A new software service from nCrypted Cloud, a Boston-based startup, secures and encrypts cloud-based data in a straightforward, easy-to-use and affordable manner.

nCrypted Cloud encrypts data from recognized cloud services like Dropbox, Google Drive and Microsoft’s SkyDrive. nCrypted Cloud comes in three versions: a basic Consumer version which is free; a Consumer Pro version and an Enterprise edition aimed at corporate users.

Founded in July 2012 by security experts, Nicholas Stamos and Igor Odnovorov, nCrypted Cloud enables users to access and share data securely regardless of geographic location and across various security domains. At the same time, corporations, their end users and consumer users retain the ability to control who has access to their data.

Nick Stamos, nCrypted Cloud’s co-founder and chief executive says that IT must face the fact that services like Dropbox have already penetrated 95% of the Fortune 500 companies. In most cases though, the service isn’t actually sanctioned by IT, but rather brought in by individual employees, which many refer to as Shadow IT. “Cloud storage providers such as Dropbox are here to stay, and will exist in our personal and corporate lives with data being intermingled. Best to accept this reality, and address the issue by thinking out of the box.”  Stamos says. “nCrypted Cloud was created to protect the privacy of personal and corporate data, with its unique patent pending approach. Easy enough for a consumer to use, but built with the features needed to comply with HIPAA, PCI/PII, ITAR and IP Protection requirements as well as their overall corporate data governance.”

Security is an Essential for Cloud, BYOD and Mobility

nCyrpted Cloud does what its name suggests: delivers the crucial security component often lacking in BYOD and cloud-based services. The corporate workforce is increasingly mobile; whether traveling for business, telecommuting or simply accessing the corporate data network in off-peak hours, there is no such thing as “after-hours.” And the lines between corporate and personal information have blurred to indistinction. BYOD usage also is rapidly proliferating. But as with so many other technologies, the security and data privacy component lags far behind.

ITIC’s 2012-2013 BYOD Deployment and Usage Trends Survey, which polled 500+ users from September through December found that nearly two-thirds – 62% – of corporate survey participants allow workers to use personal devices like tablets, smart phones and portable/lightweight laptops for business use and to access corporate data. However, 71% of the respondents indicated that their firms have no specific security policies and procedures in place to support BYOD deployments. Only 13% of survey participants said their companies were proactively monitoring and security BYOD deployments. This despite the fact that 47% of those polled said they were concerned about the potential security threat posed by the use of BYOD devices in workplace.

nCrypted Cloud safeguards data from external hackers and affords companies and their knowledge workers the holy grail of internal data security: separation of the corporation’s intellectual property (IP) from the employee’s personal data and files.

The swift adoption of BYOD devices in the workplace has been a convenience and a curse. It saves organizations money and lets workers use their familiar devices. But it also raises security concerns and poses potential risks for both parties. nCrypted Cloud solves these issues by enabling end users to apply privacy controls to distinguish their personal data from the company’s corporate data. At the same time, the corporate security IT managers can apply the appropriate enterprise security policies and procedures to safeguard the company’s intellectual property (IP) across the enterprise and on various BYOD and mobile devices.

This nCrypted Cloud capability overcomes the thorny issue of what happens when an employee leaves a company either of their own volition or through a workforce reduction or firing. Oftentimes, even when the parting is amicable, the business still opts to immediately cut off access, leaving the former worker in the lurch if they can no longer access their personal files and data. Corporations also have real concerns about safeguarding their sensitive IP in the event of unintentional leaks or deliberate malicious actions on the part of a disgruntled employee.

“nCyrpted Cloud ensures that the personal data is separated from the corporate IP. Both the employer and the employee have the ability to revoke access to corporate data residing on a personal device and pull back personal data from a corporate device. So it’s a win-win for all parties and doesn’t compromise anyone’s security,” Stamos says.

nCrypted Cloud provides persistent client-side encryption which guarantees data security by verifying the user’s specific and pre-defined access policies and sharing status; user ID keys are sent directly to the device. The client then caches keys for offline access to files; the keys can be removed or revoked if and when the access policies change. nCrypted is also non-disruptive. Users can easily access and share files across multiple and existing cloud-based storage services using a single-pane view of cloud and corporate file repositories.

The time is now for nCrypted Cloud

“A product like this [nCrypted Cloud] was inevitable, according to Andrew Baker, president of Brainwave Consulting, an IT datacenter and security deployment consultancy in Gassaway, West Virginia. Baker has more than 20 years experience as an IT security manager with companies like Bear Stearns, Time Warner Music and Send Word Now.

“The message to anyone who uses cloud services is: users secure yourselves or suffer the consequences,” Baker says. “It’s only a matter of time before data in cloud services like DropBox, Microsoft’s SkyDrive, Google Drive and other data gets exposed.”

Baker observes that a quick look at the security breaches of the last 18 months indicates that “they’re hitting a lot closer to home.”

Hacks are no longer relegated to banks, money and credit card fraud. Personal and professional sites like LinkedIn, DropBox, Scribd and others have all been compromised. “These are things that people use and see on a daily basis; the security breaches are and will continue to get more personal in terms of intellectual property or gaining access to an asset,” Baker says.

The attacks occur because passwords are shared; hackers can break into one service or site and gain access to another. “The mindset of the hackers has changed and the mindset of the potential victims is also aligning with the new reality – albeit somewhat more slowly,” Baker says.

Baker likes nCrypted’s concept of centralized straightforward management and security.

“As an IT security professional one of the first things I look for is centralized management and the flexibility to set up rules. And when it comes to BYOD, you absolutely need flexibility for both the end user’s personal data as well as the corporate data – I don’t want the two disparate data types co-mingling, so this aspect of nCrypted Cloud’s functionality is practical and appealing,” Baker notes, adding, “Corporations and consumers need more tools like this as their cloud and BYOD usage increases. If I have to deploy something manually to even five machines it’s definitely worth it for me to automate the process.” 

Pricing is another important consideration.

nCrypted Cloud is available in three (3) versions. The basic consumer version is available for free download at the company’s Website. The Consumer Pro version lists for $5 per month; it incorporates managed secure sharing, some file auditing, and the capability to manage files stored in disparate cloud services. The Enterprise Edition – which is already being used in beta trials by several potential customers — retails for $10 per user/per month. It includes all of the capabilities of the other versions and also supports additional features like centralized management provisioning, multiple identities, policy control and a full audit trail of 30-day archives.

Brainwave Consulting’s Baker says some businesses could initially balk at the $10 monthly service charge for each user. However, he believes that the benefits of securing the cloud based information across the enterprise and BYOD and mobile devices more than justify the capital expenditure outlay.

A company that purchases nCrypted Cloud for one thousand users would pay a list price of $120,000 (US dollars) for a year – before volume discount.

“Even the full list price of $120,000 isn’t too bad for encrypted cloud storage,” Baker says. “In fact, three cloud storage breaches from looks like a very good deal when you consider the alternative: lost or stolen data and IP, damage to the company’s reputation and the risk of litigation. People who have misgivings about paying the price, will have fewer qualms about pricing as they hear about more hacks. At that point it will look like a very good deal,” he adds.

