Who: Andy Lees, Senior Vice President, Mobile Communications Business
Zon Ellis, Director, Investor Relations
When: Monday, February 15, 2010
Where: Mobile World Congress, Barcelona, Spain
ZON ELLIS: Welcome everyone joining us via the Webcast. I'm Zon Ellis, Microsoft
Investor Relations, and I specialize in covering our Entertainment and Devices Division,
which includes our Mobile Communications Business.
With me today is Andy Lees, Senior Vice President of our Mobile Communications Business.
And this Financial Analyst Briefing is a follow-up to the press briefing we conducted just
three hours ago. For those of you who may have missed it, the video Webcast can be
viewed from the Microsoft Website.
The format we're going to use is similar to what we've used in the past in which Andy will
summarize the key announcements from our press briefing, and then we'll spend the vast
majority of the time on Q&A.
Just to remind you that if you ask questions, it will be captured by the Webcast, and we'll
consider that implicit consent to be included in the Webcast that we'll record. While we're
making legal disclaimers, I should add, we may make forward-looking statements. This is,
of course, subject to various risks that are listed in our most recent 10-Q and 10-K filings.
So, without further ado, and with all our disclaimers out of the way, I'll hand things over to
ANDY LEES: Thanks very much. Obviously this doesn't work on the phone, but how many
people saw the press announcement, so I get a view? (Show of hands.)
So not many. Well, I should have done a demo then. Just under two years ago, we
decided to reevaluate what we were doing in our Mobile Business. And when we did that,
we basically left no stone unturned.
We examined all of the options open to us, everything from the role of services, role of the
software on the phone, even contemplated whether we should build phones ourselves. And
in looking at that, what we were able to do is define a new strategy -- a strategy that
changes the way in which we work with partners, but perhaps most importantly, that's
centered on the end user. And so we re-developed the software to have a whole new style
of user interface, and that's what we announced today. And I think the feedback from
people who have seen it has really been quite positive.
We have a new style of user interface that has Smart Tiles, a whole bunch of things that
have not been possible before on smart phone devices.
The second thing that we said that we would do is rather than just have a phone that is
essentially a computer and a platform, we're going to make sure that it integrated with
things that people wanted to do with the phone. And if I can give you by way of a small
example -- photos is the number three usage of a mobile phone today. And most people
who take a picture on the phone can't get the picture off the phone. They don't have a way
of doing that. And what should happen is, the picture should automatically go to your PC,
no questions asked. It should be done in a nice, clean, clear way. It should be shared on
the Web. It should become the beginning of a laugh out loud moment with your friends and
social network and people should comment on it, and all pictures should be able to do that,
and it should be a natural and easy thing to do.
Well, to do that, we're going to have to provide software on the PC, software on the phone,
and software in the cloud to really make that happen seamlessly so that you have the
fewest amount of interface work that the user has to do. It's the most natural, most easy
thing to use.
And so we decided to spend a lot of effort doing that. Fortunately, we have a lot of assets
at the company that we can bring to bear with that. And so, as a result, we have built-in all
sorts of very cool scenarios, which I would strongly encourage you to go on the Web and
see. I think if you go to WindowsPhone7Series.com, you can see a demo up there that's
running. You can look at the Webcast where we went through it.
But, specifically, things like the browser are very cool. It's about performance, and the
usability of it. It has things like search built into the phone with Bing, and Maps, and we
have our music service -- our music software called Zune that does music and video and is
built into the phone. It's also available on the PC, and on Xboxes. We're including Xbox
Live in the phone, which enables you to play games, and not only play games on the device,
but you can keep track of your leader board, and your avatar, and things like that. And you
can also invite other people to play. So, if I wanted to play Scrabble against you, I would
be able to do that if you were on your PC; if someone else is on the console, they can play;
and it takes care of whose turn it is and how to play, and all that sort of stuff.
We also announced the way that Office is very cleanly integrated into the device. It has
OneNote so that you can synchronize information and little things that you do throughout
the day, to the PC. Of course, it does e-mail, calendar, contacts, and it does that with a
wide variety of different back ends, including Exchange, but also Windows Live, Facebook,
Gmail, Hotmail -- all of those things are used in a very clean and integrated way.
