Microsoft News Tracker

Some of the good news is that Microsoft’s business is booming in Russia:

Microsoft says sales in Russia have surged 72 per cent in the year to July as piracy declined and incomes rose, boosting demand for licensed products.
…
The national piracy rate fell four percentage points last year, to 83 per cent from 87 per cent of the market, Microsoft says.

Looks like there is plenty of upside potential left.

Also good news is that Microsoft launched the Xbox 360 in India:

Peter Moore, Corporate Vice President, Interactive Entertainment Business, Microsoft Entertainment and Devices Division formally launched of Xbox 360 in India yesterday. Microsoft has chosen Bollywood actor Akshay Kumar and cricketer Yuvraj Singh as the Brand Ambassadors for Xbox 360 in India.

The company also announced ‘Yuvraj Singh International Cricket 2007′, a new gaming title around cricket, which has been created specifically to cater to the tastes of the Indian gaming market. The game, which features Yuvraj Singh, encapsulates the spirit of cricket, and provides gamers a real-life experience of playing for and against the teams of their choice.
…
The Xbox 360 will be now available across Microsoft’s 1200 strong retail network across top 7 cities in the country including New Delhi, Mumbai, Bangalore, Chennai, Hyderabad, Kolkata and Pune.

I presume the Indian market isn’t expected to be too large, thus the belated announcement.

Now for the bad news – China is readying an antitrust law that seems to be pointed right at Microsoft:

China is drafting an anti-monopoly law that might force companies such as Microsoft to give up leading market shares in the world’s fastest-growing economy.

Under the law, local or overseas companies with more than 50 percent of China’s market share for any product will be investigated.

Those using dominant market positions to set unfair prices will be fined as much as 10 percent of annual sales, according to a draft obtained by Bloomberg News.
…
Microsoft’s Windows operating system has more than a 50 percent share of the desktop-computer market in China, according to Edward Yu, chief executive of Beijing-based technology market research firm Analysys International.
…
The draft law defines abuse as when products are sold at “unfairly high” prices or bought at “unfairly low” prices, without specifying what constitutes unfair.

Sounds like a license to extort.

And finally, the city government of Munich, Germany started the long promised conversion to Linux:

Munich has begun its migration to Linux on the desktop, a year later than planned and nearly three years since the city announced its move to open source software.

“There have been some delays along the way but we’re now moving steadily ahead,” Florian Schiessl, manager of the Limux project for the city of Munich, said Thursday by telephone.

Since Tuesday, the first 100 of the city’s 14,000 PCs have been switched from Microsoft’s Windows operating system and Office applications to Linux and OpenOffice.

“Today, we’re still working in both the Windows and Linux worlds,” Schiessl said. “But over the next two years, the Linux world will get bigger, while the Windows world will get smaller.”

Below are some selected highlights from yesterday’s Microsoft Financial Analyst Meeting 2006. As I mentioned previously, the list of speakers with copies of their presentations, and transcripts and/or Webcast replays are available here. (Bink.nu also has some candid snaps of the speakers.)

Steve Ballmer, Chief Executive Officer

Ballmer: Microsoft must be ‘multi-core’ :

Microsoft Chief Executive Officer Steve Ballmer said Thursday that his company must be able to operate successfully in multiple markets — a phenomenon he calls being “multi-core” — for the company to continue to grow well into the future.

Although Microsoft is best known for its desktop OS and software business, the company has managed also to carve out a successful business in server software, making it a two-core company, Ballmer said at Microsoft’s annual Financial Analyst Meeting in Redmond, Washington.
…
But as Microsoft moves ahead, the company is fighting a war on several fronts, and Ballmer hopes it will develop more core businesses with its entertainment and online services strategies.

“There really is a Sony that lives inside of us,” he said. “There’s an aspiring Google or Yahoo that lives inside of us.”
…
“You have to confront the question: Is it OK to get into some area of endeavor when you’re not first?” he said. “It’s always best in our business to be first. We want to be first. But are you prepared to get in and innovate and try to get growth in areas where you’re not first in the market. As investors, you have to understand that we think that’s important.”