It’s also true that few firms pay full list price. Discounted or street pricing varies by customer and volume. However, street pricing typically ranges from 20% to 50% and ITIC has heard of early nCrypted Cloud customers who have already received hefty discounts for early adoption.

For more information or to get a free 30-day trial of nCyrpted Cloud go to: http://www.nCryptedcloud.com.

IBM hardware retains its status as being best in class in terms of reliability, stability and performance and customer satisfaction. IBM’s System z mainframes recorded the least amount of downtime of any hardware platform. In the server hardware category systems with relatively small market shares, including Stratus Technologies ftServer 6300 and 4500 series and Fujitsu’s Primequest and Primergy Servers continue to score very high reliability.

Stratus Technologies of Maynard, MA offers Intel Xeon-based systems with mainframe-like fault tolerance and reliability with 99.999 % reliability. The Fujitsu Primergy and Fujitsu SPARC systems similarly deliver a high level of reliability and fault tolerance with 48% of reporting 99.999% or just over five minutes of per server/ per annum downtime due to unplanned outages.

The length and severity of Tier 1, Tier 2 and Tier 3 unplanned outages and the patching actions related to each correspond to specific line item capital expenditure (CAPEX) and operational expenditure (OPEX) costs for the business. Reliability, measured by downtime, can positively or negatively impact TCO and accelerate or delay ROI.

Improvements or declines in reliability also mitigate or increase technical and business risks to the organization’s end users and its external customers. The ability to meet service-level agreements (SLAs) hinges on server reliability, uptime and manageability. These are key indicators that enable organizations to determine which server operating system platform or combination thereof best suits the business needs.

Overall, these survey responses provide crucial, comparative reliability metrics to enable customers to make informed choices on which server hardware and server operating system or combination thereof, best suits their specific business and budgets needs.

Conclusions and Recommendations

In summary the ITIC 2012-2013 Global Server Hardware and Server OS Reliability Survey findings indicates that all of the server operating system platforms have achieved a high degree of reliability. However, the IBM AIX 7.1 operating system, followed closely by Windows Server 2008 R2, HP UX 11i v3 and Novell SUSE Enterprise Linux 11 are the top four most reliable server OS distributions.

Server hardware reliability shows similar year-over-year improvements. Among the “work horse” mainstream systems, the IBM Power Systems i and p servers, HP Integrity, Fujitsu Primergy and SPARC and the Stratus ftServer 4500 have the highest levels of inherent reliability.

Organizations must have confidence in the reliability and stability of their server hardware and server OS platforms. The advances in technology suggested by the ITIC 2013 Global Server Hardware and OS Reliability Survey results are encouraging. Now companies must tackle other equally important and challenging issues to ensure the highest levels of uptime and reliability.

It is the responsibility of the vendors to deliver reliable products and top notch technical service and support. Corporations also bear responsibility for keeping their IT departments well staffed and providing the necessary training and certification to IT administrators. Achieving optimum uptime means upgrading refreshing server hardware as necessary in order to support more data intensive workloads and physical, virtual and cloud environments. Close attention must be paid to system integration and interoperability, patch management and documentation. Business performance will almost certainly suffer if server configurations are inadequate for current tasks and requirements.

The ITIC survey results show that even the most bulletproof hardware and software platforms can be undone by human error or lack of adequate manpower in the IT department. Companies should monitor their service level agreements (SLAs) to ensure that they meet the desired reliability levels. If they do not, corporations should ascertain the cause and make the necessary improvements.

This is based on technical advances in the underlying processor technology from companies like Intel Corp. and Advanced Micro Devices, memory and disk technology, as well as improvements to the core server hardware and server OSs that improve performance, scalability, security and the ability to support heavier workloads.

As organizations strive to accomplish more with fewer resources, IT departments must rely even more heavily on their vendors to deliver more reliable servers and server OS platforms and top notch technical support in the form of regular patches and documentation.

For businesses leveraging IT, time is literally money. Even a few minutes of downtime can result in significant costs and cause internal business operations to grind to a halt. Downtime can also impact adversely a company’s relationship with its customers, business suppliers and partners. Reliability or lack thereof can potentially damage a company’s reputation, result in lost business and raise the risk of litigation.

Vendors’ ability to deliver top notch technical service and support – including a quick response with updates, fixes and patches to known flaws and security vulnerabilities –also figure prominently in reliability. Technical service and support – good and bad – also distinguishes and differentiates vendors from their competitors. How promptly, efficiently and effectively vendors respond to corporate customers when issues arise has a definite impact on customer retention and the company’s willingness to upgrade and purchase new equipment and software and to expand their usage of specific products and renew service contracts. Dell, Fujitsu, HP, IBM, Microsoft and Stratus all scored high marks for technical service, support and responsiveness. Dell, for example, has benefitted greatly from its decision to move its online technical support back onshore in the past several years. Dell support received high praise in anecdotal essay comments and in the first person customer interviews for fast, friendly and efficient service.

The survey results also showed that the strong technology gains in hardware, software, security and virtualization technologies were undercut by other issues that adversely impacted reliability, including:

• Human error
• Understaffed and overworked IT departments
• Prolonged refresh rates for aging server hardware that are inadequate for data intensive workloads

The ITIC 2013 reliability survey marks the first time that respondents had the option of choosing “user error” as negatively impacting reliability and it shot to number two on the list, with 28% of respondents acknowledging for the impact of IT staff mistakes on downtime. In fact, user error was second only to “bugs and flaws in the server operating system” as a cause of downtime. Nearly one-third or 31% of attributed bugs/flaws in the operating system as negatively impacting downtime, while 24% of participants attributed instability/problems with server hardware as a cause of downtime. And 22% of respondents indicated that security issues and the fact that their IT departments were understaffed and overworked also negatively impacted network reliability.

There is clearly a direct correlation between the 28% of survey respondents who blamed human error for reliability issues and the 22% of participants that specified understaffed and overworked IT departments and administrators as undermining reliability. Additionally, 47% of respondents indicated that when a significant portion of their main line of business (LOB) server hardware is more than three and a half years old there has been at least some adverse impact on overall network reliability.

The percentage of businesses with server hardware five years old doubled from 6% in 2011 to its present rate of 12% in 2013. At the same time, the percentage of organizations whose servers are new or one-year old or less also rose to 12% up from 7% a year ago. Organizations cited a number of issues related to system patches/patching processes:

• Some 26% of businesses spend more than one hour applying patches manually; down from 40% in the 2011-2012 survey. And only 11% of respondents spent >4 hours applying patches vs. 29% in the 2011-2012 survey.
• Over one-third of companies – 34% — now use group policy to automate/apply patches
• Notably, only 4% of IBM server users reported experiencing1 to >4 hours of per server/per annum downtime compared to 6% of Oracle users and 7% of HP server users

Additionally, the survey data coupled with anecdotal responses and first person customer interviews indicated that the reliability of virtually all server OS distributions and underlying hardware has improved. The overwhelming majority of unplanned Tier 1 and Tier 2 outages and downtime are directly attributable to integration and interoperability issues such as incompatible drivers, trouble applying patches (particularly in highly customized environments), misconfigurations and human error and the lack of a specific component or software fix for a particular platform.

