Bob Muglia on Azure, Silverlight, and Realtime

mugliaEarlier this summer I traveled to Redmond to meet with a number of Microsoft executives, including Bob Muglia, President of the Server and Tools Business. Muglia’s group has grown rapidly to become the critical swing vote in Microsoft’s transition to the cloud, now closing in on almost a third of the giant’s overall revenue. And as Silverlight and realtime become the strategic heart of the integration of cloud and on-premise solutions, what Muglia had to say then will resonate much more clearly when he takes the stage next Tuesday with Chief Software Architect Ray Ozzie to open the PDC in Los Angeles.

[Video of the second half of the conversation embedded below]

We began our chat with Bob asking me about a video I shot with then-Sun CEO Jonathan Schwartz:

BOB MUGLIA: I want to tell you that your Open Source ponytail is one of the funniest things I have ever seen. It really — it was hysterical.

STEVE GILLMOR: Yes, well, I’m afraid it may have driven Jonathan out of the business, but —

BOB MUGLIA: I actually think that he did that himself.

STEVE GILLMOR: I think so, but, you know —

BOB MUGLIA: You don’t think it was —

STEVE GILLMOR: He’s a friend, so it was a little difficult, but — a lot of people inside Sun would come up to me privately and say, you know, that was really wonderful.

BOB MUGLIA: But never publicly, I’m sure. I’m sure. Yeah, no, it was very funny. It was very funny. It’s been fascinating watching, so we’ll see where things go.

STEVE GILLMOR: What’s been fascinating about it?

BOB MUGLIA: Oh, just — it’ll be interesting to watch what happens with — you know, assuming the acquisition of Sun by Oracle goes through, what really winds up happening there. The hardware business is an interesting business for Oracle to be taking on, and if they really ultimately do take it on, it’s hard to know — and Larry’s said a couple of times that they will, but it’ll be interesting to see where it goes.

STEVE GILLMOR: Yeah, he also said the cloud computing is a joke. Last time I looked, Sun is — they’re doing a lot of stuff in that area.

BOB MUGLIA: Yeah, they have a lot of investments, certainly. I mean, the challenge is, when you look at these hardware architectures, SPARC is below critical mass, in terms of an investment stream, to be able to maintain viable, on a long-term basis, and I think almost all the customers know that, and so there will need to be a transition off of that, in one sense or another, and it will be interesting to see how they do that.

But I mean, it’s sort of just I think generally part of the dynamic. I mean, this is actually one of the more interesting times right now. Cisco entering the server market’s been very interesting.

STEVE GILLMOR: How does that impact on what you’re —

BOB MUGLIA: Well, mostly in the context that it really has galvanized HP as changing their view about Cisco much more as a competitor than as a partner, and in that context it helps. I was just down at HP yesterday and — I meet with Cisco, I meet with HP, I meet with all these guys, right, they’re all partners of ours, and there’s just — I mean, I think there’s a great opportunity for us to do more and more together, with companies — with the other vendors in the marketplace because they see — whenever you see new people coming into the server market, I mean, you could sit back and see Oracle coming into their server market. We’ll see if that’s actually the case in the end. Sun does have an X86 business.

And so whenever you see new players coming in, it changes the relationships between the existing folks that are there. And the server market has been pretty dynamic in terms of new folks coming into it, with Cisco, you know, we’ve seen Sun come in. You see new entries — Verari and I guess it’s Rackable/SGI. So, seeing some new entrants in there, and some of those guys are doing some really, really, really interesting stuff. Rackable in particular has done some fantastic work on containers. A lot of these guys, they’re all doing container work, so there’s been a lot of good things that have happened across the board.

But it’s fun to see — and when you talk about clouds, there will be a connection between those sets of things. I mean, I guess our sort of high order view is that we see that there’s a continuing shift and the world’s a — the economies are sort of on everybody’s mind right now, and no one’s really sure when we’ll see the pullout and how steep the pullout will be. Another reason to not be on video at the beginning, so I can have my cup of coffee in the morning. Thanks.

And yet one of the fundamentals that I’ve heard again and again from IT managers is that they definitely view technology as part of the solution, not part of the problem, and so there will be continued investment in this. It’s not clear how fast things will come back. It’s been a pretty dismal first quarter. We’ll see how second quarter comes out. I mean, I see having the server market down 26 points year over year, after growing about seven points in the previous first quarter. So, it’s a pretty — over 30 percent drop, year over year, is pretty —

STEVE GILLMOR: You expected that, do you think?

BOB MUGLIA: We were planning for a drop. It’s probably steeper than we had anticipated. What we found is, is that we have not dropped that much. I mean, we did better than that in the first quarter, so we’re actually — we’re gaining — that just — when the market’s doing that, that means we’re gaining share.

But it’s — it hit everybody very hard. Everything off course began in the fourth quarter of last year, and then it got very steep. And the question on everybody’s mind is when do things start to pull out. But I think the one thing I do hear again and again from IT is that they do plan to continue to invest, and continue to look at ways that they can come out of where we’re at with differentiation. So, people are looking forward as much — they’re looking to save money, which works well for us, because we have a very strong message associated with how our platform can save companies money, compared to Oracle and IBM, and even in a lot of senses compared to Open Source, because we provide a more complete solution with us and our partners, for a good cost.

But then there’s probably more interesting the side of what set of innovations can people take, and what set of investments can people make, so that their systems are well positioned to enable companies to differentiate when they come out. You know, and at the same token, we see all the — with the generation of people coming in to companies that are much more technology-savvy, we see great opportunity for IT to change its role from where today IT has always and historically always focused on building solution for less technically-savvy end users, now you have people who can do an awful lot, and there’s a multiplier effect.

