than 50MM Windows Mobile devices


Published on

  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

than 50MM Windows Mobile devices

  1. 1. Financial Analyst Briefing 2009 Mobile World Conference Andy Lees, Senior Vice President, Mobile Communications Business Barcelona, Spain February 16, 2009 ZON ELLIS: Good afternoon, everyone. Thank you for joining us. My name is Zon Ellis. I'm with Microsoft Investor Relations. I have to do our obligatory disclosure here that we may make forward-looking statements that are subject to risk and uncertainty, and may result in materially different results. Please check our 10-K and most recent quarterly filings regarding these potential risks. We do not undertake any duty to update these forward-looking statements. With that, I would like to introduce our Senior Vice President of our Mobile Communication Business Mr. Andy Lees. ANDY LEES: There's nothing quite like having a public health warning before you come and make a few remarks. You know, this is a really, really exciting time for Microsoft. The mobile business is itself at an exciting time. You know, we're at the equivalent would be like the sort of late 1980s of the PC industry, only this is different because convergence has been talked about kind of forever, and yet it's happening here and now as these industries collide. I've been in plenty of meetings where two business partners are meeting with each other, both expecting the other person to pay them. And that really is sort of the state of the industry. You get the PC industry colliding with the telco industry colliding with the media industry, and so on and so forth. There's lots of things that are going together, lots of innovative technology, lots of innovative business models that are associated with that. So Microsoft all-up, this is an exciting day because we introduced our Windows phone strategy. We've been pretty successful in Windows Mobile to date. We have sold 11 devices that have sold more than a million units each. We have sold more than 20 million devices prior to the beginning of this year, in the last 12 months, and we are gaining share and we are pretty excited about it. However, the explosion in the market has yet to happen. It's yet to happen because there are some interesting trends of the way in which hardware is evolving, hardware capability, and hardware prices. If you look at the number of mobile phones that are sold by price point, it is not a linear progression. The percentage of phones that are sold at more than $300, these prices are leaving the factory from the OEM, because obviously the end user price is sometimes subject to subsidies and the like. But it is about 7 percent. And that's a $300 phone. And many smart phones are above $400, and in some cases above $500. But we have had our first Windows Mobile device at $200, and we're expecting to see those price points coming down. The volume of phones that are sold at
  2. 2. those price points is significantly larger. There are a number of different analyses around as to what that is, but you go from today where the estimate I think is around about 12-13 percent of phones sold are converged market devices, which is code name for smart phones, to where that will be above 20 percent inside of two years easily, and over the next several years will get to be 40-50 percent of all devices. Today we announced a new version of Windows Mobile, which is significant in that it brings PC browsing, and new user interface to the phone. It's also significant that we introduced some services, because what it does is it alludes to what our overall strategy is. Historically, we were focused on the OS. The OS is important, but isn't what a customer buys. What a customer buys is a set of end-to-end experiences. So, for instance, the number three thing that people do on a mobile phone is take pictures. The number one thing they do is, they make the calls. The number two thing they do is text messaging. Number three is they take pictures. Most people who take pictures with their phone cannot successfully get those pictures off the phone. It is a real problem. When they get a new phone, they keep the old one because it has text messages, or photos on it that they don't want to lose. And yet, with software that is on the device, with a connection, and also software that is in the cloud, and software on the PC, that can be made to be an automatic experience where what you do is, you take the picture, you do nothing, zero, zilch, nothing, you just wander to your PC, and all of your pictures are there. You fix red eye on the PC. It automatically will go back and fix red eye on the phone. When you take a picture on your phone, it has maybe a five mega-pixel camera on it. The screen is only one mega-pixel. It will automatically only leave a one mega- pixel image on the phone because the five mega-pixel version is somewhere else. It's in the cloud or it's on the PC for you. You see it in full view there. You can take five times as many pictures as you could do before. And no one has spent a dime more on hardware to make any of this happen. I'm just talking about some of the small things that you can do with the magic of software on the device, services in the cloud, and software on the PC. Let's take this a step further. In the demonstration today we saw somebody instant messaging with somebody. If you look today with Windows Live, we have around about just over 350 million users of Windows Live Messenger. That's a phenomenally large number. And you have to use it regularly, otherwise your account goes away, so we know that's active users. And looking at that, what we demoed was someone on their phone was having an instant message session with somebody on the PC, but it was a touch phone, they didn't want to touch anything on the phone. So guess what you do? Surprise, surprise, you talk into it. And you talk into it, it arrives on the PC as a sound clip, they play it. Also in the demonstration, we showed somebody that was in the middle of killing somebody on Xbox. At the same time, because it was a three-way conversation between a PC, and an Xbox, and a phone, the person paused their game for them saying, hey, Jane, or Johnny, or whoever it was in the scenario, wants an IM session, do you want to do that right now, or do you want to carry on killing people. And so they went through and we did a chat.