Those are the results of the latest independent ITIC 2013 Global Server Hardware and Server OS Reliability Survey which polled C-level executives and IT managers at over 550 organizations worldwide from August 2012 through January 2013.

Among the high-end mainframe class systems, both the IBM System z and the Stratus Technologies’ ftServer 6310 delivered the highest inherent reliability: both had no instances – 0% – of the most severe Tier 3 outages lasting four hours or more of duration. Among the mainstream “work horse” servers, IBM’s Power Systems recorded the least amount of unplanned downtime, approximately 13 minutes per server/per year. By contrast, some 6 percent of organizations using Oracle (formerly Sun Microsystems) x86-based servers experienced of over four (4) hours of per server/per annum downtime. This was the highest percentage of lengthy Tier 3 server outages among the 14 platforms surveyed.

On the server operating system side, IBM AIX v 7.1, Ubuntu v 11.10, Windows Server 2008 R2, Red Hat Enterprise Linux 6 and SUSE Linux Enterprise 11(in that order) registered the least amount of unplanned downtime due to inherent flaws in the OS.

IBM’s AIX v 7.1 running on Power Systems, averaged approximately 10 minutes of per server/per annum downtime and recorded the least amount overall downtime due to Tier 1, Tier 2 and Tier 3 outages for the best reliability among survey respondents. Canonical Ltd.’s Ubuntu v 11.10, which has been steadily gaining mainstream adoption, came in a close second to IBM, averaging about 12 minutes of annual server downtime. Hot on its heels was Ubuntu’s chief Linux server OS rival Red Hat Enterprise Linux 6 (which also runs on IBM Power Systems) and Microsoft’s Windows Server 2008 R2 both of which registered about 12.5 minutes of unplanned yearly downtime. SUSE Linux Enterprise 11 (which also runs on IBM Power Systems) rounded out the top five logging just under 13 minutes of unplanned server OS downtime. On the other end of the spectrum, Oracle x86 and HP ProLiant servers had the highest percentage of systems that experienced more than four hours of per server annual downtime, with six percent of Oracle x86 systems and five percent of HP ProLiant systems experiencing a high degree of downtime.

Overall, 52% of IBM server hardware users reported experiencing 1 to 5 minutes of per server, per annum downtime, which is the equivalent of 5.25 minutes of downtime equaling 99.999% uptime. By comparison, just 41% of Oracle server users and 39% of HP servers recorded 99.999% or five nines of uptime.

Dell received the highest marks for customer satisfaction with technical service and support and product performance. Three-quarters or 75% of Dell survey respondents rated its service and support as “excellent” or “very good” followed by 70% of IBM survey participants and 69% of Stratus users who gave those servers “excellent” or “very good” ratings. Oracle’s customer satisfaction ratings were the lowest in the survey: only 45% ranked its technical service and support as “excellent” or “very good. However, Oracle had the highest percentage of dissatisfied customers with seven percent giving the company’s technical service and support a “poor” grade and 9% calling it “unsatisfactory. This is the third year in a row that Oracle service and support has had the dubious distinction of having the highest percentage of businesses that are unhappy with its technical service and support.

None of the survey participants gave IBM or Stratus service and support “unsatisfactory” ratings for technical service and support. Likewise, only one percent of respondents gave Dell, HP and Fujitsu an “unsatisfactory” and just two percent of Toshiba customers rated its technical service and support unsatisfactory.

Among server operating system vendors, Microsoft scored the highest marks for customer satisfaction with 71% of respondents rating the Redmond, Washington software firm’s technical service and support as “excellent” or “very good.”
In fact, Windows Server 2008 R2’s reliability renaissance continues to impress. Microsoft’s Windows Server OS noticeably lagged behind the majority of the UNIX, Linux and Open Source distributions in ITIC’s 2008 and 2009 Server Reliability surveys. In 2008, Windows Server 2008 survey respondents experienced 3.77 hours of downtime; that figure dropped to 2.42 hours of annual downtime in the 2009 survey. In the latest 2013 survey, Windows Server 2008 R2 has reached parity with the top tier server OSes, recording 13.2 minutes of unplanned per server annual downtime.

New Questions, Revealing Answers

ITIC also updated the 2012-2013 Reliability survey with several new questions to reflect the continuing changes in the industry, gaining further insights into user and system behavior:

• IBM server administrators spend the least time rebooting their server OS, including planned reboots to add or reconfigure system resources. Three-quarters – 75% of IBM administrators – “rarely or never” reboot the server compared with 66% of HP managers and 51% of Oracle administrators. Microsoft administrators spend the most amount of time rebooting the Windows Server 2008 and 2008 R2 servers; approximately one-quarter or 24% of respondents said they rebooted Windows weekly or daily to add or reconfigure system resources. The need for IT managers to take Windows servers offline to apply patches and reconfigure system resources remains a weak point for Microsoft.
• IBM Power VM, Stratus ftServer, Dell servers w/Windows Hyper-V and HP ProLiant iVirtualization (in that order) were the four most reliable hardware virtualization platforms. Virtualization market leader VMware was in the middle of the pack with respectable reliability rankings. Surprisingly, 60% of Dell Virtualization systems running Microsoft Hyper-V experienced one to 10 minutes of unplanned downtime compared to the 54% of Dell Virtualization systems running VMware.
• Some 31% of businesses don’t provide for hardware failover and redundancy which puts them at greater risk for system downtime. It also potentially lengthens the duration of an outage when something goes awry.

• The power to support compute intensive workloads
• The power to deliver business analytics
• The power to drive business efficiencies through server consolidation
• The power to conserve resources by consolidating floor space and lowering energy consumption
• The power to cut costs by reducing the number of licensing core requirements
• The power to leverage new product features and capabilities that simplify the IT experience

IBM’s new Power enterprise and entry servers also align with the company’s strategy to address organizations’ need to support compute-intensive workloads and more complex application environments, which include physical, virtual, cloud and mobile environments.

The new solutions – which support IBM’s AIX, and IBM i operating systems, as well as Red Hat Enterprise Linux and SuSE Linux Enterprise operating system environments – use the same underlying advanced processor technology that powers its Watson supercomputer, the system so famously displayed in 2011 when it trumped Jeopardy! grand champions during a nationally televised match.

The Watson processor intelligence that powers its systems gives IBM a noticeable advantage. Watson is leagues ahead of all competitors in intelligent data analytics and is at the heart of IBM’s “Smarter Planet” initiative. IBM is adapting Watson for all of its servers to perform accelerated, predictive analysis that is already being used by hospitals, law enforcement and government applications. The fact that IBM is now harnessing the power of Watson and making it available to the masses at an affordable price point bodes well for IBM to expand its presence with Power Systems servers among all classes of users from large enterprises to SMBs.

