Craig Mundie: World Resources Institute

Remarks by Craig Mundie, Senior Vice President and Chief Technical Officer, Advanced Strategies and Policy, Microsoft Corporation
“Eradicating Poverty Through Profit: Making Business Work for the Poor”
World Resources Institute
San Francisco, USA
December 12, 2004

MODERATOR: Let’s begin our look into the future now with Microsoft Corporation, which has been kind enough to share with us today the time of Craig Mundie, Microsoft’s senior vice president, who is Bill Gates’s Chief Technical Officer for Advanced Strategies and Policy. Craig reports directly to Bill, works closely with him on developing Microsoft’s strategies for all its technologies and for all its markets, including this new bottom of the pyramid market.

Like so many leaders at Microsoft, Craig Mundie used to lead his own successful company. He was the cofounder and CEO of Dataflow and of Alliant Computer Systems, early developers of massively parallel supercomputers and one of the dominant firms in symmetric multiprocessing for nearly 15 years. Craig Mundie is now 12 years past that, 12 years in technology and strategy leadership roles at Microsoft.

Your questions will be welcome for Craig following his remarks using our card system.

So let’s say good morning now to Microsoft’s senior vice president Craig Mundie.

CRAIG MUNDIE: Good morning, everyone. It’s good to be here in San Francisco and I want to thank WRI for allowing me to come and share some of our thoughts with you this morning.

I’m happy to say that Microsoft at least is not completely a novice when it comes to this question of dealing with the issues that face us as we approach the expanding market in these emerging economies. In many of these countries Microsoft has had a business presence for some time.

The biggest challenge for us and many other people isn’t whether people like and use the technology, it’s whether or not ultimately people pay for the technology. This is really one of the big challenges that we face ahead. The thesis of this conference is essentially eradicating poverty through profit and the real question is, is there profit? And there are many components that ultimately come to play in determining if there is really a business there or not, at what level and to whom do these profits accrue.

So I wanted to share a number of these thoughts with you and try to give you our thinking about the answers to some of these challenging questions.

Certainly there are a number of separate issues and many of these get asked one at a time but when you’re a company that’s trying to operate in this environment, you ultimately have to think about them all together.

To serve an emerging market profitability and well requires a great deal of thought. First, the countries are really not very homogenous. You can look at a place like China or India certainly, but I think this is true in almost all of them, and find that there is at least a bimodal distribution of wealth and income in the countries. But increasingly as the economies grow, there is a more linear distribution of wealth in these places and in many cases the business model of how you serve the people that are at the top of the pyramid, which are still perhaps not as well off as the people who are the general population of the G8 countries, for example, these are not people who are the world’s poorest and they really want to have access to the same technology, they want to operate in the global business environment and to some extent those parts of the pyramid in those countries have been reasonably well served and, in fact, I think will be increasingly well served by the global corporations and their own local efforts.

The big challenge is as you start to push down below that how many business models are going to be required in order to be able to serve the needs of those people and to allow them to participate.

There is the question as shown here, how do people need and want to pay for these things. As you go farther and farther down the pyramid, it becomes clear that they don’t have a different aspiration in terms of what technology they want access to, they just have a different capability in terms of how they pay for that capability.

When you ask what is it that these people want to do, in a sense they have a more basic need, they don’t have the degree in some cases of education that other people have had, they don’t have the same level of sophistication in their businesses as you have in the larger corporations, but when you get down to it in terms of communication, entertainment, personal productivity, support for creativity, education, their dreams really aren’t any different than the people farther up the economic food chain.

And so now we have to ask ourselves the question: what are the technological changes that are coming about now and what role do they play in enabling different solutions to either change the business model as well as change the product in order to serve these opportunities?

Let me talk a little bit about what Microsoft is doing in this area. As I mentioned, the company and its products are well known around the world. We do business directly in 78 countries and so by definition at least most of the ones that you would have expected would represent a business opportunity even in the bottom of the pyramid sense and are places where the company already has done business. Our products we know are used in about 120 countries.

And so there’s no lack of interest, as demonstrated by people’s use of these products today. The question is that not enough of them can gain access to the technology in order to get the benefits from it.

So we’ve been doing a great deal of things to improve that. Even for people in the middle of the pyramid in many of these countries that has been a fundamental blocker in terms of their access to the technology or the ability to use it to build business or improve their quality of life is that they don’t actually speak the language. A place like India, with 1.1 or 1.2 billion people, I believe the number is somewhere between 4 and 6 percent of them speak English and then there are at least 15 other official languages in the country.

So even though Microsoft probably has done more than anybody in the world to provide its products in many languages, we traditionally release each product in about 32 to 38 languages, that in itself is a Herculean task but when you realize the world has really thousands of languages and tens of thousands of dialects, 38 seems like a drop in the bucket, so what do you do about that? If they can’t actually interact with the technology, then they can’t really use it.