So if IT can provide — think about moving from providing solutions to providing frameworks that the businesses are able to build into complete solutions, and putting it in the hands of end users, I mean, that’s a fairly big deal.

You know, and the third thing that I’d sort of say that’s kind of interesting right now is it’s probably one of the most interesting times ever, in terms of how technologies are going to change the way people work with information. Because we now see vast amounts of information being able to be stored in memory, and Moore’s Law has moved to the point where you can take what used to only fit on disk, and now fit the whole thing in memory. I mean, you see it with these things, but you see it also inside IT systems as well, with solid state disks appearing. And the characteristics of solid state disks are just fundamentally totally different than rotating media, and so the way databases are going to work are totally changed.

But perhaps even more dramatic is that you can now put entire databases in memory, and all of a sudden, everything about it changes, I mean, about the way you’re able to work with information, and you get 100 — you get somewhere between 100X and 1,000X performance improvement, and that’s — we see performance improvement coming through Moore’s Law, but that’s 15, 16, 17 years of Moore’s Law, performance improvement, happening in a single product cycle.

I’ve never seen anything like that, I mean, not in the 20-some-odd years I’ve been here, I’ve never seen anything where — we always see Moore’s Law give us 35 — on average, 35 or 40 percent a year of roughly performance improvement that we get in the underlying systems, which lets us do more and more. All of a sudden, at least for data-intensive things, you get this 100X improvement in one generation. It’s kind of interesting what you can do with it.

STEVE GILLMOR: So how does that — you said two areas here, efficiently the servers, and then also this new Azure thing. How does that particular data point impact on —

BOB MUGLIA: Well, it’s going to change — I mean, I think what that will have a massive impact on is the way people work with information. Because it only actually matters when you’re working with lots and lots of information. I mean, if you were trying to do a numerical calculation on a table that was only 100K in size, it doesn’t really matter, because that fit in memory yesterday. But if you’re trying to work with business information that was multiple gigabytes in size, or even terabytes in size, all of a sudden now you can start doing things a bit differently.

And a very specific thing that you’ll see is in the BI space, people being able to build in-memory BI systems. And what we’ll be doing next year is coincident with Office 14, shipping next year. We’ll ship a version of SQL Server with an add-in into Excel that empowers end users to basically take massive amounts of business data and put it inside Excel and work with it.

And I mean, I’ve got a demo I’ve done a number of times where you take 100 million rows of data — I mean, in comparison to Excel, used to only be limited to 64,000 rows. Today it’s limited to 1 or 2 million rows. But if you try and do a sort on 2 million rows it’s going to take an hour. With this new technology, we can take 100 million rows or even more, on a laptop, on a $1,000 laptop, and do microsecond-level sorts. I mean, the sorts are almost instantaneous, and views, and queries and everything else against it.

So all of a sudden, end users will be able to do things with business information that they just never could do before. It’s pretty interesting that — I mean, no one’s really sure how broad of an impact that will have, but I think it’s kind of phenomenal to think about a query that used to take minutes or hours on a backend IT system, that took months for IT to set up, now being able to be put together in a few minutes by an end user as they build their spreadsheet and their pivot table, and then have results come back in just a couple seconds. You know, the questions that can be answered that couldn’t be answered before, whether that’s scientific investigation, whether that’s drug research, whether that’s analysis of marketing data, whatever it might be.

So those are the sorts of things — because there’s so much information in these systems today, one of the things that our systems are doing is they’re generating vast, vast, vast amount of information — logging transactions, logging things. And most of that’s getting stored. I mean, it’s largely stored, because storage doesn’t cost that much, but what does cost a lot is being able to actually — and is awkward — is being able to get that data, and putting it in a form that’s useful for people. And this will change that.

And I think that will accelerate, by the way, I think that will very much help to accelerate — whenever we come out of this, whether it’s later this year or early next year, whatever it might be, whenever we come out of this, I think it will accelerate.

STEVE GILLMOR: So how does this change your understanding of the business that you’re in, I mean, specifically?

BOB MUGLIA: Well, all of this, I think, it just speaks to the substantive opportunity that we have. I mean, our fundamental thing has always been to put — to take things that are hard and make them easy for people, to take things that are expensive and available to a few and make them less expensive and available to many. And the business models that we fundamentally have, and the way we structure what we do, have always been built around that. And I’ve said a number of times, I mean, our playbook, our core playbook at Microsoft and the one I live by every day is, you know, understand your customers, build a great product, price it cost effectively, sell it in volume and work with partners to build the complete solution.

And that model, I think, plays well both in terms of the economic times we’re in, as well as some of these transformative changes that are happening. And so we’re in a world where the business that I’m in, you know, 12, 13 billion was what we have — customers today spend about 80 to 90 billion on this software that — the space that we’re in. So, we’re 15 percent, 15, 18 percent of the market.

There’s a substantive — as these shifts happen, as industry standard technology becomes more and more viable for solving these sets of problems that it couldn’t solve before — we’re going to see scale-up, amazing scale-up, X86 systems, and of course with four cores, six cores, eight cores, 12 cores, whatever you might have on a single system, these machines are so powerful now and they’re mature, and our software is maturing to the point where business problems that people wouldn’t have us solve in the past, they will now have us solve. We have a substantive opportunity to continue to gain inside the space that we’ve traditionally played.

