Microsoft Lverywhere

With sales of its traditional desktop applications leveling off, the software giant is
looking towards new businesses for growth.
By Heinz Bulos
August 2003

our PC runs on \indows XP.
\our company serer just
upgraded on \indows Serer
2003. \ou use \ord, Lxcel, and
PowerPoint or your work. Maybe Visio
or Project een. \ou check your oice
mail with Outlook, running on Lxchange
Serer. \our Internet Lxplorer browser`s
deault home page is MSN, where you
read the latest issue o Slate and check
your personal e-mail using lotmail.

\our Accounting department may be
using Great Plains Dynamics and you
might be using Money to manage your
personal inances. \our site could be
hosted on bCentral and deeloped using
lrontPage. 1he geeks rom your I1
department might be raing about Visual
Studio.Net and using SQL Serer, Biz1alk
Serer, Content Management Serer, and
SharePoint Portal Serer to build
corporate applications and manage
company data.

On the road, you read Reader e-books use
your Pocket PC and make calls with your
Smartphone. \hen you get home, you
play lalo on your Xbox or Mech\arrior
on your PC. \ou use MSN Messenger to
IM your riends and Media Player to
watch moie trailers. \our kids learn rom
Lncarta and play with digital moies using
Moie Maker and with digital photos
using Picture It.

And then it hits you: Microsot is, well,
eerywhere.

1hat`s exactly what Microsot wants. Its
new ision, ater all, is about being
eerywhere: Lmpowering people through
great sotware - any time, any place and
on any deice.

1o understand the new Microsot, you
hae to consider this singular global shit:
the rise o networks. It just about
encompasses eerything that has been
changing the ace o computing and
communications. 1here`s the network that
connects people within an organization,
the network that connects a company with
its suppliers and customers, the network
that connects the inrastructure or oice,
data, and broadcast media, the network
that allows the PC, PDA, and mobile
phone to access the same data, and, o
course, the network o all networks-the
Internet.

lor Microsot to thrie in this new global
reality, it has to be eerywhere, that is,
eerywhere the action is: in serer
sotware, enterprise applications, and
collaboration tools that link people and
data within organizations, in standards
and web serices that allow data to low
seamlessly across entities, in interactie
teleision, cable networks, Internet access,
telecommunications, and broadcast media,
in computers and mobile deices, and in
content and sotware on the Internet.

It has to. As it is, sales o its
moneymaking desktop applications are
leeling o. 1wo-year worldwide growth
between 2000 and 2002 or this segment
is an anemic 3 percent. More than 90
percent o the world`s desktop computers
already run on Microsot \indows. And
oerall reenues rom 2000 to 2002 grew
an aerage o only 13 percent, compared
to 38 percent growth in the nineties and
\
56 percent growth in the second hal o
the eighties. Clearly, it`s no longer the
hyper-growth sotware company it once
was. In order or the company to retain its
dominance in the technology industry, it
had to enter new segments where it did
not compete beore.

And to be eerywhere, empowering
businesses and indiiduals, it has to
become a dierent Microsot-a more
customer-centric, solutions-ocused,
community-inoled, and innoatie
Microsot. It`s enough to raise the
eyebrows o critics and competitors. Ater
all, the image o Microsot is practically a
clich: ruthless, copycat, monopoly. Since
there`s only one global strategy or the
parent company and all subsidiaries, one
only has to obsere the new ace o
Microsot at home. Right here.

Microsoft in the Philippines
icrosot has been in the
Philippines or eight years,
much longer i you consider the
years when lilipinos were using illegal
copies o MS-DOS and the early ersions
o \indows and Oice.

Its subsidiary, Microsot Philippines, is
celebrating its anniersary this August. It`s
one o the multinational companies in the
country that hae been growing ast. lor
the last eight years, Microsot Philippines
has been growing some 20 percent a year.
In its last iscal year June 2002, it reported
reenues o P286.6 million ,a more
modest 13 percent increase,, which don`t
include product sales generated by its local
distributors ,making total Microsot
reenues much larger,, and net income o
P13.4 million ,which quadrupled rom the
year beore,.