And on a theme dear to the analysts’ hearts – Ballmer: Vista delays won’t be repeated.

Kevin Johnson, Co-President, Platforms & Services Division

Microsoft sees up to 10 percent sales growth from Vista:

Microsoft expects sales in its popular Windows division to grow 8 to 10 percent in the coming fiscal year, a senior executive said Thursday.

The No. 1 computer software maker expects sales of between $14.3 billion and $14.5 in its Windows operating system division in its current fiscal year, Kevin Johnson, co-president of Microsoft’s platforms and services division, said during the company’s annual financial analyst meeting being held at its headquarters in Redmond, Wash.

Since that’s the projected unit growth rate in PCs, Microsoft’s Windows client revenue is merely matching units. I guess that’s good news since it has lagged unit growth recently and presumably a match is the best they expect from the upselling and antipiracy initiatives:

Vista, with its multiple versions, has “something for everyone,” Johnson said, but Microsoft plans in particular to promote the purchase of its higher-end, or “premium” versions to consumers. Traditionally, higher-end versions do better among business customers than home users. “There is an opportunity for us to grow the premium mix,” he said.

Premium versions of Vista include Windows Vista Home Premium and Windows Vista Ultimate.

Microsoft also is investing in ways to encourage customers in emerging markets to purchase genuine copies of Windows Vista as part of an overall campaign to prevent people from using counterfeit or pirated versions of Windows, Johnson said.

To achieve this goal, Microsoft is “putting more feet on the street” and is providing more training for channel partners, especially in emerging markets such as China, to help sell genuine copies of Windows, he said.

Johnson also reiterated that Vista development continues on schedule although his caveat that it wouldn’t ship before it was ready inexplicably depressed investors since it’s clear that there’s no windfall there.

Bob Muglia, Senior Vice President, Server & Tools Business

Muglia went off on a Linux tangent for some reason, but I guess he’s entitled – his business is an earnings growth superstar even if it gets no buzz.

Jeff Raikes, President, Business Division

Most noteworthy:

Jeff had some interesting things to say about competitors. He referred to OpenOffice and IBM WorkSpace as efforts to “clone our old technological” capabilities. Whoa.

But it’s “good enough,” Jeff, as are old versions of Office and there’s the rub. Raikes also predicted a less than scintillating 7% CAGR for his business over the next few years.

Robbie Bach, President, Entertainment & Devices Division

No surprise that Microsoft game, device unit sees loss in ’07, The big surprise is that they plan to make money in 2008.

Microsoft said investments for its new “Zune” media player and another year of losses at its Xbox game unit will continue to weigh on the entertainment and devices unit’s earnings this year. The division posted a loss last year.

The entertainment and devices division encompasses much of Microsoft’s consumer-oriented products, such as Windows-based smartphones, the Xbox 360 game console and its upcoming “Zune” media player, but it has not been a consistent earnings driver.

“Fiscal ’07 will be a loss. We think that turns to profit in 08,” Robbie Bach, president of Microsoft’s entertainment and devices division, said at Microsoft’s annual analyst meeting.

As for Zune:

The software giant said it will invest “hundreds of millions” of dollars to develop and market Zune, due to hit the market later this year.
…
Bach encouraged investors to be patient and not expect an immediate return on its outlay for the device.

“It is something that is going to take time,” said Bach. “This is not a six-month-investment time horizon,” he said, adding that it may take three, four or five years to succeed.

Zune’s differentiating feature from Apple’s iPod will be built-in Internet connections that allows users of the devices to connect with their friends and other music fans.

On the Xbox 360:

Though competitors Sony and Nintendo are slated to launch rival game consoles this fall, a Microsoft executive predicts his company’s next-generation game machine should have a 10 million unit lead by the end of this year.
…
Microsoft’s next-generation Xbox 360, which launched last year, starts at $299, and Bach said he sees no price changes through the holiday season.