We also announced a thing called People Hub, and that's a very singular way in which you
get a view of everything that's happening with your friends and associates, including feeds
from social networks that come directly into the phone in a unified way. In fact, if a friend
of yours posts some photos, then you go into the photos experience, and you can see their
photos in your photo experience on the phone or you can get it via an update from People
Hub. So it's very intuitive. However you're thinking about keeping in contact with your
friends, whether that's through playing a game with them, whether that is through doing e-
mail communications with them, whether that's through social networking or sharing
photos, it really is an important part of the overall experience.
So a lot of software is being shared, all built-in in a very, very integrated way. We have a
new platform that this is built on and we'll be announcing details of the new platform and
the new tools and at our MIX conference, which I think is in five weeks time, in the middle
of March, where developers will be able to see in full detail how we've enabled things like
Xbox gaming, as well as see how they will be able to create really cool applications on the
We will, of course, have a marketplace for both of those things, and in fact, interestingly,
we think a lot of people will for example, sell games by inviting their friends to play. We're
enabling new scenarios, not just having a store that people just go to and buy. So, the way
that commerce is built in is really quite interesting.
So, that's the product itself. We've also significantly changed the way in which we work
with ecosystems. The way in which operating systems work in the phone business today,
because every phone that's built is unique, I'm not going to get too geeky here, but they're
all built like DVD players, or CD players, or something, and there is no consistent way that
they operate. It's not like a PC. I can't give you a phone piece of software that you can
load up on any phone. Every phone is unique.
With PCs, they all have standard interfaces and if you decide to load a piece of software,
whether that's from Microsoft or not, of course, you can do that. That's because there is
architecture, and there's a way in which the ecosystem works with itself. Well, we are doing
the same thing on phones.
This means that we're developing the low-level stuff. We've worked very closely with
Qualcomm to make sure the software and the hardware is highly optimized. We'll improve
the overall quality and performance of the experience, because we're delivering a higher
proportion of the software that's directly tuned to the specific hardware. We have a
minimum hardware specification that all of the OEMs will follow when they're developing
And this is a very, very comprehensive and detailed effort, because you don't want to be
disadvantaged by somebody who is building their own phones, because you're actually
enabling choice and innovation in the ecosystem. In fact, you want to do exactly the
opposite. And so that is why we've taken the unprecedented step of doing all of these
things, providing more software, having an architecture and working with the hardware
partners in a new way.
In fact, with the ecosystem, the way that the hardware works helps the software guys and
the software guys help the hardware guys, which in turns helps the operators. And we
announced today that our hardware partners will be providing a range of different devices,
and we also announced a range of operators who will not only be making the devices
available, and selling them and marketing them, and servicing them, and supporting them,
but actually they'll be taking the base things in the phone, even though it's a very rich set of
core capabilities, it's no longer just a sort of base platform. Then they can add value
themselves, and of course that is important for them, because they don't want to be a
dumb pipe, particularly given the capital expenditure that you have in networks. People's
thirst to utilize those, then the thirst for more capital expenditure is, of course, very
So, today is a very big day. We have reset everything. I said about 18 months ago, we've
been working very hard to get to this date. We announced that availability of the devices is
holiday 2010. Some people are asking, why are we announcing it now? It's because we're
about to give all the code to developers so that they can develop applications, and we know
it will leak. Therefore, we decided to get ahead of the curve and announce it today. So,
new strategy, a new team to execute against that, and I think the new product coming out
is a result that will work differently than anything that you have seen before.
One thing I should probably do is just put it in context with Microsoft overall. Microsoft's
overall strategy is to be successful in multiple screens to create these new experiences for
users. So I’d say being successful in mobile is a mission-critical element to our overall
success. If you look at the individual things that we do, whether that's Office, or Exchange,
or Bing, or Windows Live, and the other things that we offer, whether they be software or
services, increasingly mobile is an important part of that screen, as indeed is the TV. So it's
not just about the PC. And so doing software and services is an important part of our
overall success. And that's why we took the unprecedented step of hitting such a hard reset
just under two years ago.
