Mobile World Congress
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Mobile World Congress Document Transcript

  • 1. Mobile World Congress Microsoft Financial Analyst Briefing Pieter Knook, senior vice president, Mobile Communication Business Robbie Bach, president, Entertainment & Devices Division Melvin Flowers, CFO, Mobile Communications Division Barcelona, Spain February 11, 2008 ZON ELLIS: All right, we'll get started now. Thanks, everyone, for joining us today, and welcome to everybody on the Web. My name is Zon Ellis. I'm with the Investor Relations group at Microsoft. And I'm pleased to be joined today by Robbie Bach, Pieter Knook, and Melvin Flowers. As you probably know, Robbie is president of the Entertainment & Devices division, Pieter is the senior vice president of the Mobility Communications business, and Melvin Flowers is the CFO of the Mobility Communications business. What we're going to do is we're going to give a little bit of a summary of what was covered in the press conference, and then we will try to open it up to Q&A at the end. Before we begin, I do need to read the legal disclaimer. Today's presentation may include forward-looking statements based on our current expectations and assumptions about the business. These are subject to risks and uncertainties. Our actual results could differ materially because of risk factors we may discuss today, and those identified in our most recent 10-Q and 2007 10-K. When we do Q&A, just raise your hand, and I'll try to get a microphone to you so we can capture the question on the Webcast. With this housekeeping out of the way, I'd like to thank Robbie, Pieter, and Melvin for their time, and I'll hand it over to Robbie. ROBBIE BACH: Thanks very much, Zon. For those who just came in, there are a few seats here if you'd like to sit down. There's a seat here if you want to squeeze in. There's one in the middle here. I think we can probably just seat everybody. There's one there in the back, and I think we'll be perfect. Nobody else can come in the room. All right, so I'm going to quickly walk through the press materials. I won't do it with the same flair and panache that I tried to do it with during the press conference, but I'll try to cover the same ground so that you understand what we announced, and then Pieter will I think do the same with some of the more drill-down specifics.
  • 2. The thing we tried to talk about overall is the whole idea of the fact that mobility is now spreading from becoming a business thing to just something that spans your life. I talked a little bit about the fact that if you'd been here five years ago, you would have heard Microsoft paint a vision for productivity on the mobile phone space, beyond phone calls. And now when you look at the devices that are coming out on Windows Mobile, that's obviously being delivered, and not just by devices on Windows Mobile, by the way, other people are obviously doing that as well. So, in a way we've reached a milestone in what's going on in the mobile space. We went on to talk about a vision Bill Gates painted at this year's Consumer Electronics Show for how mobile can go beyond that. This is sort of a prototype of a mobile device that could unfold and detach and could have a whole different and new set of characteristics. The whole point here is that this space is going to keep getting richer, it is going to keep growing, it is going to expand from being a voice space or even a communications space to being a much broader platform that involves entertainment, productivity, the Web, communications as well, and a number of other things; and the technology that's happening in the marketplace is going to make this possible at very economic rates, and you're going to see a real expansion of what's going on in the business. Now, for Microsoft, as we think about this, if you look at this picture, we think of this as being something that historically we've focused more on I'll say the work style of this side of the equation. We started with what was much more a productivity focus in the applications and things we did on the phone. Certainly with our heritage in Office and Exchange and corporate e-mail, that fit very nicely with what we've done. We've expanded that to include security and deployment and IC integration, things that IT departments are very excited about. But increasingly we are now moving towards the other half of this circle, which is expanding into consumer services and software. Because devices now are not just something you use for work, they're something you use across your life. And particularly if you look at the age range of people who now have mobile phones, there are more needs than just work productivity. So, you are seeing us make a significant set of investments in entertainment, personal communications, Internet access, and other types of services that will appear to people beyond their work life. So, that's the first thing. The second thing we talked about is the fact that this is becoming a rich software and services platform. So, if one big trend is the spreading from work to personal life, the other big trend is this is now as much about software and services as it is about the hardware. Certainly the hardware is important, new design is important, cutting-edge
  • 3. industrial design is important, but the software and services that run on those devices increasingly determine the functionality that people get. You see this in things from Microsoft, you're going to see this in things -- certainly see this in things from Apple, you see it in things from everybody; this is not just a Microsoft unique trend. But it is a place where Microsoft is uniquely positioned to take advantage of. Because our software and services story is so strong, because of the heritage we have in software and services, it really does give us the opportunity to build on that and really expand our presence in the marketplace. We then went to make two announcements, one of which was a repeat of the announcement last night, which is Sony Ericsson XPERIA X1 device, and you see pictures here. This is important for a number of different reasons. First of all, it is, to follow on the theme that I just laid out, an example of Microsoft taking what is more of our work focus, and Sony Ericsson bringing what is more their consumer focus, and marrying those two things together. And then their excitement over the fact that Windows Mobile has reached a stage of critical mass, and the idea that people would want that in their personal life, really is a sign or signal by Sony Ericsson joining the Windows Mobile platform. If you look across the top five hardware providers now, four of them are doing Windows Mobile devices, the fifth is Nokia, and while they don't do devices, we actually do a lot of work with them. So, we're closely -- working closely with them. So, this is a real sign of a maturity in what we're doing, I think a real milestone in terms of our abilities to move to the next generation, and I think a pretty exciting announcement. Sony made that announcement last night. It's a new brand for them. I'm sure they will extend that brand to other devices as well. But for us it's just a great opportunity to work with them in a new and exciting area. So, that was the first announcement. The second announcement we made was the acquisition of Danger. Danger is a software and services company based in California. They provide the software and services infrastructure for devices and services produced by T-Mobile in the U.S., T-Mobile in the UK, a few other places in Europe. You see those devices under the brand Sidekick in the United States, Hiptop in Europe. Danger is not the maker of the hardware, they're not a hardware company, they're actually a software, services, and operations company. But they're uniquely important to us because they deliver a set of consumer software and services to a target audience that