That presumably lays to rest the persistent rumors that there will be an Xbox 360 price cut when Sony ships the PS3. Microsoft also touted Windows Mobile based phones as gaining share from Research in Motions’ Blackberry. There’s more on Bach’s presentation here including:

When asked whether Microsoft was abandoning its PlaysforSure digital-media-connectivity initiative in favor of developing its own end-to-end Zune solution, Bach said Microsoft is planning to continue to back PlaysforSure.

“PlaysforSure continues as it is today,” he said. In fact, the Zune team “will work with the same (PlaysforSure) interfaces,” Bach said.

He likened the PlaysforSure/Zune paradigm to the PC/Xbox console one. The two teams will continue to work in parallel, with the hope that the two different environments ultimately will work together, Bach said.

What else could he say?

Ray Ozzie, Chief Software Architect

Ozzie’s presentation was described as “visionary” and “a high-level, theoretical look” which I take to mean that there were a lot of glazed eyes among the financial crowd. On a slightly more down-to-earth note – Web services to aid, not kill, software:

Web services, delivered alongside classic software, will complement rather than replace the existing software industry, Microsoft Corp.’s chief technologist said on Thursday.

Chief Software Architect Ray Ozzie told investors and reporters attending the annual financial analyst meeting at Microsoft’s headquarters that the company is looking to convert its existing software franchises into Web-delivered services.

“The overall services opportunity is largely additive, increasing revenue opportunities for both our existing software licensing model as well as our services business model,” Ozzie said.

Microsoft’s strategy is to connect a wide range of devices onto various networks to allow consumers to enjoy the same information and entertainment not only on their computers but also via mobile phones, televisions and gaming systems.
…
In response to a question, Ozzie declined to say how much revenue per user could come from new Web services or how these might compare to license revenue streams from Windows and Office software that generate the bulk of Microsoft revenue.

Yusuf Mehdi, Microsoft’s Chief Advertising strategist

Microsoft Demos Next Version of adCenter

Kevin Turner, Chief Operating Officer

Turner delivered some bromides.

Craig Mundie, Chief Research & Strategy Officer

Microsoft shows off cell phone-PC prototype. It’s called FonePlus and is intended for emerging markets and rivals Nicholas Negroponte’s “$100 PC” as we have mentioned previously. It’s merely a research project but drew disproportionate press interest.

Chris Liddell, Senior Vice President & Chief Financial Officer

Microsoft acquires more, but R&D still the focus:

Chief Financial Officer Chris Liddell said Microsoft was in “high investment mode” and very acquisitive over the past year, spending $649 million to buy 23 companies. He said it acquired four companies in July.

But its acquisition spending is still dwarfed by the billions it plows into research and development every year and Liddell said it was unlikely that will change.

And Microsoft executives underscored that they are contemplating no change of strategy that would lead to a major acquisition anytime soon. It has spent less than $30 million per company, on average, on its buying streak over the past year.

As expected, Google announced their online spreadsheet yesterday, or a “limited test” at least, and the buzz is intense. Elinor Mills and Martin LaMonica at CNET offer Google guns for Microsoft:

Google’s launch of a Web-based spreadsheet on Tuesday is further proof that the company is eyeing Microsoft’s Office stronghold. Now the question is: Should Microsoft be worried?

Google on Monday unveiled Google Spreadsheets, an addition to its roster of Web-based productivity applications that includes Google Calendar, launched in April, and Gmail, launched two years ago.

In March, Google acquired Writely, a collaborative word processor that runs in a browser. The company hasn’t made clear its plans for that product and it remains in the beta stage of testing.

Still, as the pieces come together, there’s little doubt that Google is quietly providing Web-based versions of the Office applications upon which Microsoft has built an empire.

Many comments from pundits follow in the article and elsewhere, but let me see if I can parse them out into various schools of thought:

The “It can’t compete with Microsoft Office and/or it’s really an StarOffice/OpenOffice competitor” school:

From the CNET article:

“Google has no clue about what enterprises want or need. Any success they have (with Google Spreadsheets) will come in the consumer market first and then be dragged into the enterprise that way,” said Gartner analyst David Smith. “The real power-users are not going to be giving up their Excel spreadsheets anytime soon.”

