Microsoft

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 ser·er just
upgraded on \indows Ser·er
2003. \ou use \ord, Lxcel, and
PowerPoint íor your work. Maybe Visio
or Project e·en. \ou check your oííice
mail with Outlook, running on Lxchange
Ser·er. \our Internet Lxplorer browser`s
deíault home page is MSN, where you
read the latest issue oí 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 íinances. \our site could be
hosted on bCentral and de·eloped using
lrontPage. 1he geeks írom your I1
department might be ra·ing about Visual
Studio.Net and using SQL Ser·er, Biz1alk
Ser·er, Content Management Ser·er, and
SharePoint Portal Ser·er 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 íriends and Media Player to
watch mo·ie trailers. \our kids learn írom
Lncarta and play with digital mo·ies using
Mo·ie Maker and with digital photos
using Picture It.

And then it hits you: Microsoít is, well,
e·erywhere.

1hat`s exactly what Microsoít wants. Its
new ·ision, aíter all, is about being
e·erywhere: Lmpowering people through
great soítware - any time, any place and
on any de·ice.

1o understand the new Microsoít, you
ha·e to consider this singular global shiít:
the rise oí networks. It just about
encompasses e·erything that has been
changing the íace oí 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 inírastructure íor ·oice,
data, and broadcast media, the network
that allows the PC, PDA, and mobile
phone to access the same data, and, oí
course, the network oí all networks-the
Internet.

lor Microsoít to thri·e in this new global
reality, it has to be e·erywhere, that is,
e·erywhere the action is: in ser·er
soítware, enterprise applications, and
collaboration tools that link people and
data within organizations, in standards
and web ser·ices that allow data to ílow
seamlessly across entities, in interacti·e
tele·ision, cable networks, Internet access,
telecommunications, and broadcast media,
in computers and mobile de·ices, and in
content and soítware on the Internet.

It has to. As it is, sales oí its
moneymaking desktop applications are
le·eling oíí. 1wo-year worldwide growth
between 2000 and 2002 íor this segment
is an anemic 3 percent. More than 90
percent oí the world`s desktop computers
already run on Microsoít \indows. And
o·erall re·enues írom 2000 to 2002 grew
an a·erage oí only 13 percent, compared
to 38 percent growth in the nineties and
\
56 percent growth in the second halí oí
the eighties. Clearly, it`s no longer the
hyper-growth soítware company it once
was. In order íor the company to retain its
dominance in the technology industry, it
had to enter new segments where it did
not compete beíore.

And to be e·erywhere, empowering
businesses and indi·iduals, it has to
become a diííerent Microsoít-a more
customer-centric, solutions-íocused,
community-in·ol·ed, and inno·ati·e
Microsoít. It`s enough to raise the
eyebrows oí critics and competitors. Aíter
all, the image oí Microsoít is practically a
cliché: ruthless, copycat, monopoly. Since
there`s only one global strategy íor the
parent company and all subsidiaries, one
only has to obser·e the new íace oí
Microsoít at home. Right here.

Microsoft in the Philippines
icrosoít has been in the
Philippines íor eight years,
much longer ií you consider the
years when lilipinos were using illegal
copies oí MS-DOS and the early ·ersions
oí \indows and Oííice.

Its subsidiary, Microsoít Philippines, is
celebrating its anni·ersary this August. It`s
one oí the multinational companies in the
country that ha·e been growing íast. lor
the last eight years, Microsoít Philippines
has been growing some 20 percent a year.
In its last íiscal year June 2002, it reported
re·enues oí P286.6 million ,a more
modest 13 percent increase,, which don`t
include product sales generated by its local
distributors ,making total Microsoít
re·enues much larger,, and net income oí
P13.4 million ,which quadrupled írom the
year beíore,.

Undoubtedly, the local subsidiary has
made its presence íelt in a big way.
Beyond the íigures, the 50 Microsoíties in
the country ha·e been quite successíul in
working with partners, landing plum
contracts, battling soítware piracy,
increasing its army oí de·elopers, and
creating a high proíile in the industry.