And then that’s one whole set of things. The other whole set of things that I think is really interesting is if you look at total IT spend, and you break up — you can just be sort of simplistic. I’ll just make life simple and say IT spends about $3 trillion a year globally, and of that $3 trillion, $1.5 trillion is communications. So, we’re not in that space. That’s the Telcos and everything else. The other is in business systems in one form or another, and that includes everything. If you start breaking it up, software spend is a few hundred billion a year — not a small number, but a few hundred billion. Application development is about $400 billion a year, something like that, people writing apps. We’re really not in that business. I mean, you’ve got your Accentures and your (inaudible). Those guys are in that business. We work with our partners to do those things, and of course a lot of that spend is internal. People spend (inaudible), a bunch of it is outsourced.

But the actual single biggest number of that $1.5 trillion is about $600 billion, which is spent in operations, and running systems and maintaining existing systems. Everybody knows that IT spends about 70 percent of their dollars on running existing systems, and only about 30 percent on new development. And so whether it’s new development and operations against those, or old legacy systems that they need to maintain, there’s this vast amount of spend that’s associated with people cost for running these systems.

And to transition to services and the cloud, to me, if you really ask what is the cloud about, it’s taking that $600 billion number, and helping IT cut $100 billion off of it, $200 billion off of it, $300 billion off of it, something like that, allowing them to open up that spending, and enable it to do new things. In a perfect world, if they could cut it — I mean, I’ll just say, suppose they could cut that $600 billion in half, spend $300 billion on maintaining existing systems, and throw $300 billion into new investments, it’s a good tradeoff from a business perspective, because the return on investment could be so much higher, associated with that.

You know, that really is what the cloud, to me, is all about, is how you take and save IT money, and enable them to reinvest it in other things. Whether that’s private clouds that they’re building internally within their own organizations, making them more efficient, associated with the way they run their systems, whether it’s using a public cloud like Azure to help drive those sorts of things, it’s driving those — or the other thing that I think is interesting is cloud services, finished services that people can buy that will lower their cost, whether it’s systems like messaging or collaboration, SharePoint Exchange, where we can supply — we can run those services for our customers, and save them money by doing that, because we run it at scale, we run it at best practice. We have ways that we can cut our own operations cost and pass a substantive amount of that on to our customers.

Whether it’s doing those sorts of things, or whether it’s helping them to save money in the new applications they built, which is really more what Azure is about, is about custom apps and ISP-based apps, and those sorts of things are really — that’s where I see massive opportunities, taking — let’s put it this way. It’s like taking the marketplace and changing the view that we have of our marketplace from being, say, an $80 billion worldwide spend and what is our share of that, relative to now $600 billion. Now to be fair, my business doesn’t cover all that $600 billion. Some of it is Stephen’s business, some of it’s other parts of Stephen Elop’s business, some of it is other parts of Microsoft. Some of it we’re not in at all, I mean, because custom apps, et cetera, there’s a substantive amount of that, and we’re not in vertical apps by and large, with the exception maybe of health care.

But if you look at it, there’s a much bigger pie. The net of it is there’s a much bigger pie to look at, and again, it’s all about how to save customers money and let them return that investment into, and spend it on other things.

STEVE GILLMOR: So how is that going, getting people aware of and — what’s the timing of Azure? Obviously it’s supposed to ship in November.

BOB MUGLIA: Yeah, we’ll be releasing it this year. I mean, we’re on track for public availability this year. Things are going well. The one thing I will say about all the cloud stuff, and it’s just — I can’t emphasize this enough — is how early all of it is. I mean, the amount of global IT spend on all cloud services worldwide, I doubt — I mean, it’s definitely under $1 billion. I mean, it’s a small, small number on a global basis, when you consider — I got $1.5 trillion, let’s put it in that perspective, or even any perspective you want to take. Even if you compare it to my businesses, it’s a small percentage, it’s still very nascent and early. And I think like anything else, what we’ll see is we’re in a period right now of great enthusiasm, and as people begin to implement these systems, some of the nascence of the systems will become apparent, and it will take people some time to be able to adopt them.

And then over time, as the systems do mature, the savings will begin to appear. I mean, I don’t view this as a one or a two sort of year journey. I mean, I view this as more of a five to 10 year journey. But that’s really the way I have to think, because the truth of the matter is, from a product development and R&D perspective, let’s sort of put it this way: my R&D is — for the revenue from my business, the R&D is already done, over the next two to three years. The R&D is basically done right now. I mean, when there’s (2008 R2 ?), I mean, there’s a few things that are still coming that will have some impact in what we’re doing, but fundamentally, that work was done last year, and the work I’m working on right now, my teams are working on right now, are two to five years out that we’re doing, and in the case of the cloud sorts of things, that stuff is in the early stages of its maturity, so the impact in terms of the business, and that translates to customers, right? Customer usage and everything else is probably five to 10 years out. So, I think people have a slightly invalid horizon on the cloud, in terms of how fast it’s going to hit, but I don’t think it changes the long-term impact that it will have.

It’s one of those classic things where people often over-anticipate the short-term impact and under-anticipate the long-term impact, and I think that could be the case here.

STEVE GILLMOR: So I mean, your units and your businesses mushroomed substantially over the last, what, 15 years?

BOB MUGLIA: Well, yeah. I mean, if you go back — when you start — I often say that I joined Microsoft 21 years ago. I was the first program manager on SQL Server, and at the time, we could handle precisely zero percent of customer business applications, so now we’re at a much higher percentage than that, and so we’ve been able to go. As — we followed — I always go with the flow, right? You never want to be swimming upstream. It’s really tiring to do that. So, what is the technology flow? The core technology flow is following what Moore’s Law has done and the move to industry standard computing. So, we followed that.