JupiterResearch’s Michael Gartenberg:

There have been plenty of alternatives to Excel over the years, some of them even better than Excel that have gotten nowhere. Even online speadsheets are nothing new, there were folks doing this in 1999. Please, tell me what’s changed here?

I’d argue that Google’s stuff is competing more with things like Star Office than Microsoft Office. Hard to understand why they’re doing this and how this helps their search business.

Microsoft’s Don Dodge:

So, while the headlines may scream Google Spreadsheets is competing with Microsoft Office, the more accurate statement is that Google is competing with OpenOffice. Remember, free and open source alternatives to Microsoft Office have been around for a long time. They serve a different segment of the market. Google is competing with Open Source and going after that market.

I doubt that Google is under any illusions about the power of their offerings and comparing them to StarOffice or OpenOffice is just as wrong as comparing them to Microsoft Office. If I had to pick a product to compare the Google collection to, I would vote for Microsoft Works. It’s light duty office functionality for the occasional user and so are Google Spreadsheets, Writely, and Google Calendar. I can easily see OEM’s at some point foregoing a Microsoft Works bundle on a consumer PC and just pointing them to the Google office offerings.

Related, but somewhat different is the “It’s a frontend to Office” school pioneered by Nicholas Carr:

To put it into terms I’ve been using recently, Spreadsheets is a complement to Excel. It actually makes Excel more useful – and hence more valuable. Let me repeat that: Spreadsheets makes Excel more valuable.

So why would Google put out a product that makes its arch-rival’s product more valuable? Because Google doesn’t want to compete with Office. It sees Office as part of the existing landscape, and it wants to build a new layer of functionality on top of that landscape. No one is going to stop buying Office because Google Spreadsheets exists. But what people may well do is use Spreadsheets for sharing Excel and other data online – rather than just emailing Excel files around, as they used to. If Google Spreadsheets competes with a Microsoft product, it competes with a Microsoft product that doesn’t yet exist: Excel Live, Microsoft’s own web interface for Excel data.

While interesting, I can’t quite buy it because I doubt that Google can ever provide anything more than rudimentary Excel compatibility. I would agree that it one-ups the rumored Office Live as opposed to the warmed over bCentral that Microsoft has so far announced under that name, but I’ve just about given up hope on a genuine online Microsoft Office anyhow. Would Microsoft really provide an ad-supported online alternative to one of their cash cows?

Or how about the “It isn’t the spreadsheet, it’s the sharing” school straight from the horse’s mouth:

Reuters:

The Mountain View, California-based company said its free, Web-based application can be shared with up to ten users simultaneously, improving upon a key limitation of Microsoft Corp.’s Excel, the dominant stand-alone spreadsheet.

“Many people already organize information into spreadsheets,” said Jonathan Rochelle, product manager for Google Spreadsheets, as the trial product is known. “Where they are struggling is to share it.”

AP:

Rochelle said the program’s main goal is to make it easier for family, friends or co-workers to gain access to the same spreadsheet from different computers at different times, enabling a group of authorized users to add and edit data without having to e-mail attachments back and forth.

“We are totally focused on the sharing aspect,” he said.

Of course, it’s unfair to criticize Excel on sharing since it’s a wholly different sort of application, but Google touting the ease of sharing that is readily provided with a Web application is fine too. Writely has a similar benefit. But this can’t really be any more than an ancillary advantage.

And last but not least is the “Google is messing with Microsoft’s mind” school:

JupiterResearch’s Joe Wilcox:

I predict there will be crisis meetings at Microsoft today. I totally agree with Colleague David Card that “Google is just playing with Microsoft’s (hive) mind. Scaring the troops. Sleight-of-handing the managers.”

