"We will roll out managed solutions in the next few years”

Ron Markezich, CIO and vice president, managed solutions at Microsoft enjoys a unique position in the industry. As CIO, he is not just responsible for overseeing the IT infrastructure and management at the world’s leading software maker, but also gets to test and try most of the software that Microsoft lines up prior to release.

He is also in charge of Microsoft’s fledgling managed solutions business, which would mark the software maker’s foray into offering Software as a service to customers. This business is still in its pilot stage and the company hopes to roll it a few years from now.

Markezich was in Bangalore and spoke to Priya Padmanabhan and Idhries Ahmad of CyberMedia News, about the company’s managed solutions strategy and challenges as CIO of Microsoft.

What are the types of managed solutions that you offer to customers?

Managed solutions is a new business that we are just building now. We started it about a year and half ago and signed our first customer ‘Energizer’, a battery company. We signed them up to provide the company desktop management, messaging collaboration and instant messaging service.

We are being very selective about the customers we sign up as we have not rolled the services to the market. One of biggest drivers for this business is to first get feedback and experience ways to make our product great in a hosted services model.

If we look at our business strategy, you could buy the product and run it yourself or subscribe to a service that Microsoft or a partner runs for you based on the Microsoft products. So managed solutions is basically tied with that strategy.

 Do you mean to say that you are getting into “software as a service?”

We actually call it internally as a software plus service. The reason we call it “software Plus service” is because to run a service, software is critical. What we do with managed solutions is look to innovate with software to make services that business need like messaging, collaborations and very low cost highly productive secure services in a hosted or software as a service model.

You are extremely choosy about selecting your customers for managed solutions. What is the criterion for selecting a particular customer? Would it be dependent on requirements of your customers?

No. So the reason why we are being very choosy about customers right now is because we are basically building this solution and are still in a product development phase.

We follow a principle that we want to be standard across all customers. So we don’t want to do custom development for the customer. We also gain a lot of feedback where we can see how those services are run.

At present, we have two customers: Energizer and Excel Capital, a financial services company. You can think of them as a joint development partners who are helping us develop the product. Even when the product will be finally rolled out, Microsoft will not be the only one that would be offering that product but we would be offering it through partners.

The goal on this is not to run all the business email in the world, it is to work with partners, so that Microsoft Exchange, as an example, is the best product to run a hosted service email service on.

How is the response been to the service? What are the advantages that your service offers?

Energizer has been very satisfied with the services they get. There are three things that our service offers; one is the lower cost; second one is more productivity for the users, which entails improved service levels where customers have higher availability and also improved software on their computer. For example at Energizer office communicator wasn’t used and the company never had a way to do instant messaging across the company. Now office communicator is on their desktop and they can use it extensively.

The third one is security. Actually there is a fourth one, which is a not as tangible. i.e. our customer can focus their IT employees on areas that add competitive advantage to their company. These are the areas where customers can differentiate their own companies from their competitors.

In future, IT organizations and CIO’s will be focusing their energies on areas they can differentiate their companies. And those services and functions that don’t differentiate their company, they are going to look to outsource those as a Managed Services. So collaborations, unified messaging are good examples of those services.

When do you plan to roll the managed solutions to the market?

We will roll our solution in the next few years. I have come to India to talk to some partners as how to work together in offering managed solution in the market place. We have been talking to partners about different business models and ways in which we can leverage our expertise. As we move more and more software development to India, we are working out how to move some of the software as a service component to India and as well run them from India.

You are both the CIO as well as a customer for Microsoft. Is your IT department in a sense a test bed for experimentation for some of the Microsoft products?

On the managed solutions, we basically run Microsoft as a Microsoft customer. We have a huge environment with 120, 000 end-users and do business in 89 countries around the world. So we have a lot of experience running hosted service on our technology.

