What's Microsoft's next billion-dollar business? (Hint: it's not search)

Now that Microsoft's SharePoint sales have passed the $1 billion barrier (they were $1.3 billion for fiscal 2009, which ended for Microsoft on June 30), what's Microsoft's next big thing? What products are CEO Steve Ballmer & Co. betting on to become the next big, near-term hits?
Written by Mary Jo Foley, Senior Contributing Editor

While many company watchers continue to fret over what Microsoft will and won't do to make money in the search/online advertising space, there are other less sexy Microsoft business units plodding successfully along with relatively little public notice.

Until fairly recently, SharePoint was one of those businesses. But now that Microsoft's SharePoint sales have passed the $1 billion barrier (they were $1.3 billion for fiscal 2009, which ended for Microsoft on June 30), what's Microsoft's next big thing? What products is the company betting on to become the next big, near-term hits?

At Microsoft's Financial Analyst Meeting (FAM) last week, company officials shared a few tidbits about one of those businesses: Microsoft System Center.  System Center encompasses a variety of system-management tools that Microsoft sells to IT professionals who want to manage their Windows -- and Linux/Unix -- clients, servers, hypervisors and more.

CEO Steve Ballmer told Wall Street analysts that System Center already has passed the billion-dollar mark. It's growing at a rate of 30 percent year-over-year, according to Microsoft officials.

System Center is one of a handful of server-side product families that Microsoft is planning to push more in its coming fiscal year. (The others: Windows Server 2008 R2, SQL Server 2008 R2, the forthcoming Forefront Protection Suite, SharePoint 2010, Exchange 2010 and Office Communications Server 2010 -- about which Microsoft has said very little to date.)

Microsoft officials mentioned in passing last week that System Center Online Desktop Manager (SCODM) is likely to be a big revenue generator for the company in the near-term. The Online Desktop Manager is one of Microsoft's own hosted "Online" services that it is touting as a way for cash-strapped customers to save money. Microsoft's pitch: By having Microsoft manage your users' desktops and provide the anti-malware, desktop configuration, remote assistance and IT asset-management for them, IT pros won't have to shell out for on-premise products and people to provide these services.

Microsoft SCODM, which is built on top of Silverlight, is in private testing with select customers now and is expected to be released in final form in 2010.

Beyond 2010 -- but before search and online advertising move in any noticeable and serious way from being in the red, to in the black -- what else is Ballmer betting on?

Microsoft has a number of technologies in what it calls its "business incubation" bullpen. The goals for these technologies are far more modest than $1 billion per year in sales. (Microsoft's first step is to get them to $150 million to $200 million, partners say.) Some of the technologies in this group: Windows Server High Performance Computing (HPC), Business Productivity Online Suites, Windows Azure, desktop virtualization, storage (Data Protection Manager) and identity services.

In spite of a number of recent articles and blog posts, claimng that Microsoft has "turned the corner" with products like Windows 7 and Bing, there are still a number of Microsoft watchers calling for Balllmer's resignation. MSNBC is running a story with the bold headline "Investors: Steve Ballmer's a Failure," based on a week-old poll of Wall Street Journal readers. (I have a feeling more than a few of these Ballmer-haters are Yahoo shareholders, mad that Ballmer didn't buy Yahoo outright 18 months ago.)

I've been critical of Microsoft execs spreading the company too thin. But you can't say Ballmer doesn't have a lot of ideas and that he's methodically attempting to nurse them along. Ballmer's first year without Bill Gates involved in day-to-day operations has been one of cleaning up leftover messes, reprioritizing, and, frankly, pushing out more than a few Friends of Bill. I'll be curious if Ballmer's "grades" with business-focused investors improve by this time next year....

Do you think Ballmer is making the right technology bets for Microsoft going into 2010? If not, what would you do differently?

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