Perhaps the real Google competitive threat isn’t any product or products, but the information vendor’s ability to rustle Microsoft corporate paranoia. To get Microsoft chasing Google phantoms, and in the process get Microsoft’s corporate mind off its core business.
…
Google’s platform approach is similar to Microsoft’s in that the company offers stuff for less, usually free, and reaps money through other means, such as contextual advertising. Google also looks for that good enough threshold, where a product’s features meet enough users’ needs to use it on the Web and wrapped in contextual advertising or search keywords. Potential competition with Microsoft there could be real, if Google could release competing products that provide, say, the 10 percent of features people use 90 percent of the time. But the intent isn’t necessarily to compete with Microsoft, as so many news sites or bloggers seem to believe.

Windows Media Player as a free product bundled with Windows no doubt had a competitive impact on rivals like RealNetworks. And I wouldn’t be surprised if some people at Microsoft saw the negative impact as a good thing. But Microsoft’s primary objective had to be Windows, of enhancing the appeal of the operating system by bundling in other stuff. The other stuff just also happened to compete with other companies. Google’s position is similar. Products like Google Spreadsheet are about making money off the company’s core platform.

Although well aware of the herd behavior of large organizations stampeded by some dimly perceived lightning strike, I’m less enamored with the theory of Google intentionally disrupting Microsoft than I am with the idea expressed in the latter part of the quote. All of Google’s office offerings are freebies, or loss leaders if you will, that bring in users or keep them in the Google family of Web properties. If some marginal buyers opt out of Microsoft Works or Microsoft Office, it’s merely a side benefit.

Of course, there’s a final consideration, well expressed by Henry Blodget:

If the goal is simply a portal strategy–soak up more of a user’s computer time, and you’ll capture a greater percentage of their searches–then, fine. But the ROI on a free spreadsheet designed to capture more of a user’s time is way lower than that of a successful tweak to a search algorithm. Google’s overall ROI, therefore, should continue to fall.

True enough, although one has to wonder how easy “successful tweaks to a search engine” are to come by these days.

The mention of IBM’s Lotus products in a previous post reminds me that, as expected, IBM has announced that they have jumped on the OpenDocument bandwagon in a big way:

IBM chose the Deutsche Notes User Group conference in Germany this week to make a significant announcement about its adoption of the ODF (OpenDocument Format) in the next version of Lotus Notes.

The first beta, due out this fall, will include an ODF-compatible version of OpenOffice embedded in the Notes e-mail application. It will include word processing, spreadsheet, and presentation applications (or editors, as they are called), giving users the ability to create, edit, and save documents natively in ODF.

Amy Wohl, president of Wohl Associates, called the news significant on a number of levels.

“This is the way of getting the ODF standard out to a large number of users in a very short time and, since standards live or die on how many people use them, this gives it a jumpstart,” Wohl said.

Code-named Hannover, the new Notes version will be available with the productivity editors included to all Notes users who are current on software maintenance contacts. IBM estimates that number at 125 million users.

And in related news, Robert Jacques reports at vnunet.com that ISO deals blow to Microsoft with OpenDocument approval:

The International Organisation for Standardisation’s recent approval of the OpenDocument format is a major blow to Microsoft, according to Gartner.

The analyst firm said that the ISO’s unanimous approval of ISO/IEC 26300 earlier this month effectively elevates the Oasis OpenDocument format to the official XML document format.

It is now unlikely that the ISO will adopt Microsoft’s Open XML document format.

“This validates the Oasis technical committee’s nearly four-year effort (led by Sun Microsystems, and including Adobe Systems, IBM and Textuality) to develop an XML representation for document formats such as text files and spreadsheets,” noted a Gartner analysis written by Rita Knox and Michael Silver.

“From the outset, we predicted that Microsoft would face greater competition if Oasis succeeded.”

While not unexpected either, this reinforces the difficulties that Microsoft Office will continue to have in settings, particularly governmental, where document standards are important. I should also note that opinions vary as to whether this kills any possibility of Microsoft’s Open XML becoming an ISO standard.