1he latest to lead the subsidiary is Ke·in
lou, who came in July 2002 to replace
Richard lrancis. lou, who was born and
raised in 1aiwan, has been with Microsoít
since 1995 and with the I1 industry since
1989. lou, who`s oíten mistaken íor a
lilipino, says he íeels ·ery much at home,
I think I`·e pretty much adjusted to the
traííic, the íood, the liíe, the culture.`
le`s enjoying his stay, including the
creati·e monthly meetings with his staíí,
noting with amusement, I`·e ne·er had
so many parties beíore.`

During his one-year tenure, ser·er
soítware grew the íastest. Sales íor SQL
Ser·er increased 40 percent. Re·enues íor
its ílagship \indows operating system
grew 25 percent. Growth íor ser·er
soítware was dri·en by demand íor data
warehouses and ad·anced bank tellering
systems, and the trend towards ser·er
consolidation ,which require an upgrade
to at least \indows Ser·er 2000,. But the
desktop products, particularly \indows
and Oííice, still comprise the bulk oí its
re·enues.

1he trend is similar íor Microsoít`s global
re·enues, which amounted to >28.4
billion. In íiscal year 2002, re·enues írom
Desktop Platíorms and Lnterprise
Soítware and Ser·ices jumped by 32
percent and 25 percent. Desktop
Applications and Desktop Platíorms make
up more than two thirds oí total re·enues.

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

\e think oí oursel·es as a global
company, not an international company.
Although we`re located in diííerent
countries, we`re part oí a global strategy,`
meaning Microsoít acts as one entity in
diííerent locations, rather than as diííerent
subsidiaries acting on their own.
Planning is globalized. It`s the same
strategy íor e·ery subsidiary, but we ha·e
the ílexibility and autonomy to íit the
local market.`

Listening to customers
icrosoít is changing a lot,`
asserts lou. It`s becoming
more in·ol·ed in how its
customers are using its soítware. One
initiati·e is its complaint management
system. lou explains that this allows
them to eííiciently log and monitor
customer complaints, prompting them to
sol·e problems íaster, which otherwise
would be íorwarded to increasingly higher
le·els. \e make sure it`s sol·ed and that
the customer is happy with the resolution
we pro·ided,` lou adds.

Another program is what`s internally
reíerred to as CritSit, íor critical situation
management process. 1his is íor
corporate customers that run mission-
critical applications. Ií their system goes
down, íor example, the problem goes
through an escalation process. Customers
can deíine the se·erity oí the problem
and, based on that, we ha·e a diííerent
response,` explains lou. le adds that
Microsoít has backup support in the
region. \e make sure the customer`s
issue will be sol·ed. Sometimes ií we
cannot sol·e the problem locally, we íly in
the people írom anywhere.`

A third initiati·e is a customer satisíaction
sur·ey that Microsoít Philippines will
implement íor the íirst time this íiscal
year. Some 100 customers will participate
in the sur·ey, gi·ing the local subsidiary
·aluable iníormation on how its business
customers percei·e the company.

Microsoít also embarked on a long-term
initiati·e called 1rustworthy Computing,
which aims to bring an unparalleled le·el
oí security, pri·acy, reliability, and
business integrity to computer systems.
It`s apparently a response to longtime
complaints írom Microsoít users oí the
company`s soítware reliability and
susceptibility to security attacks.

Selling solutions
ou is also seeing progress in
changing the selling approach oí
Microsoít Philippines. People
see Microsoít as a desktop company-
\indows, Oííice.` he points out, but
we see oursel·es as more oí a solutions
company.`

Beíore, our selling approach is to talk
about íeatures. Now, we don`t talk about
íeatures too much, we talk about ·alues,`
lou explains.