  • 4. we traditionally have not reached. So, they provide a number of exciting new opportunities for us to expand in new areas. That is both in terms of their current product offering, and the things that they offer which we will continue, we have no plans to change that, but as well just their experience in working with that customer set. So, the Danger acquisition obviously is still subject to approval, but it's one that we're very excited about and we think can help drive the consumer side of our business going forward. So, those are the two big announcements we made, and then the final thing is maybe a more traditional Microsoft slide, but I did want to talk about the range of our investments in mobility. Mobility is very central to what's going on at Microsoft. If you think of three, four things that are critical to the company's future, mobile would absolutely make that list. Obviously we have other things going on; search and advertising makes that list, certainly the core businesses make that list, but mobility is very, very important. And it's important at multiple levels, in terms of the partners we reach. Interestingly, because it's now a platform for broad development rather than just for voice development, our development tools come into play, whether that's Silverlight, Visual Studio, or the .NET Framework. We create a platform for people to create new applications on top of it. I talked a little bit about the IT infrastructure and how important that is, in particular on the business side of what we do. So, making this a part of that story is key. And fundamentally in terms of the experiences consumer see, that whole spectrum from work life all the way to personal life, we have a set of our offerings that we're making available today, and more that are coming with things like the acquisition with Danger. We also made two other acquisitions -- actually three other acquisitions in the last 12 months that I think are worth highlighting. One is ScreenTonic, which is an advertising solution in mobile. One is TellMe, which provides voice services, which is certainly very applicable to what we do in mobile. And the final is Musiwave, which provides over the air music deliver, so wide label over the air music deliver service, predominantly in Europe, but certainly gives us an opportunity to play again in that consumer space. You add to that Danger, and I think you have a pretty complete idea of the types of experiences we want to deliver. So, with that, I'm going to turn it over to Pieter, and he's going to talk a little bit about the broader business and how we're executing against that business. PIETER KNOOK: Great, thanks, Robbie. Yeah, so I think one thing to do is to reflect back where we were 12 months or so ago, just before Mobile World Congress a year ago, and 100 percent was penetration of the top five device makers, because just before Mobile World Congress this time last year,
  • 5. we had not yet announced LG, and this year of course we've added Sony Ericsson, so that takes us from two of the top five to four of the top five, and that's 100 percent growth. The other key statistic here is 3 million. This refers to the number of downloads of our Software Development Kit. We've added 1.5 million just in this last year. So, up until this time last year, we were at 1.5 million Software Development Kits downloaded, and now we're up to 3 million. And the last statistic -- not really a statistic -- but we're talking about expansion. We acquired a number of French companies. Actually the one Robbie mentioned is ScreenTonic. Musiwave was the most recent, and then there was one before ScreenTonic. They all happen to be French companies. Sorry, I was basing it on the name there. Musiwave closed end of December. That really supplements our overall music experience. And, of course, Robbie just told you about Danger, which takes us to a range of different consumers. That's not a French company. ROBBIE BACH: That is not a French company. PIETER KNOOK: The other thing that's worth reinforcing, because we always get a lot of questions around this, is, of course, Windows Mobile is an important platform for us, and a lot of Microsoft applications and services run on top of Windows Mobile. A lot of the things that we're trying to do are better on Windows Mobile. But if you take some of our services, we also make those available on other people's platforms. So, whether it's our content access technology like PlayReady, whether it's our Live client, whether it's even protocols, we license them to other vendors who build other applications -- sorry, other operating systems so that our applications and services are available on them. And, of course, we, in the nature of a true platform, also have applications and services from third parties that compete with our own services and applications. And it's an important point worth making, because some of our competitors really draw a hard line across all the applications and the services. We do not. I mean, we may have a hard bundle of our Live with our operating system on a particular device, but equally we may have Yahoo! Go client and Google maps and whatever on another Windows Mobile device. So, there is that building block approach to building a platform, which I think is very important certainly for operators and others. The other significant element is to think about the segmentation of our offers. One way of thinking about that segmentation is to look at how the operators assort Windows Mobile devices. Typically we have been very present in a very good way in the business productivity slot in the operator device category. Increasingly that's been supplemented with not just business but now personal productivity. Might still be the same form factor, but personal productivity, you're really connecting to services like Hotmail and Live Messenger as opposed to behind the IT firewall servers like Exchange and SQL Server.