So, with that, it's an exciting day for us here at Microsoft. It's the beginning of a new
chapter. It's not the end of a book. But, that is really sort of the beginning of the first
chapter in many respects. So, with that I'm going to open it up to questions about
whatever you want to talk about.
ZON ELLIS: If you could limit yourself to just one question and avoid multi-part questions,
in respect to your colleagues. We have lots of people here that have questions.
QUESTION: Thanks. Congratulations and could you perhaps talk about how you designed
the strategy of what you rolled out today against how you see the -- (off mike) -- in some
of these alternative OSes, or do you see those persisting? And how does Microsoft fit into
that, and how has that infused your strategy?
ANDY LEES: Actually, I'll sort of contradict a little bit of what you said, in that it's very
similar to the PC. You've just got to go way back to the mid to late '80s. In that period,
there was a cacophony of different hardware and software platforms that tried to run across
those. If I mentioned things like Tandy TRS 80, the Commodore Pet, CPM, and all these
things, there are only a few people here that are old enough to remember all of these
things. But, all that stuff existed. But it was all fragmented. And, in fact, what that meant
was the people that were doing the hardware and software together were able to move
more quickly. In fact, that was Apple.
Back in 1985, they issued a press release saying that they were at 35 percent market share
and the overall leader in terms of making personal computers and they sold more than IBM
and all of its compatibles added together. So, there was a third -- just under a third was
Apple, just under a third was the IBM PC and its compatibles, and there was a third of other
And then over time, our job was to really enable and empower the ecosystem, not control
it, to add a set of structure to enable all of the other PCs to work. So, if you want to write
software that uses sound at that stage, the PC used to just beep. It didn't have graphics.
It didn't have a microphone, or anything like that. Then it's really hard, because there was
no way of doing that, but by creating the right Lego bits we could make that happen. And
the ecosystem as a result flourished and to such an extent that today the most powerful
computer on the planet is actually made of a whole bunch of PCs sort of added together.
So, do I see a similar thing happening? Technically I do. Do I think that there's going to be
a shake out over the long-term and the number of OSes is going to come down? Yes, I do
believe that. I think that's the way in which the economies of scale for developers, for
operators, actually for the OEM cost base, will come true.
Now, the PC market and the phone market are very different. Of course, there are lots of
other elements of the business model -- how things are subsidized, how much data they
consume. There are lots of reasons why it's different. But, technically we've made the right
steps to put us on that path. We weren't on that path before. We are on that path today,
and then what we also want to do is to have a very rich set of user experiences, because at
the end of the day the end user is king. You can have all the architects in the world, but if
you don't have something that the end user wants, then that creates a problem.
So, I do see the parallels, more parallels, but you have to go a long way back that most
people have forgotten about as to how this could shake out. If it doesn't happen that way,
then of course the people that will favor are the people who do the hardware, software, and
services together. And they have been favored in the very recent past and over the long-
term, but there are other models that could survive going forward.
QUESTION: Quick question, Intel and Nokia announced earlier today an open OS called
MeeGo based on Linux. They put together their assets. I was just wondering what you
thought of that given your relationship with Intel on the PC side?
ANDY LEES: Well, you know, Intel has done a variety of different things on a variety of
platforms in the past. They do some things with Linux on the PC. So, it makes no bearing
in any way, shape or form with our relationship with Intel. They're a very, very important
partner for us. They're doing innovative things. I think they're going to be a more
important player in mobile, full stop. So I think that doesn't affect our relationship with
Intel at all.
Do I think it's going to be successful? I think the lesson in some respects here on the
phone is that a platform by itself is insufficient. No end user buys a platform. We were
doing a little bit of that in our old strategy. People buy a phone because it's great at music,
and it's great at photos, and it's great at social networking, and it's great, blah, blah, blah.
So what really counts is, who is going to make those end user experiences things. And,
increasingly, as I was saying, I think the end user experiences are about providing software
on the PC, in the cloud, and on the phone that work in harmony.
I don't know what's going to happen relative to that new OS, or who is going to do all of
those pieces. That, I think, is what would need to happen for it to be successful in the long-
term. So we'll see.
QUESTION: Thank you. James Foster of Pacific Crest.