Microsoít to highlight the business
beneíits oí its soítware. lor one thing, the
upgrade cycle has become longer as many
customers-both business and
indi·iduals-íind their older ·ersions
suííicient íor their needs. It`s a dilemma
that besets computer manuíacturers as
well íor years. Do we really need more
processing power when we just run
Microsoít \ord and Lxcel· And do we
really need the latest ·ersions oí Microsoít
\ord and Lxcel when we just type
documents and make simple
spreadsheets·

And so, Microsoít has to explain to
customers what its soítware can sol·e, not
just what it can do. Otherwise, customers
M
l
will just likely ignore all the íeatures and
íunctionality that each new ·ersion oí its
soítware can oííer.

So íar, it`s making some headway in its
solutions selling. lou says, \e ha·e a lot
oí solutions project wins.` le notes that
the company is already making progress in
go·ernment, telecoms, and banking.

Microsoít is using a somewhat diííerent
strategy írom competitors. IBM, lP,
Oracle, Sun Microsystems, and the like
ha·e an army oí consultants that de·elop
and deploy solutions. Microsoít
Philippines, on the other hand, work
through some 1,300 partners-
independent soítware ·endors ,ISVs,,
systems integrators, resellers, and training
centers. \e rely on the partners to gi·e
the solutions,` lou explains. \e don`t
ha·e any direct sales, only through other
companies.` 1his allows the local
subsidiary to operate with a lean
headcount. \e ha·e 50 last year,` says
lou. Next year we will ha·e 55.`

It`s these local partners that build
solutions, oí course, using Microsoít`s
platíorm. lou says, \e ha·e a lot oí
joint acti·ities-marketing campaigns,
customer prooí oí concept. Next year,
we`re putting more money in partner
de·elopment.` Some >200 thousand to
>500 thousand in íact. 1hat heíty
in·estment will go to sales de·elopment,
solutions de·elopment, training process
de·elopment, and joint marketing. Any
money we make we in·est in our partners
here. \e`re doing business not just íor
Microsoít alone but íor our partners |as
well|,` he declares. It`s indeed, as lou
puts it, an eííecti·e soítware ecosystem.

Building communities
elonging to that ecosystem are the
thousands oí soítware de·elopers
in the country. 1here are about
200 thousand, but only 2,500 are
Microsoít-certiíied. India, on the other
hand, has 100 thousand certiíied. Malaysia
and Singapore, with much smaller
populations, ha·e more than double,
some 6,000 to ¯,000.

lou notes that one major problem is the
expensi·e certiíication íee, which is
standard across the globe. le shares,
\hat we did last year was we lowered
the íee,` which took headquarters some
persuading. 1hat has certainly helped to
double the number oí Microsoít-certiíied
de·elopers.

1he next thing we will do,` lou adds,
is to work with uni·ersities, to make sure
the graduates ha·e the skills the industry
needs.` \hile he notes that our
uni·ersities ha·e good teachers and
íacilities, access to the latest soítware 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 Microsoít products.`

Microsoít Philippines has always done an
outstanding job in launching e·ents íor
the techie crowd. Just recently, it
successíully launched \indows Ser·er
2003 to packed crowds oí 3,000 to 4,000
attendees. It also organized a series oí
technical brieíings, creati·ely dubbed
Pinoy De·Stock, which attracted some
600 soítware de·elopers.

lou says, \e ha·e a strong sense oí
responsibility to bring de·elopers
together. \e want the de·elopers to band
together and build a community.`

But then again, it is to Microsoít`s interest
to win soítware de·elopers to its side, íor
them to build applications using its
platíorm.

B
Beyond business, we do much more,`
lou stresses. One area is corporate social
responsibility. 1hrough its Connected
Learning Community program, Microsoít
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,
beneíiting some 25 thousand
underpri·ileged students and 300 teachers.
It`s also an acti·e participant in the PCs
íor Public Schools Project oí the
Department oí 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,
Microsoít is undoubtedly a model citizen.
\e should do more íor the community,`
says lou, indicating more social acti·ities
on the way. le adds that he íinds the new
company mission inspiring-that
Microsoít is not just out to make more
money. It`s a good thing to work íor
Microsoít. \ou make money but you`re
also doing something good.`

Oí course, critics will quickly scoíí at
Microsoít`s moti·es íor doing good deeds,
particularly in gi·ing away soítware and
training in de·eloping and
underde·eloped countries, accusing the
soítware giant oí simply ensuring its
market dominance worldwide.

