With the release of Server Foundation, Microsoft now has a server product offering for businesses of any shape or size. But the logic behind the development and marketing of these products isn’t always clear—does Microsoft simply make up arbitrary size divisions and create products accordingly? How much of it is based on the needs and concerns of real businesses and business owners, and what are the key drivers?

I recently interviewed Bill Hilf, Microsoft’s Director of Platform Strategy, to get some insight into these questions as well as his impressions of the direction of the Server Foundation platform, what’s going on at the grass roots in the business world, the potential importance of cloud computing, and why Microsoft is on the advertising warpath.

James Bannan: Server Foundation is shaping up to be a great product. There’s obviously a major need for it in the small business space and I’m interested in your views on how you see it moving forwards as a platform within the overall scope of the Server 2008 suite as well as a future platform for software plus services.

Bill Hilf: We look at Server Foundation in a framework built on a range of products for the Windows Server portfolio which attempt to address needs from the very small to the very large. I’ve been in the server business for quite a few years, and over that time we’ve learned that you really can’t take a one-size-fits-all approach, as it causes problems in many dimensions—technical, capability, flexibility, pricing and so on. So we’ve been working over the years to create more specific product offerings to fit the right size of customer, like Essential Business Server, Small Business Server, and Home Server.

Bill Hilf

We found that takes the structure of a pyramid, and to take the example of the Asia Pacific region, at the base of the pyramid are tens of millions of small businesses, and while the vast majority of them have computers, server penetration is typically around 2-3 percent. When we correlated the data with other theatres like the U.S., which has around 12 percent server penetration in the same business segment, we realized that there’s a lot we can do to help businesses use the same sort of technology which larger businesses have access to, but first we had to get two things right—the price and reduced complexity. It was also very important to offer this product only through our OEM partners so that there was a single, uncomplicated transaction point.

With regards to the future of the platform and the question of Software Plus Services, the “plus” is very important to us. I recently had lunch with our major platform OEMs and they are all asking the same question. The critical aspect of Software Plus Services is how to evolve technology and solutions at a certain pace so that different parts of the world can keep up. A good example is Indonesia—when you look at the broadband penetration there which is very slight, compared with South Korea which is massively interconnected, obviously cloud solutions are inappropriate because there’s simply no practical way to connect en masse. From a global perspective, Software Plus Services is a continuum rather than an end-point—particular industries in different countries will have specific needs which dictate that their infrastructure has to remain on-premises much longer than other industries elsewhere in the world. Examples are certain financial or security data which have to remain on-site for a variety of governance reasons. On the flip side, there are plenty of industries which can offer more consumer-based solutions in the cloud as they don’t have the same barriers to implementation.

In that context, Server Foundation offers a fundamental and simple set of services which the majority of small businesses never had access to before. As they grow and evolve over time, they will have a variety of choices to meet their expanded needs, and our ultimate goal is to be the platform of choice regardless of size. But, even then, one-size-fits-all does not apply. As businesses expand their needs will be different—some will want to host mail, some won’t; some will want shared cloud data, some won’t and so on. As we evolve our Software Plus Services strategy, Server Foundation along with all the other products in the server family will have a “plus services” component which is designed to give that choice and flexibility. Forcing a business down a particular technology path just because they’ve hit a certain size is ridiculous, and our strategy is to always provide options and flexibility.

James Bannan: What are some of the challenges which you personally have encountered when trying to pitch products to a segment as diverse as the small business market?

Bill Hilf: A great example comes off the back of SBS—Small Business Server. It’s been a great product for us, but at a slightly higher end of the small business market. We found that it’s been great for a variety of businesses, but when you start to dip below 15 users and into environments where the word “server” is a foreign one, we found that the value offered by SBS just didn’t reach down that far. Those “micro-businesses” were using PCs as servers even though they didn’t really know what a server was. In one business that we went to, we found a PC with some accounting software and a local printer, and users had to line up and wait to use this PC to print off their reports. While we may find that strange and primitive, they really had no concept of client/server architecture or accessing shared resources. For this class of user, offering a product like SBS is just inappropriate, and we really needed a product which was very simple but which offered a load of value.

The example I love to give is that of my brother who runs a small construction company in California. He takes loads of pictures of projects he’s built and then uses them to show to prospective clients. The ability to access and share those photos over the internet, between PCs or on his mobile phone was quite revolutionary for him—he used to carry around stacks of printed photos. While this solution may seem entry-level to most of us, it’s fundamentally business-changing for him. He uses Server Foundation now (he’s my brother, so he sort of has no choice!), but now he can take advantage of what for him is a radical concept but which is basically file sharing, and bring him further along the technology curve, giving him access to tools and solutions he never had before, including data protection. Those concepts are central to Server Foundation. We’ve already had some positive stories coming back to us after the initial round of sales.

