Microsoft Stares Down Economic Barrel

Steve Ballmer is warning Wall Street that our miserable economy can and probably will impact Microsoft. The biggest threats? The PC market is down and Microsoft still struggles with search. Server software, which had been booming, may soon be bombing as IT holds off on upgrades.

Ballmer believes that the money that has left the economy won't simply come back during a recovery, but that we will "reset" at a lower level. For Microsoft, that means future profits may not be as big as we're all used to.

My guess? Microsoft may actually see a quarter or three of actual losses. However, it's still sitting on some $20 billion in cash and the strongest overall product portfolio the market has ever seen. Microsoft will be just fine. Agree, disagree? Send your economic projections to dbarney@redmondmag.com.

Virtual Red Hat
Last year, Red Hat bought Qumranet, a virtualization outfit that owned the KVM hypervisor and a selection of desktop/thin client tools, for around about $100 million.

Now Red Hat is laying out its enterprise strategy in the form of a new line of Qumranet-based products, such as an updated server hypervisor, management tools (which is where the real action and money is) and desktop virtualization wares.

Red Hat, in my estimation, is going after the void it believes is left as Citrix puts muscle behind Hyper-V. That commitment leads some to assume that Citrix really doesn't care about its own hypervisor, Xen. But Citrix does care -- to an extent. It's happy to push Xen into open source-centric shops, and more than happy to sell Hyper-V right alongside Microsoft.

Incidentally, at first I thought "Qumranet" was just another meaningless high-tech company name, but I discovered that the Dead Sea scrolls were found in the Qumran Caves. Cool.

Citrix + Microsoft = VMware Nightmare
Citrix and Microsoft have a strange relationship, one of the few cases where the term "coopetition" actually applies. In the thin client space, the two have cooperated and competed for over a decade -- Microsoft with its low-end technology Terminal Services (now called Remote Desktop Services) bundled with Windows Servers, and Citrix with its higher-end Presentation Manager (now called XenApp). The companies are so close they even change names together!

The two firms edged even closer with the announcement of Citrix Essentials. The new software runs alongside Hyper-V and offers features Microsoft hasn't had time to build. The key hole is storage, and here Citrix comes to the rescue with StorageLink, which links SANs to virtual machines.

Your Turn: Microsoft's Economic Stamina
Microsoft had a tough last quarter. Revenue and profits were down and the company announced 5,000 layoffs. I'm working up an essay looking at how Microsoft technologies may see it through tough times.

Do you think Microsoft has the stuff to make it through economic calamity? What are the strongest parts of its portfolio -- Azure, Live Mesh, SaaS, Visual Studio, Windows 7? Shoot your best supply-and-demand analyses to dbarney@redmondmag.com.

Your Turn: Green IT
Do you care about green technology? Is there pressure to save energy? Have you pushed any green initiatives, such as virtualization? Are there ways to use Microsoft software more efficiently and has Microsoft told you about them?

Help me spread the green word by writing dbarney@redmondmag.com.

Mailbag: XP Support, Windows 7 Upgrades
More readers give their thoughts on how long Microsoft should continue to support XP:

From my perspective, Microsoft should be prepared to continue sticking with XP at least until 2014 as it has previously stated. People will be watching their budgets very closely for the next two to five years and unless there is something so compelling that we all just have to get Windows 7, I think XP is going to be around for even longer. Like it or not, many of us just do not like Vista or are that keen on what we are seeing in Windows 7. We know XP backwards, it does everything we want, the software we currently own and use is more than adequate so no new cost is needed for either hardware or software.

XP has penetrated a vast market. I think Microsoft totally underestimates the marketplace and fails to grasp that no one likes to be bullied into accepting something by dull submission.
-Ken

I think the scheduled EOL and support for XP is sufficient. XP has been out for a long time. It's already stable and happy and has lots of supporters and die-hard "don't kill it" petitioners. Five years of support? We should feel lucky.

Out with the old and in with the new, I say! Vista is stable, secure and has better mobility than XP.
-Rob

Since there seems to be such a nose-turn at Vista, M$ should go ahead and bite the bullet of standing behind XP until Windows 7 has established itself as either good or bad. By that point, I'm thinking that either Vista will be good enough (with continued updates and patches) to stand up on its own or 7 will just settle in as the new XP replacement. In either case, I don't see IT managers taking XP offline and implementing either Vista or 7 until they are proven stable and unshakable. As long as this isn't the case, then XP is still going to be the OS of choice for most administrators.
-Edward

And Marc thinks Microsoft's plan to upgrade Windows 7 starter packs over the Internet is nothing new:

No doubt about it, Windows 7 Starter Edition is crippled for no apparent reason. But the strategy of offering Anytime Upgrades for preloaded Windows software has always been available for all editions of Windows Vista. Windows 7, however, won't even require a software upgrade. As I understand it, the Anytime Upgrade will be nothing more than a new license key which will "unlock" the features of the version you buy.

Frankly, I think it is a smart approach -- provided the customer is not penalized by paying more for this kind of an upgrade than they pay for an OEM upgrade.
-Marc

Check in on Friday for more reader letters! Meanwhile, share your own thoughts with us by writing to dbarney@redmondmag.com or leaving a comment below.

About the Author

Doug Barney is editor in chief of Redmond magazine and the VP, editorial director of Redmond Media Group.

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