Bob Muglia Leaves — is this the Beginning of a Major Enterprise Realignment at Microsoft?

There’s lots of speculation floating around about why Bob Muglia, head of Microsoft’s Server and Tools Business, is leaving this summer.  I agree with my colleague Mary Jo Foley that is wasn’t because Muglia wasn’t all-in on software&services, he seemed to actually get it.  But I do think there may be a reason that is nonetheless tied more to S&S than it may appear: Microsoft is going to reorg around its own “stack” business, and in doing so take a major new tack in the battle for the enterprise.

The new tact will be Microsoft’s own version of the stack wars, in which Azure, fueled by the Dynamics ERP products and partners’ enterprise software and services, becomes the leading edge of an increasing focus on direct sales to the enterprise.  This won’t obliterate the thousands of partners from the mix, but it will create a major shift in how Microsoft goes to market, particularly with respect to the large enterprise: much more direct and more in line with what IBM, SAP, and Oracle are able to do with their stack offerings.

As I have said before, the synergies between Dynamics and the products that Muglia oversaw was growing significantly, and that overlap will continue as Azure moves forward to claim a significant piece of the cloud market. Indeed, the growing realization that the cloud is taking over mindshare (though not walletshare — yet) in the enterprise has been sharpening the focus of executives across the industry. And while Muglia was great at building a strong STB and a strong partner channel for the products, would he necessarily be the right guy to help shift gears and help position Microsoft for a C-level dialogue about the new enterprise a la Microsoft? I don’t think so.

This shift is one that has to be under consideration in Redmond, for no other reason than the fact that the competitive  landscape is demanding it. Oracle is pushing the envelope hardest right now, though it’s following IBM’s footsteps into the CEO’s office with a me-too stack sale. This is putting a ton of pressure on SAP to man and women-up its own efforts to sell a deeply strategic vision of software and services, and that vision is starting to look like it will include a decent amount of Azure+Dynamics-like functionality, and be highly competitive to the Microsoft offering. Then there’s Salesforce.com, chewing up mindshare across a broad swath of the market that Microsoft is targeting. And waiting in the wings is Hewlett-Packard, now in the hands of a seasoned software executive who understands these opportunities as well.

This massive market realignment leaves Microsoft out on a limb if it only relies on its fabled channel to do the heavy lifting for all the new products and services that S&S and Azure+Dynamics represents. While the partner channel has been beefed up by the presence of the global SIs in recent years, the idea that Microsoft can compete directly with IBM, Oracle, Salesforce, SAP and HP in the coming market realignment with just its channel partners must have struck Ballmer as a little iffy. And it may have seemed that, for all his talents, Muglia was not the one who could take Microsoft to this new level.

What this realignment means inside Microsoft is a shift in what STB is and does in support of the rest of the Microsoft vision: STB will have to play more of a supporting role, more the loyal commodity stack provider, in a high-stakes, high-value market where everyone (except SAP) has a rapidly commoditizing stack offering on which each vendor must position high value-add assets like enterprise software and services. The stack components don’t go away — they become an essential part of the sale — but they have to take second fiddle to a higher-value offering. That offering in Microsoft-land will not come from STB, but from — and here’s where I go out on a limb — a realigned Microsoft that is selling a much broader strategic vision of what the enterprise wants and needs: a vision much more like Oracle and IBM than ever before.

I may be wrong that Muglia’s departure is related to this new market reality, but if it isn’t, then another shoe will drop soon that defines the beginning of such a realignment. Microsoft has never been in a more precarious position in its fabled history — I haven’t even mentioned the Google threat or the Apple threat, or the smart phone and tablet challenge — and it has never been better positioned to pull ahead of its enterprise competitors with a new focus on Azure and Dynamics as essential components of Microsoft’s own stack strategy. The manner of Muglia’s departure and Ballmer’s careful wording may have led me to go out on a limb about the particulars of the cause and effect at play here, but, one way or another, Microsoft needs to shift to a more direct focus on the enterprise — direct as in a direct presence in the executive suite — or watch its latest opportunity fall prey to a slew of competitors that get the enterprise opportunity in a much more direct way.