The second thing is what we refer to as dog fooding. Essentially this means that we run our businesses on Microsoft products before those products are shifted to the customers. So right now there are 22,000 users customers who are running Windows Vista on their desktops and 30,000 users using Microsoft Office 2007 on their desktops. A 100,000 mailboxes run on Exchange 12 (next version of Microsoft Exchange). Till the products are finally shipped to the market, we run business on these products. What that allows us to do is get very knowledgeable on those products very early in the life cycle.

Software as a service model (SaaS) is an improvement of the ASP model that just didn’t take off. Do you think SaaS has improvements over the old model?

Number of things went against ASP model. Companies using the ASP model were deploying it in very niche areas or were trying it in verticals. For instance, it was tried out in a segment like e-procurement, and it just didn’t work out because the amount of integration that procurement has with all of the other back end systems was not there.

The other thing that has happened is that you have big companies like Microsoft and also firms like salesforce.com that have presented themselves as profitable model and proved that you can make a good business model out of hosted services.

In future, every software company has to offer its product as a hosted service or as a product that you run yourself. The advantage with Microsoft is that it has both the models working today. Eleven years back, we had the Microsoft network which is basically a hosted service and also when we started the company we had software products that you run yourself. In contrast, most of the other companies have one or the other, they either do hosted or they only do software products that they sell.

How big is the IT infrastructure and the team that looks after IT systems at Microsoft?

The best way to measure that is the percentage of revenue spent on it. We spend 0.7 per cent of the revenues on our IT infrastructure every year. If you look at the total IT organization, we spent about 2.5 per cent of our revenues. However, it is harder to look at employees as we have mixed model and choose a lot of partners to look after IT. We have 50 per cent of employees and 50 per cent partners and vendors that help us with IT.

We have 3,20,000 computers on our network. In our product development labs we have 8000 systems in data centers. We get 10 million email messages per day from outside of Microsoft. Out of that, nine million are spam. Our service level is such that we don’t delete mail until we are sure that it is 100 per cent spam. We exchange three million email messages per day within Microsoft. Every month, we have 450 million IM conversations and have four data centers worldwide.

We have outsourced some of our functions. For instance, our Internal Help desk is outsourced to HP in Bangalore. We also outsource our operations centre that does 24x7 monitoring to HCL and they run from Hyderabad.

I have 1200 people. But as a company, we have 70,000 employees and 120,000 end users because we have about 50,000 people who are partners, vendors and contractors of Microsoft. However we consider them our end users.

Which are the operations that you prefer to keep in house?

Basically, those operations that are needed to run Microsoft products. For instance, messaging runs on Microsoft Exchange, and the engineering and implementation team is internal. The team that uses Windows Identity Management team and Active directory is all in- house.

These are the areas where we like to have all these employees in-house because we look at these teams as an extension of product development group and we want them to interact directly with the product development guys. We want to make sure to keep the knowledge capital that they have stays in. And for things like the help desk, which is very transactional type of work, it is very important to outsource to a company like HP which has core competency in the area.

How do you deal with the complexity you face at Microsoft. What are the challenges you face as a CIO?

One of the biggest challenges is delivering all the great ideas, and how we can better our software and technology to improve the business. Microsoft employees are always developing and generating new ideas and we continuously are trying to develop a solution that solves business problems. Another aspect is to make sure we put our resources into the best ideas. We have to have governance of processes in place to ensure that.

This year is a big year for dog fooding. We are rolling out Vista Office 2007 Exchange 12 and LongHorn server. We have 50 servers in Microsoft running Longhorn servers in production.

How integrated is the CIO role with the management strategy of Microsoft?

It is very integrated purely because we run our own products and I get the feedback on the products before anyone else. Every three months, we have a review with Bill Gates for two hours. I get to choose the topics about what the review will focus on and how to best meet the demands of the customers in a particular area.

People from my team, product executives and Bill Gates sit together and review and discuss the way to help our customers. So in that sense we are very integrated, and we are continuously in an environment where we integrate a lot of our products before we ship them. We make sure they run in an integrated fashion.

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