If you look back — my first — I remember it very well. My first server that I had was an OS2 in my office, because I was a program manager/developer back then, and I was writing some code, and it was in 1988 on SQL Server, and I mean, I had this IBM PS2, if you recall the PS2, and it was a 386 system. So, it had 32-bit. OS2 didn’t take advantage of 32-bit back then. It was a 16-bit system, but I mean, if you look at that, and you look at that computer as a state of the art industry standard server — someone might have said a compact server was state of the art back then — but nonetheless, the idea that a 386 was — with, I don’t know, I think it had two megabytes of memory in it at the time, something like that, maybe four — that that machine was state of the art, you compare that to where we are today, that’s the trend that’s enabled all these other things. So, —

STEVE GILLMOR: Right, but inside Microsoft, I mean, the servers was considered to be a reach.

BOB MUGLIA: Fifteen years ago.

STEVE GILLMOR: Yeah, so what happened?

BOB MUGLIA: We kept working at it. I mean, it’s really — I mean, what happened is basically — I mean, it’s really following the playbook and following the industry. What happened is the industry matured, and the availability of high-end — of low-cost and yet very powerful and very reliable computers enabled a generation of software to take advantage of that. And it’s just a constant application of the playbook. It’s just a constant saying, okay, it’s 1998 right now. What can you do with a server in 1998? What are our customers trying to do? Well, in 1998, our operating system that we had out was NT4. I look back at NT4, it had a lot of problems, but at the time it was actually a fairly major leap forward, and it was really our first generation of Windows Server, Windows NT Server it was called back then, that really allowed customer to solve a whole set of business problems.

So — and all of a sudden you start having people do things. Roll forward, 2000. Okay, Windows 2000, (inaudible) directory, et cetera. That was where customers were, distributed systems, et cetera. 2003, well, people will look back on 2003 as being the release of Windows Server that really broke through into the mainstream. I mean, that was the release where the operating system became very viable, highly reliable, it worked really well. People could solve a broad set of business problems. I mean, I’d say prior to that, there were enough issues that it wasn’t what it would call truly and completely mainstream in terms of the usage. With 2003, it — 2003 is still the most popular server operating system ever shipped. 2008 will replace that over a period of time, but 2003 has a few more years of existence.

So that was that breakthrough, and then since then, it’s really been a constant application of focusing on what customers care about. I mean, when we think about the server business, the way I fundamentally run the business is I think about what we call workloads, which is really how customers view business problems they have. That’s what a workload is. It’s I have a business problem, I need to build a — I need to run my network, I need to have — I need to be able to have an application server. I need to run a database system. I need to run a messaging system. I need to run terminal services for users and task workers. Those are all examples of business areas, problems customers face.

So we say, hey, what can we do to build the best system? If you go back to, say, 2003 — I took over Windows Server in I believe 2004, 2005. If you go back to 2003, generally speaking, the world viewed that this operating system called Linux was going to take over the server world, and make Windows sort of irrelevant. What’s happened there is we said, look, there were a set of views of Linux that customers had that there was education needed on, but fundamentally I came from a perspective that customers make rational business decisions, and they will choose Linux and Linux-based solutions if that better suits their business needs, and they will choose Windows if we can provide a better value and better suit their business needs.

There was a belief that Linux was free. That was the one thing that people had to be educated on, because for what most customers do, it’s not free, because people built by service agreements, and I mean, there’s an ecosystem that has to exist around it. Nothing is really free. So, it turns out cost is not that substantively different. We always — you know, we’re willing to drive our prices down. It’s part of our playbook to drive our prices down to get share. So, the cost difference wasn’t that big a deal, and really it came down to a value proposition and what customers could do.

And so we did this workload analysis in, say, 2004, so — and we went through and we said, okay, of all the workloads, and we tracked about 35 of them for servers — we said of all the workloads, where is Windows strong, and where is Linux strong? It turns out, you know, Linux is strong predominantly in three workloads, where it has real strength. That’s not to say — it has existence in all workloads, but it’s really strong in three — HPC, Web, and security.

There are different issues associated with each one of those. Security largely was a perception issue with Windows, particularly because we were coming off some nasty viruses way back then. Frankly, we don’t have a solution based on security at the moment, although we’re building it up, that makes — that truly competes there. But if you look at HPC and Web, what you discover is that we didn’t have a product in HPC. So, if you wanted to build a scientific computing — technical computing system — you pretty much needed to go to Linux because there weren’t any solutions in Windows. Hard to beat something —

STEVE GILLMOR: Or Solaris or —

BOB MUGLIA: Or Solaris, or — but it turns out though that if you look at the market, it’s about 90 percent Linux, right. It’s so dominant — you’re right, Solaris and the various versions of UNIX also had — and back in 2003, they had a larger share. Linux has continued to suck more and more of that up, over the period of time, but it was all UNIX and/or Linux, with Linux predominating. So, we didn’t even have product there, and in the case of Web we did the analysis, and honestly, Apache and Linux were a better product than we had. So, customers were making good business decisions, because they had a better solution on the Linux platform than we had.

So, the way we focused on being successful is to say, okay, let’s look at every single workload, and look at what customers need, and let’s just make sure we build a better product, and price it effectively, and give customers a better solution. And what we find time and time again is, guess what? When we do that, customers choose Windows, and when we don’t, customers choose a competitive solution. And I mean, I think this is pretty sort of 101 Business. I don’t think there’s anything new to it in any place. The only difference, I would say, is that the IT audience is probably a more — they are probably have the time to do more research on their purchasing than, say — consumers are perhaps more influenced by marketing and a set of other things, whereas IT is probably more influenced by — they actually run tests, they bring things in, I mean, they do a whole set of things, particularly larger IT.