1he most recent contro·ersy is an internal
Microsoít memo ,obtained by the
International lerald 1ribune, which
reported on it, sent by Orlando Ayala,
then in charge oí Microsoít`s worldwide
sales, which laid out a strategy to senior
managers authorizing them to draw írom
a special íund ,dubbed the Go·ernment
and Lducation Incenti·e Program,
oííering its soítware to go·ernments
worldwide at steep discounts or e·en íor
íree to close a deal in order to pre·ent
them írom choosing cheaper alternati·es
such as Linux, the increasingly popular
open-source operating system.

Discounting is a common business
practice. It`s also a well-known tactic oí
Microsoít. It cut prices oí its SQL Ser·er
database management soítware to
compete with Oracle, discounted its LAN
Manager to compete with No·ell, and
ga·e away Internet Lxplorer to compete
with Netscape. Now, its Business
Solutions-a unit íormed aíter acquiring
Great Plains and Na·ision-is targeting
small and medium businesses, selling its
business applications such as LRP and
CRM at a íraction oí the cost oí deploying
competing products írom SAP, Siebel,
and Oracle.

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

But in the Philippines, Microsoít has been
oííering generous discounts to
go·ernment and the academe íor years,
and no one has raised an eyebrow. Last
year, the Philippine go·ernment entered
into a three-year licensing agreement with
Microsoít that`s expected to sa·e the
go·ernment some P200 million in
soítware purchases. As lou points out,
licenses íor the academic and go·ernment
sectors are much lower. L·eryone knows
that,` he says, adding, People ha·e a lot
oí diííerent angles about diííerent things.`
But írom Microsoít`s angle, he says,
there`s nothing wrong with that as long
as it`s beneíicial íor most people.` \hile
Microsoít sees the practice oí gi·ing
discounts as helping sectors with limited
resources, critics see this as Microsoít
expanding its domination and trying to kill
oíí open source soítware. On the other
hand, Sun Microsystems gi·es away its
StarOííice íor íree, and it doesn`t get
lambasted íor it.

Asked ií he íinds it diííicult that
Microsoít, being what it is, is placed under
much closer public scrutiny, lou replies,
I think we should be proud oí that. It
helps us a lot in impro·ing our products,
impro·ing our people, impro·ing our
social responsibility.
low many companies can enjoy this kind
oí íame· People do expect a lot.`

1he Linux issue can be exasperating to
Microsoít executi·es, who probably will
ne·er hear the end oí it írom open source
ad·ocates and, well, journalists. lou says,
It`s ·ery healthy competition, but it`s
only one oí the competition. I don`t want
to spend too much time on that because,
beyond Linux, we ha·e too many things
to do. \e ha·e to be cautious as a
company but we cannot stop doing
anything we should do because oí Linux.`

1o be sure, Linux only has a tiny share oí
the market íor personal computer
soítware. \hile Linux has yet to make a
dent as a desktop operating system, it is
gaining momentum in the global ser·er
market, where it has 26 percent oí the
market, according to research company
IDC, a market research company, while
\indows has 44 percent. Ne·ertheless,
Linux is really nothing to be scared oíí, at
least íor now.

But ironically, Microsoít is learning írom
Linux and the open source mo·ement. It`s
adopting some oí the tenets oí open
source-sharing its source code to large
customers, resol·ing to address security
issues, gi·ing away some oí its soítware to
select groups, simpliíying its licensing
policies, and building a community oí
de·elopers, all taken írom Linux`s book,
but still with restrictions.

