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Inside Microsoft's Big Enterprise Growth Plans

Although Microsoft's server and tools division has chalked up more than 18 percent in year-over-year growth, has a revenue of $13.2 billion and would be the fifth largest software company on the planet if it were an independent firm, Microsoft thinks the division has tremendous room for growth.

The division offers database, security, identity, IT management, developer tools and operating systems, Bob Kelly, the division's corporate vice president, told an audience at the Barclays Capital Technology Conference in San Francisco.

"If you add up all these categories, you have an $85 billion to $90 billion enterprise software segment, of which we have about $13.2 billion," Kelly said. "There's great opportunity and huge upside for us to deliver increased value at the right price."

Kelly also talked about Microsoft's (NASDAQ: MSFT) plans for services, virtualization, and the cloud.

All the categories in which the server and tools division offers products will experience strong growth in the next three fiscal years, Kelly said.

In the database area, which Kelly said still has a lot of upside, Microsoft will target high-end data warehouses for the enterprise.

The vendor will combine "Kilimanjaro," the codename for a highly scalable version of SQL Server scheduled for release in the first half of calendar 2010, Windows Server 2008 R2, and technology from its recent purchase of DATAllegro, Kelly said. Both SQL Server "Kilimanjaro" and Server 2008 R2 will support up to 256 cores per server. This will let it take on mainframe-class mission critical database jobs.

Microsoft bought DATAllegro, which offered a data warehouse appliance, for an undisclosed sum in July with an eye to targeting the enterprise database and business intelligence market.

"Kilimanjaro" will let Microsoft revolutionize the business intelligence sector, offering access to data and analytics to all enterprise users. "Data and access to data for analytics and reporting is, in our estimation, a massive play," Kelly said. "Anybody that uses Outlook or Office should be able to get access to data and have that kind of analytics."

Gunning for the money

Microsoft will release another version of SQL Server in the first half of calendar 2010 which will target very high end data warehousing, where enterprises spend lots of money, Kelly said.

Developer tools were a more than $1 billion dollar business for Microsoft this year, and will be another area of focus because it still offers a significant upside, according to Kelly.

Services is going to be a powerhouse for earnings in Microsoft's estimation. "The services category, essentially a body shop, consisting of the people that are used to run or deploy software, is worth $400 billion," Kelly said.

"We have the opportunity to go after that opportunity and that's the longer term vision - help customers through the lifecycle of building, operating and managing IT," he added. "If we can do that, we'll go from $90 billion to $400 billion."

But there are other, equally fertile pastures for Microsoft, one of which is virtualization. This will become increasingly important as enterprises struggle with the recession, research firm IDC recently predicted.

Microsoft went full blast into the virtualization market this year, and although many of its technologies in this area are two years away, Kelly told his audience that the company has a coherent and comprehensive strategy consisting of Windows Server 2008, the use of virtualization across servers, desktops, applications and presentation, and a management strategy spanning the virtual and physical worlds.

The market opportunity for Microsoft is huge. "Less than 15 percent of all the servers sold into the market today are acting as hosts for virtualization," Kelly said. "This is a very powerful place for us and we have significant upside." Live migration capabilities for virtualization will ship as part of Windows Server 2008 R2, Kelly said.

Another hot technology for 2009 is the cloud, and Microsoft's Software-plus-Services strategy could become a foundational element of the vendor's cloud based technology, Kelly said, because it uses virtualization as an enabler to move workloads between on premise and cloud based infrastructures.

Windows Azure, Microsoft's recently announced cloud strategy, will combine with Software Plus Services to strengthen the vendor's chances to go after the $400 billion services market, Kelly said. "We have the software and technology to go after it," he added.