Beyond Binary

Microsoft started off its new-year executive shuffling by promoting longtime Server and Tools unit head Bob Muglia to president, a title he shares with entertainment boss Robbie Bach and business software chief Stephen Elop.

Bob Muglia

It's a title elevation for Muglia, whose responsibilities remain the same. It also reflects the growing importance of the server unit, which accounted for $13 billion in revenue in the most recent fiscal year, now making up fully a fifth of Microsoft's total sales.

"The core of our success at Microsoft has always been great people--people who combine talent, drive, vision, customer focus, and leadership," CEO Steve Ballmer said in an e-mail to employees. "Few people at Microsoft embody these qualities more fully than Bob Muglia, and few people have contributed more to the company's success."

The Wall Street Journal article on Muglia's promotion notes that it represents quite the comeback for Muglia, who found himself shuttled off to head management software in a post-Hailstorm reshuffling of the Internet unit. Of note, Muglia now heads the Azure Services Platform, components of which look a whole lot like Hailstorm.

I sat down with Muglia last month, just before my extended winter holiday break. In honor of his promotion, I'll post a fuller transcript of my interview on Tuesday, right before I head off to Las Vegas for the Consumer Electronics Show.

With Apple's last Macworld keynote speech just hours away, Microsoft is again talking up the idea of an "Apple tax" that people pay when they opt for a Mac over a Windows PC.

It's a concept that Microsoft started touting in the fall. While the words may be fairly new, the melody sounds familiar. Saying that customers pay an added cost when using a rival is a well-worn page from the Microsoft playbook. One need only look back to the anti-Linux "Get the Facts" campaign for another example.

In any case, it is a notion that is likely to stay around, says Windows marketing VP Brad Brooks. In addition to talking up the idea with reporters, Brooks said it may show up in online marketing and potentially even in Microsoft advertisements.

Microsoft did come up with some new charts trying to put hard numbers on the "Apple tax." On the desktop side, Microsoft argues you can save $100, or 16 percent, by going for a Dell Studio Hybrid or HP Pavilion Slimline over a low-end Mac Mini. Microsoft argues that at the mid-range, a buyer can save 25 percent by going for a Dell XPS One instead of a low-end iMac and that the Mac Pro is more than double the cost of a high-end HP desktop.

Microsoft says consumers are paying an Apple tax when they buy a Mac. Click chart for larger version.

(Credit: Microsoft)

I made the argument when Microsoft first brought up the concept that, if it is a tax, it is a tax that a growing number of buyers seem willing to pay.

Brooks said on Monday, though, that he expects the weakening economy will limit the number of people willing to pay more for a computer.

"More and more people are going to be scratching their head and say is that a tax I am really willing to pay," he said.

He noted that the tax isn't just about the higher sticker price, but also about the lack of choice that Mac users have. Certainly there are fewer hardware options and the Mac software aisles remain far narrower as well. Brooks also tried to position the Mac as less open, pointing to the iTunes App Store as an example of Apple forcing a "walled garden" on users. Were he to be comparing the iPhone and Windows Mobile, he might arguably have a point, but last I checked developers are free to write whatever program they want for the Mac.

Although I don't buy the idea that Mac users don't know there are cheaper PC options, I think the sorry state of the economy will pose challenges for all PC makers, including Apple. Consumers are clearly going to have to weigh any computer purchase against more basic needs, the prospect of not having a job, etc.

That said, it is unclear who will be hurt more by the economy. Apple is in many ways akin to BMW or another automaker that plays only at the high end of the market. I expect Apple will have a tough time keeping up with recent growth trends. But, as the car market shows, the Fords, GMs, and Hyundais of the world are also taking a huge hit.

I don't want to take this auto analogy too far, either. I don't see Microsoft running to Capitol Hill for a bailout anytime soon. Microsoft makes huge margins on its products. And while I hear layoffs may indeed be in the works, the company doesn't face anywhere near the structural issues of the auto industry (the Google threat notwithstanding).

Brooks would not specifically comment on whether Microsoft has trimmed its PC outlook for 2009, but did say that clearly the whole global economy is far weaker than it was in October, when Microsoft issued its last forecast.