Undoubtedly, the local subsidiary has
made its presence elt in a big way.
Beyond the igures, the 50 Microsoties in
the country hae been quite successul in
working with partners, landing plum
contracts, battling sotware piracy,
increasing its army o deelopers, and
creating a high proile in the industry.

1he latest to lead the subsidiary is Kein
lou, who came in July 2002 to replace
Richard lrancis. lou, who was born and
raised in 1aiwan, has been with Microsot
since 1995 and with the I1 industry since
1989. lou, who`s oten mistaken or a
lilipino, says he eels ery much at home,
I think I`e pretty much adjusted to the
traic, the ood, the lie, the culture.`
le`s enjoying his stay, including the
creatie monthly meetings with his sta,
noting with amusement, I`e neer had
so many parties beore.`

During his one-year tenure, serer
sotware grew the astest. Sales or SQL
Serer increased 40 percent. Reenues or
its lagship \indows operating system
grew 25 percent. Growth or serer
sotware was drien by demand or data
warehouses and adanced bank tellering
systems, and the trend towards serer
consolidation ,which require an upgrade
to at least \indows Serer 2000,. But the
desktop products, particularly \indows
and Oice, still comprise the bulk o its
reenues.

1he trend is similar or Microsot`s global
reenues, which amounted to >28.4
billion. In iscal year 2002, reenues rom
Desktop Platorms and Lnterprise
Sotware and Serices jumped by 32
percent and 25 percent. Desktop
Applications and Desktop Platorms make
up more than two thirds o total reenues.

lou has been tasked to build Microsot`s
consulting business in the country as well
as to enhance its relationship with its
enterprise clients. 1he global strategy is to
M
be more customer-centric and solution-
ocused.

\e think o ourseles as a global
company, not an international company.
Although we`re located in dierent
countries, we`re part o a global strategy,`
meaning Microsot acts as one entity in
dierent locations, rather than as dierent
subsidiaries acting on their own.
Planning is globalized. It`s the same
strategy or eery subsidiary, but we hae
the lexibility and autonomy to it the
local market.`

Listening to customers
icrosot is changing a lot,`
asserts lou. It`s becoming
more inoled in how its
customers are using its sotware. One
initiatie is its complaint management
system. lou explains that this allows
them to eiciently log and monitor
customer complaints, prompting them to
sole problems aster, which otherwise
would be orwarded to increasingly higher
leels. \e make sure it`s soled and that
the customer is happy with the resolution
we proided,` lou adds.

Another program is what`s internally
reerred to as CritSit, or critical situation
management process. 1his is or
corporate customers that run mission-
critical applications. I their system goes
down, or example, the problem goes
through an escalation process. Customers
can deine the seerity o the problem
and, based on that, we hae a dierent
response,` explains lou. le adds that
Microsot has backup support in the
region. \e make sure the customer`s
issue will be soled. Sometimes i we
cannot sole the problem locally, we ly in
the people rom anywhere.`

A third initiatie is a customer satisaction
surey that Microsot Philippines will
implement or the irst time this iscal
year. Some 100 customers will participate
in the surey, giing the local subsidiary
aluable inormation on how its business
customers perceie the company.

Microsot also embarked on a long-term
initiatie called 1rustworthy Computing,
which aims to bring an unparalleled leel
o security, priacy, reliability, and
business integrity to computer systems.
It`s apparently a response to longtime
complaints rom Microsot users o the
company`s sotware reliability and
susceptibility to security attacks.

Selling solutions
ou is also seeing progress in
changing the selling approach o
Microsot Philippines. People
see Microsot as a desktop company-
\indows, Oice.` he points out, but
we see ourseles as more o a solutions
company.`

Beore, our selling approach is to talk
about eatures. Now, we don`t talk about
eatures too much, we talk about alues,`
lou explains.

