Microsoft News Tracker

There’s a Wall Street analyst cat fight going on right now about the prospects for the leading Red Chinese search engine, Baidu.com, including their relationship with MSN China. SeekingAlpha:

WR Hambrecht analyst James Lee issued a brief written response to a competitor’s claims that Baidu.com is close to inking deals with MSN China, China Telecom and China Netcom.

(Apparently, the “competitor’s claims” come from Piper Jaffray.)

According to a note issued by a competitor’s firm, Baidu is close to signing agreements to provide search functions to MSN China, China Telecom and China Netcom.

The note stated that these deals would add 50M in searches per day and $10-$20M in revenues in 2007. We spoke with our channels and have the following observations:

I’m a little puzzled about the China Telecom claim, since Microsoft signed a Windows Live Search deal with them in September, but here’s the really interesting part: 

c) MSN China. MSN China’s top two managers recently resigned, leaving the company in uncertainty. We heard “an agreement” with Baidu was drafted (but not signed yet) prior to the management departure, but we are unsure what the nature of the deal is. Our sources indicated that Microsoft headquarters recently sent a representative to China to review and restructure the company’s operations. We believe it may take months for this “review process” to be completed before deciding on its pending agreement with Baidu.

Microsoft’s Chinese operations seem to be an inexhaustible source of turmoil (recall Kai-Fu Lee).

With that in mind, we believe this agreement could be on hold until a new management team is appointed in China. We feel that Microsoft is not likely to outsource its search engine functions to Baidu. This would represent the company’s admission that its search engine technology has completely failed in China. Even if the agreement includes such provision, we feel that the new Microsoft China management team may not be on board with the plan.

Ah, but Red China is a special case when it comes to Web search (and much else) and that wouldn’t necessarily reflect adversely on the prowess of Windows Live Search. As I have mentioned before, Baidu seems unusually “well attuned” to the whims of the restrictive Red Chinese government and it gets a significant fraction of its traffic from searches for unlicensed music files which a Chinese court just confirmed as legal. (If you are curious about free MP3 downloads, an inability to read Chinese is not a problem.)

So, instead of tweaking Windows Live Search to spiff up indexing of illicit music files and never find any criticism of the Red Chinese government, why not go with a proven winner like Baidu? It probably doesn’t hurt either that MSN China is actually a joint venture of Microsoft with the next best thing to the Red Chinese government and that presumably also rules out the option of Microsoft washing its hands of the whole dirty business.

Microsoft today unexpectedly launched the Windows Unified Data Storage Server which provides simplified network storage solutions for medium size businesses (via OEMs of course):

In response to this need, today we launched a new Windows storage platform:  Windows Unified Data Storage Server 2003 (WUDSS.)  This new product – available now within Dell’s new PowerVault NX1950 hardware and through other OEMs later – represents a big milestone for Microsoft storage technology. By bringing together Windows Storage Server file server capabilities, Windows iSCSI target and initiator software, and new storage management features, WUDSS will be an ideal mid-range solution for customers looking to more easily store and manage file and block (email, database, line of business applications) data.  WUDSS is great progress on our overall goal of making high end storage capabilities more affordable and accessible to a broader market. 

Per the press release linked above:

Windows Unified Data Storage Server 2003 is a new Microsoft storage platform providing an advanced file server and IP SAN (iSCSI) capabilities, as well as unified management tools for easy deployment and maintenance in heterogeneous environments.

Think of WUDSS as an easier to use version of Windows Storage Server. I expect it has a different (and presumably lesser) price point too, but that wasn’t specified.

Paul Thurrott talks to Microsoft’s Zune team and finds them undaunted:

Stung by recent criticism of the marketing and functionality of its Zune portable media player, Microsoft this week revealed its plans for the device and, in a rare disclosure, its expectations for sales during Zune’s first holiday season. According to a Microsoft representative who briefed me on these plans yesterday, the company expects to ship over 1 million Zune players by the end of 2006. (ed. note: see update below.) That’s enough to give Zune 10 to 20 percent of the market currently enjoyed by the Apple iPod device the Zune most closely competes with.

Note the precise phrasing.

Assuming that happens, Zune isn’t a total wash, as the number one non-iPod product in the over-$200 MP3 player market during last year’s holiday season only sold a tiny fraction of that amount.

…

Many–myself included–have debated or even decried Microsoft’s entry into this market, the underwhelming marketing of the device, and the lack of certain features. Microsoft admits to making some mistakes, such as the viral marketing scheme that appears to have fallen flat with consumers. But it defends its decision to enter this important market now and says it is here for the long haul. Over the next year, I was told, Microsoft will ship numerous functional updates to the existing Zune player and launch new Zune devices with new form factors and unique features.

More by following the link, but Zune’s clearly a story that will have to play out for better or worse over time. As for Microsoft viral marketing, just chalk up another dud.

Also recounting high hopes was Xbox executive Peter Moore:

Microsoft Corp., competing with new machines from Sony Corp. and Nintendo Co., may exceed its forecast to sell 10 million Xbox 360 video-game consoles by the end of the year, Vice President Peter Moore said.