  3. 3. So what it's showing is these end-to-end experiences in the way in which even with something as simple as photographs, or something as rich as communications, and how the software and the services really light up the form factors, and that really is what our strategy is about, about providing all of those pieces. Now we get a lot of questions about our business model, and how we operate, and are we going to make a phone. The answer is, we're not going to make a phone. We fundamentally believe in the richness of the ecosystem. That's why today I was always excited by a couple of partner announcements. First of all, we had a whole bunch of partners announce support for the Windows phone and the Windows phone strategy. To put that in context, we have about -- *****(Disconnected from conference call here, and reconnected to Webcast in progress.)**** (In progress) -- so I would say we, as a company, are getting more integrated to provide these services. So what we saw today was the beginning, I would say, of a new strategy, really arriving in the market with other pieces having already arrived, and more pieces going to arrive that you're going to see in the next 12 to 18 months. So I'm excited. And with that, I'm going to open up to questions you may have. QUESTION: (Off mike.) ANDY LEES: So the question is, I have to repeat the question because of the people listening in. The question is: What is the Danger team working on if we're not making phones? The Danger team does not make phones. In fact, Sharp makes the phones that the Danger team work on closely. It is still an OEM-based model. We don't own a single piece of inventory, or anything else. And so even with that model, which produced Sidekick devices, for example, in the United States for those people that understand that, T-Mobile Sidekick branded devices, so even there we don't make our own devices. Now, what is true, it's true that we are working significantly closer with the OEMs than we've ever worked before. And we actually have a whole bunch of hardware engineering experts inside of the team because, as we drive down the price of the devices, we're going to do that by working incredibly closely with silicon vendors, and with OEMs, and so part of our strategy is to get very close to that collaboration, part of why LG was betting on Microsoft is because of the collaboration we're putting in place. I think sometimes people see that and they see people moving around, they see us hiring certain people, and then all of a sudden, oh, they must be doing a Zune phone, or they must be making phones. We're not. We believe in choice. And our business model is to take a small amount of royalty on the phones that are sold, and we're very excited about that business model. QUESTION: (Off mike.)
  4. 4. ANDY LEES: So I should have mentioned that. Thank you. The question is, what are we doing for consumers? Well, with these announcements today, with Windows Mobile 6.5, you get a new user interface which is much more appealing for users. I say users because I don't believe you have business or consumer. I think you have human beings that do business and consumer scenarios. So I do a lot of business scenarios, I also take pictures of my kids, I also share them with my family. I live several thousand miles away from many of my family members, and so I want to share that, and post that, and all of that stuff. So I need a device and phones that work across that. So part of the new user interface, and part of the services that we are announcing today also enable those consumers scenarios to be richer. People sometimes say, oh, are you playing catch-up in consumer? Remember, we have 430 million Windows Live users. And I use that number because those are all using it for non-business purposes. If you're using it for business purposes then typically you're using something like Exchange. With Exchange we have the majority, the largest share of business usage of things like e-mail, calendar, contacts, unified messaging and stuff like that, but that would be different to what people would use with Windows Live. So we already have a consumer heritage. We were maximizing the use of that on the phone, and we will do, part of the demos that we showed today were about that, as well as a new user interface. Specifically on applications, we have a vibrant ecosystem. One of the things that we announced today is a marketplace. I probably should have mentioned that. What that means is, is that for a developer to be successful they will still be able to load applications, either from a Web site, or an organization can load it onto a device as much as they like. We don't limit that, but we also will have a store that we call marketplace to enable a developer to directly connect to potential customers. And that was one of the announcements today. QUESTION: (Off mike.) ANDY LEES: So the question is with open source and potentially free alternatives how do I see that playing out? Well, nothing is free, and so there's -- if you look most of the OEMs realize in their comments to me that Symbian is really about Nokia. Nokia produces Symbian for Nokia devices, and then it puts it on the Web for someone else to go through. And they don't put all the pieces of what Nokia does with Symbian, like Ov and pieces like that on the Web. So a lot of OEMs are concerned that this free thing really isn't their best foot forward, because they've got to invest a lot of money to do the equivalent of things like Ov and other things that Nokia are putting around that. If I look at, say, Android it's interesting that if you wanted to go through and create the equivalent of what a Windows phone would provide for you as an OEM it would probably cost you more than the royalty, in fact, it would definitely cost you more than the royalty that you would pay for Windows mobile. You would have to add an instant messaging service, you'd have to add e-mail synchronization. You'd have to have some