  • 6. So, the back-end is different, the device may actually be the same, but the proposition is certainly the same. Mobile Internet is an increasing focus for us, and certainly at MIX, which is our developer conference for the Web community, we'll be talking about the investments we're making in that area, and particularly how we're going to bring some of the Internet based technologies from the PC down to the Windows Mobile platform. And then we've talked liberally about the entertainment focus, the underpinnings for that entertainment focus with the Danger acquisition, Musiwave and other things that really allow us to expand into some of these other categories. The one area where we don't really play and we don't expect to play is the devices that do voice only. So, there are a lot of devices in the 40 to $60 range. We don't expect our software to show up on those devices. And there's this range of devices that are purely oriented at fashion, and again because of our richness in software, we don't expect that to be a target for us. The other thing worth pointing out particularly for this audience is the change of our business model, and how we make money in this business, because we often get the question of, well, how big is this business for Microsoft, really. And, of course, traditionally people look at that and say, well, it's the software royalty business on the device itself. Now, that's an interesting business, but with single digits we're just above royalties per device; even multiplied by 20 million units. As that grows, that becomes more and more interesting to Microsoft. But that's only one of the ways in which we monetize our business in mobile. So, with the launch of My Services, obviously we have subscription services on the mobile front, again both on Windows Mobile and on other platforms, but we participate in the service revenue stream, typically through an operator. Of course, this year is the year we ship the Mobile Device Manager, it was announced last year, and that brings us as a mobility division specifically into the traditional Microsoft way of selling servers and Client Access Licenses to IT departments. And then, of course, with things like ScreenTonic and some of the work we've been doing on our local search environment, we have an advertising business model that we see opening up. We don't see any of these business models necessarily being the dominant or the only one. We see a diversity of different business models. And what works in one of those slots that I showed you on the previous chart may not work in a different one. In business productivity clearly we're going to be selling enterprise servers and services but
  • 7. in more consumer oriented devices, and there may be more of a focus on advertising- based monetization. So, the other quick point I'll remind people is we have this platinum club, which is devices that have shipped a million units. We have now announced since last year two additional members of that club, and, in fact, these are the fastest new joiners of the club, the Samsung Blackjack, and the HTC Touch family, which is now twice over a member of this, having shipped 2 million units; so a broad array of devices that have shipped large volume. The other point as we talk about how we're doing, we've talked about 20 million units being our target for this fiscal year. Our fiscal year, of course, runs through June 30th. This is now a calendar view of our numbers, and we're announcing that we shipped 14.3 million units of Windows Mobile for 2007. That's a calendar year statement. That puts us on target to reach our fiscal year goal, but it also continues to keep us ahead of Blackberry and Apple. And, in fact, as you see with our growth rate, we go from 11 million units last year to 20 million units last year. We're certainly outgrowing the market and continue to gain share in the converged device segment. Symbian is a much bigger number, but frankly it's always a hard one to compare. Certainly Symbian is the only one that would beat us in volume units. But most people don't know that they've got a Symbian device in their pocket, because they're never marketed that way. PARTICIPANT: (Off mike). PIETER KNOOK: I'm sorry? PARTICIPANT: (Off mike). PIETER KNOOK: I said Nokia is much bigger, much bigger. PARTICIPANT: (Off mike). PIETER KNOOK: Of course I know. I know that Nokia is much bigger in terms of units. We have a number of other press announcements. I'm not going to go through every single one here. The two I'll point out is, one, with MCS, which is a Russian-Ukrainian operator, they have 65 million subscribers, and one of the services that we're promoting with them is mobile access to PCs. This will be offered by them on a subscription basis, so that they can essentially allow people to buy a PC on a monthly basis. And that makes mobile Internet accessible in a place like Ukraine or Russia, much more generally than has been the case up until now.
  • 8. The other announcement is an expansion upon the PlayReady technology that we launched here last year with Nokia, and a variety of other operators, and we're announcing that Telefonica, Orascom and Wind have actually also embraced and endorsed PlayReady for launch. So, we won't be doing the demos, and really at this point we're going to turn it back over to you, and take any questions. But the broad sort of core theme here is to point out how we've been successful in the business productivity segment, we'll continue to build on top of that, and really how we see ourselves expanding into the Internet arena and into the entertainment aspects with some of the acquisitions that we've talked about. ROBBIE BACH: So, with that, why don't we turn it over to Q&A. We're going to try -- just because this is on the Web, we're going to try to pass around a mic. If you could just identify who you are, and we'll go through questions. QUESTION: Hi, thanks. (Maynard Um ?), UBS. Two questions on your Danger acquisition. ROBBIE BACH: Sure. QUESTION: The first is it's a proprietary OS that you're purchasing. How do you plan to integrate that into your Windows operating system? And then secondly, related to the architecture, the Danger architecture is strong based. Is this a signal of a material change in your architecture and the way you view the world, and would you bring that over to the enterprise market? ROBBIE BACH: Yeah, so let's talk about both of those. I think on the first front, while they have a proprietary operating system as part of what they do, it's not -- particularly when you talk to the Danger guys -- not the focus for where they think their core expertise is. They think their core expertise, and the reason we're interested in acquiring them, is on the applications and services that run on top of that operating system. We have no plans to change that in their current offering, because that offering works well, and it fits very tightly in. Over time we'll evaluate how that fits into the broader mix of what we're doing. In terms of the architecture, I'd say sort of the same thing. We don't have any plans to change that offering. In fact, our goal would be to expand that offering. Today they're very U.S. focused. We think we can expand the number of operators based on that specific offering. We will then evaluate over time how that fits into the rest of our architecture.