And so in that context, it just reinsures that in fact they’re once again making solutions that are appropriate for their business. And so if you look at those things, we’re gaining share now in HPC, slowly, from a tiny base, a tiny little base, but we’re gaining share because we have a very competitive product there. We continue to just sort of struggle along on Web, but what I learned there is we built a competitive product — great learning in this one — we built a competitive product in IS7 and Server 2008. We went, hey, we had a bad — we had not such a good product, now we got a very competitive product, we should be in great shape.

Turned out our channel was a mess, our pricing was a catastrophe. I mean, we had so many other problems in the marketplace, because you actually have to provide a full end-to-end solution for your customers. So, this last year or so, we’ve been working through those and have been chopping them down, and getting our pricing right for hosters and everything else. In fact, we have more of that stuff — we have a lot of things coming in July and beyond on that. Just to fix — it’s just mistakes that we’d made for years and years that we just have to fix, and so we’re fixing those things, and I think we’ll start that engine —

STEVE GILLMOR: I know you don’t want to talk too much about the mistakes, but like what?

BOB MUGLIA: Oh, I’m glad to talk about the mistakes. You know, when we did the — when we did the original version of — we have a kind of licensing we provide SPLA, solution-provider licensing, and — or service provider licensing agreement. And it’s a licensing agreement we have for hosters, predominantly, and when we did the original versions of those, we set our pricing very conservative, because we did not really understand the market very well. And frankly, we just never went back and looked at it. So, when you looked at the pricing, it was a lot less expensive for customers to buy Windows Server on premises, and deploy them within their own IT shop than it is for hosters to acquire the equivalent technology. So, our pricing just wasn’t competitive.

And then we had some crazy things in our licensing that were just super confusing, about — it has to do with the fact that our on-premises licensing consists of buying servers, and then client access licenses for usage. So, we tried to put those two things together in one price, and we wrote a license that nobody on the planet could possibly understand when you needed to buy this way high price version, and when you need to buy this low price version. I mean, I couldn’t understand it.

So it just creates all sorts of impedance and friction in being able to make the right things happen. So, we’re changing all of those sets of things.

STEVE GILLMOR: How do you do that?

BOB MUGLIA: Just change our licensing, and then we go back to —

STEVE GILLMOR: So it’s clearer?

BOB MUGLIA: Yeah, basically what we’re doing is making it very clear that in this hosting space, that you can buy the lower cost license if you’re just — if you’re hosting an external Web server that’s facing the Internet. If you’re trying to run a business internally on these servers, then you need to buy the higher price license, because it sort of bundles Cowles in. But that clarity was just not there. It was called “authenticated” previously.

Well, Web sites are authenticated too, right, I mean — and so when did a customer need to buy an authenticated version versus not? So now it’s — the licensing is focused on outsourced — whether you’re using this for outsourcing purposes, okay, or whether you’re using this to host a general purpose Internet Web site.

STEVE GILLMOR: So what’s the value proposition vis-à-vis the LAMP stack?

BOB MUGLIA: The primary value proposition is the ability to take the full set of Microsoft tools and everything, and get a solution together much, much quicker, and to be able to do so in a way that’s more maintainable over a long period of time. I mean, ultimately if people can use LAMP to put together a solution faster and more effectively than .NET and Windows, we’re not going to win. The one thing we have really going for us is a very, very strong set of developer tools, and a very strong developer proposition.

The interesting thing about LAMP is, is that LAMP has — is very simple, so it’s quite often easy to do something quickly to start with. As time goes on and people want to do more and more with LAMP, it becomes more complicated, and our tools — we seek to make it easy for people to do something quickly, but also focus on making it easy for them to continue to enhance it and make things better over time.

STEVE GILLMOR: You just talked about essentially what Scott Guthrie has been doing in the development space, to kind of have rapid Web development sitting on top of the services which could be today on premises and tomorrow in the cloud, or some sort of hybrid combination.

BOB MUGLIA: Yeah, that’s right. I mean, our real goal is to build a development — an application platform that makes developers more productive than anything else on the planet, make it simpler and easier to build applications, and whether that’s being used for customers internally to run their own business applications, or with their own internal systems to run external facing Web sites, or whether that’s in the cloud, running on a public cloud such as Windows Azure, we want those to be very compatible for people, and make it easy for people to build these applications, and make it easy for people to start with an application in-house, and be able to transition it in the cloud, or vice-versa.

STEVE GILLMOR: So do you think that developers are going to take to Azure — or put it this way — what reasons are they going to first approach Azure?

BOB MUGLIA: The biggest reason that people will approach Azure is because it’s Windows, it’s Windows Server. And if you’re a developer that’s familiar with .NET, if you’re a developer that’s familiar with building on the Windows platform, and you have application investments in there, we’re working to enable developers to build that in a public cloud, with Windows Azure. The one thing that Windows Azure brings that’s very important beyond that is it is a place where we are invoking and helping to simplify the next generation scale-out programming model.

I mean, today most business applications, most Web sites, have not been built in a way that makes them easy to scale out as needs increase, and there’s a set of services that a platform, an application platform and development tools, can provide to make that much simpler. That’s what we’re doing with the combination of Azure and Visual Studio. In a lot of senses, it’s what Microsoft does. I mean, if you go back 15 — 15, 20 years ago, it was really hard to write a Windows GUI application. We created Visual Basic to make it easy.