IBM’s new Power Systems incorporate the POWER7+ processors which leverage a 32 nanometer (nm) architecture that can deliver up to 40% faster performance; 10MB L3 cache per core; enhanced energy and power gating for energy efficiency; support for 20 virtual machines (VMs) per core to support increased granularity and flexibility for large-scale consolidation; enhanced single precision Floating Point for better efficiency and on-chip encryption acceleration for AIX to ensure security performance. There is also a self-healing capability for L3 Cache functions which helps improve reliability. Clock speeds on POWER7+ architecture-based servers range from 3.1GHz to 4.4 GHz; this is the highest clock speed of any enterprise CPU currently available.

The enhancements to the POWER7+ architecture deliver increased application performance, density, and resiliency, to better support enterprise applications in physical, virtual and cloud computing environments.

New and Improved Server Models, Configurations

In all, IBM introduced eight new Power Systems servers, including:

• IBM Power 750 Express has been redesigned to take advantage of the POWER7+ processor architecture. It features 20% to 40% more performance than comparable 32 core systems and has twice the memory and VM support. The Power 750 comes equipped with up to 32 POWER7+ cores and is available in clock speeds of either 3.5 or 4 GHz and it can support up to 1 TB of memory. These improved capabilities enable businesses to aggressively consolidate servers, save on floor space and cut power consumption. As an added sales inducement, IBM includes three years of 24 x7 service and support with every system sold.
• IBM Power 760 is a new system in a 5U form factor. It is aimed at organizations with virtualized environments that want to consolidate mission critical application workloads such as SAP. It is outfitted with up to 48 cores running at either 3.1 or 3.4 GHz and can support up to 2 TB of memory. The Power 760 incorporates Processor Upgrade on Demand to support non-disruptive growth and compute-intensive workloads and like several of the other POWER&+ models it also features workload optimizing capabilities to adjust and accommodate the fluctuations in daily usage. As part of the purchase price, IBM installs the system for customers and also supplies businesses with three years of 24 x7 service and support.
• IBM Power 710 and 730 are high-performance, dense and energy-efficient 1- and 2-socket rack servers, with clock speeds varying from 3.6 to as high as 4.3GHz that come in a space-saving 2U form factor. They are aimed at businesses that want to run multiple applications and infrastructure workloads in virtualized environments.
• IBM Power 720 and 740 Express are offered at 3.6, or up to 4.2GHz , respectively, and offer more expansion for companies that want small or midsized database servers to support IBM DB2, Oracle or Sybase databases and applications.
• IBM PowerLinux 7R1 is a space-saving 2U 1-socket server for supporting dedicated Linux workloads. It has been refreshed to support 4, 6 or 8 POWER7+ cores. It delivers up to 4.2GHz speed, has up to 256GB of memory and supports up to 20 VMs per core.
• IBM PowerLinux 7R2 is a 2U 2-socket server for supporting dedicated Linux workloads that supports up to 16 Power7+ cores at either 3.6GHz or 4.2GHz. It features up to 512 GB of memory and supports up to 20 VMs per core.
• IBM PureApplication System W1700, part of IBM’s new PureSystems workload-optimized solutions portfolio, uses the POWER7+ architecture to enable organizations to deploy a 3-tier web applications in under 11 minutes, and its Power nodes can also deliver substantial throughput improvements over the x86-based W1500-962 model. The W1700 incorporates compute, network and storage with pattern-based management and an integrated management user interface (UI). It is designed to accelerate and simplify new application and service deliver deployments and facilitate lifecycle management.

Cost Competitive Pricing

The newest IBM Power Servers are also notable for Big Blue’s expanded commitment to embrace small and midsized organizations, as well as large enterprises, by offering configurations of the Power 710 and 730 servers at price points that are cost- competitive with x86-based systems but which are also designed to deliver significantly better levels of performance and reliability. Both the Power 730 and the competing Hewlett-Packard x86-based HP DL380p systems, equipped with 2U 16-cores, 64GB memory and 2 x 140 GB 15Krpm disks have the same list price of $11,033. Differentiations in disk and memory configurations will impact the overall system price as will other factors such as volume discounts.

Reliability is also a crucial factor in determining total cost of ownership (TCO) over the entire server lifespan. During the past four years, IBM AIX and Power Systems have recorded the highest uptime and reliability ratings in ITIC’s annual Server Hardware and Server OS Reliability Surveys. In the latest updated ITIC January 2013 poll, IBM’s AIX v7.1 UNIX OS running on the company’s Power System servers scored the highest reliability ratings and recorded the least amount of overall downtime from Tier 1, Tier 2 and Tier 3 outages among 18 different server OS platforms. Specifically, the ITIC survey which polled over 500 organizations worldwide found that 52% of IBM servers, including the Power servers, achieved “five nines” 99.999% uptime; this is the equivalent of one to five minutes of per server/per annum downtime. By contrast, only 39% of survey respondents deploying HP servers achieved the same 99.999% reliability. Reliability is a critical metric that contributes to lowering or raising total cost of ownership (TCO).

Corporate customers interviewed by ITIC say they are equally impressed with the quality and quickness of IBM service, support and documentation when their IT staff log technical support calls.

Analysis

In order to maintain and extend the success of its Systems and Technology Group (STG—hardware division), IBM is now tasked with differentiating its growing array of solutions and services. Although the company has, for the last several years, proactively brought its entry level pricing down in order to compete on a more level playing field with commodity x86-based servers, the perception persists among many rank and file businesses that IBM servers are out of their price range.

To this end, we believe IBM Power Systems executives should continue to focus on:

• Clearly differentiating the products: IBM’s Power Systems portfolio encompasses a wide range of servers targeted at different classes of users and offering a variety of choices to address physical, virtualized, cloud computing, storage and networking with Power & PureSystems offerings. It’s easy for even stalwart IBM customers to feel overwhelmed by the sheer number of these products and announcements, let alone new customers outside of IBM’s traditional bailiwick in government, finance, healthcare and insurance verticals. IBM Power Systems executives must strive to highlight the most important product updates and announcements to customers and emphasize the two or three most crucial products and services per quarter and via their sales and reseller channels and user groups. IBM has always been good about providing guidance but the growing size and diversity of the Power Systems portfolio means it must do even better.
• Delivering competitive acquisition, licensing and technical support costs: The biggest single criticism leveled at IBM is the cost of its after-market technical service and support. No one expects IBM to offer superior services at Flea Market prices. However, the company has one of the largest service and support organizations in the world, meaning it could and should build goodwill in 2013 by offering special promotions, discounts and bundled incentives to loyal STG customers and even prospective clients. A sizeable segment of the end user population is currently and will continue to be strapped for capital expenditure funds for the foreseeable future.
• Appeal to small and midsized businesses: IBM is deeply-entrenched among large enterprises in high profile verticals like financial services, healthcare and government, to name just a few. Small and midsized businesses (SMBs) however account for nearly 60 percent of all companies but those with fewer than 500 (small) and 1000 (midsized) users lack the clout and deep pockets of their enterprise counterparts. Collectively, however, their numbers and capital and operational expenditure power are enormous – particularly in emerging geographical regions like Africa, which is a big focus for IBM as whole and STG in particular. Overall, IBM, its current clients and potential customers would all be well-served by specific purchasing and licensing programs that provide aggressive entry-level price points and value-added licensing deals for SMBs.