Microsot to highlight the business
beneits o its sotware. lor one thing, the
upgrade cycle has become longer as many
customers-both business and
indiiduals-ind their older ersions
suicient or their needs. It`s a dilemma
that besets computer manuacturers as
well or years. Do we really need more
processing power when we just run
Microsot \ord and Lxcel And do we
really need the latest ersions o Microsot
\ord and Lxcel when we just type
documents and make simple
spreadsheets

And so, Microsot has to explain to
customers what its sotware can sole, not
just what it can do. Otherwise, customers
M
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will just likely ignore all the eatures and
unctionality that each new ersion o its
sotware can oer.

So ar, it`s making some headway in its
solutions selling. lou says, \e hae a lot
o solutions project wins.` le notes that
the company is already making progress in
goernment, telecoms, and banking.

Microsot is using a somewhat dierent
strategy rom competitors. IBM, lP,
Oracle, Sun Microsystems, and the like
hae an army o consultants that deelop
and deploy solutions. Microsot
Philippines, on the other hand, work
through some 1,300 partners-
independent sotware endors ,ISVs,,
systems integrators, resellers, and training
centers. \e rely on the partners to gie
the solutions,` lou explains. \e don`t
hae any direct sales, only through other
companies.` 1his allows the local
subsidiary to operate with a lean
headcount. \e hae 50 last year,` says
lou. Next year we will hae 55.`

It`s these local partners that build
solutions, o course, using Microsot`s
platorm. lou says, \e hae a lot o
joint actiities-marketing campaigns,
customer proo o concept. Next year,
we`re putting more money in partner
deelopment.` Some >200 thousand to
>500 thousand in act. 1hat hety
inestment will go to sales deelopment,
solutions deelopment, training process
deelopment, and joint marketing. Any
money we make we inest in our partners
here. \e`re doing business not just or
Microsot alone but or our partners |as
well|,` he declares. It`s indeed, as lou
puts it, an eectie sotware ecosystem.

Building communities
elonging to that ecosystem are the
thousands o sotware deelopers
in the country. 1here are about
200 thousand, but only 2,500 are
Microsot-certiied. India, on the other
hand, has 100 thousand certiied. Malaysia
and Singapore, with much smaller
populations, hae more than double,
some 6,000 to ,000.

lou notes that one major problem is the
expensie certiication ee, which is
standard across the globe. le shares,
\hat we did last year was we lowered
the ee,` which took headquarters some
persuading. 1hat has certainly helped to
double the number o Microsot-certiied
deelopers.

1he next thing we will do,` lou adds,
is to work with uniersities, to make sure
the graduates hae the skills the industry
needs.` \hile he notes that our
uniersities hae good teachers and
acilities, access to the latest sotware and
course curriculum is a problem. lou says,
\hat we can do is we can help to equip
those classrooms, at extremely low costs,
to get Microsot products.`

Microsot Philippines has always done an
outstanding job in launching eents or
the techie crowd. Just recently, it
successully launched \indows Serer
2003 to packed crowds o 3,000 to 4,000
attendees. It also organized a series o
technical brieings, creatiely dubbed
Pinoy DeStock, which attracted some
600 sotware deelopers.

lou says, \e hae a strong sense o
responsibility to bring deelopers
together. \e want the deelopers to band
together and build a community.`

But then again, it is to Microsot`s interest
to win sotware deelopers to its side, or
them to build applications using its
platorm.

B
Beyond business, we do much more,`
lou stresses. One area is corporate social
responsibility. 1hrough its Connected
Learning Community program, Microsot
Philippines has already equipped 22
schools with computer labs, with 5 more
in the pipeline. It has spent some P50
million since 1999 with such projects,
beneiting some 25 thousand
underpriileged students and 300 teachers.
It`s also an actie participant in the PCs
or Public Schools Project o the
Department o 1rade and Industry, which
installed close to 20 thousand PCs to
nearly a thousand public high schools
across the country.

