Steve Ballmer ousts Bob Muglia from Microsoft's server and tools division

Whether Muglia was given the opportunity to stay on at Microsoft in a different role was not discussed in Ballmer's email

Microsoft CEO Steve Ballmer said Monday that he has decided to replace Bob Muglia as the head of the Server and Tools Business, and that Muglia will leave Microsoft this summer instead of taking on a new role at the company.

Microsoft's server strategy has evolved quickly over the past few years, with the introduction of Windows Server 2008, the Hyper-V virtualization platform and Windows Azure, a cloud computing service that lets developers build applications on the Microsoft cloud.

ANALYSIS: Canning Steve Ballmer no Microsoft cure-all

Q&A: Microsoft's Bob Muglia details cloud strategy

Windows Server 2008 generally gets high marks from customers, but Microsoft is still trying to prove itself in the virtualization and cloud markets. Cloud computing in particular is what Ballmer stressed in an internal e-mail to all Microsoft employees.

"Bob Muglia and I have been talking about the overall business and what is needed to accelerate our growth," Ballmer wrote. "In this context, I have decided that now is the time to put new leadership in place for STB. This is simply recognition that all businesses go through cycles and need new and different talent to manage through those cycles. Bob has been a phenomenal partner throughout this process, and he and his leadership team have the right strategy in place.

"In conjunction with this leadership change, Bob has decided to leave Microsoft this summer. He will continue to actively run STB as I conduct an internal and external search for the new leader. Bob will onboard the new leader and will also complete additional projects for me."

Ballmer further worte that with the development of Windows Azure "We are now ready to build on our success and move forward into the era of cloud computing."

READ ON: Transcript of Microsoft CEO Steve Ballmer's e-mail on Bob Muglia leaving

Windows Azure was launched nearly one year ago. While developers who attended Microsoft's Professional Developers Conference in October expressed excitement about the platform-as-a-service cloud, Microsoft is still trying to make headway in a market led by Amazon's infrastructure-as-a-service offering.

Microsoft's Hyper-V virtualization platform is also struggling to unseat market leader VMware, Pund-IT analyst Charles King notes.

"We're moving into a future in business computing that's going to be more cloud-based and more virtualization-based," King says. "I have not seen any evidence that Microsoft has made the kind of inroads on VMware that they either hoped or claimed they would when they introduced Hyper-V a couple years ago."

The Muglia news comes on the heels of the departures of Microsoft chief software architect Ray Ozzie, entertainment and devices group president Robbie Bach, and business software head Stephen Elop. Ballmer himself has been subject to speculation that he should be fired after more than a decade as CEO.

While Microsoft may need a boost in virtualization and cloud computing, Windows Server shipments are strong. According to an IDC report issued last month, Windows servers accounted for 47.7% of quarterly factory revenue, compared to 17.5% for Linux servers, 8.6% for IBM mainframes and 21.5% for Unix.

Muglia's departure is indicative of a larger issue, that Microsoft is at a crossroads with Apple passing it in market capitalization and Google posing strong competition, says Laura DiDio, lead analyst with Information Technology Intelligence Corp (ITIC).

"Ballmer is not a CEO known for sitting still," she says. "So, I think he's going to change his lineup around. And if you don't like it, see ya, bye."

Muglia "has done a very credible job" leading the server division, DiDio continues. But "Ballmer wants to take it to the next level where they are seen as a real player in the cloud. There's a lot of flux going on right now at Microsoft. I would not be surprised to see a lot more people leave."

Whether Muglia was given the opportunity to stay on at Microsoft in a different role was not discussed in Ballmer's email. Muglia was a Microsoft employee for 23 years, and previously led the Developer, Office and Mobile Devices divisions. Once Ballmer decided to replace him in Server and Tools, Muglia probably didn't see much point in sticking around, analysts say.

"There may simply be no other place for him to go," King says. "When you're a division head at a company like Microsoft, the next logical step would be in the C-level executive sphere."

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