  5. 5. music thing, some gaming thing, and by the time you've assembled all of those pieces, including running services in the cloud, including writing PC software, which is what's going to be required to be successful in the future, then it will cost you a lot more than the cost of the royalty. We've seen this phenomenon before with Linux on the desktop and Linux on the server. And the amount of investment that we will put in to make all of that work and work well, in a differentiated way, will justify the license costs, and we don't have some other axe to grind which operators and OEMs are concerned about, which is why they're giving things away for free. So we're very up front. We're charging a royalty for it. It's not much, it's less than the cost of the glass on the phone, it's less than the cost of the silicon inside of the phone. We price for volume, and so it really doesn't become an impediment for us to be able to offer customers that value. QUESTION: (Off mike.) ANDY LEES: So a couple of things, I don't believe the hardware will get commoditized. I think there's a whole bunch of innovation that is yet to happen in hardware. So today HTC announced a Windows phone that has on the back of it -- it's a nice, beautiful, large screen device with a slide-out keyboard, and on the back of it if you turn it over it becomes a speakerphone, and it has dual speakers, dual microphone, noise canceling. So it's better than any speakerphone that you're likely to have in your conference rooms, and all you do is you're in the middle of a phone call, you literally just put it upside-down and it does it. It even has a mute button on the back so that you can mute it and say, what is this guy talking about, not that anyone would do that, and then unmute it. So that's hardware innovation. I think you're going to see all sorts of really exciting things. I've seen some of the things that are being worked on. So I don't believe, I think we're a long way from hardware commoditization. Operators will want to continue to add value, and add unique services to be able to make sure that they don't become a dumb pipe. And I think that we offer that as part of the value proposition that we provide in Windows Mobile. We enable customization, it's an open platform. They can load any piece of software that they like on it. We also provide rich development tools. One of the nightmare scenarios today for operators is if you look at feature phones the cost of them to develop a service and put it on their feature phones is so high relative to the return that they can't do it, which is another reason why they like smart phones, because they get a consolidated, standardized rich programming environment upon which they can build rich services. We will allow our services to be customized, we will have a collaborative business model, let me just say, on our services with operators. So really I think that we're seen as a very strong advantage, even relative to many of our competitors as what our business
  6. 6. model and our business terms are working with operators, and we see that as part of our strength. QUESTION: (Off mike.) ANDY LEES: Yes, we will allow the -- sorry, I have to repeat it. Yes, we will absolutely allow the distribution of free applications. If you have an application and you want to sell it off your Web site, good luck, off you go, you don't have to be inside the marketplace. All of those scenarios are absolutely true. QUESTION: (Off mike.) ANDY LEES: We haven't announced terms of the marketplace, but we'll take some element of the transaction to run the service, and we will do some revenue sharing with the operator, as well. QUESTION: (Off mike.) ANDY LEES: I think -- I don't know fully the answer to that question. The question is, what about ad-funded applications. I would need to check. The operators have certain views on that, so I need to just check on that. I mean, generally speaking, we'll allow all sorts of applications to be loaded on there. We don't have a closed ecosystem. We have an open ecosystem. Specifically how they are promoted on the marketplace I can't remember all the terms off my head and I'm sorry, I don't remember. QUESTION: (Off mike.) ANDY LEES: You say lower end in price point or geography? QUESTION: (Off mike.) ANDY LEES: Okay. So the first question is, some people say that you have to do the hardware to make the hardware-software interaction really work well, and to give the best experience. I could argue that it's simpler to do that, but ultimately I think it's misinformed. You have to look back at history, I think a lot of people forget their history. On the PC, which is an analogy, I don't believe the PC market and the phone market are going to be exactly the same. I think the players, the convergence, a whole bunch of things are going to make it different. But, technologically, what happened was is the PC used to just beep. There was no support for any sound other than a beep. That's all it did. So you've got -- you all look too you, but if you go back into the early '80s it used to just beep. Guess who added sound support first onto their devices? Apple did. In fact, at that stage Apple had around about 35 percent share of all of the personal computers in the market. They even issued a press release in 1984 or 1985 saying that they now sold more
