ModelIntegration

Future

Integration of Azure

Pay by Product use

Datacenter Maintenance

Security

Replicate Windows Server 2012

Customers pay only for what they use

99.95% up time

Prevention from threats and attacks

New Model Recommendation

Situational Analysis

Problem Statement Cloud Market RecommendationsStructure

Business ModelIntegration

Making the Model Profitable [10]

• Multi-year volume licensing agreements• Discounts at no additional costs > 50%• Transactional volume licensing programs• Retail packaged products• Licensed software products for Original

Equipment Manufacturers25%

• Enterprise Services20%

Situational Analysis

Problem Statement Cloud Market RecommendationsStructurel

Business ModelIntegration

Cannibalization

Absence of individual licenses

Exchange and SharePoint

Market and sell Azure along with Windows Server 2012

Longer periods of monetization

Effects of Cloud Promotion

Situational Analysis

Problem Statement Cloud Market StructureBusiness

ModelRecommendationsIntegration

Three-year Financial Projections

$19,875M$17,987M$16,352M

Revenues10% e. y

Operating Expenses

$2,894 $2,955 $3,155

$6,756 $8,099 $9,072Operating Income

Yearly Projections (in millions)

2011 [11,12] 2012 2013

Revenues $16,352 $17, 987 $19,875

COGS $280(200K servers @ $70M/50K servers [13])

$350 (250K servers @70M/50K servers)

$700 (500K servers @70M/50K servers)

Gross Profit $16,072 $17,637 $19,175

Sales and Marketing $3,344 (6% increase of Sales in 2010)

$,3,410 $3,648

R&D Exp. $2,400 (approx. expenditure)

$2,470 (4% increase) $2,550

General and Admin Exp.

$678 (8% increase from 2010)

$703 $750

Operating Expenses $2,894 $2,955 $3,155

Operating Income $6,756 $8,099 $9,072

Situational Analysis

Problem Statement Cloud Market StructureBusiness

ModelRecommendationsIntegration

Three-year Financial Projections

Situational Analysis

Problem Statement Cloud Market RecommendationsStructure

Business ModelIntegration

Program Managemen

t

Data and Storage

Development

Testing and Engineering

Srivastava NOT retained

Promote Guthrie

Organizational Structure

[14] Microsoft reorganizes its Server and Tools unit, Zdnet, 2012

Situational Analysis

Problem Statement Cloud Market RecommendationsStructure

Business ModelIntegration

Internal Structure

Retain Anderson

Promote Laing

Promote Zander

Change Kummert’s Title

No Changes to Marketing and Finance

Add a new CVP for Testing and Engineering

Internal Organization [10]

The rest for integrated product development

Testing and quality assurance

• Use about 4,000 employees for Azure

Situational Analysis

Problem Statement Cloud Market RecommendationsStructure

Business ModelIntegration

President STBSatya Nadella

Scott GuthrieCVP Program Management

Brad AndersonCVP Program Management

Jason ZanderCVP Development

Bill LaingCVP Development

Ted KummertCVP Data and Storage

New CVP for Testing and Engineering

The Hierarchy

Situational Analysis

Problem Statement Cloud Market Business

Model Structure RecommendationsIntegration

Recommendations: Integration

Merge Azure in STB to ensure reduction of cannibalization of Windows Server 2012

Allow customization of the platform with other STB products like SQL Servers

Partner Licensing includes monthly, annual and pay-as-you-go subscriptions.

Situational Analysis

Problem Statement Cloud Market Business

Model Structure RecommendationsIntegration

Recommendations: Leadership

Not retain autonomous leaders who might interfere

with integration

Bring in Scott Guthrie, internally promote

and reorganize

Fresh, open minds, new perspectives

4,000 employees on Azure, add 1000+

employees

Situational Analysis

Problem Statement Cloud Market Business

Model Structure RecommendationsIntegration

Recommendations: Business Model

Start with startupsMove on to acquire Fortune 500 clientele

Expand data centers, scale infrastructure1M servers by 2013

Multi-volume licensingEnterprise systems

[1] Gartner February 2013, http://www.gartner.com/newsroom/id/2352816

[2] Report: Google Uses About 900,000 Servers, Rich Miller, Aug. 2011http://www.datacenterknowledge.com/archives/2011/08/01/report-google-uses-about-900000-servers/

[3] Amazon Ramps Server Count 33%, Charles Babcockhttp://www.informationweek.com/cloud/infrastructure-as-a-service/amazon-ramps-server-count-33-/d/d-id/1110660?

[4] Microsoft private cloud case study, http://advertising.microsoft.com/en-us/cl/651/microsoft-cloud-case-study, 2012

[5] Microsoft Customer Case Studies, http://www.microsoft.com/en-us/server-cloud/cloud-os/customer-stories/default.aspx#fbid=hl1V5qhEXEO

[6] Microsoft Corporation 10K, FY12, Microsoft Corporation

[7] Introducing Windows Azure, Microsoft Corporation http://www.windowsazure.com/en-us/documentation/articles/fundamentals-introduction-to-Windows-Azure/

[8] Interview: With $19B in revenue, Microsoft’s S&T’s chief says he’s just getting started http://venturebeat.com/2013/05/20/with-19b-in-revenue-microsofts-server-and-tools-chief-says-hes-just-getting-started-interview/

[9] Microsoft Corporation MSFT 2013 Q4 10-K

[10] Microsoft Annual Report 2012, Microsoft Corporation

[11] Microsoft Annual Report 2010, Microsoft Corporation

[12] Microsoft Corporation 10K, FY10, Microsoft Corporation

[13] The Cost of a Cloud: Research Problems in Data Center Networks, Albert Greenberg, James Hamilton, David A. Maltz, Parveen Patel, Microsoft Research, Redmond, WA, USA, http://research.microsoft.com/en-us/um/people/dmaltz/papers/dc-costs-ccr-editorial.pdf

[14] Microsoft reorganizes its Server and Tools unit, 2012, http://www.zdnet.com/microsoft-reorganizes-its-server-and-tools-unit-7000002814/

References

[15] Gartner: AWS Now Five Times The Size Of Other Cloud Vendors Combined, http://readwrite.com/2013/08/21/gartner-aws-now-5-times-the-size-of-other-cloud-vendors-combined#awesm=~ovMtjfPcmIRWqO

[16] Microsoft now has one million servers – less than Google, but more than Amazon, says Ballmer, July 2013http://www.extremetech.com/extreme/161772-microsoft-now-has-one-million-servers-less-than-google-but-more-than-amazon-says-ballmer

[17] What is Windows Azure? - http://www.windowsazure.com/en-us/overview/what-is-windows-azure/

[18] http://blogs.forrester.com/richard_fichera/12-09-05-microsoft_announces_windows_server_2012

[19] Microsoft moves further into cloud – by Quentin Hardy (New York Times)http://bits.blogs.nytimes.com/2012/09/04/microsoft-moves-farther-into-the-cloud/?_php=true&_type=blogs&_r=0

[20] Microsoft’s cloud vision: The Next Webhttp://thenextweb.com/microsoft/2012/12/13/microsofts-cloud-vision-how-azure-is-the-linchpin-to-the-firms-new-devices-and-services-corporate-strategy/#!vzjuB

[21] How Satya Nadella will transform the company , Feb. 2014http://venturebeat.com/2014/02/04/the-new-microsoft-how-satya-nadella-will-transform-the-company/

[22] Interview with STB CFO Curt Andersonhttp://view.officeapps.live.com/op/view.aspx?src=http://www.microsoft.com/investor/downloads/events/UBSAnderson.docx

[23] Build vs. Buy: Addressing Capital Constraints in the Data Center, CyrusOnehttp://www.ciosummitna.com/media/whitepapers/2013/CyrusOne_BuildvsBuy.pdf

[24] Earnings Release FY13 Q3https://www.microsoft.com/Investor/EarningsAndFinancials/Earnings/SegmentResults/ServerAndTools/FY13/Q3/performance.aspx

[25] Microsoft Moves further into cloud, New York Times, Sept. 2012, http://bits.blogs.nytimes.com/2012/09/04/microsoft-moves-farther-into-the-cloud/?_php=true&_type=blogs&_php=true&_type=blogs&_php=true&_type=blogs&_r=2

[26] Microsoft Data Center Tab tops $15 Billion http://www.wired.com/wiredenterprise/2013/02/microsofts-data-center/

[27] http://www.wired.com/wiredenterprise/2013/02/microsofts-data-center/

[28] http://www.wired.com/wiredenterprise/2013/02/microsofts-data-center/

[29] http://www.bloomberg.com/news/2013-04-29/microsoft-azure-sales-top-1-billion-challenging-amazon.html

[30] http://redmondmag.com/blogs/the-schwartz-report/2013/10/microsoft-shatter-financial.aspx

[31] http://www.zdnet.com/blog/microsoft/microsoft-if-we-dont-cannibalize-our-existing-business-others-will/6841

Additional References

Questions?

Current Cloud Customers [5]

http://www.forbes.com/sites/louiscolumbus/2013/02/19/gartner-predicts-infrastructure-services-will-accelerate-cloud-computing-growth/

IaaS growth of 41.3% by 2016, fastest growing public cloud computing

Competitors Capital Investment

Revenues: Revenues in 2010: $14,866 [6]Calculating a 10% increase in Revenues: $16,352Similarly, using the same percentage increase for subsequent years: Revenues FY11 = $17,987, Revenues for FY12 = $19, 875

Expenses Calculation:

Sales and MarketingTaking approx. 23% of Sales expenses for STB Sales, in 2010 STB Sales = $3,154Extrapolating at a growth rate of 6 – 7% we arrive at the given values

Financial Calculations

General and AdministrativeTaking approx. 17% of G&A expenses for STB G&A, in 2010 STB G&A= $678Extrapolating at a growth rate of 3 – 6% we arrive at the given values

Operating Income = Gross Profit – Expenses

Cost of Goods Sold = Cost of ServersAccording to [13], Cost of 50K Servers = $70 M = $52.5 (for servers) + $18.5 (Infrastructure)For approx. 1M servers, Phased production Year 1: 200K Servers = $280MYear 2: 250K Servers = $350MYear 3: 500 K Servers = $700M

Financial Calculations