Something for Everyone

REDMOND, Wash., Nov. 22, 1999 — Robbie Bach, vice president of the Home & Retail Division (HRD), claims he has the best job at Microsoft. His group creates software and hardware products for home consumers, including everything from games and game devices, mice, and keyboards to reference, mapping, and productivity software.

Bach recently talked with PressPass about how his group’s products — from new versions of famous, venerable products to revolutionary new products and a few “sleepers” — are already exceeding his expectations for this holiday season.

PressPass: Overall, how are consumers responding to the Home & Retail Division’s products this holiday season?

Bach: I think we have the strongest lineup we’ve ever had going into a holiday season. Hardware, in general, is going to have a great year. We are already selling as many of the digital-optical IntelliMouse Explorer mice as we can produce. They’re already hard to get. It’s a great product. It has no moving parts, so we’ve eliminated the “dust bunnies.”

We have two new keyboards: the Internet Keyboard, which is the first flat keyboard we’ve ever made, and the Natural Keyboard Pro. Both have buttons along the top to automatically work your browser, launch your e-mail, and control your multimedia devices, such as music.

We also have two new gaming devices — a dual-mode digital game pad called the Sidewinder Game Pad Pro, and a cool new first-person device called the Sidewinder Dual Strike, which I think will do quite well. The game pad is more precise than the older analog version. I think we’ll continue to lead the game devices category.

On the software side, the Encarta Encyclopedia has a market share of more than 50 percent, and we have a great new version that’s selling very well. We also have the No. 1, No. 2, and No. 3 selling games in the United States-Age of Empires II: The Age of Kings, Flight Simulator 2000 Professional Edition, and Flight Simulator 2000-which is incredible.

PressPass: What games are doing well this year?

Bach: Age of Empires II is the best-selling game in the U.S., U.K., and Germany. That’s the first time we’ve had a No. 1 game in all three countries. Earlier this month we shipped Asheron’s Call, an online role-playing game for the MSN Gaming Zone, which sold 12,000 units in the first week — from only two software chains. That was amazing. By comparison, Flight Simulator 2000 sold around 14,000 copies in the United States during the same period. We’re also very excited about Pandora’s Box. It’s a great puzzle game from Alexey Pajitnov, the creator of Tetris that is sure to be a holiday hit. In some ways it’s the best family buy because it has a lot of different things for everyone to enjoy.

In sports, we have new football, basketball, and golf games. NFL Fever 2000 has been outselling Electronic Art’s Madden 2000 for some weeks on a unit basis. NBA Inside Drive 2000 is going to do quite well, and Links LS 2000, a golf game we acquired about six months ago, is the No. 1 golf game in the United States.

PressPass: What about Home Productivity titles?

Bach: We just shipped a new version of Home Publishing Suite 2000, a great product for all kinds of home-related printing: things like fliers, banners, and cards. We just shipped a new version of Picture It!, which continues to be the No. 1 consumer photo-editing software product in the market. We also recently shipped a new version of Microsoft Works — the first new version in over three years — that incorporates Web access and has a completely new look that makes it easier for home users. It’s all oriented around tasks you do at home, and it’s very cool. Works Suite 2000 includes Works 2000, Word 2000, Encarta Encyclopedia 2000 Standard, Money 2000 Standard, Home Publishing 2000, Expedia Streets & Trips 2000, and Picture It! Express 2000 for around $100. That’s a great buy.

PressPass: Out of all the products you’ve released this year, which successes have surprised you?

Bach: I’m seeing more momentum than I expected across the board. For example, we knew Age of Empires II would be a huge hit, but it is completely outpacing our expectations. If you had told me it would sell 100,000 units in Germany in the first three days, I would have laughed. Germany is a great market, but that’s a lot of units. Likewise, I had high hopes for the basketball and football games, but they’re doing much better than expected. Pandora’s Box is also doing quite well. We intuitively knew the keyboard and mouse were going to be interesting to people, but I didn’t think they’d be as popular as they have been.

PressPass: Did you do anything differently this year to get products into retail stores?

Bach: We’ve made some changes to our business model this year that have made us more competitive in the marketplace. In the U.S., for example, we took our largest nine-soon to be 13-retail accounts direct, which means we’re not shipping through distributors. We’re managing the distribution process ourselves, which is a huge change for us. It’s great for our business, but it’s a big change and requires a lot of work. If the holiday is as successful as I think it can be, there’ll be a lot of people who can share that credit.

PressPass: Will Home & Retail Division products ever generate the kind of revenue that Windows or Office products do?

Bach: We’re pretty realistic about how we compare to Office and Windows, in terms of the amount of revenue they make for the company. But the company’s long-term success depends upon Microsoft being a great consumer company. HRD sells products at retail to consumers. And, in addition to shipping great products to generate revenue for the company, we provide another value to the company that is incredibly important: knowledge about how to work at retail, how to sell at retail, how to be a great consumer company.

Our business model is a little different than most business models in the company. For the Operations team, our business is harder than most businesses because it involves a lot of physical product and shipping. We’re going to be very profitable, but not as profitable as Windows and Office. That’s just the nature of a consumer business like this; profit margins are not as large.

There’s also a “halo effect” that comes from the experiences consumers have with the products that come from HRD. The fun their kids have with Encarta, Flight Simulator, Age of Empires, and Pandora’s Box. Or the experiences families share with Encarta Africana and the Encarta World English Dictionary. The consumer experience with our products is more personal than with most Microsoft products, and I think that’s a huge benefit for the company. Our group’s products can really enhance the public’s perception of Microsoft.

PressPass: When was the big holiday push for your group?

Bach: The push varies by group and even by function within the groups. For example, some of the game products have been in development for two years, so those have had ongoing pushes. All the products that just shipped have a push that starts in March/April and continues until they release in August/September. And we’re just finishing the last localizations.

The Hardware team has an even longer lead-time, because they have to build the manufacturing operation. Most of the hardware products are built in Asia, so their heavy work on the product side actually happens even more in advance, in the nine- to 12-month time frame.

Then the work shifts to Sales, Marketing, and Operations. Starting in July and August, the Sales, Marketing, and Operations teams gear up. The Manufacturing and Operations team has produced more units in the last three months than they’ve ever produced. In the U.S. alone, we anticipate selling a million units of Flight Simulator 2000 and a million units of Age of Empires II. The numbers and the scale of work that has been going on are really quite impressive, and the team has done an awesome job pulling that together.

Successfully launching a product involves hard work and commitment from every function, from manufacturing to sales to operations. The product guys have to do their jobs right-get the right product at the right time. The Marketing team has to build the marketing plan. The Sales team has to sell it. And the Operations team has to make sure it gets from the release to manufacturing to the shelf on time, in the right way, and in the right quantity.

PressPass: What keeps you up at night?

Bach: Most of what I lose sleep about now, oddly enough, is little things. The products have either shipped or they haven’t. The products are what they are. You decided the big things so far in advance that losing sleep over them now is not very relevant. Now I worry about questions like this: Did you get products on the shelf? Are the shelves in the stores arranged right? Did we get the right price points? Did we build enough inventory? Are we moving inventory fast enough? Our business requires incredible end-to-end execution. It’s the little things in execution that can make a huge difference. If somebody runs an ad and the products show up two days later on the shelf, you just wasted money for the ad. It’s the nature of retail. If you have a great product, but you don’t have it displayed well in the store, people don’t buy it because they don’t see it. Right now, the issues are about execution.

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