"It continues to be a tough economic time for everybody," Brooks said. "We continue to see that our customers are suffering out there.

Click here for more Macworld Expo coverage from CNET News.

Editor's note: This is part of a series of stories about the recession's effect on the tech industry.

After nine months of searching for work, Ben Klausner thought he'd finally caught a break when he landed a contract gig in September doing security work for Microsoft's cloud computing project.

Just a month after he started, though, he learned his contract was ending. Now Klausner, a 55-year-old former IBM worker finds himself again out of work. And the prospects for employment look even dimmer than they were before the Microsoft job.

Klausner

"It was frustrating," he said of his brief Microsoft experience. "You go in and you expect to be there for a year or more and after a month they tell you you have another 30 days."

Klausner's story is the kind that unemployment statistics and headlines don't often take into account. Unlike companies that have had widespread cuts, Microsoft hasn't announced broad layoffs. However, that doesn't mean the ranks of those doing work for Microsoft are as robust as they once were.

Microsoft has sharply slowed hiring and cut a significant--but unspecified--number of contractors. The company has also said it is looking to reduce its bills from its vendors, an action that could also trim the ranks of those who do business on Microsoft's behalf.

"I don't think many people are aware that Microsoft has cut back a lot of projects," Klausner said.

Klausner said he tried to find another job either within Microsoft or at the consulting company through which he got the Microsoft work, but he came up empty. "They talked about finding other things, but they didn't have anything," he said.

Things haven't worked out the way Klausner planned when he left his IBM job in Texas nearly a decade ago. Klausner, a ham radio enthusiast and science fiction fan, had grown tired of Texas and wasn't enjoying his latest assignment at IBM. He headed to Seattle at the peak of the dot-com boom because of its low unemployment rate and fast-growing technology sector.

"It was the height of the boom, so I figured I could make a move," said Klausner, whose resume includes work as a systems and network architect in addition to his security work. He found jobs at a couple of Seattle-area start-ups, but after the dot-com bust, he found steady work harder to come by.

Eventually, he settled on finding work as a contractor--one of the legions of tech workers that companies hire for specific projects. "I've been doing contract work for about four years; not so much by choice but by circumstance. It's what was available."

Click for complete special report

But now, Klausner said he doesn't find very many jobs even for contractors. He said he applies for several jobs each day but that there's a huge amount of competition, noting that the recent failure of Washington Mutual has put even more technical folks in competition for the slots that do come open. "There just aren't that many coming up either," he said.

For now, Klausner is also curtailing spending as best he can. "I'm going into what I think of as hermit mode," he said. "I don't go out much. I don't buy much. I was on the verge of replacing my car and that went on hold."

Instead, he is relying on his 12-year-old Ford Explorer as he searches for new work. That, he hopes, will make his savings last longer.

"Of course, investments have gone in the toilet so it's not as big a cushion as I would have liked," Klausner said. "I've got some savings for a couple of months, but it could be a real problem if this goes on."

Next in the series: For Net consultant, a crisis, then a silver lining

For more quarters than I can remember now, Microsoft's server and tools unit has been the company's shining star. While desktop Windows and Office still provide the bulk of revenue and profits, it's the server business that has been the fastest growing of Microsoft's big businesses.

That may continue to be the case, but in an interview on Tuesday, Microsoft's server and tools boss, Bob Muglia, said that the business is definitely feeling the heat from the global economic slowdown.

"Servers are probably growing flat, 1 (percent), 2 percent sorts of numbers," Muglia said, referring to recently lowered industry forecasts. "IT budgets are cramped. It's not like IT is going to dramatically contract, but it is certainly slowing pretty dramatically."

Muglia said the server and tools business will add employees overall during the current fiscal year, which runs through June. But, he noted, the company had been hiring ahead of its targets, so most of that growth comes from folks already hired during the July-to-September time frame.

"Certainly there is no question, Microsoft is not immune to circumstance," Muglia said. "We have slowed our growth."

He still has 150 open positions in his unit, but Muglia noted that is down from more than 900 at one point.