  • 9. The thing you have to remember is that most of our architecture today again is more business focused, and this is an opportunity for us to do more consumer focused work, and then maybe the best architecture is something that surfaces instead in that space. The fundamentals though are much more about the skill set they bring and the applications they bring, much less about the architecture and the OS. Yeah, one down here, and then we'll come over there. QUESTION: So, just a follow-up on Maynard's question. With Danger then are you planning on continuing to let it operate, even from the standpoint of handset makers? Like you said, they've only got two right now, and are you just going to kind of let that run its course and then play with what you're doing to do from there? ROBBIE BACH: That's right. I mean, one thing I should be clear about, because it got asked in the press conference, so I'll just make it clear here, there are some people who have that perception that Danger is in the hardware business, and, in fact, they're not. The hardware is done by Motorola and Sharp, two different models in the marketplace. We'd anticipate that continuing and continuing to grow that. We've worked with both of those companies actually quite successfully in various ways today, and we think that will continue. We don't have any plans to get in the hardware business. Our strategy in the mobile space is very much about software and services on a diversity of devices as opposed to a Microsoft device. QUESTION: (Off mike). ROBBIE BACH: No, I think you should think of us, as I said earlier, carrying through on the plan that they have, and then we'll evaluate how that runs its course over time. Yeah, back there and then we'll come up in the middle. QUESTION: Hi. A question and a follow-up. The first one is can you just take us through the software roadmap on both the server side and on the client side, sort of 6.1, and 7 in terms of timing and expected features, both recent history and forward look? ROBBIE BACH: Okay. PIETER KNOOK: Well, as far as the roadmap is concerned, we're currently on release 6, Windows Mobile 6. We're working hard on the next releases. We're not announcing any specific releases here at the show. But we have made clear that in order to take advantage of the Mobile Device Manager, which is the server product that does the device management, we will need an update to Windows Mobile, and you can expect us to announce that in the near term future.
  • 10. QUESTION: And when will the details of the update on the server side, Mobile Device Management, come? PIETER KNOOK: Well, the Mobile Device Manager we launched back in October of last year. It will ship this quarter. Many enterprises now have that in a beta form and they're testing it and working with it, and we expect to finally ship that this year. ROBBIE BACH: Why don't you talk him through what the capabilities are of that, so he can see where we are? PIETER KNOOK: Yeah, so the key element of Mobile Device Manager, because obviously when you have a device that's connected to Exchange Server, that provides all the basic synching, and some of the very basic device management that you need in an Exchange environment. So, if you need to remote wipe a device, if you need to enforce a password policy, you can do that from the Exchange Server. But in many cases people will want more rigorous policy management. In fact, Mobile Device Manager enforces an additional 35 policies from Active Directory, and that's the purpose of having an additional server that can then push applications, push policies, and really give the IT manager a greater degree of control over the device than is the case when it's just coupled to an Exchange Server. ROBBIE BACH: Yeah, it's really a product designed for -- you know, when you talk to IT, there's multiple ways for them to think about mobility. Some of them think about it as something you bring into the environment, and they don't do a lot of active management, and then on the other side people view it as a critical asset that has confidential information on it they have to be completely on top of, and this product is really more skewed a little bit towards that latter audience than the former audience, but it's an important part of that full spectrum that I showed. QUESTION: Got it. Great. And the follow-up is, on the client side, clearly the software is evolutionary and you're getting better and better. But with each release there's been a few criticisms over time, which is to be expected. One of them is just on the user interface itself, which is slowly getting better, but I would still argue not as simple as it could be. Now, some of your big customers are tweaking it by setting their own user interface on top of the OS, which are also improvements but they're still not as good as they could be. I guess, so it's a two-part question. How much flexibility do your partners have to put their own user interface on top of your OS, and can that ever be truly elegant, or, in fact, do you need to drive that yourself and you consider it important to allow a cleaner and neater user interface?