As a responsible corporate citizen,
Microsot is undoubtedly a model citizen.
\e should do more or the community,`
says lou, indicating more social actiities
on the way. le adds that he inds the new
company mission inspiring-that
Microsot is not just out to make more
money. It`s a good thing to work or
Microsot. \ou make money but you`re
also doing something good.`

O course, critics will quickly sco at
Microsot`s moties or doing good deeds,
particularly in giing away sotware and
training in deeloping and
underdeeloped countries, accusing the
sotware giant o simply ensuring its
market dominance worldwide.

1he most recent controersy is an internal
Microsot memo ,obtained by the
International lerald 1ribune, which
reported on it, sent by Orlando Ayala,
then in charge o Microsot`s worldwide
sales, which laid out a strategy to senior
managers authorizing them to draw rom
a special und ,dubbed the Goernment
and Lducation Incentie Program,
oering its sotware to goernments
worldwide at steep discounts or een or
ree to close a deal in order to preent
them rom choosing cheaper alternaties
such as Linux, the increasingly popular
open-source operating system.

Discounting is a common business
practice. It`s also a well-known tactic o
Microsot. It cut prices o its SQL Serer
database management sotware to
compete with Oracle, discounted its LAN
Manager to compete with Noell, and
gae away Internet Lxplorer to compete
with Netscape. Now, its Business
Solutions-a unit ormed ater acquiring
Great Plains and Naision-is targeting
small and medium businesses, selling its
business applications such as LRP and
CRM at a raction o the cost o deploying
competing products rom SAP, Siebel,
and Oracle.

But it`s one thing to target the mid-market
or oer olume discounts, and it`s
another thing to oer steep discounts
deemed anti-competitie. Under
Luropean law, while olume licensing
programs such as Microsot`s Select and
Lnterprise agreements are acceptable,
programs by dominant companies that
oer steep discounts aimed at blocking
competitors could attract accusations o
anti-trust iolations.

But in the Philippines, Microsot has been
oering generous discounts to
goernment and the academe or years,
and no one has raised an eyebrow. Last
year, the Philippine goernment entered
into a three-year licensing agreement with
Microsot that`s expected to sae the
goernment some P200 million in
sotware purchases. As lou points out,
licenses or the academic and goernment
sectors are much lower. Leryone knows
that,` he says, adding, People hae a lot
o dierent angles about dierent things.`
But rom Microsot`s angle, he says,
there`s nothing wrong with that as long
as it`s beneicial or most people.` \hile
Microsot sees the practice o giing
discounts as helping sectors with limited
resources, critics see this as Microsot
expanding its domination and trying to kill
o open source sotware. On the other
hand, Sun Microsystems gies away its
StarOice or ree, and it doesn`t get
lambasted or it.

Asked i he inds it diicult that
Microsot, being what it is, is placed under
much closer public scrutiny, lou replies,
I think we should be proud o that. It
helps us a lot in improing our products,
improing our people, improing our
social responsibility.
low many companies can enjoy this kind
o ame People do expect a lot.`

1he Linux issue can be exasperating to
Microsot executies, who probably will
neer hear the end o it rom open source
adocates and, well, journalists. lou says,
It`s ery healthy competition, but it`s
only one o the competition. I don`t want
to spend too much time on that because,
beyond Linux, we hae too many things
to do. \e hae to be cautious as a
company but we cannot stop doing
anything we should do because o Linux.`

1o be sure, Linux only has a tiny share o
the market or personal computer
sotware. \hile Linux has yet to make a
dent as a desktop operating system, it is
gaining momentum in the global serer
market, where it has 26 percent o the
market, according to research company
IDC, a market research company, while
\indows has 44 percent. Neertheless,
Linux is really nothing to be scared o, at
least or now.

But ironically, Microsot is learning rom
Linux and the open source moement. It`s
adopting some o the tenets o open
source-sharing its source code to large
customers, resoling to address security
issues, giing away some o its sotware to
select groups, simpliying its licensing
policies, and building a community o
deelopers, all taken rom Linux`s book,
but still with restrictions.