I'm wondering if you're planning to restrict the number of potential licensees or
manufacturers of hardware given that I've seen it reported that apparently you're not going
to allow for a UI differentiation among your licensees, and correct me if I'm wrong about
that. But it seems to be emphasizing the experience aspect. And if you don't, if nobody
decides that they want to license it because they can't differentiate or whatever, are you
going to be prepared to move on to make your own hardware? What's your plan there?
ANDY LEES: So we're not planning on making our own hardware. We're very happy with
the support that we have from hardware manufacturers to make phones for our launch.
We're very happy with what they're doing there. There's going to be a wide variety of
phones. So I don't think our issue today is OEM support. And we're certainly not going to
restrict which OEMs build phones. It is important to us that they adhere to this new
structure that I've talked about before, a technical structure in how the phone is built.
Part of the structure is the user interface of the phone. And there's this thing at the
moment, everybody is in love, it would appear, with replacing elements of the UI. And
whoever has used a phone where you've had three or four different people designing the
user interface at the same time, that's often a confused experience. Not always, but often.
And a developer, for example, who is writing an application to work on that phone, do they
work on the vanilla version of the user interface, or do they work on the one that was
provided by the OEM, or the one that was then later replaced by somebody else?
The net impact for the user is they get confused. And in some respects, it's kind of like the
movement from DOS to Windows. With DOS, you could do whatever you liked. With
Windows, menus had to work a certain way within the core navigation elements. But what
ended up happening was, there was lots of extensibility, there were lots of ways in which
people could add value that the ecosystem using that as the baseline, and then what
happened was it helped end users do more, and because they did more, the ecosystem
became more vibrant. And that's what happened.
And we think exactly the same thing is going to happen here. It's not that people can't add
to it. It's not that people can't customize it. They absolutely can. So OEMs can add a lot of
things. But can you replace the core metaphor of usability, or how the phone works? No.
And we're going to stick strong to that because we think it's in the best interest of the end
user for us and the OEM to work effectively together to both add our value to the phone in a
way that really is usable. And, in fact, the same is true not just for OEMs, it's actually true
for operators, and for developers as well.
So when you understand the strategy, and when we first started out having this
conversation with OEMs, they were nervous. Of course, they were nervous. So I've got a
minimum spec, and I've got a user interface that I can't replace. How is this going to be for
me? And then when you actually go down and you talk about it, they're really starting to
think in different ways about how they add value, and that's fantastic.
QUESTION: Maynard Um, UBS.
Just a question on pricing. Can you just go into the details, I guess, of the new operating
system pricing-wise, particularly in light of the fact that some of your competitors obviously
don't charge for their operating systems to your customers? And anything you can offer in
terms of feedback from your customers regarding the licensing fees on Microsoft versus free
ANDY LEES: Sure. First of all, we don't disclose details of our pricing. So I'm not going to
do that. We basically charge a small license fee for the phones, small as in percentage of
the transfer price of the phone. The screen is more expensive and the processor is more
expensive than the software on our phones. So the price isn't that high, and we're priced to
enable high volume.
Now, of course, you do pay for software where someone is developing the hardware and the
software and the services, it's just built into the total price of the phone. So, really you're
talking about one or two models, and those models are normally there to serve another
revenue stream. There's real cost associated. I think we have a very straightforward
model. In fact, when I talk to OEMs, and actually particularly operators, they see what our
model is and it's very straightforward. We produce software, we charge an amount for it in
a royalty license, and it comes with the phone.
When they're getting something for free, and someone is funding that, and they're funding
that for an indirect reason, you have to question their indirect reason. And in all cases
where they're doing that, I think they've got a variety of different reasons. Now, you need
to go to them and ask them why they would spend a lot of money doing R&D to then
provide it free of charge, and then how the ecosystem feels about what they're really doing
versus what they're saying they're doing.
But I think ours is very straightforward, it's very good value for the amount of software that
they get for the price. And, in fact, if an OEM wanted to reconstitute using a free OS, the
same end user value proposition, particularly in this new strategy, where you're getting all
of this Xbox stuff, and Zune stuff, and Office stuff, and Bing stuff, and all these other things
built in, they can't reconstitute that out of a free software without spending a lot of money.
And so it turns out, although those are "free," we actually end up being the lowest cost
QUESTION: Hi, it's Katherine Egbert from Jeffries.