James Bannan: Where do you see the challenges in educating customers about the potential of Server Foundation? Is this a challenge which Microsoft is taking on, or is it in the hands of the OEMs, or a combination of both?

Bill Hilf: It is a combination of both. Helping people understand what a server can do for them is a critical component, so there’s a base education need which is definitely a joint effort between us and the OEM. OEMs decide on the final pricing, but as they’re also the point of contact for the customer, they need to be able to bring together the message about the benefits of a server product and tie it to a practical solution. OEMs are extremely excited and energised about Server Foundation because it brings a server solution right down the price chain.

James Bannan: The close ties between the currently-available RTM and RC client and server products in terms of kernel version and driver model offers a much more powerful platform for both developers and customers. What are some of the particular advantages in this relationship that you see?

Bill Hilf: The driver model is incredibly important. The ability to connect any device or install any piece of software and have it just work is very powerful, but obviously it depends on the right underlying framework and ecosystem. One of the things I recently learned about the Australian market was the tremendous amount of small businesses—it’s almost a “Small Business Country”—and with so many of those businesses based at home, being able to offer familiarity, compatibility and ease of use is crucial. When a user’s notion of a computer is a desktop or laptop, we need to be able to guarantee that this will transition to our notion of a server—it’s a critical component of making Server Foundation successful, especially as we haven’t catered to that class of business before.

James Bannan: The term “cloud computing” gets bandied around a lot in the consumer space as well as in the enterprise. Is it something you see as ever becoming a “something for everyone” solution, or will it just be another infrastructural option?

Bill Hilf: With the economic downturn we’re seeing some interesting behaviour from customers. Typically, budgets are being cut and, unfortunately, so is headcount. So the ability to have a seamless IT infrastructure across desktop, notebook, and mobile devices and have a uniform model for servicing and supporting that environment is very important, and we’re actually seeing a growth in our business because of that need. To that end, our market share with Windows Server puts us in a good position to service a broader set of needs, but it’s also introduced new challenges for us in trying to understand how customers move up and down the business ladder.

The traditional understanding was that businesses get bigger and everyone makes more money but this is really not the case. The feedback coming from customers is that they have no plans to expand in the near future but they are very interested in cost savings, which is why virtualization has been such an interesting growth technology. We need to be able to offer solutions which have a very quick ROI turnaround.

Typically, complex technology comes with a significant people cost. There are two main items on any IT manager’s budget sheet which have been there at least as long as I’ve been in the business—people cost and power cost. If we can show a short-term turnaround in cost savings on either or both of those items, within one or two quarters, we beat the competition day and night. That’s not just against competing operating systems but competing vendors—VMware, Oracle, IBM Software Group—we continually beat them in deal after deal because we can offer short-term ROI value against those key metrics And cloud computing comes in to assist against those metrics – it’s another string to the bow.

James Bannan: You mentioned Microsoft’s ability to compete aggressively against other solution providers. It’s been more apparent recently that in its advertising campaigns, Microsoft is now explicitly stating which competitors it’s taking on. Does this change represent a new, no-holds-barred approach to marketing?

Bill Hilf: Personally, I like to take a no-holds-barred approach and occasionally I get into trouble for that! Certainly there are brand battles happening in the advertising space where we are fighting for popularity and to show that we’re not some old-fashioned desktop operating system. I’m not that well-versed in consumer advertising to comment in depth, but on the enterprise side, I think that what is particularly ironic is that we will look back years from now and see how customers asked us to help drop prices against VMware, whom they see as very expensive and highly proprietary. Our high-volume value proposition is extremely competitive against VMware and day after day we receive feedback about people moving from VMware to Microsoft or choosing Microsoft over VMware for new projects. Fundamentally, this momentum puts a lot of wind in our sails to get out into the advertising space with a lot of confidence in our ability to deliver better products at better prices. This resonates very well with customers.

Microsoft is in a new era now. Many of the Microsoft leaders are highly competitive people. We want to get out into the market, not be shy and not hide from our competitors. We think we can compete strongly—I’ve done it for years on the Linux and open source side. In the past we have been somewhat hesitant to be outspoken in the marketplace and in advertising and our competitors certainly took advantage of that. It’s time for us to start telling our story again.

To learn more about Windows Foundation Server, Small Business Server, or Essential Business Server:

To read more interviews with Microsoft representatives: