Microsoft Execs Detail Business Software Opportunities

Cloud computing and business upgrades to Windows 7 were among the growth opportunities cited by Microsoft executives, but demand for the relatively ancient Windows XP continues as well.

Two senior Microsoft (NASDAQ: MSFT) executives gave financial analysts at two different investor conferences this week an overview of the company's plans for its business products, including Windows 7, Office 2010, and its server products -- not to mention the cloud.

For instance, how large is the upgrade opportunity for Windows 7 now that the PC "refresh cycle" at big businesses has begun in earnest?

Bill Koefoed, general manager of Microsoft Investor Relations, first noted that Microsoft had already sold some 175 million licenses for Windows 7, mostly to consumers, by the end of the company's fiscal year which ended June 30. Now it's the time for the business ramp up.

"Of the 1.1 billion PCs [in use worldwide], there are about 400 million business PCs. The average life of those is a little bit north of four and a half years old. So that just gives you a little bit of the perspective on what the opportunity is," Koefoed said, speaking at the Oppenheimer Annual Technology, Media & Telecommunications Conference in Boston on Tuesday.

XP downgrades a nagging problem

At the same time, however, one nagging problem regarding the PC refresh cycle hasn't yet tailed off, according to another top Microsoft executive.

"A lot of the PCs that are coming in [to businesses] right now are then being downgraded, because they come shipped with Windows 7, but the customer is downgrading them to XP," Robert Youngjohns, president of Microsoft North America sales and marketing, told attendees at the Pacific Crest Technology Leadership Forum in Vail, Colo., also on Tuesday.

That means that the pesky issue of whether or not to downgrade is likely to be a consideration for PC decision makers and purchasing managers for some time to come. Just last month, Microsoft relented on cutting off downgrades on the one-year anniversary of Windows 7's consumer launch or the shipment of Service Pack 1 (SP1) of Windows 7, whichever came first.

Windows 7's consumer launch was October 22, 2009, while SP1 went into beta test last month, with final availability scheduled for the first half of 2011.

Now, downgrade rights from Windows 7 to XP Professional will remain in effect until two years after the "next" version of Windows ships.

Youngjohns said, however, that he expects that -- due to XP's age at nearly nine years -- many of those downgraded machines will eventually be upgraded in place.

For investors and analysts concerned that Microsoft's core businesses might disappoint going forward, Youngjohns pointed to other substantial growth engines among its cash herd.

"A substantial part of our business in North America is selling infrastructure software like Windows Server 2008, like SQL Server, like System Center, the stuff that runs the enterprise not just the PC, and that's a business that I think continues to be attractive to us," Youngjohns added. He also cited Office 2010, which shipped to businesses in May, as well as the SharePoint collaboration and content management server, which has become a billion dollar business in its own right.

Both executives' remarks appeared meant to settle not only investors' nerves, but also to reassure IT managers that Microsoft will remain a major force in the enterprise for years to come.

Cloud computing plans

To that point, Koefoed said that analysts shouldn't automatically assume that Microsoft's aggressive move to cloud computing will undercut its established profitability model, although he granted the model will change.

Koefoed cited the example of customers running Exchange Server for messaging in a customer-hosted scenario versus providing messaging as a service from the cloud.

"[That's] one [area] that's going to generate more revenue, more margin dollars, at a lower percentage, but clearly driving incremental gross margin and operating margin dollars," Koefoed said.

"The model we intend on pursuing, we think is incredibly market expansive for Microsoft. You have to remember, there are $3 trillion spent on commercial IT globally" every year, Koefoed added.

Stuart J. Johnston is a contributing writer at, the news service of, the network for technology professionals. Follow him on Twitter @stuartj1000.

Tags: cloud computing, Cloud, Microsoft, Windows 7, cloud app

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