  • 11. PIETER KNOOK: No, I think it's been a hallmark of the fact that we have a platform that obviously both OEMs and operators have a high degree of flexibility to add to that user experience. I think in general the things that we want to keep sacrosanct is the fact that an application, any application will run across all Windows Mobile devices. So, we don't allow people to prevent that from happening, so even if they add let's say applications and services that don't typically get in the way of having a consistent platform. But then you get the other factor, which is, well, how does that affect the user experience when you have multiple different ways of accessing things, and frankly that's where as we let operators like T-Mobile in the U.S. with its Shadow or Vodafone Palm with its TPP program, they're making changes to how the user interface flows, it does create a tension point where that degree of freedom in the user interface then means that the old stuff looks kind of different when you fall back into it. Now, the good news is 90 percent of the time when you're spending time in that home screen environment and you're just doing the things that the home screen offers, you're looking at calendar appointments, you're looking at e-mail, you're looking at pictures, you don't notice that. If you then go into the settings application or somewhere other deep inside the UI, you might experience a jarring experience. And obviously our job is to take that away. ROBBIE BACH: The thing you should think about from us from a software development perspective going forward is you should think of us as continuing the flexibility on customization, but we have to find ways to make a little bit more consistency, as Pieter outlined, in the applications that underlie that so that people have some sort of common experience with the things like this. And I think if you look at -- even if you look at the Vodafone phone work, or you look at the work that T-Mobile has done on Shadow, I think you're starting to see that happen. As you say, it's not 100 percent of the way there, but we're making good progress, and I think with subsequent releases of the operating system we'll get there. The final thing I'll say is one of the nice things about having a product like the iPhone come into the market, it has focused the entire industry on user interface and user experience, which frankly they were not focused on two or three years ago. And so now when people want to do random customization, they realize that that doesn't actually help, and they start to talk to us end-to-end about what the total experience is. And that's where we think we can add a lot of value, and I think you'll see that over the next 12 to 24 months, I think you'll see that in the work that we do. Yeah, in the back. QUESTION: (Off mike). We've seen carriers talking about the operating system consolidation. I guess they don't want to deal with too many. Probably a year from now
  • 12. we're going to see another one coming with Android. What is the operating system going to look like, in the last case is going to look like you think five years from now? ROBBIE BACH: Yeah, I think that's a good question. First of all, I don't know when Android comes whether that's a pure operating system level that will actually be perceived as anything dramatically different in the sense that it's an Open Source Linux implementation. There's how many of those in the marketplace today. There's a bunch of those in the marketplace today. But we'll see what Google puts on top of that. I think that's an open question. More generally speaking I think you will see fewer operating systems. I think what you're going to see is a few what I'll call vertical stovepipe environments. Certainly that's the way RIM's environment works; they're very vertical. It's the way Apple works; they're very vertical. I think you'll see a couple people, I would say Windows Mobile would be in this category, that will be a broad operating system that will manage across a line of devices for an operator so that they can have consistency and the cost advantages of working with a consistent operating system across a set of devices. To the question that was just asked earlier, we have to do that in a way in which the operators can have their own unique experiences, and people can get a view that is Verizon's view or Vodafone's view or Orange's view on the world, and we're totally committed to making that customization work. But I think you are going to see fewer operating systems. Will users actually know? I think the irony is I'm not sure the users will actually know there are fewer operating systems, because they don't actually think about it that way on their phone. But from an experience for the operators from certification, testing, application development, all those kinds of things, there's a ton of cost in having a decentralized operating system approach, and I think you will see that. PIETER KNOOK: And, of course, for the enterprise IT. That's one of the big driving factors. ROBBIE BACH: Absolutely. Yeah, why don't we come down here in front? QUESTION: I think in a couple of years you at this briefing talked repeatedly about Research in Motion, and just obviously their growth continues to be very strong. Is this -- can you just kind of give us some predictions? Do you think this is the year that you start gaining share in the enterprise? Are there important changes that you're making on the client side or on the server side that are going to kill them? Or do you think that is -- ROBBIE BACH: It's not how I would characterize it. (Crosstalk/laughter.)
  • 13. QUESTION: You can be subtle about it. Do you think that's -- you know, obviously that's an area that's of focus. So, what do you think is going to happen there? ROBBIE BACH: Well, I'd actually change the premise a little bit. I actually think over the last certainly 18 months we've already been making a lot of progress in the enterprise. Certainly we see that in situations we have, the competitive situations we have where enterprise has come to us and say, hey, we're bidding these two things, and we work on that. We've had more than our share of wins in that space over the last months. If you just look at total shipments, we're certainly making progress there, and that's an environment in which their mix has been shifting away from enterprise towards consumer. So, those numbers Pieter showed were all shipments from both of us. So, I think the fact that we've pulled into the lead and continue to stretch that lead is a testament to that strength. Having said that, I think the release of the management software products that we have is another phase in accelerating our growth there. What effect that will have on RIM, the market will get to decide on that, but it's the one area where when somebody does a product comparison in the last 12 months, they would have said, hey, you're behind in that area. Now we think we've closed that area off, and we have a lot of other areas where we think we have a meaningful advantage. PIETER KNOOK: Well, and the irony is there are a number of areas now where we would say we're in the leadership position. I think from a device form factor and assortment and choice point we're definitely ahead now with the range of very compelling devices that you'd see. Add to that some of the software capabilities like, for example, HTML e-mail, which, of course, RIM is now responding to, but there are a number of features and capabilities that we are now way ahead of, and RIM is having to respond, rather than the other way around, which was the case back a few years ago. ROBBIE BACH: There's a question over here. QUESTION: (Off mike/inaudible question.) ROBBIE BACH: I'd certainly say that to the extent people find seams in our experience, that's probably the number one thing we're focused on right now. And the way we think about that is we think we have to offer the ability for you to get a consistent operating system experience and application experience across a range of devices. So, we want to offer choice. The tradeoff in the Apple and the RIM case is you don't have as many choices. So, we want to offer choice, but it does mean going to work with the operators and the handset manufacturers in a different way. And we are working on that with all of our partners. They all see it, they all want us to be successful, and so it means collaboration in a different way than we have before.