  7. 7. than all of the IBM PC and compatibles, because that's what they used to be called back then, was in their units. But then what happened was is we said, wow, we can't go through and let that hardware- software be a point of differentiation. So instead what we did is we said, okay, let's go work with the chip guys, let's go work with the sound guys, let's go work with the software guys and we'll all make that happen, and we will create a set of working together, so that then what happened is then you could get whatever type of PC that you would like and design whatever type of software that you wanted, and any piece of software works with any piece of hardware. Then let competition just take its course, and that's what happened. The competition and ht choice that is provided for, it's almost impossible to think that any one company is going to do all of the innovation that is going to happen in hardware, and therefore that's going to be the limit of what software is going to get chosen. I think it should be survival of the fittest to all parts of the stack. I think if our value proposition isn't good enough then someone else should replace it. And I think that's true at the hardware level, I think that's true at the software level, I think that's true at the application level, and I think that's true at the services level, because you can't let any one carry any of the other pieces. So we are now in a different strategy, this is why we have so many hardware engineers on my group, because we know that we need to get all of those pieces to work together more closely than perhaps we used to do in the past. In fact, we need to work very closely on innovations that are happening within hardware, there's all these interesting things that are happening, to make sure that we have software-hardware interaction standards to make that a really rich experience. And we can absolutely get over all of those problems. You could potentially have a first-mover advantage, but wit this strategy that will turn out to be very small, if we execute with our partners very well on this strategy, and that's what we're committed to doing. It is a change from what we've done historically. QUESTION: (Off mike.) ANDY LEES: Sorry, I was enjoying myself on that one. The question is, what happens on lower-end countries. I'm just so excited about our story. What about lower end countries? Lower-end countries is actually all about the price point in the same way. We know that users want the capabilities that a smart phone provides, and everybody wants it as cheap as possible, so that as many people as possible can buy them. In markets that are subsidized the operator gets to make more money on the data plans and services potentially that are offered over and above that, and so they are offering more aggressive subsidies on smart phones, even than they would do on feature phones,
  8. 8. which is accelerating the adoption in those markets more quickly than it would be even in an unsubsidized, or -- I don't like using the word open, but an unsubsidized market. So we do see those trends. But, outside of that, I think it's a straight drag race to getting great capabilities of a smart phone on cheaper devices, and that -- you look at all sorts of strategies about silicon, and graphics, and screens, and what's happening, who's manufacturing them, and those types of things. And I think that's just race down to low price devices. We're excited to have Windows Mobile devices that cost less than $200 out of the factory of an OEM. That's a significant milestone, and there will be other milestones on prices coming out. So smart phones, if you're not confused, I am absolutely convinced smart phones are going to go everywhere. QUESTION: (Off mike.) ANDY LEES: So I think there's a bunch of things in that. So one is that Word -- is Android somehow working more closely with Qualcomm than we are, and therefore has some advantage. The straight answer to that is, no. We work very closely with Qualcomm. In fact, a good percentage of all of the Windows phones are based on Qualcomm, so there's no issue there, or with -- in fact, the number of silicon providers, including TI, and NVIDIA is doing some interesting things, and so on. So we have good relationships there and good partnerships there. And on the question of, does it take an awful long time for survival of the fittest to happen, if that's the way in which things are rationalized, potentially, and that's why working on standards in a collaborative way across the providers, there's no advantages of having interfaces being really that different in most cases. And everybody benefits with some standardization, upon which they can then innovate around. And that waterline of standardization moves up over time. And that really is our strategy, to accelerate that. QUESTION: (Off mike.) ANDY LEES: Well, the netbook market is exploding. So I think that with or without -- QUESTION: (Off mike.) ANDY LEES: Well, you then get into the whole OM going up and Intel coming down, and I'm not here right now to make any statements on exactly what's that's going through. QUESTION: (Off mike.) ANDY LEES: I'll leave that for you to speculate on. QUESTION: (Off mike.)