What about the branding of these phones. Whose brand is going -- is it going to be like the
Dell, the HP version, and then which phones are you going to sell in your stores?
ANDY LEES: Okay. So I should have said what we're naming the product, which I didn't
say, thank you, is the Windows Phone 7 Series. And the brand that we want to be
prevalent around is Windows Phones. The thing that we want someone to walk into a store
and ask for is a Windows Phone. Why would they want a Windows Phone? They'd want a
Windows Phone because of the way you have the smart design, and the integrated
experience I talked about before. That's why they would want to go in.
When they go in, all of our phones have three buttons on them, a back button, a search
button, and a start button. The start button is a Windows flag. It's obvious it is a Windows
Phone, even when the phone is switched off, you can tell it's a Windows Phone because it
has a flag on it. You use the flag to bring up what we call the start screen, and the start
screen is the place where you can get this sort of view of what's happening in your life with
these things called Live Tiles. So it's all part of this sort of smart design. So I think that it
makes it very clear the branding this is a Windows Phone.
Now, on the front of the phone, in terms of the branding, what's probably most likely to
happen is you're likely to see the OEM's name on it and the operator's name on it if it's a
subsidized device. We don't demand they write the word Windows Phone on the front of the
phone, because it ends up becoming like some NASCAR thing, or a Formula One car for the
rest of the world, and with all these stickers all over it. So, we think that keeps it clean.
It's got a Windows flag on it. You press it every time you want to use the UI. It's very
obvious it is a Windows Phone. So, our brand is a Windows Phone.
In terms of what we'll sell in our store, I think we'll probably have a full selection from
across the different hardware manufacturers.
QUESTION: And if you look at this from the point of view of your customer, what is the
problem that you're trying to solve for them that they can't solve today?
ANDY LEES: We're trying to provide them with a delightful experience that will enable,
that will cut across their life, home and work, and will cut across how they use PCs,
computers, and TVs. And so what we're doing is the scenarios, like keeping up with your
friends. You don't have to go in application by application by application. It's very
confusing to do that. It's very complicated to do that. If you want to post a picture you
have to go into several applications to do that.
Now, we like applications. Don't get me wrong. We have a very rich platform, and our
platform and the new tools, when we announce them, I think we'll be pretty well received.
But, to actually stop that user confusion and having to go application, by application, by
application, by application, that's the problem that users have got. You look at all the
usability research, that's what they have. And so, we're using the power of the device, the
fact that we build in the core integrated experiences in a rich way, they work across screens
by using software plus services on each of the screens is really the problem that we're
QUESTION: Can you explain what your device will offer that, let's say, Android doesn't
offer right now? I can't see the difference, apart from the Xbox, obviously. When a
consumer picks this phone up, what's going to wow them?
ANDY LEES: Watch the demo. If you watch the demo the way in which we do -- what
happens is, when you get home, just look at photos. When you get home with our phone
and you plug it into the power, what will happen is that it will find a Wi-Fi, it will find your
PC. It will just go through and it will start synchronizing your photos for you automatically.
One feature, it's a very small feature. But, what we've done is we've looked at the totality
of the experiences across the core scenarios and we've built them in. Whereas, what
happens with the iPhone is that you have to go through and plug in all of the individual
applications to be able to do the same scenario. So, it's much more confusing, usability-
We have a choice of hardware, of course, because of the way we have the ecosystem. So,
as well as providing the value in the software and what a user can do across screens, you
also get a choice of different hardware if you want it with a keyboard, without a keyboard,
big screen, small screen, have at it. And so we'll have a variety of different price points,
therefore, as well.
So, watch the demo. If you watch the demo it's hard to describe such a visual product in
this way. It's like trying to explain DOS to Windows to somebody. See a demo, in five
minutes, however long the demo takes, you'll get it.
QUESTION: Can you talk a little bit about the current team that's working on Windows 7
versus the prior version, to give us a little color on the background?
ANDY LEES: We added a lot of talent to the team. And the talent came from across the
company with a variety of different disciplines. So, some of the people that worked on
Windows 7 on the PC, came over to the team, some of the core engineering talent there.