  • 14. I would say when we first got started in this business it was very much sort of a produce an operating system, hand it to OEMs, let them produce it on a phone. You should no longer think that that's the way we work. Today, there's a very collaborative process between us, the operators and the OEMs. We're actually getting quite good at it. We're not perfect yet, there's still more to do, and we need a little bit more flexibility in the operating system, we're working on that, and we're seeing tons of motivation on the operators and OEMs to try to do that work. So, I think you're just going to see that get better. PIETER KNOOK: Even from an engineering process point of view we've changed things a fair bit. We have dedicated teams that work with each of the device makers in their facilities, that are working on devices that are forthcoming to make sure the software experience is great. Certainly with the operators we've done the same. I cited the example of the T-Mobile Shadow in the U.S., the Palm 500V with the Vodafone TPP where we've collaborated in a very tight way between not just the operator but also the device maker to make sure that their specialized customization really works well in that environment. We feel proud of that. QUESTION: Robbie, just going back to the comment you made before about not competing with customers, I just want to be clear. So, with Danger, even though they're not in the hardware business, that is how they're seen as, given what they do, are you saying that you're going to continue to invest in those two platforms or you're going to let those just go away or what? ROBBIE BACH: Well, I think in the short to medium term what you're going to see us do is to continue to build on what Danger has. We'll then evaluate how we see that evolving over time. We'll work with the Danger team to understand how they want to kind of grow that. We'll certainly talk to operators and the hardware manufacturers and understand where they want to expand that. So, I think it creates an opportunity. We don't have what I'd say is a hard-core roadmap that we're trying to push there, and I think people should assume that there's a target audience we want to reach, Danger has that target audience and understands it very well, and we're going to use those talents to reach that audience, and we'll see how that evolves. PIETER KNOOK: I think we'd say we certainly don't want to change the dynamics of how we operate with our device makers. We don't have competition with them. We see others who do, and it makes for a much more difficult relationship than we have. QUESTION: (Off mike). ROBBIE BACH: You know, I don't know, and in part it's not mine to disclose because it's not actually our customers. They're actually T-Mobile -- one of the things you've got to remember, they're not Danger customers either, they're actually T-Mobile customers.
  • 15. So, I'll leave that to the T-Mobile guys to talk about. I don't know if they disclose that publicly or not. So, I'll keep that where it is. Yeah? QUESTION: Thanks. Just a couple of questions. Firstly, could you just maybe walk us through what brought you and Sony Ericsson together, maybe how long you two have been working together, what initiated that, why would Sony Ericsson go Windows Mobile over Symbian, what are some of the advantages, because I guess the risks for the hardware manufacturers, they end up with this sort of platform stew with different OSes. And second, just in terms of your positioning in services, there's a lot of focus currently on navigation. Is that something that you plan to address yourselves in a greater way, or you plan for your handset vendors or partners to work with? How do you plan to address that business, or broadly just other services like those? ROBBIE BACH: You want to talk about the Sony Ericsson? PIETER KNOOK: Sure. So, we've been working with them for actually probably about 18 months, and they've set up a separate development team on the West Coast to focus on a brand new business unit building these devices. Clearly their market share in the U.S. is lower than in other geographies, and they feel there's a way here with supporting Windows Mobile to be more appealing to the U.S. operator community. So, that's one dynamic. The second dynamic is really that whole business productivity scenario where I think they feel that the inherent Microsoft applications -- Outlook, Word, Excel, and so on -- are better than the alternatives when it comes to what you offer in a business productivity environment. And then the icing on the cake is really the whole developer environment. So, for businesses who want to roll out their own applications, fit into our tool chain, use the 6 million people around the world who already know how to program in Visual Studio, and just leverage that, that's clearly an advantage that they can't release to market based on the Symbian environment. ROBBIE BACH: Yeah, I think your question on services again was -- PIETER KNOOK: GPS. ROBBIE BACH: Oh, navigation. Yeah, I think there's a couple of things. First, we actually do a lot of work in that space today. Certainly on the PC we do a lot with our Live Search product to drive location-based services, so I think that will continue to be a place of investment.
  • 16. It's also true that a lot of our operator partners already have their own applications and services there, and I don't know that I need to pursue every single service environment that's available. I think the way you should think about it is we think location-based services are super important. We'll tap into both some of our own technology in the work we do, as well as tapping into our partners' technology to make that happen. PIETER KNOOK: Another reason why we have an interesting relationship with Nokia, because obviously (off mike) big number of the (off mike/crosstalk) products from Nokia, and that's in addition to obviously the stuff that we license to Nokia. ROBBIE BACH: So, in a world in which we both -- we compete and partner, that's sort of a consistent theme. QUESTION: You were talking about horizontal versus vertical operating systems earlier. The difference between this industry and the wireline industry is you've got vector to deal with and you've got battery life to deal with. In those two situations maybe a vertical model for now makes sense. Can you comment on whether -- you know, what the difference in optimization is? And when this industry -- what makes this industry turn as to where that becomes (off mike)? PIETER KNOOK: Yeah, I think there's certainly a question about optimizing things in a mobile specific business, and I would argue that there's nothing inherently in the vertical model which precludes that or makes it easier, I should say. If you look at the e- mail environment, for example, we actually have a mobile optimized protocol that we use to deliver mail from an Exchange Server to a mobile device at the other end, which is different than the one that we use for PCs over a fixed client environment, because it has to deal with a low latency network, and has to deal with minimizing the amount of traffic. So, I would argue that irrespective of whether we have vertical or not, we have to do that work. From the other element, it's true that battery gets influenced by a range of different factors. Use of the radio is one of those. But the other element are things like how much is the screen backlight on, what kinds of things is the device doing, and I think in general in the industry we all face the problem that people want to do more things with these devices. So, as we move away from just using it for voice calls when the screen can be dimmed whilst you're on the call, if you're reading e-mail, it's hard to dim the screen while you're reading e-mail or while you're watching a video, whatever. So, these scenarios are inherently more challenging for the battery life, and we would pride ourselves on the fact that most of these Windows Mobile devices are used for a range of different services, as opposed to a single application. So, in that sense we probably challenge the battery life dynamic more than most other devices would that are single purpose.