  9. 9. ANDY LEES: There's a lot of work to transitioning chip architectures, a lot of work, from the operating system to applications, and things like that. And we don't take those decisions lightly. So I'm not saying we're doing it, I'm not saying we're not doing it. I'm just saying that it takes a lot of work, and it's a big strategic thing that you decide of what you're doing. We have very close relationships with the OM processor makers, and OM themselves. And so we're not here to announce anything. QUESTION: (Off mike.) ANDY LEES: Well, not quite. So this is about mobile phones, so I'm going to take this last question if I may and then I'll get on. What Intel does is Intel helps us and they help Linux with driver support and things like that. So they're not favoring Linux over and above Windows, and they are working on both. And I think they would say they would work on both. It is true that to get any driver to work they disproportionately have to do the work. Of course, we will do at least half the work on Windows. So to the extent that they make something happen, does it cost them more to get Linux to work than it does to Windows? Yes, it does. So does that mean that to get to some level of equivalency they have to invest more? Yes, they would. But, don't take that as anything that we're not good partners and committed to working together. QUESTION: (Off mike.) ANDY LEES: So if you look at the phone market overall the top five or six -- it's a classic 80-20 rule. The top six represent around about -- somebody in the room would probably tell about 85 percent, 90 percent of all phones that are shipped. It's the same for us, if you take the top Windows phones makers, and also the change over the last few years is that our top OEMs are now aligning to the top phone OEMs, with the exception of Nokia. So you can see Samsung, LG, and the announcements that will be made today with LG, Sony-Ericsson, and particularly if you look at price points. Nokia is considered to have the lion's amount of market share, but there's actually some mistruth in looking at that data. They -- Nokia actually uses the S60 OS on some basically feature phone phones, the Cayenne camera phones, for example, all use S60, but people who use those phones only use them as feature phones. So there's a little bit of over-reporting on with that If you look at it from a price point, Nokia has around about 27 percent share of all of the phones that are about $200 and above, which is a lot less than their overall share. They have much higher share in the $50 to $100 zone, and the $100 to $150-$170 zone, much higher share. And that's why if you look at the average -- I mean, they put it in their financial results, their average price point across all of their phones added together comes out at, I don't know, someone in the room will know, $100, $101, $102 something like that. So they're very heavily weighed towards that price point.
  10. 10. So people say, they're the leaders in smart phones and things, there's some level of over- reporting, because they use one OS on phones above a certain price point. And also there is this thing that I think what will happen is is that will tend towards their overall market share by price point, because price point is going to be the thing that determines what is a smart phone and what is not. There will be some fashion phones that break that, but outside of that it will all definitely go to smart phones. QUESTION: (Off mike.) ANDY LEES: I think that LG -- so Motorola would be in there. LG is just starting. So they are at a tipping point. But, they will -- on the agreement we just signed they'll be there real quick. And HTC are very strong inside of our portfolio, as well. They are from -- the PC manufacturers are often doing phones now. ASUS, Acer, HP, and they are from a very low base today, in many cases. HP has been at it longer, but the other players are from a low base, and it will be interesting to see what happens. QUESTION: (Off mike.) ANDY LEES: Okay. So the question is, if you look at Apple or, say, RIM what competitive advantage do they have? Well, both of them are absolutely betting on hardware-software integration. So the Achilles heel is choice, so choice in terms of form factor, choice in terms of price point, choice in terms of innovation. I don't see any phones that they have that have a speakerphone capability. If you have a Blackberry they're going to be, oh my word, hold on, that's a business phone. A lot of people in business do conference calls, is that going to be a big thing? They're nowhere, they've not thought about that. So now they're going to have to play catch up to HTC to do something like that, if that's what they would want to do. The camera that's inside of an iPhone is 2 mega pixels. It's not a very good phone tool, there's no keyboard, there's only one price point. They may add some over time. Will that be enough to satisfy hundreds of millions of users? Well, I'm not sure it will be. But, that's what they're betting on. They're betting on hardware-software integration. They are somewhat doing services. RIM does a bunch of services. They've been very much around e-mail, and particularly business e-mail. They've tried to branch out into consumer services, that really hasn't been a big thing actually in terms of their overall results. And Apple has started on services, but is still a long way to go with -- I don't know what the number is, but it's sub-10 million. After several years they were at 2 million for Mobile Me, after they renamed it a few times. And then we're at 430 million users of Windows Live. So there's a bit of a -- I don't think that services is anything that is where we don't feel that we can be successful at. But it's hardware-software integration, and that's why I think working with the OEM partners is so important. I think ultimately if we do a good