People came from Xbox, people came from Zune, really from all over. And we assembled a
team that has a balance of different skills.
Actually, interestingly, we also added hardware skills, because then we're taking
accountability for the user's experience. You also need software skills and engineering skills
because it's a very complicated thing. We also have designers who are a very important
part of our team. Then of course, outside of developing the product, we also have ramped
up what we're doing in sales and marketing, the way we work with partners, whether they
be OEMs or operators, and soon to be developers. So, we made a lot of change. We added
a lot of talent.
QUESTION: I was wondering, can you talk about how you're going to have the operators
involved, are you going to let them brand the product, how are you going to -- what type of
push do you expect from them? And how do you maintain the consistency, the user
experience that they want to change it -- like what we'll start to see a little it with Android.
ANDY LEES: Yes, so you can’t rip out the user experience. That's a fundamental element
of our value proposition. You can add to it. So, if I'm an operator, we have these things on
the front called Live Tiles, sort of the main part of the user experience. And we work very
closely with operators. So, for example, today we had AT&T and Orange on stage, and I'm
not here to announce details of their specific differentiation, what I did announce is they're
doing specific differentiation.
And so, closer to product availability, you will see that what they do is they take the
baseline. Now, the baseline is a very thick baseline, because we have lots of functionality
as I was describing before. They then use that as a point to differentiate over and above
that. And so that enables them to add their own software and services that they want to
use in the market to differentiate.
The other thing that we do is we have a very operator-friendly strategy. So, for example, if
I'm buying something on the phone like an application, or a game, or music, we certainly
want to do operator billing, so that they continue to have a relationship with the customer.
They think that's important, and it's fine for us. In fact, what we found is when people have
operator billing, people buy more.
It's a great thing for the end user. They like the idea of buying things and sticking it on
their monthly bill, or if they prepay they're in control of that and they use it almost like a
credit card, and micro-payments work very well that way. So, there are lots of reasons why
we have a very synergistic relationship with operators. For one, they want to add stuff over
and above what we have. And I think when you see the UI, what we found is, when they
see it, they normally don't want to replace it, they normally want to build on it and add to it.
And I think we've done a lot of work on that.
The graphics that we have in the device -- we worked specifically with Qualcomm on the
graphics engine, and it is great for games. We'll have full 3D gaming in there. But, it's also
really good for UI, because you can do these animations and movement, and when you see
the demo you see all of that, and the usability and the delight that comes out with this
smart design really pays off. And so, I think when they see that they want to be part of it,
not trying to start replacing it. And when we've explained that, then normally we have had
very good, positive conversations with the operators.
And that's why I was pleased that we had Orange and AT&T on stage with us today, but
also as importantly, there is a whole list of other operators who will be supporting the
phone. Not just I'm going to ship it and sell, and market it, we're not a closed box in that
way, but in terms of actually using it to differentiate in the market.
For them, they've got a problem in that even with a, say, Android, the fragmentation that is
happening, they really can't produce a single piece of software and have it work on all of the
phones. It's a big problem. What happens is, it actually becomes cost prohibitive for them
to add value with software and services, because they're having to do it for every phone.
And because of the consistency that we have, as a high water mark, high baseline, it does
enable them to be more cost effective, and richer at adding value. The same is true for
developers on our platform with this new strategy.
QUESTION: Hi, it's Luke Jensen from Credit Suisse. What market share would you
envision having in sort of two years after launch to consider this a success and when you
were thinking about the price point, what market share would you have had to have to
consider giving the software away for free, because there must be a tradeoff between what
you think you could have, in terms of market share.
ANDY LEES: We don't make forward predictions. So I'm not allowed to do that. But, we
wouldn't want to give it -- why would we want to give it away for free. I don't think that the
price that we're charging is going to inhibit volume. If it's less than the cost of the screen in
the phone, it's a component. And as I said before, the cost of reconstituting the total
amount of software that we're doing in this new strategy will be significantly more than the
cost of some free software with all the work that you'd have to do to try and reconstitute
what we're delivering.
So, I actually view us as the lowest cost for value, if you like, provider. And I don't think
that cost is what drives the market. I think it's user experience, what a user can do, that
drives the market. At good value you want low cost of license.