Muglia said the company as a whole and his unit have been looking at where their priorities lie. Among the things he said the company decided to scrap was its paid Windows Live OneCare antivirus software. Instead, he said, the company opted to offer a much more limited (and less costly to develop) free service, currently code-named Morro.

In addition to talking about the economy, Muglia talked a lot about Windows Azure, Windows 7, and virtualization. I'll have more on those topics in a later post.

In the meantime, check out the video interview we shot on Tuesday.

Microsoft will have a bunch of stuff to show at the Consumer Electronics Show in January, but a rumored ZunePhone won't be one of them, according to sources familiar with the company's plans.

Instead, much of CEO Steve Ballmer's focus will be on talking about Windows 7 from a consumer perspective. Microsoft is pushing to have Windows 7 done in time for the holiday 2009 shopping season, so that means this CES is Ballmer's best stage to tout its benefits.

While the desktop operating system will be front and center, sources say to expect Ballmer to talk about how Windows is moving beyond the PC and into a world of PC, Web, and phone, a refrain we also heard a lot from Ray Ozzie at November's Professional Developers Conference, where the world also got its first good look at Windows 7.

On the phone front, Microsoft may not have a ZunePhone, but it is going ahead with several other strategies--pushing phone makers to develop phones based on Windows Mobile, developing Windows Live services for phones running a variety of operating systems as well as a number of new "premium mobile services" based on its Danger acquisition.

The company has also talked about extending its Zune service beyond the company's own dedicated player and mentioned the phone as a logical place to access the service. We may hear more about timing of this at CES, I'm told. In an October interview with CIO UK, Ballmer mentioned the possibility of accessing the Zune service on Windows Mobile phones.

The Xbox will certainly get its due as well during Ballmer's keynote speech and, as is typically the case, expect Microsoft to announce some new partnerships at the show. A funny video and celebrity guest are usually safe bets as well.

So that's what I've heard, but if tipsters know any more, I'm all ears.

Apparently, saving the world isn't taking up all of Jeff Raikes' time.

Jeff Raikes

(Credit: Microsoft)

The former Microsoft executive and current CEO of the Bill and Melinda Gates Foundation, is joining the board of directors of Costco Wholesale, the giant retail chain.

"We are very pleased to welcome Jeff as a new member of our board. Not only does Jeff bring over 25 years of private sector experience, he also brings his reputation as a trusted and respected leader," Costco Chairman Jeff Brotman said in a statement.

Raikes announced his plans to leave Microsoft in January and was named CEO of the Gates Foundation in May. Costco is based in the Seattle suburb of Issiquah, Wash.

For those without a fireplace and/or an ability to carry a tune, TV stations have for decades offered the Yule Log, an on-screen fireplace crackling as Christmas Carols play in the background.

According to "The Holiday Yule Log" book, the first televised fireplace was in 1966 on New York's WPIX-TV. With carols on in the background and no commercials, it was an instant hit and was adopted by other stations around the country.

Two bucks won't get you friends, but if you are alone with your iPhone, it wil let you stare at a fake fireplace and listen to Christmas music.

(Credit: Moderati)

But what if the holiday season takes you even further afield, so that you don't even have a plasma TV to keep you warm. Well, record label EMI has come up with an option--play the Yule Log on your iPhone or iPod Touch.

For $1.99, it is offering the Virtual Yule Log application at the iTunes store, featuring holiday tunes from its catalog, which includes holiday songs from Frank Sinatra, Peggy Lee, and Nat King Cole.

The application was created by Moderati, the same company that created the Virtual Zippo Lighter. There's a YouTube video, posted below, that shows the Virtual Yule Log in action.

Now, if only I could watch a dreidel being made out of clay while Rock of Ages plays in the background, my holidays would be complete.

It's probably not enough of a selling point to make buyers out of the operating system's critics, but Microsoft will start selling boxed copies of Windows Vista in a Product Red edition.

The Red version of Vista, which had been sold only as part of Dell PCs, will now also be available in boxed form.

(Credit: Product Red)

Starting later this month, customers will be able to purchase Windows Vista Ultimate in a version that offers some proceeds to Product Red, a charity that works to fight AIDS in Africa.