  11. 11. job of that and our software experience is better, and I think that's one thing that we're doing with 6.5, if you look at the software experience it's significantly better, because of what we've bet on in terms of hardware capability, and you'll see more of that going forward. QUESTION: (Off mike.) ANDY LEES: So the question is, why has it taking us so long to do what we're now doing, particularly in terms of user interface. Well, I think that with the user interface we now have a different hardware working with our -- a new strategy of working with our partners on hardware. That means that we will be more exploitive of hardware that is around, and how people can utilize different user interfaces, and you'll see a lot more of that in the future. And I think that when we are focused on the business audience it seemed less important, now we're focused on business and consumer. It's more important, certainly we have invested as a company, in terms of talent that we have in the mobile space and also what other parts of Microsoft are doing to really make sure that we're successful. If you want to do that end-to-end photo experience I was talking about before, then really we want the great things that's being worked on in Windows Live, and the great things that's being worked on in Windows Live, and the great things that's being worked on Windows 7 on the PC to add value to what people would want to do on their Windows phone, and vice versa. And I think that's also an important change in our strategy, which helps with things like usability and things like that. And you're going to see -- as I said before, the things that's exciting about the meeting is not only the things that we're announcing, in terms of the points, but actually the beginning of a very exciting journey over the next 12 to 18 months. ANDY LEES: No, here's actually a number of -- there's three, two well-known and one not very well-known, touch technologies. One is called capacitive, and one is called resistive. And different ones have different advantages. The advantage of the capacitive one, which is the one that supports multi-touch is you have multi-touch. The advantage -- the disadvantage of it is that you have to be a finger, can't be a glove, can't be a pen, and it is a very wide target space. So if you do handwriting recognition, for example, which is important for some people, then you can't do that on that type of screen. So it's a little bit pluses and minuses. There are some new screen technologies, which I probably shouldn't go into here, because I'm not sure if I have permission from the people that are working on that, that enable actually a bit of both. We need to check the curves on battery life, and things, for some of those new technologies, but certainly -- The short answer is, are there any capacity screens on Windows Mobile this holiday, and I think the answer to that is, no. The issue is actually just one of designing the user interface, say, that nothing can be smaller than a seven-millimeter circular hit rate,
  12. 12. because that's what a finger is, and we know that seven-millimeter circle according to our usability testing. And, therefore, our whole user interface needs to be on a seven-mil, but that limits some things that some people want to do one some phones. So, you have a question in the back? QUESTION: (Off mike.) ANDY LEES: Well, I think that overall we're continuing to add capabilities to the phone -- sorry, the question, I forgot. The question was, how can we be successful against RIM in the enterprise. I think we are gaining capabilities. We've added a whole bunch of management tools, and security tools just recently with a thing called Mobile Device Manager for enterprises. Our Windows Mobile 6.5 actually has some really cool stuff that dovetails into the next version of Exchange. We're not announcing that, didn't talk about that today because we're not announcing the next version of Exchange today, but you'll see us doing some really innovative work around Unified Communications, our line of business solutions, and so on. I think that in the end having a server that sits in the middle of a device communicating to another server from a business model perspective turned out to be expensive. If the average enterprise is paying $5 to $7 per user per month in an embedded data plan to pay for a data center that's just forwarding e-mail, that turns out to be an interesting thing in this cost-conscious world. Historically, it was required in order to make it work. That's no longer the case. So I think over the long term our strategy is let the device go native to the thing it needs to talk to. QUESTION: (Off mike.) ANDY LEES: I think that some of that will start to happen. What originally happened is that RIM said that they had some magic sauce which meant that the amount of data that goes through the network was less than the amount of data on Windows Mobile. Well, a couple of things were true about that. One is that they were doing text only e-mails rather than rich e-mails. So that is less data. Secondly, our protocol was more chatty, and wasn't compressed. Well, both of those problems are effectively going away. One, we updated the protocol about two years ago, so that took a big chunk of it out. Secondly, as they move to give the same e-mail experience that you get on a Windows Mobile device on the later Blackberry devices, that goes away. And then, also, the amount of data that is e-mail relative to the total amount of data that phones are going to consume ends up being irrelevant. And so that sales point to an operator to say why they should keep their prices similar actually fall apart. We predicted this, that's why we have the strategy that we have, and ultimately that does mean it's a cost center inside of that. And continuing to stuff innovation into that is going to be difficult when really basically it's forwarding e- mail. QUESTION: (Off mike.) ANDY LEES: No. Not off the top of my head. I've got all sorts of stats from comparison to protocols, and we used to be multiples larger from one to the other, and
