Microsoft Server and Tools president Bob Muglia is being replaced after more than 22 years at the company, and the question on everybody’s mind is why?Muglia is universally characterised as a class act, and his business has been on a great run.
Server and Tools, which includes Windows Server, the SQL Server database, and other enterprise software and developer tools, earned $6 billion on $15.4 billion in sales in the last four quarters.
It’s the only one of Microsoft’s five business segments to show consistent growth, quarter after quarter, for the last decade. Until the recession kicked in at the end of 2008, it had more than 10% annualized revenue growth for 25 consecutive quarters, with none of the peaks and valleys of Windows and Business (which is mostly Office) The recession hit all of Microsoft’s segments hard, but by last summer, Server and Tools was back on its 10%+ growth trajectory.
So what went wrong? Directions on Microsoft CEO Rob Horwitz, who knew Muglia at the company in the 1980s, suspects that the public story is true in this case: Ballmer decided to move in a new direction with the company’s server business and Muglia either disagreed or didn’t have the energy to oversee a huge strategic shift. Because he’s a good Microsoft soldier, he agreed to stick around for a few months to help Ballmer pick a successor, rather than storming out.
So what’s the strategic shift? Horwitz speculates that the conflict came down to cloud computing. After seeming half-hearted about the cloud for the last few years, Microsoft decided to “lead with the cloud” on sales calls beginning this fall. Those services naturally cut into sales of on-premises software, particularly the software in Muglia’s group. If you’re running your apps in the cloud, you don’t need to buy Windows Server, SQL Server, or a bunch of tools to develop and manage on-premises software.
The other possibility could be a surprisingly bad quarter and sales trends for Server and Tools products in the last quarter of 2010. If Ballmer thinks the numbers in an important business are moving in the wrong direction, he has no problem replacing leaders. If that’s the case, it’ll become clear when Microsoft reports earnings later this month.