From a competitive standpoint, ITIC reiterates its prior guidance that IBM continues to score impressive new customer wins – particularly from among legacy Sun Microsystems customers who are disaffected over the changes Oracle has made to pricing, licensing and support contracts since it acquired Sun Microsystems in 2010.

However, IBM will have to work harder though to lure customers away from other rivals like HP and Dell which have extremely, loyal committed customers. Despite HP and Dell’s ongoing financial woes, these firms’ customers remain generally very satisfied with pricing, service and support. Much of this is due to the widespread adoption and use of commodity x86-based servers which perform well at a very affordable price point. In order to woo HP and Dell customers to the Power Systems platform, IBM must emphasize the strength and stability of its overarching corporate management which has enabled Big Blue to execute against its product roadmap and strategy and regularly refresh its hardware. IBM should also underscore its’ ongoing commitment to R&D. IBM spends twice as much annually on R&D, about $6 billion to HP’s $3 billion. This in turn, fuels IBM’s ability to accelerate technology advancements like the highest clock speeds in the industry.

Most of all, IBM must illustrate that it can deliver optimum performance and value and still be price/performance competitive with commodity x86-based systems. Additionally, the continuing high reliability of the IBM’s servers lowers ongoing operational and maintenance costs and reduces TCO over the average three-to-four year server lifespan.

Overall, the newest Power Systems and PureApplication System offerings with the POWER7+ architecture deliver tangible and excellent value for all classes of businesses from SMBs to large enterprises. Existing IBM customers and prospective customers alike will be well served by the Power Systems’ improved performance and throughput, improved consolidation, energy efficiency and world class RAS.

Reviews so far have been mixed but there’s no doubt that this is Microsoft’s attempt to beat Apple at its own game in the tablet market AND one-up the iPad maker by delivering a tablet-like device that also has the power of a full-blown computer.

Hence, the mood is more cautious with respect to the Windows 8 RT Surface Tablet. This is Microsoft’s first foray into the tablet arena which is dominated by Apple’s iPad with 68% marketshare. Just over one third – 34% — of the over 500 ITIC survey respondents said their Windows 7 desktops were fine; another 24% indicated they’re already using the Apple iPad and are satisfied with its performance; 18% said other device purchases take priority and 16% said they were waiting to see how the Windows 8 Surface Tablet is priced. Ironically, only nine percent of survey participants said the Touch screen factored into their decision not to purchase the Windows 8 Surface Tablet. Interestingly, only 12% of survey participants said they would pass on the Windows 8 Surface Tablet because they’re already using an Android-based tablet.

Overall, 62% or nearly two-thirds of the respondents who have tested the Windows 8 Surface Tablet gave it a positive rating compared to 38% that found it ” poor” or “unsatisfactory.” Among the latter group — an overwhelming 87% of the 38% that disliked performance attributed it to ergonomics, e.g, they were dissatisfied with the built-in keyboard which is very sentisive and made them more prone to typing errors. Some also though it should have been a “bit lighter.”

Analysis

Windows 8 appears to be a solid successor to Windows 7 in terms of performance, reliability, scalability, security. Additionally, Microsoft has pledged not to repeat the egregious mistake it made with Vista, which sorely lacked backwards compatibility and interoperability with many crucial third party applications. Nonetheless, even some Microsoft insiders privately acknowledge that the company would have been better served by holding off on shipping the Windows 8 desktop since a significant portion of businesses have just recently migrated to Windows 7. Microsoft has largely been mum on the issue of what users perceive as unnecessarily forcing them to use the Touch screen. Touch screens have long been a staple among Apple Macintosh users. But the Metro is and will be a jarring change for many corporate end users – particularly older ones. Microsoft badly miscalculated this issue.

The Windows 8 RT Surface Tablet is another story. In the tablet and smart phone arenas, corporations and consumers expect to use and in fact embrace the Touch Screen interface. But in the tablet arena, Microsoft faces two significant challenges to adoption: their names are iPad and Android. Microsoft is late to the tablet market where the Apple iPad has a commanding 68% market share.

Microsoft must craft a cogent, compelling marketing campaign and back it up with strong features, excellent technical service and support and an aggressive pricing model if it is to have any chance of being a serious player in the tablet market.

Conclusions

IIt is highly unlikely that Windows 8 will see widespread mainstream corporate adoption within the first year. Too many people and businesses have recently or are just beginning a Windows 7 migration. So Microsoft should use this time wisely and re-engineer Windows 8 within the first Service Pack to enable corporations and consumers to easily revert to the traditional Start button and bypass the Touch screen. This will mitigate much of the negativity and help to assuage the corporate concerns regarding the new OS. Microsoft should also ensure that its Windows 8 documentation and technical service and support are top notch and feature backwards compatibility with its own products as well as the major third party ISVs. Microsoft can’t afford another debacle like Vista.

Microsoft also needs to aggressively market the Windows 8 RT Surface Tablet and create a buzz that includes tangible reasons why . It is also imperative that Microsoft undercut Apple and Android-based rivals on pricing and deliver top notch service and support in order to gain a foothold in this intensely competitive market.

The bottom line: Microsoft has a lot to prove in the court of public opinion.

Those are the findings of ITIC’s latest independent ITIC Windows 8 Deployment and Usage Trends Survey which polled over 500 organizations during September.

The Web-based survey found that only 10% of respondents – or one-in-10 companies – have definitive plans to migrate to Windows 8 once it’s released on October 26. That’s in stark contrast to the 64% of the respondents to ITIC’s Windows 7 poll who stated their intentions to migrate to Windows 7 just Microsoft released that operating system in the fall of 2009.

Similarly, only 9% of those polled currently plan to purchase a Windows 8 Surface Tablet compared with 49% who say they will not buy the forthcoming Windows 8 Surface Tablet.

Windows 7 is a big factor. Organizations cited their satisfaction with existing Windows 7 desktops, or the fact that they are just now commencing a Windows 7 upgrade as the main reasons for not migrating to Windows 8.

Among the other Windows 8 survey highlights:

• Although 49% of survey participants said they will not migrate to Windows 8 vs. 10% who said they will upgrade or buy Windows 8 – four-out-of-10 users are on the fence. The 41% of respondents who classified themselves as “undecided” represent both a mission and a potential mandate for the new Microsoft desktop OS. One quarter – 25% — said they are “studying the issue” while 17% are “unsure.”
• A 58% majority of corporate respondents have not yet tried the Windows 8 desktop OS beta. Of the 42% that have tested it, a 32% majority gave it the new client OS positive ratings for performance, reliability and features. The remaining 10% of early beta users/adopters gave it a negative rating; this was almost overwhelmingly due to the difficulty with the Touch screen; these users complained that it made it difficult to use and access Windows-based applications.
• On a more positive note, only 3% of corporate survey participants said they are considering switching from Microsoft Windows to another desktop OS.

To say that Microsoft has a lot riding on its imminent Windows 8 launch is to have a magnificent grasp of the obvious.