QUESTION: (Off mike.)
ANDY LEES: The question without the mike, which is against the rules -- are we
competing against free? You know, we compete against free on the PC every day. We
compete against free in Office. We compete against free with Windows. And free does not
always mean better. And so, I would -- in this case I think our goal is to have the best end-
user experience. And I don't think price is an inhibitor. I really don't. It may seem like it,
but it's such a small amount, relative to the components cost of the phone, it's not an
QUESTION: Could you just talk a bit about how this fits in with your newly announced
partnership with Mediatech. Will they be running Windows Series 7 on their platform, or is
it just for Windows Phone 6?
ANDY LEES: Today [the partnership] is for Windows Phone 6.
QUESTION: And just as an extension of that, can you talk about the importance of being
able to port apps. How open is the platform going to be to developers, and how does that
compare to other platforms, such as Symbian S4 and 4 with Qt, when that comes about?
ANDY LEES: So, we think the platform is going to be very, very competitive, both in terms
of how easy it is for developers to write code and how they can make their code available to
their customers. We're going to provide details of how to do that at the MIX conference, as
I've described in a lot of detail. So, I should probably wait until we've announced what
we're doing. But, you'll see -- we'll have market places and stuff like that, of course. But,
actually, I think there are other interesting ways, for example, as I said, for people to invite
other people to play a game. It may end up being a highway in which people actually sell
and market and purchase games as it turns out.
QUESTION: Sorry for a tricky question, but what's the rationale for Microsoft to make a
portable media player, for it to be involved in hardware, and not to do that for smart
phones. And, if I can rephrase that, assuming a wild guess that Windows 7 Series doesn't
work the way you anticipated, would you reconsider being in hardware for smart phones?
ANDY LEES: Well, we considered it before as we were making this strategy change, and
we decided against it, we decided to do what we we're doing. I mean, we literally looked at
it carefully. But our partners want value and our customers definitely want choice. They
want choice of form factors and price points. Even how one person has a device and it feels
comfortable in their hand versus somebody else. People do want those differences, and
those choices, as long as it doesn't mean compromise. And so if it's possible to get the best
of both worlds in that, which we believe we're on a plan to do, then I don't think they need
So, our plan is to work very closely with the ecosystem in a new way, which is what we're in
the middle of delivering, that provides delightful experiences, but also choice that the
ecosystem can provide.
You know, just look at screen technology, it's sort of a -- if you look at screen technology
and what's happening with it. Our OLED screens are coming up. What that means for
battery life, there's a whole new round of stuff. There's a whole new round of touch
technology. You know, why stand in the way of that, why not just let it flow, let it go.
As long as, and this has been the problem, as long as there is a way in which those pieces
can work together effectively, and not fight, which has been the problem, then let it go.
And if you look at what's happened on the PC, nobody makes the full stack of everything,
because everyone leverages the ecosystem, because the ecosystem has been all powerful,
because of the innovation that thousands and thousands of companies, representing tens
and tens of thousands of people. It's a very powerful thing. So, if it can be done in a way
that doesn't mean lowest common denominators, which has been part of the problem, then
it's a very powerful thing.
QUESTION: Hi, two questions for you, please. First of all, we heard for many years from
talking with Melvin and others in the Windows Mobile space, about a desire of Microsoft to
get into the consumer area. Can you tell us with this product, this software platform,
what's the lowest hardware feature set you can run it on and therefore how low would you
go down in terms of the price points that we typically see? How close could you get to the
sort of mass market smart phone that everyone else seems to be driving for?
And then also maybe one other thing, you had all the operators up with you on stage today,
but can you tell us how far your range planning with them extends? Are you comfortable
that you've got guaranteed slots through 2010 and into 2011, or at what point are the
commitments no longer firm, but sort of depending on how execution goes?
ANDY LEES: Right. Well, I can't talk about the exact price of the device. We don't make
devices. So I think what we do see is that we'll be price competitive in the market for smart
phones of a similar sort of capability. There is no reason why they should be more
expensive, I think. Because of the diversity and the price competition of the ecosystem,
what will happen, I believe, is that you will see them start off at one sort of price, and a set
of form factors will come out initially, and then I think you'll see that explode more and
more and more.
