Does Bob Muglia’s Departure Spell Doom for Windows Azure?

Microsoft Server and Tools Business President Bob Muglia is leaving Microsoft (s msft) this summer, as a result of CEO Steve Ballmer’s decision to seek new leadership for that division. Ballmer announced the news via an email to employees, in which he states that an internal and external replacement search is underway.  This news comes just months after Chief Software Architect, and fellow cloud visionary, Ray Ozzie announced his resignation in October. I’ve been as high as anybody on Microsoft over the past couple years, especially when it comes to cloud computing, but this news has me wholly unsure of what to expect from Microsoft’s cloud efforts going forward.

Microsoft’s legacy as a PC-centric company with too great a reliance on that business model fairly attracted a good number of skeptics, but the reality — from my perspective — is that Microsoft is a formidable competitor in both the cloud and the data center, and that’s all because of the work coming out of Muglia’s division. Windows Azure is a Grade-A cloud platform, and Microsoft’s cloud services lineup (which includes office, collaboration and email applications) is probably the best in the business right now, at least when it comes to wooing large customers. In the data center, Hyper-V is among the fastest-growing hypervisors in terms of installments and support, and System Center Virtual Machine Manager is adding more cloud-like features on a regular basis.  Most estimates still have Microsoft trailing VMware (s vmw) by a mile in terms of overall installations, but customers seem to like Hyper-V’s free price tag, at least, and are choosing it in greater numbers every year. What’s more, as Ballmer acknowledges in his email announcing Muglia’s departure, the Server and Tools Business — which also houses Windows Server and SQL Server — does $15 billion in annual business.

It might be cloud computing where Microsoft, under Muglia’s leadership, has been the most impressive. Looking even past the technical features of Windows Azure, the decision to sell Windows Azure Appliances to partners could turn the cloud business into the PC business, as might the tight alignment between PaaS and SaaS on the platform. Microsoft’s cloud efforts aren’t perfect, of course – its seeming unwillingness to develop true hybrid capabilities between Hyper-V/System Center and Windows Azure is questionable – but, all in all, Microsoft is among the best and most-complete cloud vendors around.

Muglia’s departure comes on the heels of Chief Software Architect Ray Ozzie’s resignation in October, and that combination doesn’t bode well for Microsoft’s cloud future. With two of its most-respected cloud leaders leaving in such short order, one has to ask what’s going on at Microsoft and what Steve Ballmer has in mind. Under the guidance of Ozzie and Muglia, Microsoft’s cloud computing efforts were defying expectations by creating a truly unique cloud platform and showing that Microsoft was willing to sacrifice high on-premise software margins in the name of innovation. If Ballmer’s decision to replace Muglia has anything to do with remedying that margin issue, the result might be that Microsoft’s cloud strategy will ultimately fulfill its critics’ prophesies.

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