  • 17. ROBBIE BACH: That's the things we have to work harder at it. I mean, when we talked earlier about integration with the operators and the handset manufacturers, it means on those -- the benefit of being horizontal is you get much more breadth, much more volume, just much bigger market opportunity for us, much more application development workspace to be in, and the challenge is we have to do a better and better job on integration. If we do the job right on integration, I think that tradeoff is certainly worth making. QUESTION: (Off mike). ROBBIE BACH: Yeah, but the flip side is I get the scale of doing work across all those other products, and so in a way I can turn my innovation even faster, because I've got -- I've always got any number of devices coming into the marketplace. So, in the Windows Mobile space you're going to see churn much greater. I mean, in a funny way you can make this comparison to the gaming space where consoles get better every seven years, the PC games get better every seven weeks, and that's why today PC gaming is the largest gaming platform in the world. Console gaming is a great business, there's nothing wrong with it as a business. I'm actually in both, so I know both really well. So, they both can be great businesses, but they're just different, and I think both models can work successfully. You had a question over here? QUESTION: I really want to get your perspective on working with carriers, what your experiences have been, what you're doing to improve your focus on carriers. The reason I ask that question is I remember a year ago having a really good meeting with a big carrier in Europe, and their direct comment was, Research in Motion shows carriers a ton of love, and they really do a great job of making the carrier important. And the comment in return from them was Microsoft doesn't care about us at all, and really thinks of us as just sort of in the way between them and the customer. ROBBIE BACH: Well, so I'll say, A) that's certainly not the way we think about it, and certainly in the past 12 to 24 months that's certainly not the way we've acted. For our perspective the carriers manage the customers. They're the ones who have by and large the customer relationship. Certainly we provide services to people, but they're providing the customer relationship. Our job is to make sure that they produce a great experience, and that customers see that. I'm not actually particularly focused about whether people absolutely know they're on a Windows Mobile phone or not. I'm more focused on the fact that people get a great phone and they get a great experience, so somebody else recommends that phone. That requires us to work very closely with operators. I also think the environment in the marketplace is changing, because of some of the trends people talked about. In a way, the interest for Microsoft and operators are merging
  • 18. closer together naturally. Even independent of the good work we're both trying to do to work better together, our interests are merging because of just forces going on in the market. Larger percentage of phones being Smart Phones, that works in our advantage and then the carriers then work more closely with us. The fact that data services are more important encourages both of us to work a lot more closely together. The fact that people are looking for operating synergies and don't want to have 15 operating systems in an environment means they're looking for people who can do broad scale platform development, very, very important. So, I think there are natural forces that are working us closer together. They are very, very important to us. I mean, they're tough and a very important customer at that. QUESTION: I don't know if you answered this question exactly, but let's say over the last two years, what would you say from -- or three years maybe, when Microsoft came into this market, Microsoft didn't have a background in working with carriers. What has happened in terms of what has Microsoft had to learn in terms of working with carriers? ROBBIE BACH: So, fine, that's a fair point. If your question is, has our approach evolved over time, the answer is absolutely yes. We learned to talk. And I'm sure when we came into the market five years ago, our perspective was much more, you know, they're a carrier vehicle, and we're providing the experience. We don't think about it that way today. We think about it as a much more integrated operation. We know that they are the customer-facing group, they're the ones who provide the experience, and it's our job to support them and build them. I'll give you a second example where we do exactly this, and where we've learned exactly the same things, and where it's working quite well, which is work we're doing in the TV space around Media Room, and very analogous. You know, if you're an AT&T customer on Lightspeed or on their video service, you don't know that you're using the Microsoft technology, and I'm actually fine with that. But, in fact, that can be a great business for us. We spend our time making sure that AT&T and British Telecom and Deutsche Telekom and Swisscom and the other people who are using our technology are getting great service from us and producing a great experience to customers. We're going to do the same thing in the mobile space, and that has changed over time. There's no question about that, and that's just the voice of experience basically. PIETER KNOOK: But clearly there is one point I would say that we bring to the operator, which is different from us, from other parties in this space. When you think, for example, about 300 million Live Messenger users or 300 million Hotmail users, we're saying how do you provide mobile access to that existing community. So, we're bringing an opportunity for the operator as opposed to supporting the operator and selling a new thing. Similarly we're mobilizing enterprise applications. There are existing enterprise IT infrastructures which need to be mobilized, and we can support the operators to help get