Today, it is possible to write a scale-out application, and companies like Microsoft and Google and Yahoo! and a few others are doing that effectively, but the skill set that’s required to do so is limited, and it’s hard. We’re going to focus on making that easy, easy to write scale-out applications with Windows Azure and Visual Studio.

STEVE GILLMOR: Silverlight I think is an interesting development, for a number of reasons — not only externally, in terms of its bringing rich Internet applications across platform solution, but also internally in terms of the impact that it’s having on — or potential impact that it might be having on product groups inside. You want to talk a little bit about what you see is going on there, or not —

BOB MUGLIA: Yeah, sure, I’m glad to. I mean, Silverlight to me is one of the most exciting things that’s happening certainly in my organization, and I think at Microsoft as a whole. I mean, what we’ve done is we’ve taken all of the learning that we’ve amassed over the years, in terms of building high-productive development solutions, and the learning that we did in terms of how to build a very rich graphical user interface, and compacted it into this little tiny runtime of this four megabyte runtime, that enables this incredibly powerful set of solutions from within the browser, and with Silverlight 3 outside the browser as well, in a cross-platform sort of way.

So enabling people to build solutions that run on the Macintosh, and run on Windows, and then through our relationship with the Moonlight team and Open Source, to be able to run on Linux as well. It’s been kind of fun to help Miguel and his team as they’ve been driving an Open Source implementation of Silverlight, in the form of Moonlight.

STEVE GILLMOR: You think it’s acceptable to have something that trails by anywhere from six months to a year?

BOB MUGLIA: I think it is, especially because what you’re seeing is you’re seeing an Open Source piece of development that’s created, that will allow for Silverlight to move into all sorts of places where we can’t — we can’t see. And I mean, I just met with Miguel out in Boston, oh I guess two and a half weeks ago, and I actually think the period of time is decreasing, and he’s doing a great job of lowering the delta between those two things. And frankly, we’re working hard to help him, too. I mean, there’s a lot of things that Microsoft is doing to help the Open Source community keep up and do things.

I mean, one of the key things we did is for all of the controls that we’re releasing in the Silverlight environment, we’re releasing those with a license that allows them to run in an — we’re providing the source code under an Open Source license and allowing them to run in Moonlight. So, massive, massive amounts of the investment that’s going into the core framework for Silverlight is already written in an Open Source way that Miguel and his team can just make wrong on Moonlight.

But I mean, the thing that’s interesting Silverlight — Silverlight has had acceptance and has generated a very strong amount of leadership in a couple of spaces. You know, sort of the first space where we’ve seen leadership has been in the video space and high definition video, where really it’s a combination of the Silverlight runtime player, the runtime environment, together with the work that’s been done in the server space with smooth streaming, to really redefine the way video is done over the Web. And I’d say I think the impact of this is going to be very dramatic for end users over the next few years, where we’ll begin to see incredibly high quality, over-the-top experiences being delivered directly from a wide variety of Web sites, to end users, on their devices — on their PCs, on whatever device they’re using to surf the Internet — with effectively HD pixel-perfect quality, and the kind of user experience that you’d expect.

I mean, one of the things that I find incredible is this new smooth streaming technology. You know, we now have live smooth streaming working, so that you can have a server — one server feeding the entire Internet from a live video stream, and have that experience being broadcast out in HD, with full record capabilities. Everything is all there. So, if you want to go replay a scene, you can go back — instantly go back to that scene, and then go forward, and it’s all — it works exactly like you’d want it to work, and the only thing is, is you’re sort of looking at this and go, well, what’s the big deal? It works the way you’d want it to work, and then you realize that it just doesn’t work that way anywhere else.

If you’ve ever been — you’ve ever watched Internet on the video, you know, you want to go forward to a frame forward, you see buffering, buffering, buffering. You know, it takes forever. This is instantaneous, and the other aspect of it is, that the design, and this is really work the server team did, that’s part of Scott Guthrie’s group, the IIS team, what they did is they leveraged the entire — the entire HTTP/CDN networks that people already have. So, the CDN vendors, the content delivery vendors, they don’t have to build a separate architecture to support this smooth streaming.

So the servers that exist to do Web caching, standard Web caching on the Internet, that are being used for Web pages, can be used for video. So, to me, that’s one of the exciting things that Silverlight opens up. You know, there are others, as we being to see very rich 3D, high graphics quality applications being built as well.

STEVE GILLMOR: Well, and the big question, of course, is, you know, from the political perspective, pardon the expression, how do you get — will there be a Silverlight Office, something like that?

BOB MUGLIA: What I think you’ll see over time is major parts of Microsoft applications beginning to incorporate Silverlight into their experience. I mean, as — if you look at, for example, the Web companions that Office is doing, they do use Silverlight in a variety of instances. So, we’re seeing that being used there. We’ll begin to see Bing and MSN and our online properties begin to adopt Silverlight inside the set of things that they do. We already see some of that in a limited form in Windows Live.

If you look at my business, which is less consumer-focused, and we focus really on business customers, we are building interfaces that are Web-based interfaces for our business servers, using Silverlight. I mean, it’s become pretty universal that the kind of experience we can provide, in this case, a system administrator, is much, much better, we can write it much faster, by using Silverlight. And as we begin to launch new services — we have a management service we’ll be launching next year that’s System Center Online, that enables people to manage desktops through a cloud-based service — the entire user interface for that, from a management perspective, is all done in Silverlight.

And by the way, it’s incredible — it’s impressive because it’s very fast, and extremely responsive, from an end user perspective. The kinds of apps that can be built using Silverlight have really — they feel like native Windows applications. They have that level of responsiveness to them, and then they’re very rich, and yet they’re browser-delivered.