Asked whether Microsoft is likely to beat the outlook, Moore replied “Yes. All indications are that we came off a very strong Thanksgiving holiday.” Moore, in an interview today, declined to provide a new forecast.

…

“They key is we’re in stock, we’re available, we’re delivering well to retail,” Moore said. “Certainly the consumer is recognizing the fact that we have a great price point as well as 160 games available and that flies in the face of our competition.

I expect the statement was prompted by another Bloomberg report over the weekend that Xbox 360 USA sales trailed analyst expectations in November. Microsoft may well beat their Xbox 360 forecast this holiday season, but Carl Howe estimates that they don’t have an exclusive on good news:

The data here is still a little sketchy, and we should get a better read at the end of the day Thursday when NPD releases its sales numbers for video game consoles. But by my estimates on the data I have available, Nintendo’s Wii gaming console outsold Sony’s Playstation 3 and tied Microsoft’s XBox 360 in November. The Wii’s success against XBox 360 is particularly interesting, because the Wii was on sale only for 11 days and in limited quantities. The Playstation 3 also was available for only 13 days, while the XBox 360 doesn’t currently have any supply constraints and was available all 30 days.

Like Zune vs iPod, the battle of the next gen video game consoles is just starting.

Update: Some more whistling from later in the day. Microsoft: 1M Zunes to Be Sold by June (not the end of 2006 as stated in the Thurrott article above which has since been corrected to say end of fiscal year):

Microsoft Corp. said Wednesday that it expects to sell 1 million of its new Zune music players through the first half of 2007. That figure would pale in comparison to Apple Computer Inc.’s market-leading iPod, but Microsoft contends it would be a good start.

“We think that’s actually pretty awesome,” said Bryan Lee, corporate vice president for Microsoft’s entertainment group.

Microsoft to ship over 10 million Xbox 360 units:

Microsoft Corp. on Wednesday said expects to have shipped more than 10 million units of its new Xbox 360 video game console to retailers by the end of this holiday season.
…

That “sold” number refers to units “sold into retail” and refers to units in transit, units sitting in store inventories and machines sold to consumers, the spokeswoman said.

The eyeball auction continues apace - BSkyB and Google to become broadband bedfellows:

British satellite broadcaster BSkyB Plc said on Wednesday it would tie up with Google Inc to deploy the Internet search giant’s suite of search, advertising and video functionality on its broadband service.

Sky said it would launch an online user-generated video content site, its own e-mail service and a search portal.

Revenue generated by click-throughs on sponsored advertising links will be shared between the two firms. Other financial terms of the agreements have not been disclosed.

The user generated video content site will be seen as a rival to YouTube, which Google recently bought for $1.65 billion.

The latter poses some questions that aren’t answered by the article since it isn’t entirely clear whether Google is merely providing ads for a video content site or actually franchising YouTube. And speaking of Sky and video:

Sky had problems with its fledgling on-demand film and sport download service in August. It was forced to shut down the service for three months after the software provided by Microsoft was cracked, enabling the digital protection to be stripped.

We mentioned this previously here.

Update: It’s apparently a technology lease:

As its first global partnership of the kind, Google Chairman and Chief Executive Eric Schmidt told journalists, the deal was a milestone for the California company.

“I’ve been waiting for this for a while,” he said at a meeting in London, adding that the significance was boosted as it marked the first time Google had sold the use of the back-end technology of YouTube and GMail.

He said that Google was planning similar deals with other large media firms and content providers. “If we can get this structure right over the next few months and it rolls out, then it becomes the index case for every other country and every other operator.”

Yahoo is a key competitor to Microsoft’s Web aspirations so yesterday’s shuffle of the executive suite has some bearing:

Yahoo said Tuesday that it was restructuring its operations and shuffling its management ranks amid growing criticism in and outside the company that it had become too bureaucratic to compete effectively against nimbler rivals.

The moves include the departure of Daniel L. Rosensweig, the chief operating officer since April 2003, and the resignation of Lloyd Braun, the former ABC executive who has run Yahoo’s media group.

Under the plan, Yahoo will reorganize itself into three operating units, including one focused on its audience and one on its advertisers and publishers. A third unit, focused on technology, will develop products serving the entire organization.

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The reorganization appears to signal the ascendancy of Susan L. Decker, the chief financial officer, a well-regarded executive whose responsibilities were recently expanded to include autos, classifieds, HotJobs, shopping, travel and other Yahoo products. She will now head the advertiser and publisher group.

As for exactly what the new groups will do:

The new Audience Group will oversee search, media, communities and communications. An executive search has been launched for an executive to lead the group. The new Advertiser & Publisher Group will combine marketing, sales and distribution partners to create a global advertising network. The new Technology Group, headed by Chief Technology Officer Farzad Nazem, will tighten product engineering integration, help build new social media environments and speed up development of next-generation ad platforms, the company said in a statement late Tuesday.

Reactions range from the mildly laudatory to the mildly critical with the general feeling being that Yahoo had to do something, but uncertainty as to whether this was it. The official Yahoo statement is here.