Getting innovative
s the open source mo·ement is
pushing the soítware industry
towards commoditization,
Microsoít is going towards the other
direction, oííering added ·alue through
inno·ation. lou says, Ií you look at our
business model, we in·est a lot, we come
out with new products, we in·est back to
R&D, so we make sure there`s a ·ery
healthy product cycle that way.`

le adds, Ií you look at our R&D spend,
we spend >4.3 billion a year íor new
products. \ou can see a lot oí new
inno·ations in Microsoít in the past two
years, including the Xbox, the 1ablet PC,
the ser·er products. As long as we keep
on in·esting, we can come up with better
·alue íor the customer.`

Coming up are Oííice System 2003-the
latest ·ersion oí Microsoít Oííice-and
Lxchange Ser·er 2003. It also launched
\indows Powered Smart Displays, which
are ílat-panel, cordless monitors,
Microsoít \indows Media Center Ldition
íor next generation PCs, and online
gaming ser·ice Xbox Li·e.

It continues to sell its .Net technology
·ision, which aims to connect diííerent
de·ices and diííerent systems. 1he
momentum is quite good,` notes lou,
mentioning that a lot oí de·elopers are
already creating applications under .Net,
using Microsoít tools such as Microsoít
Visual Studio.Net. It`s also pushing íor
RosettaNet, an industry consortium that
aims to seamlessly connect suppliers with
one another.

A
1ough times ahead
icrosoít may be competing in a
diííerent landscape, but it
remains a dominant player. Its
operating margins are a íat 46 percent. It
has a cash hoard ,and cash equi·alents, oí
>38 billion, >14 billion oí that generated
írom operations.

But as lou notes, 1imes are tougher. A
lot oí companies are serious about their
in·estments. lor e·ery dollar you spend,
you expect ·ery good ROI. It`s a ·ery
tough time íor e·eryone.`

Locally, soítware remains a problem. 1he
Business Soítware Alliance reported that
the piracy rate increased to 68 percent.
lou halí-jokingly says that it only goes to
show that people preíer to use Microsoít.
le lauds the passage oí the Optical Media
Act and the eííorts oí go·ernment in
combating piracy, but Microsoít still
needs to do more in educating the public
about using licensed soítware.

1hat`s still a diííicult task, gi·en the retail
cost oí Microsoít`s desktop soítware. It
doesn`t help that its licensing agreements
can be coníusing. lou admits that the
company needs to impro·e
communication in explaining its licensing
program and has in íact allocated a sizable
amount in marketing expenses íor
licensing education. But he stresses that
the company has done a lot in addressing
the issue oí licensing: \e simpliíy, we
gi·e customers more choices, more
ílexibility.`

But what Microsoít Philippines has to
really worry about is OLM re·enues,
which are generated írom installed
Microsoít soítware in PCs and ser·ers. Ií
you look at the local market, there are still
uncertainties,` lou explains, PC and
ser·er growth numbers are not as high.`
1hen, there are also the national
presidential elections next year, which will
íurther delay I1 spending. So, while lou
says he`s setting aggressi·e targets íor the
íirst halí oí its 2003 íiscal year, they ha·e
no íorecasts íor the second halí.

It`s this kind oí business reality that
compels Microsoít to switch tactics.
\hich brings us back to why Microsoít is
suddenly e·erywhere. It`s in the oííices oí
corporate clients and small and medium
enterprises, helping them sol·e their
soítware problems and run their business
applications. It`s building its network oí
partners and soítware de·elopers who
help extend its reach and capabilities. It`s
in the homes oí indi·iduals, through
soítware that run their iníormation tools
and communication de·ices. It`s working
with go·ernment, the academe, and
underpri·ileged sectors to pro·ide íree or
cheap access to iníormation technology.

1his is ob·iously good íor Microsoít-it
will make more money and extend its
reach. But is it good íor the rest oí us·
Microsoít e·erywhere may be a scary
thought íor some. Ií businesses and
indi·iduals rely more and more on a single
company, it can lead to excesses. But-as
it appears to be happening-ií it`s
tempered by strong or emerging
competition, ·igilant regulators, and ·ocal
customers, compelling Microsoít to lower
its prices, listen more to customers,
increase its trustworthiness, build
communities, support economies, create
inno·ati·e products, and, yes, empower
businesses and indi·iduals, then Microsoít
e·erywhere may not be such a bad thing.

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