By now, most of us have heard the reports that Microsoft will spend a whopping $1.5 to $1.8 billion in an all-out Windows 8 and Windows 8 RT Surface tablet marketing blitz. Microsoft declined to confirm the figure saying it never comments on such matters. But just this week, the company did release some pertinent numbers: $39.99 and $499; that is the introductory list price of Windows 8 and the retail price of the Windows 8 Surface Tablet, respectively.

Both designed to spark interest and spur sales of the new Windows 8 offerings and to emphasize the fact that Microsoft intends to be price-competitive with rivals Apple and Google. The $39.99 introductory price for a download copy of Windows 8 will be good through January 31, 2013. That is the least expensive Windows OS tag in Microsoft’s history. Likewise, the $499 retail cost of the Windows 8 RT Surface Tablet puts in right in line with Apple’s iPad (minus 3G or 4G capabilities).

But will these moves be enough to convince users to migrate?

We’ll find out soon enough. Meanwhile Microsoft has its work cut out for it: to convince corporations and consumers alike that there are reasons to migrate to Windows 8 and the Surface Tablet.

That’s according to the latest independent joint survey conducted by ITIC and KnowBe4.com, a Clearwater, Florida company that specializes in security awareness training. The ITIC/KnowBe4.com survey, polled 550 companies worldwide in July and August. The survey survey found that only 13% of respondents said their firms have specific policies in place to deal with BYOD deployments, while another nine percent indicated they were in the process of developing BYOD procedures.

“These survey findings should act as a wake-up call to galvanize corporations into proactively managing and securing corporate data accessed by mobile BYOD devices before they suffer an expensive and potentially crippling loss or hack,” said ITIC principal analyst Laura DiDio. She continued, “Every firm regardless of size should conduct a risk assessment review and adopt strong security and management policies to deal with increasingly mobile BYOD deployments.”

BYOD deployments have been among the biggest trends in corporate computing usage in the last 12 to 18 months, spurred on by the burgeoning use of mobile and portable devices like smart phones and tablets which have become ubiquitous and near-indispensible workplace tools. BYOD usage does help businesses to contain costs and lower the administrative burden of IT departments as end users manage, maintain and in many cases pay for their own devices.

However, the downside of the BYOD and mobility trends is that they leave companies – from SMBs to enterprises — extremely vulnerable to security breaches. Unless the corporation has strong, effective usage and security policies in place to govern BYOD usage, the company and its sensitive corporate data could be put in a precarious position in the event that a mobile device is lost, stolen or hacked.

Kevin Mitnick (former ‘most-wanted’ hacker), KnowBe4’s Chief Hacking Officer agreed, noting, “Mobile devices are the new target-rich environment. Based on lessons learned in the early days of the personal computer, businesses should make it a top priority to proactively address mobile security so they avoid same mistakes [of the PC era] that resulted in untold system downtime and billions of dollars in economic loss.”

Among the other ITIC/KnowBe4.com survey highlights:

• Organizations are split on who takes responsibility for the security of BYOD devices. Some 37% of respondents indicated the corporation was responsible; 39% said the end users were responsible; 21% said both bear equal responsibility and the remaining three percent were “Unsure.”
• Presently, 51% of workers utilize smart phones as their BYOD devices; another 44% use notebooks and ultra books, while 31% of respondents indicated they use tablets (most notably the Apple iPad) and 23% use home-based desktop PCs or Macs.
• A 57% majority of respondents said the end users purchased/owned their BYOD devices; compared with only 19% that indicated the corporation buys and owns them. Another 22% of survey participants said the company and the employees split the cost. The remaining two percent said they decide on a case-by-case basis.
• The top three challenges with respect to BYOD deployment were: difficulty of management and support (63%); provisioning new applications (59%) and security (48%).

The transition to a BYOD model is rapid and widespread. Legal services leader Foley & Lardner, was an early adopter of BYOD in October of 2009. According to a recent article, the firm implemented this program to cut costs and enable their employees to work anywhere, anytime. The security issue on personal devices is said to be protected from “within the secure confines of our data center” (1).

Organizations that allow BYOD, but fail to implement strong safeguards will find themselves extremely vulnerable. Unless the corporation has strong, effective policies, procedures and security awareness training in place to govern BYOD usage, the company and its sensitive corporate data could be put in a precarious position in the event that a mobile device is lost, stolen or more likely, hacked, a real possibility in recent times. (2)

For necessary and vital security measures, every firm regardless of size should conduct a risk assessment review, adopt the ‘defense-in-depth’ strategy and create a strong first layer: security policy, procedure and security awareness training to deal with BYOD deployments.

(1) ZDnet.com , August 23, 2012. “Legal services leader and SMB Foley & Lardner makes strong case for BYOD” www.zdnet.com/legal-services-leader-and-smb-foley-and-lardner-makes-strong-case-for-byod-7000003094/
(2) “HP Research Reveals 56 Percent Rise in Cost of Cybercrime”; published on HP.com, August 2, 2011. www.hp.com/hpinfo/newsroom/press/2011/110802xa.html

Microsoft Strengths

One of the most notable company wins in the past five years is the Xbox 360 and Kinect.

Xbox 360 and Kinect: Simply put, this is an unqualified success. The latest statistics released earlier this month by the NPD Group show that Microsoft has a 47% market share and sold 257,000 Xbox 360 units in the U.S. in June, besting its rivals the Sony PlayStation 3 and Nintendo Wii for the 18th consecutive month. But Microsoft and indeed all the hardware games vendors find their sales shrinking due to the sharp increase in the numbers of users playing games on their smart phones. In Microsoft’s 2012 third fiscal quarter ending in March, Xbox 360 sales dropped 33% to $584 million. The consumer space is notoriously fickle and games users are always looking for the next big thing. Microsoft’s ace in the hole is the Kinect motion-controller, which still has a lot of appeal. The company is banking on that as well as slew of new applications and functions like the Kinect PlayFit Dashboard which lets users track the number of calories they burn when they play Kinect games.

Microsoft continues to dominate and innovate in the consumer games market segment and is showing the necessary agility to transition as needed.

Microsoft Enterprise Strengths

Microsoft is also doing well among enterprise customers. While the Windows operating system and Office productivity suite software may not be the show stoppers and grab headlines the way they did in the 80s, 90s and into the 2000s, Microsoft has addressed users concerns and solidified the reliability and uptime of the software.

Performance/ Reliability: Some 82% of the 500 respondents to ITIC’s 2011-2012 Global Server Hardware and Server OS Reliability Survey in January of this year, indicated their organizations experienced less than one unplanned, severe/lengthy Tier 3 outage per server, per annum on Windows Server 2008 and 2008 R2 platforms. Windows Server 2008 R2 scored the biggest reliability gains in the survey. The 2011-2012 survey respondents now rank Windows Server 2008 R2 as among the top three most reliable, mainstream server operating systems. Windows Server 2008 R2’s reliability renaissance is especially impressive since Microsoft’s Windows Server OS noticeably lagged behind the majority of the UNIX, Linux and Open Source distributions in the ITIC/Sunbelt Software (now GFI Software) 2008 and 2009 Server Reliability surveys.