The Windows version is not entirely new, having been sold on several models of Dell PCs since early this year. In addition to providing some cash to the AIDS charity, the Red version of Vista also includes some specially themed wallpaper and sidebar gadgets.

Last month, Microsoft also helped Product Red launch RedWire, an online music venture.

Microsoft Chairman Bill Gates was an early backer of the Red effort, but it took a while for the software company to join it. It was beaten to the punch by Apple, which has offered a Product Red iPod Nano for several generations.

Red is not the first special color in which Vista has come. In Japan, Microsoft sold a pink-boxed bundle of Vista and Office.

As a colleague pointed out, the move to offer the red-themed Vista was presaged in a Penny-Arcade.com cartoon mocking Vista for its many editions.

Microsoft said that it, in fact, won't be able to restart a Black Friday promotion with HP.com that many were unable to take advantage of because of glitches with the Live Search Cashback program.

In a blog posting on Friday, Microsoft said that, although it is working to give those who ordered products their promised 40 percent discount, those who were not able to place an order are, essentially, out of luck.

"There have been lots of questions on whether the 40 percent off HP promotion on Black Friday will be restarted," Microsoft said in the posting. "While we were hoping to be able to do that, we are sorry to report that it will not be restarted."

A Microsoft representative had indicated earlier this week that the promotion would be restarted, although a statement on Tuesday indicated that might not occur.

While this is bad for bargain hunters, it may end up being worse for Microsoft, which is trying to use the Live Search Cashback program as a way to build awareness and loyalty for its search product.

Those wanting to get their hands on the Web-based versions of Word, Excel, and PowerPoint will have to wait a little bit longer.

Business Division President Stephen Elop said in an October interview that a technology preview of the browser-based applications would come this year, followed by a beta in 2009. However, it turns out Microsoft is using a rather tortured interpretation of the term "technology preview."

It's currently being used by fewer than 1,000 Microsoft employees, as part of a test that started last month and is slated to go through February. Consumers won't be able to try a test version of the products until sometime next year. Microsoft isn't saying when, but I'd say you'll have plenty of time to try the Windows 7 beta before you have to worry about testing the Office Web apps.

Ultimately, Microsoft is planning the release of the Office Web Applications in conjunction with the next wave of Office product, code-named Office 14. Microsoft has not offered a release date for the desktop version of Office 14.

Microsoft is planning two ways of offering the browser-based Office programs--one for consumers and the other for businesses looking to offer Office Web apps to their workers. Consumers will be able to use them through Office Live. The company currently has a free product called Office Live Workspace that lets users view and share--but not edit--Office documents.

Meanwhile, rivals like Google and Zoho already offer editing abilities. Microsoft is staking its claim on being able to offer better compatibility and document fidelity with its products. The company has recently had some big customers consider abandoning Office and move to Google Apps, but has wooed some of them back by sharing their plan for the Office Web apps.

Procter & Gamble, for example, took a long look at moving to Google Apps, but decided to stick with Microsoft after some high-powered lobbying from Redmond. Elop said that Microsoft's pitch included details on its plans for the Web-based versions of the Office programs.

"This was part of the conversation, absolutely," Elop said. "We have been sharing with customers under varying circumstances to a greater or lesser extent."

Microsoft has not definitively said how it will price the products, but it has noted that Office Live has both subscription and free products, suggesting it may have both free and paid versions of the Web apps.

For businesses, the Office Web Applications will be offered as part of Microsoft's SharePoint server. In either case, the Office Web Apps will only work when a computer is connected to the Internet.

Energizer CIO Randy Benz told me last month that he expects the Office Web Applications to open doors for him. Benz said that a lower-cost Web-only option probably won't lower the overall cost of Office for his company, but it should mean that a new class of workers gets access to Office.

"Every PC has the full (Office) suite," Benz said. "But we limit the number of PCs."

Microsoft Vice President Chris Capossela said he sees things similarly. Right now there about 500 million users of Office, he said, but a lot of those copies haven't been paid for.

"We see a tremendous opportunity to sell more," he said.