In terms of how many slots, different operators have different points of view about how
many they have inside of their portfolio. We're very happy with what we're hearing in
terms of what they are selecting. They typically select devices around about nine to 12
months in advance, to six to nine months in advance very firmly. So saying that, I can see
a portfolio into late 2011, or 2012, or something.
The proof of the pudding will be, of course, what the end user decides. And so if the
feedback on the product is good, and it starts selling, then people will arrange more. And
that's sort of how this works. And that's what's great about it, because that's what
competition is all about.
QUESTION: Thank you. Do you think there's a risk with Windows Series 7 coming out in
the holiday season to all the fixed sales of current Windows 6 products, and development
around that as I understand you made an announcement with Mediatech. But in terms of
other vendors like HTC, Sony Ericsson, et cetera, working on Windows Mobile, do you see
them focusing more of their efforts now on Windows 7, and the run up to that is essentially
going to affect your sales of Windows 6?
ANDY LEES: So, good question. We will continue to sell Windows Mobile 6. And, in fact, it
goes into a variety of different places. We're now at a situation where you can use Windows
Mobile 6 on some very, very cheap phones, sub-$200 transfer price phones. And so, as a
result, we're seeing that it varies by different parts of the world. We're seeing in Latin
America this big explosion of people getting their first smart phone and using Windows
Mobile 6 to do that. That will continue.
The capability of this phone is higher. Moore's Law and diversity of form factors will help us
over time, and it [Windows 6] will come down over time. But I would expect for the next 18
months to two years that they will coexist. Of course, because we do have a number of
enterprise customers who are standardized on Windows Mobile 6 – it will take time to do
evaluations to decide what they want to do, if they want to move to Windows Phone 7
Series, then of course there's a normal residual amount of demand just even with that. So
I think the answer is, they'll overlap by quite a ways depending on different parts of the
world and we’ll keep them for different periods of time.
We expect OEMs to ship new devices on 6.5, and so we're going to continue to see that for
a while. So I don't think it's a flip over on one day. And depending on where you are in the
world, what scenario, what price point, I think it will carry on probably for longer than we
anticipate, which is normally what we find. We're going to continue to support it, and as
OEMs bring out new devices, we still have engineering on that to enable new hardware form
factors that they do, and so on, to support them.
QUESTION: Is this strategy to target the enterprise messaging market? I mean, just
having -- just being able to sync with Exchange doesn't necessarily mean that you're
ANDY LEES: Certainly, we believe that we will have the best enterprise support for e-mail,
calendar, contacts, SharePoint, and OneNote of anybody. And they are very well-received
products throughout businesses. And so as a result do I think that it's going to be appeal to
business usage, yes, I do. I call it business usage rather than business users, because, in
fact, people are human beings first, and then business people and consumers second. And
what we're finding is that, even for phones that are funded by organizations, the end user is
choosing the phone because the company doesn't want to take the capital expenditure
associated with that. So even in those cases, it becomes an ongoing operating expense.
And then the end user is choosing, and they want to choose a phone that does work and
play. And that is what we're going after.
And I think that if you look at how our e-mail works, actually in 6.5, but also with 7, and the
other pieces that we're adding, like SharePoint and OneNote in there, I think that we are
very, very competitive for business usage.
ZON ELLIS: I think we have time for about two more questions, three if they're quick.
QUESTION: Thanks. Tim Boddy from Goldman.
Just about your relationship with Nokia, can you just give us an update on where that is,
and where it might go?
ANDY LEES: So with Nokia, we have announced that we'll be putting Office software on
that, we didn't provide a time scale specifically with that. And we're still working on that.
That's not available in the market yet. I don't think we've announced when that's going to
be. I think they're going to announce that. So, from that point of view, that's a great
thing. Outside of that, I don't think we have anything else to announce.
ZON ELLIS: All right. Well, thank you everyone for coming tonight.
And for those on the Webcast, just a reminder that there will be a conference call on
Monday, February 22nd, 8:00 a.m. Redmond time, where there will be a chance to ask
questions. We realize people on the Webcast didn't have a chance to ask questions. So,
Andy will be able to address Mobile Business at that time. Thank you for joining us.