Getting innovative
s the open source moement is
pushing the sotware industry
towards commoditization,
Microsot is going towards the other
direction, oering added alue through
innoation. lou says, I you look at our
business model, we inest a lot, we come
out with new products, we inest back to
R&D, so we make sure there`s a ery
healthy product cycle that way.`

le adds, I you look at our R&D spend,
we spend >4.3 billion a year or new
products. \ou can see a lot o new
innoations in Microsot in the past two
years, including the Xbox, the 1ablet PC,
the serer products. As long as we keep
on inesting, we can come up with better
alue or the customer.`

Coming up are Oice System 2003-the
latest ersion o Microsot Oice-and
Lxchange Serer 2003. It also launched
\indows Powered Smart Displays, which
are lat-panel, cordless monitors,
Microsot \indows Media Center Ldition
or next generation PCs, and online
gaming serice Xbox Lie.

It continues to sell its .Net technology
ision, which aims to connect dierent
deices and dierent systems. 1he
momentum is quite good,` notes lou,
mentioning that a lot o deelopers are
already creating applications under .Net,
using Microsot tools such as Microsot
Visual Studio.Net. It`s also pushing or
RosettaNet, an industry consortium that
aims to seamlessly connect suppliers with
one another.

A
1ough times ahead
icrosot may be competing in a
dierent landscape, but it
remains a dominant player. Its
operating margins are a at 46 percent. It
has a cash hoard ,and cash equialents, o
>38 billion, >14 billion o that generated
rom operations.

But as lou notes, 1imes are tougher. A
lot o companies are serious about their
inestments. lor eery dollar you spend,
you expect ery good ROI. It`s a ery
tough time or eeryone.`

Locally, sotware remains a problem. 1he
Business Sotware Alliance reported that
the piracy rate increased to 68 percent.
lou hal-jokingly says that it only goes to
show that people preer to use Microsot.
le lauds the passage o the Optical Media
Act and the eorts o goernment in
combating piracy, but Microsot still
needs to do more in educating the public
about using licensed sotware.

1hat`s still a diicult task, gien the retail
cost o Microsot`s desktop sotware. It
doesn`t help that its licensing agreements
can be conusing. lou admits that the
company needs to improe
communication in explaining its licensing
program and has in act allocated a sizable
amount in marketing expenses or
licensing education. But he stresses that
the company has done a lot in addressing
the issue o licensing: \e simpliy, we
gie customers more choices, more
lexibility.`

But what Microsot Philippines has to
really worry about is OLM reenues,
which are generated rom installed
Microsot sotware in PCs and serers. I
you look at the local market, there are still
uncertainties,` lou explains, PC and
serer growth numbers are not as high.`
1hen, there are also the national
presidential elections next year, which will
urther delay I1 spending. So, while lou
says he`s setting aggressie targets or the
irst hal o its 2003 iscal year, they hae
no orecasts or the second hal.

It`s this kind o business reality that
compels Microsot to switch tactics.
\hich brings us back to why Microsot is
suddenly eerywhere. It`s in the oices o
corporate clients and small and medium
enterprises, helping them sole their
sotware problems and run their business
applications. It`s building its network o
partners and sotware deelopers who
help extend its reach and capabilities. It`s
in the homes o indiiduals, through
sotware that run their inormation tools
and communication deices. It`s working
with goernment, the academe, and
underpriileged sectors to proide ree or
cheap access to inormation technology.

1his is obiously good or Microsot-it
will make more money and extend its
reach. But is it good or the rest o us
Microsot eerywhere may be a scary
thought or some. I businesses and
indiiduals rely more and more on a single
company, it can lead to excesses. But-as
it appears to be happening-i it`s
tempered by strong or emerging
competition, igilant regulators, and ocal
customers, compelling Microsot to lower
its prices, listen more to customers,
increase its trustworthiness, build
communities, support economies, create
innoatie products, and, yes, empower
businesses and indiiduals, then Microsot
eerywhere may not be such a bad thing.

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