Security: Microsoft has turned what used to be its most glaring deficit into one of its chief strengths. Microsoft’s decade-old, ongoing Trustworthy Computing Initiative has resulted in tangible gains in the security and overall reliability and performance of its products – most notably two of its core platforms: SQL Server and Windows Server. The enhanced security and strong synergies between the underlying Windows Server 2008 R2 Operating System and the SQL Server 2008 R2 database platform provides organizations with arguably the most reliable and secure operating environment in the history of these solutions.

The same ITIC 2011-2012 Global Server Hardware and Server found that Windows Server 2008 R2 vied with IBM’s AIX v 7.1 for the most secure server OS as ranked by users. Nine out-of-10 survey participants rated Windows Server 2008 R2 Security as “excellent” or “very good.” And none of the respondents gave Windows a “poor” or “unsatisfactory” grade. Plus, statistics obtained from the National Institute of Standards and Technology’s Computer Vulnerabilities and Exposure database (NIST CVE) indicate that for the past nine years SQL Server is the most secure of any of the major database platforms. SQL Server recorded the fewest number of reported vulnerabilities — just 52 from 2002 through 2011 — of any major database. NIST is the government agency that monitors security vulnerabilities by technology, vendor, and product. In 2010, SQL Server compiled a perfect record — no security vulnerabilities were recorded by NIST CVE; while it recorded only three vulnerabilities during 2011.

Its closest competitor, MySQL recorded 99 security flaws or twice as many as SQL Server over the same period. By contrast, during the same period spanning 2002 through 2011, the NIST CVE recorded 361 security vulnerabilities associated with the Oracle database platform, the highest total of any major vendor. Oracle had almost seven times as many reported security flaws as SQL Server during the same time span.

Enterprise Solutions: Microsoft is also making tangible gains in crucial technology arenas like Virtualization, e Cloud computing and pivotal applications like Customer Relationship Management (CRM) and Business Intelligence (BI).
After a slow start, Microsoft’s Hyper-V is rapidly gaining ground on market leader VMware and expanding its presence among enterprise users as well as among small and mid-sized businesses. And Microsoft continues to fortify and expand its Azure cloud platform products and strategy.

Additionally, Microsoft Dynamics CRM is one of the top three solutions in that space along with market leader Salesforce.com and Sugar. And finally, after nearly 40 years in business Microsoft has developed one of the most extensive enterprise application, support and channel ecosystems. Resellers, IT managers and consultants find it easy to access technical documentation and fixes when they need it.

Microsoft Office: Despite being targeted by Google Apps, Microsoft Office retains its dominant position among corporate users thanks in no small measure to the depth and breadth of its enterprise ecosystem and broad technical service and support offerings which 11 year-old Google is not yet capable of matching. In July, Microsoft unveiled the newest version of its Office software, which incorporates a touch-screen user interface designed to provide integration and interoperability with the company’s forthcoming Surface tablets. The new version of Office slated to ship this fall, will also deliver integration with Microsoft’s newest acquisition, Yammer which Microsoft purchased in June for $1.2 billion in cash. Ballmer said in a live Webcast that Microsoft will make the private social network service available to Office users for free and integrate it with SharePoint and Microsoft Dynamics.

Office 15 also now will come with 60 free minutes of the online phone service Skype, which Microsoft purchased in 2011. And in order to better compete with Google Drive and Apple’s iCloud integration, the upcoming version of Office will be integrated with Microsoft’s online storage system, SkyDrive. Users will be able to synchronize their files, settings, and templates across myriad devices such as tablets, notebooks and Windows Phone smart phones. Microsoft will also ship new editions of the cloud-based Office 365.

Conclusions

Microsoft has stumbled and fallen many times with respect to products, timing and execution in the last 10 years. It inarguably lags well behind Google and Apple in key markets like search engines, mobility and tablets, much to its detriment. As a result, Microsoft is no longer considered indomitable. In addition, the declines in PC sales are challenging Microsoft to change its tactics and strategy and step up its initiatives to spur revenue growth.

The forthcoming Surface tablet could be a game changer; that remains to be seen. It will most certainly be disruptive, a fact Microsoft recognizes and noted in its most recent financial earnings, noting on page 14 of its compulsory 10-K annual report filing, that it faces a rocky road and may alienate some of its OEM partners when it ships the Surface tablet.

In the 10-K filing, Microsoft emphasizes its established “ecosystem” of users, application developers, and partners that provide platforms that accelerate growth.” Windows 8, the Surface tablet and the associated cloud-based services could change that.

In the 10 K filing Microsoft also acknowledges what everyone knows: its operating margins are under assault from competitors – most notably Apple — which control the hardware and software (e.g. the Macs, iPhone and iPad). In recent years, Microsoft has also waded into these waters with the Xbox and its emerging Azure cloud computing platform. Specifically, Microsoft disclosed in the 10-K filing that “…We derive substantial revenue from licenses of Windows operating systems on personal computers. The proliferation of alternative devices and form factors, in particular mobile devices such as smart phones and tablet computers, creates challenges from competing software platforms. These devices compete on multiple bases including price and the perceived utility of the device and its platform…. “

The most cautionary statement in Microsoft’s 10-K filing notes, “ Even if many users view these devices as complementary to a personal computer, the prevalence of these devices may make it more difficult to attract applications developers to our platforms. In addition, our Surface devices will compete with products made by our OEM partners, which may affect their commitment to our platform. “

Microsoft’s concerns are well founded. Frankly though, this is an issue confronting nearly all high technology vendors as they seek to grow their business through diversification. In other words, even steadfast partners find themselves becoming rivals as they expand outside of their core competencies. For years, Apple and Google enjoyed a very cozy relationship: Google’s Eric Schmidt had a seat on Apple’s board for years but resigned in August of 2009 citing a conflict of interest as the Android and Chrome OS directly competed with Apple’s iOS and Mac OS X.

By virtually any measure, Microsoft will have a long, uphill climb to make an impact in the smart phone and tablet segments. It must offer a clear, compelling product roadmap and cogent marketing strategy to convince customers to upgrade to Windows 8, Windows Server 2012 and Office 13 and Office 365. Execution is everything.

Microsoft is far from finished. It faces steeper challenges now than it ever has. The company’s financials are still solid. Microsoft can also boast of many wins in the past decade, not the least of which is solidifying and bolstering the performance, reliability, uptime and security of its core Windows and Office products and improving customer satisfaction.

Most immediately Microsoft needs to win big this fall with its Office, Windows 8 and Surface tablets. Half the battle is in perception. Between now and the release date, Microsoft has to convince its corporate and consumer customers as well as press, analysts and industry watchers that it’s still got game. Pressure anyone?

In recent weeks, the software giant; released customer previews and ship dates for the newest versions of its flagship Windows and Office products; purchased Yammer, a cloud-based enterprise social networking company; hosted its annual Worldwide Partners Conference (WPC) in Toronto, and; vocally signaled its intent to leave no stone unturned in competing head-on with rivals Apple and Google.