  • 19. them at that opportunity. But that's different than just selling them a piece of technology for them to reach their customer directly. So, actually we're even more powerful in that sense because we really do bring them real business. ROBBIE BACH: Yeah, it's the relationships that actually can be very positive for both sides, and I think you're seeing that start to evolve with many of our relationships. ZON ELLIS: Robbie, Peter, Melvin, I want to be respectful of your time. I think we have time for many one, possibly two questions. PIETER KNOOK: Yeah, we're going to have to leave, and a couple questions for you guys probably to stay or not? (Laughter.) QUESTION: Just another two-part question. Part one, when you originally rolled out with the push e-mail service, there was a fair bit of comparison between you and RIM and back and forth. You guys talked about driving higher ARPU and being a lower cost solution for the carriers and the corporate customer. Their response was, yeah, but very bandwidth intensive, the Microsoft solution is a data hog, and it's not secure; i.e. behind the firewall, blah, blah, blah, so no one is going to want to use it or feel comfortable in a corporate environment; your response saying, well, that's better than being in a NOC where they can blow up all your information. So, part one is -- PIETER KNOOK: (Crosstalk.) QUESTION: Yeah, I understand. So, where do you guys stand on the arguments now as your software has been tweaked in terms of overall hogginess of the data network, and then also security on the corporate server side of things, which seems to worry a lot of customers? And then part B is obviously again I know you're making a lot of progress, and you give a lot of numbers where the effect of the penetration of Microsoft e-mail solutions, and it is a good number, and it shows good growth, but on the other hand you're not going to find one person like me carrying anything but a RIM. So, when it comes to sort of Fortune 500 or 1,000 accounts, as far as I can tell, and I might be wrong, you haven't made a lot of progress. So, what do you think it takes you to get some sort of big tier one enterprise class wins with the real power users of the stuff? ROBBIE BACH: Why don't you answer the first question, and I'll take the second one? PIETER KNOOK: Well, you know, in terms of how do we compare from a security and bandwidth point of view, I think from a security standpoint we just fundamentally have a better architecture. The fact that for security purists we really only present user's credentials to the servers makes a huge difference. There's no super users logging in on
  • 20. behalf of every user that's out there. We don't have any of that. That's just an inherent advantage of not having a middleware that's working on behalf of that. QUESTION: (Off mike). PIETER KNOOK: They do. QUESTION: (Off mike). PIETER KNOOK: No. QUESTION: (Off mike). PIETER KNOOK: No, I don't think we hear that very much. From the security knowledgeable view, I mean, we run big IT events every three months at Microsoft, this topic comes up, but they're not confused about that element. Now, they may still have an incumbency of an existing approach. Most IT departments would say, we know we have it, we would like to get rid of it at some point because we're not confident of the overall security or the architecture -- make an architectural statement now -- and when you guys are ready with things like Mobile Device Manager, we will really look at alternatives. So, to Mike's question earlier, we really feel like we're ready in that respect. We've addressed the device assortment problem, we've addressed the device capability and software feature point, and now we've built the IT infrastructure, and really that's an inflection point for us. And on the bandwidth front I think we've continued to make progress on how much bandwidth we use. We would still say we make a different tradeoff than RIM does by not passing traffic through the NOC. That does give us a little bit of extra overhead. We use standardized protocols throughout. That gives huge advantages to the IT manager, because they can manage HTTPS protocols through the firewall. There's a lot of management benefits that you get. But it does mean that we have a modest, and now a lot less than it used to be but a modest increase in traffic. And then you combine that with the other capabilities, which is you get full attachments, you get HTML e-mail, so, yes, there's more data because of that richness of experience that we offer. ROBBIE BACH: Yeah, and to your question about corporate customers just generally, we would look and say, well, we track with our field and we have -- we're quite penetrated in the enterprise customers in terms of field presence. When we track with our field, we are making significant inroads, and we are winning accounts. If you look -- I will tell you how many of those are in Wall Street, that's probably a place where RIM does the best. So, your own personal experience may not be generalizable. I understand the point. When you're in New York City walking around 50th and 6th, you'll
  • 21. see more Blackberry probably than you will Windows Mobile. If you're down on Wall Street, you maybe see more of them. If you go outside certain industries, we actually do very, very well. You are seeing us in government and a number of other places making nice inroads. Does that mean RIM's business isn't doing well? No. I would say they're probably still doing fine. QUESTION: (Off mike). ROBBIE BACH: I think it maps some with that. I think it actually maps more with Exchange, to be honest. I think where we get wins is where people are Exchange customers, Exchange believers, or they're migrating to Exchange. And then we can say, hey, if I'm going to make migration to Exchange, I'm going to make a migration to the Windows Mobile experience as well, because they look at the roadmap over time, and know that we're going to continue to innovate and making that solution better for them. PIETER KNOOK: And I'd say in this battle there's still so much Greenfield space. When the Spanish post office rolls out 26,000 devices to every post employee in Spain, it's not they had a device before and they're getting a new one. No, they just didn't have anything. The 500,000 census workers in the U.S., they're getting a brand new device. So, that's where there's still competition there, because for each of those wins, of course, RIM may be there, but that's where I think we're scoring the most wins, and as that momentum rolls out and continues to increase, then I think you go back and you start challenging some of the incumbent wins that are already there for RIM. ROBBIE BACH: Okay, we're going to wrap up there. Thanks, everybody, for coming down. PIETER KNOOK: Thank you. END