  13. 13. now that has just gone away. Now we have stats that the percentage of traffic that is e- mail has also gone down dramatically, too. QUESTION: (Off mike.) ANDY LEES: So I think we have sort of a good, better, best strategy on the services. One of the great things about the Windows phone is that we can optimize and make really cool experiences. So things like the instant messaging with voice, just doing that on another platform is really difficult to do, because you have to have a media pipeline that can do that. You need to be able to have a codec that sticks it up in the cloud, and the phone -- the PC needs to be able to pick that up and play it. There are lots of minutia of detail that makes that comes true that doesn't exist in other platforms. And so features like that just become difficult if not impossible on many platforms. Of course, we will be fully exploitive of all of those capabilities that Windows Mobile provides inside of the services for that. Some services we may do just via a browser for other platforms. As the browser becomes better as a general base line on other platforms, then that is sufficient for many users. And then, by really making the experience sing on a Windows Mobile device, just because of the characteristics of the OS, then we will do that. So I would say classically good, better or best is how we think about that. QUESTION: (Off mike.) ANDY LEES: So the question is, is there a sweet spot for our price point? Absolutely not. We want to offer software for the most expensive phones, and software for the cheapest phones that we can run on. So we do not limit, but we will be fully exploitive. Typically more expensive things have things like better cameras, better screens, this is where cost is, better processors to deal with all of that, more memory, and those things we fully exploit. So we keep a check on what's happening at the high end, and we keep a check at what the things don't need to be there for the low-end, and make sure that we are satisfying divergent needs in what our OEMs want to do. QUESTION: (Off mike.) ANDY LEES: So two questions there. On the push e-mail, all consumer e-mail is going to push e-mail because it's all going to use the Exchange Active Sync Protocol. For those that are not using Exchange Active Sync Protocol, they're using IMAP, a modified IMAP which also provides push. The limit of IMAP is it only does e-mail, and it doesn't do calendar, contacts, tasks, and other things. So certainly you get push e-mail today on Windows Mobile with Hotmail, with calendar, contacts, and e-mail. That works. It's built into the phones, just sign up and login. We've seen Google announce support for EAS, and so I think that there will be a number of people, Notes has provided support for Exchange Active Sync. So as a protocol, it's a rich, light, comprehensive push-based protocol, and we think -- I personally think -- that's basically becoming another industry standard that will be used for both business and consumer.
  14. 14. There are problems, like if you use the implementation that's on an iPhone, you can only have one account, you can't have multiple accounts. So therefore, you choose, do I want business e-mail or do I want consumer. I think those things will get fixed over time. QUESTION: (Off mike.) ANDY LEES: Nope, just works. If you want to get Hotmail, if anybody wants to get Hotmail, push e-mail, then just sign up and off it goes with a Windows phone. QUESTION: (Off mike.) ANDY LEES: So let's not -- people instead of saying, oh, Palm 3, it's a whole new OS. It's a Linux derivative that has some extras inside of it. It uses the Linux browser, and stuff like that. So it's a WebKit browser. There's nothing new, there's nothing different in that. It's the same as competing with any other Linux phone. I think it does continue to fragment the Linux group. Effectively in your mind you can think of Android, now LiMo, now Pre as all variants, and there are a number of other variants that are happening. We've seen fragmentation before, and that typically makes development on those things very difficult. So to the extent that it is a bit like RIM, and they can survive with enough hardware choice, and price points on a "proprietary OS" then they may do very well with it. I think that's a tough road to go down in this environment today from the base of units that they have. They do sell Windows Mobile devices, we're excited about that, want them to continue to do more of that. And they've always had a proprietary OS. We've been able to make that work. I would love them to do more Windows phones. Do we have that one more question, or do you want me to just finish up? Well, I think we're done. Okay. I hope it was useful for you. Please give us feedback as to whether these sessions are useful or not, and look forward to the future. Thank you. END