STEVE GILLMOR: You know, the Netflix implementation brings a whole business to the Mac. I mean, that’s a big deal.

BOB MUGLIA: Right. No, that’s exactly — Netflix has been a key customer of ours that has taken and utilized the high definition capabilities that Silverlight delivers, and enabled them to build a very rich experience, not just on Windows, but also in a cross-platform way.

STEVE GILLMOR: I’m sort of backing into a discussion about what we’re trying to do in this so-called real-time space. Do you have any sense that real-time is something that’s emerging, or is it just —

BOB MUGLIA: You mean real-time communications and collaborations? Is that what you’re saying? Well, I mean, I think it’s very obvious that it’s emerging in a lot of different forms, and I think it’s still — it’s such an emerging space that the exact ways in which it’s going to be changing over time are fairly unclear. I mean, we see tons of interest in tweeting and Twitter and what’s gone on there. We’ve built a pretty strong business around real-time communications within our Office business, for business customers, and that is one of our strong growth opportunities.

The interest people have in taking the combination of textual-based real-time, together with voice and video real-time, whether it be conferencing or one-on-one communications, and bringing all of those things together into new experiences — you know, an interesting one for me in this, in a business space, is there’s been these emergence of very high-end video systems, whether it’s telepresence or Halo, and the idea that businesses will have these high-end video rooms that can then connect to end users and work with people that don’t have that level of equipment available, but can have a phenomenally great experience from their PC, from the phone and from the camera and the microphone that they have on their PC, and interact together with those things.

I mean, we recently did a demonstration of that, showing a high-end HP Halo room connecting with a UC system, where people using standard equipment that’s just available as a part of their standard PC, can participate in these telepresence systems. I mean, that’s the kind of thing that is an example of the sort of thing that we’ll see, and I think that will emerge much more in the consumer space, too.

STEVE GILLMOR: You know, the real question for me is whether Microsoft can move aggressively into this space as a sort of center of the desktop type of application. I mean, you’ve got e-mail, you’ve got Messenger, you have a bunch of separate not-particularly-integrated tools, and along comes this sort of mainstream message bus that people are starting to use for a combination of marketing and promotion and internal communications. There are things like Yammer, there are a bunch of ways to take this apparently trivial application and turn it into something that will provide a real business value.

BOB MUGLIA: Well, there’s no question. Like I say, it’s something that’s emerging and is having a massive impact in the way people communicate and work together. I’ll say, though, I mean, I think if you look at communication systems, and usage within business, I mean, Microsoft has had a massive impact with new systems like SharePoint. I mean, the usage of — SharePoint has absolutely exploded within businesses, and has rapidly become the standard.

STEVE GILLMOR: Why do you think that is? I mean, SharePoint, when it started, seemed like a WebDav extension, basically. It didn’t seem like much of anything.

BOB MUGLIA: Because of the versatility of what you can do with SharePoint. I mean, the reality is, it’s a classic Microsoft thing where we put tools in the hands of end users, where they could build a collaborative solution for their team or their environment, and have that together in literally just a few minutes, and very instantly allow people to work together more effectively. And at the same time, SharePoint allows for broad business solutions to be built. I mean, you see two sorts of usages of SharePoint very broadly inside business — one is for broad team collaboration where you have — in Microsoft, there are literally hundreds of thousands of team sites that have sprung up on SharePoint, and that process, where companies begin implementing SharePoint, and these sites mushroom up within the organization, that’s what people find again and again.

And at the same token, people use SharePoint — businesses use SharePoint — as a standardized portal for how business information is shared out. So, whether it’s business data, or whether it’s information about HR or financial things for companies, SharePoint has become the standard way that businesses expose that data to their end users. And you know, it’s this combination of a viral spreading within the organization and the end users, together with the ability for companies to implement it more broadly, that have, I think, made SharePoint so popular.

STEVE GILLMOR: So you think that — I hate to use the term “tweeting” or “Twitter” to sort of summarize something that I think is a lot bigger than that, but do you see that as being integrated through SharePoint?

BOB MUGLIA: I think you’ll see features of that nature going into SharePoint, I mean, over time. I mean, you’ll see much more the ability for people to have these real-time communications, and in these cases these little tweets where they’re creating threads that have short — have a whole set of short comments.

STEVE GILLMOR: And if you take Silverlight and add that to that?

BOB MUGLIA: Well, what Silverlight is, is an enabler. I mean, the way to think of Silverlight is, is it takes what you can do with the Web today and makes it richer, and it does so in a way that’s very broadly available, and is — and can be built very quickly and very effectively. So, I mean, the kind of experience — you can get a certain kind of experience today with the Web browser. With Silverlight, you can get a totally different class of experience, and there’s a lot of value to that class of experience, relative to the way it enhances the way people work with information. And I mean, I think that’s true in the consumer space; I think it’s also true in business.

STEVE GILLMOR: But why are you Silverlight?

BOB MUGLIA: Because I own the developer team, and my team builds platforms, and whether that’s server-based platforms, in the form of Windows Server or SQL Server, or whether that’s the set of developer tools in Visual Studio. In this case, Silverlight is built by the same team that builds .NET, and also builds our Web server. That’s Scott Guthrie’s team, and frankly Scott just does an awesome job of moving his team forward, and really deeply understanding what developers need, and then building solutions that meet those needs.

STEVE GILLMOR: Well I think we’re seeing this — in the last Mix I think it was, and the PDC announcements about APIs and so on, that were being released first for Silverlight, and then followed up with WPF.