Sounds good, right? Unfortunately all of these positive moves are overshadowed by three things:

• Microsoft reported the first quarterly loss in its 26 years of being traded as a public company. Slipping into the red for the first time in nearly three decades, Microsoft has reported a loss of $492 million in the June quarter. Most worrisome is the reason for the loss. Microsoft took a non-cash write-down of $6.2 billion related to non-performance of online advertising business and Internet services division, aQuantive, which Microsoft acquired in 2007. On a positive note, revenue for the fourth fiscal 2012 quarter rose four percent to $18.05 billion, compared to the $17.36 billion sales Microsoft posted in the same period a year ago.
• A scathing profile, titled “Microsoft’s Lost Decade” in the current issue of Vanity Fair magazine by contributing Editor Kurt Eichenwald. In it, Eichenwald makes a case that Microsoft has spent the last ten years unsuccessfully dithering in several key market segments including smart phones, search engine, social networking, mobility and tablets, falling far behind competitors like Apple and Google.
• Windows 8 is being dubbed as a “disaster” three months in some quarters before its scheduled October ship date.

What goes on here? Are things really as bad as all that? Is Microsoft doomed to suffer a quick decline, inexorably marching off to a high-technology elephant’s grave yard? Not so fast.

Microsoft is in transition and does face significant challenges to both its core business and technology model going forward. However, the Redmond, Washington software company still has a lot going for it and rumors of its demise are premature.

In Part 1 of a two-part column, we’ll examine the perception and reality of the challenges confronting Microsoft. In Part 2 we’ll detail Microsoft’s strengths.

Microsoft’s Financials

Let’s start by looking at Microsoft’s current financials. The company does suffer by comparison to rival Apple – but so does just about every other company on the planet. Apple’s success and phenomenal growth surge has outpaced just about every corporate measurement over the past six years thanks to the iPhone and iPad.

Apple aside, Microsoft’s financials are more than respectable (as shown in Table 1 below). The Redmond, Washington software giant has one of the highest market capitalizations in the industry at over $247 billion. Annual income is $23.34 billion on sales of over $73 billion. The rest of Microsoft’s balance sheet is equally clean with profit margins of close to 32% and operating margins of 38.44%. The company also has $58.35 billion in cash, while total debt is a manageable $13.15 billion. These figures enable Microsoft to pay shareholders a 2.7% dividend. In March, Apple announced it would pay its first quarterly dividend in 17 years — $2.65 per share beginning July 1.

Microsoft derives 35% of its revenue from Office; 22% from Windows and 10% from its Xbox business, with the remaining 33% spread out among other products and services. Clearly, Microsoft has a lot riding on the fall introduction of the new Office and Windows releases. Flagging PC sales are hurting all the OEMs including Apple. And just as clearly, Microsoft must do something quickly to either jumpstart its lagging Internet and online advertising and smart phone sales or admit defeat and cut its losses. Based on Steve Ballmer’s comments at the Worldwide Partners Conference (WWPC) in which he vowed to take on Apple, failure is not an option.

Microsoft must also diversify into new markets. The twin Windows and Office cash cows are under pressure although enterprises won’t desert en masse in the next three years. Bottom line: Most corporations would kill to have Microsoft’s balance sheet.

Vanity Not So Fair

The Vanity Fair article unflatteringly compares Microsoft’s financial performance to Apple noting that one singular product, the iPhone, now generates more revenue than all of Microsoft’s products combined. The article also uses interviews with named sources – including former Microsoft engineers and product managers – to paint a highly critical analysis of Microsoft’s internecine conflicts and counter-productive corporate practices such as stack ranking reviews. The article’s premise and conclusion is that Microsoft has lost its edge in the last decade by myopically placing too much emphasis on Windows and Office to the detriment of emerging technologies like tablets and e-readers. Microsoft is now in the words of Kurt Massey, a former senior marketing manager quoted in the article “a barren wasteland.”

The Vanity Fair article does make valid points but what it fails to do is present a complete picture that details Microsoft’s financials, illustrate what Microsoft has done right over the last 10 years, what it continues to get right today and where it is well positioned for future.

Microsoft Missteps and Vulnerabilities

The most worrying current Microsoft statistic is that its quarterly earnings growth is off 2.40% year over year (YoY), reflecting slowing PC sales which also negatively impacts Microsoft’s core Windows and Office products. To reiterate, Windows and Office combined account for 57% of Microsoft’s overall revenue. It’s no secret that both Google and Apple have been launching an assault on the company’s traditional bailiwick among corporate enterprise customers. It’s also no secret that due to changing market dynamics and the continuing economic downturn that Microsoft has felt the pain and pressure in getting users to upgrade to new versions of Windows and Office.

Windows 8 and Office 15 are both due to launch this October. Exact ship dates and pricing have not yet been released. While many industry observers have already declared the PC dead, that is an overstatement. Tablets, most notably Apple’s iPad, are certainly cropping up more and more in businesses but enterprises are in no way ready to chuck their PCs and notebooks in the near term or intermediate future. That said, the market is evolving and Microsoft must embrace the new form factors and be in the forefront of innovation with its upcoming Surface tablet, though there is bound to be some disruption from disaffected OEMs.

Other well documented areas Microsoft product market missteps include:

• Smart phones and mobility: This is a case of too little, too late. Windows Phones from Nokia and others are decent products but they were woefully late to market due to delays in Microsoft’s development process. By the time these products shipped. Apple’s iPhone and Google Android-based devices had built up an insurmountable lead. Microsoft is also hobbled by its partnership with Nokia, whose sales and market share are in free-fall.
• Search Engine: From a feature/function standpoint, Microsoft’s Bing is a terrific search engine that has about 11% market share. But again, Microsoft’s tardy entrance into the search engine market allowed Google to build 65% market share that will be difficult, if not impossible to overcome.

Microsoft Company Morale and Stack Ranking

In the late 80s, 90s and through the early 2000s, jobs at Microsoft were highly sought after. Microsoft made lots of millionaires. In the last 10 years Microsoft’s stock has stagnated. In the last year, the stock has ranged from a low of $23.79 to a high of $32.95. Its current price of $29.58 is on the higher end of the 52-week range, but the stock price is sluggish and shows no signs of breaking out of the slump.

A good portion of the Vanity Fair article was devoted to Microsoft’s practice of stack ranking. ITIC agrees that stack ranking undercuts morale and causes many loyal workers to seek employment elsewhere. Stack ranking is exactly what its name implies: in a team of workers it’s predetermined that a certain percentage will receive excellent reviews, the majority will get a middling/mediocre review and that a remaining small percentage – roughly 10% will get a failing review, causing them to be put on probation or even terminated. Microsoft employees are upset and rightfully so, that the ranking system mandates that certain numbers of people will excel while others are doomed to be assigned a failing grade whether they deserve it or not.

To put it bluntly stack ranking is rank! Whoever had this idea ought to get an “F” in his/her next performance review because it stinks. It certainly does nothing to motivate workers and in fact it could damage their performance. Microsoft needs to cancel stack ranking immediately.