BOB MUGLIA: There are a few cases of that. I mean, part of it is WPF is on a release cycle that works with the broader .NET framework, so it’s not quite as fast a release cycle as Silverlight has. We’re trying to keep Silverlight on roughly a yearly cadence, so we’re driving it very, very fast. We’re very close to releasing Silverlight 3, and you’ll begin to see Silverlight 4 before the end of the year. I mean, we’ve been actively working on the next release.

So we literally have two different teams. We have a team working on releasing 3, we’ve got a team that’s already begun on 4, and then they’ll sort of swap and move forward. So, we’re focusing on doing things fast.

STEVE GILLMOR: What are we going to see in Silverlight 4?

BOB MUGLIA: Well, what you’ll see is more improvements along the lines of what we have today, so continuing to make the video experiences better. You’ll see us broaden what you can do with Silverlight in terms of international support and things. I mean, one of — if you talk to people who are trying to build business applications and reach broad sets of consumers, and they want to reach consumers in China and India and Thailand and everywhere else, so being able to easily support a broad set of languages, I mean, the way I sort of view it is Silverlight 3 is the mature, broad platform people can use to implement things with, and we think that that’s where we’ll see very strong application adoption. Silverlight 4 rounds it out. It takes the next step forward and continues that process.

STEVE GILLMOR: What do you think about HTML 5 and the strategies that Google has employed?

BOB MUGLIA: Well I think HTML is — I mean, I’ve always been a very strong believer in standard space browsers and continuing to advance that. HTML 5, it has to get stabilized, I’ll start by saying that, because first of all, there’s no clear definition for HTML 5 right now, but what the world needs a very strong HTML 5 that does get standardized, and we’re going to be investing through our IE team in building a world-class implementation against that. The real key here is because it’s a standard space process, because it’s a process where you’ve got a whole set of browsers that’s building it, the speed at which that innovation happens is somewhat slower than what you can do with something like Silverlight.

STEVE GILLMOR: All right. I don’t mean to end on this note, but I think that Silverlight has this interesting kind of positioning inside Microsoft that is starting to have the appearance of essentially the input to a Web operating system, and that seems to be within Microsoft’s agenda on some level.

BOB MUGLIA: Well, what’s very much in our agenda is to enable people to solve problems that they can’t solve before. To me, the perfect example of that is this Web streaming, where the idea of being able to do over-the-top, HD quality Web streaming, live, delayed, everything, all instantaneous, instantaneous user response — to be able to solve problems like that faster, and get those to market quickly, I mean, that’s to me the kind of thing that Silverlight’s all about.

You know, you’re right in the context that it is a broad platform, and the platform is going to continue to increase in its scope, but you know, the goal here really is to make it easy for people to build solutions that they can’t build today, and to deliver value to their customers, whether that’s business customers or consumers. And I think we’re doing a pretty good job of it with Silverlight. There’s things you can do in Silverlight you can’t do anywhere else. We’re going to continue to advance that lead that we have, and Scott is driving that team very fast to continue to do that innovation.

The key thing that we’ve done with this environment is you’ve got 6, 8 million professional developers that know .NET, and we’re being able to take those developers forward and give them access to customers that they’ve never had before, and that’s why I think it’s pretty exciting.

STEVE GILLMOR: I think that what Azure’s going to do is to sort of make it acceptable for Silverlight to become something that’s reasonably open, and yet aggressive in this real-time space.

BOB MUGLIA: I think the two will work together. You’re right, you’re right. Of course, you can use — I mean, the thing I’d say is you can use a server — first of all, Silverlight doesn’t actually require a Windows server on the other end. I mean, you can actually use a Linux Web server on the other end, it turns out, but of course you can go to any hoster and host — get a Windows server hosted there, or a Web site hosted there, and incorporate Silverlight into your account. So, it’s not just Azure. I mean, that’s one thing people sometimes get confused about is, is that you’ve got — there are literally thousands of hosting providers in the world, and we don’t see those guys going away. We want to help them be more and more successful.

My goal with Azure is to not take their business away, my goal with Azure is to help expand the business overall. You know, I look — in some ways, the reason we do Azure more than anything else, as it turns out, in order for us to make our platform a great hosted platform, we got to host it ourselves. You just don’t get the learning unless you host it yourself. So, when all said and done, we may have 10 or 20 percent of the marketplace for hosted Web things, but the majority of our customers will run still on thousands of different — from thousands of different hosters around the world.

So I agree with you, the idea that as the hosting environment becomes more common, that it does open up opportunities for apps built on Silverlight, but it’s more than just Azure.

STEVE GILLMOR: Yeah, no, I think that’s exactly what will happen. We’ve been working on this project that we’re building on Silverlight, and at a certain point, it becomes sort of second nature to sort of in planning, think about how we can take advantage of the Silverlight platform, as opposed to thinking about it in terms of either a Web application or a native Windows application. It really —

BOB MUGLIA: It becomes very natural.

STEVE GILLMOR: You stop really thinking about that in that way.

BOB MUGLIA: One of the things you’ll see as we advance Silverlight is continuing to advance the frameworks to simplify the common interactions between a server and a rich client. I mean, with Silverlight, you have a rich client, right, and you’ve got a lot of computational power, everything available there. So, whether it’s getting data down to the client or invoking rules, whatever it might be, making that simpler, and this is the sort of stuff — it turns out that if you look at the amount of time people spend building business apps, or apps of any kind, consumer-based apps, et cetera, there’s a set of problems everybody has to do again and again and again and again. And you know, the kind of stuff Scott and his team are doing is saying, okay, these are the ones we’ll just build into the framework and make real easy for people, and so that’s what you’ll continue to see as we continue to evolve Silverlight.