And so we decided instead of trying to chase all those languages by ourselves, which is a technical and economic impossibility, we invented some technology that allows us to partner with people in the country, the academics, the linguists and the local communities to actually do glossaries that allow the computer system to translate the interface from the natural languages that we historically have been able to support, the larger scale ones, down to the other ones.

In doing so, in a period of less than 18 months we will have moved from just supporting English and Hindi in India to supporting all of the legally official languages of India. And that opens up to a huge number of people the opportunity, no matter how they get to a PC, to be able to use it in support of their dream.

We also have recognized that most of these people don’t have access to technical training, and we’ve discovered, of course, that it’s difficult for people to get involved with a number of these devices because not only didn’t they speak the language, they don’t even understand some of the basics about the technology.

It was funny, years ago in the early days of Windows people at Microsoft in the product support center would tell these funny stories about people who would call in and say, “Well, I’ve got this computer and I’ve been trying to use it and everything is great except I can’t get the foot pedal to work.” People say, “The foot pedal, the foot pedal, what was the foot pedal?” “It’s that little white thing on the end of the cord and I put it on the floor and I push it like my sewing machine but the computer doesn’t run.” I mean, these kinds of problems, they sound funny to people who grew up and deal with computing every day but if you’ve never seen one, never used one, frankly you wouldn’t know whether you were supposed to click that thing with your finger or step on it with your foot.

And so we started with some of these assumptions and have produced a new version of Windows, which we call Starter Edition and we’ve put it out so far in five countries in conjunction with government programs that are being put in place in these countries in order to essentially promote access to the rural poor and urban poor in these countries.

Even that, of course, has the challenge of the acquisition cost, because that’s essentially a simplified version of the operating system and applications, which is a self-teaching kind of system to bootstrap people in their knowledge and use of computers but the fundamental computer platform itself is still the same and therefore that cost hurdle is still one they have to get over.

We also did an interesting thing recently. Hector Ruiz, who is the chairman of AMD, the chip manufacturing company, he grew up in Mexico as a fairly poor fellow and ultimately succeeded spectacularly well by getting educated and ultimately coming into the United States and today he runs a successful company. He announced at the World Economic Forum last January that he wanted to have a program in conjunction with other companies and institutions to try to get half of the world’s people connected to the Internet in the next ten years.

So we actually worked and provided technology based on our Windows CE capability that today is in Smart Phones and televisions and Pocket PCs and using that they were able to build a product and this is it. It’s the entire computer system, hard disk connectivity all in a single block. You basically plug it into your phone line or ultimately a wireless or some other type of high speed connection, you plug some type of display into it and you have what they call the Personal Internet Communicator. Again, a very, very simplified device, no configuration requirement, runs a fixed set of applications around communication — Web browsing, electronic mail, instant messaging.

And so it brings the capabilities that we now all enjoy as a component of the total PC experience into a package that can be made available essentially under a different business model and at a different price point.

This product has been launched in India, for example, in conjunction with a phone company who essentially sells you the computer, like we used to sell people phones in the United States, buy phone service and get the phone for a few dollars a month. And so the financing of even the lower cost hardware is essentially incorporated in an annual payment that you make through the phone company.

So this is an example that I mentioned before of having to not just think about what is the technology, what’s the right price point, what are the features and how do you get people trained, but what’s the business model that actually allows people who have virtually no savings to participate.

The business model of computing in the rich world has been one that started under the assumption that you could afford and, in fact, would prefer to afford and own all the technology but, in fact, at the bottom of the pyramid it isn’t at all clear that that will be the prevailing business model.

We’re also building a lot of skills. We have a program called Partners in Learning. We initiated this almost two years ago where Microsoft is essentially making available for free contemporary versions of Windows for all of the machines that are being donated in poor schools globally. So if you basically have a donated computer or a low-priced new computer, Microsoft is essentially making the software available virtually for free and also on top of that the whole Office suite is being made available in most of these countries on a, if you will, leased basis per student per year of only I think it’s $2 or $3. So that’s an incredible discount, if you will, but it also represents that even the schools don’t have the ability to pay for these things in a lump sum.

And so these kinds of things are being used in conjunction with another program we have called Unlimited Potential. One of the things that we’ve realized is that in these countries people young and old essentially want to learn but there’s nobody to train them and so we’ve been working to create community centers in these countries and to provide the tools and technology to allow these people to help get trained and then train themselves. And the technology I talked about in terms of the language support is actually being used to allow them to take their own curriculum and change it to the local language and then be able to use that to roll these things out further.

Ultimately there’s another big thing that we’ve been very interested in and on this slide, it’s the last one, called the Local Software Economy. Microsoft’s business for all these years really has been in part based on our own ability to provide solutions to people but in large measure has been a function of people’s ability to build millions and millions of other applications that ride on top of our platform.

And in these emerging markets if the capability of these computers is to be realized in all the different ways that are possible, the only way that’s going to get done is if people in those countries can write those applications and make a business out of that.

And so there are really fundamental issues of how do you not only get them trained — I mean, they may, in fact, be able to go to school and get computer science degrees, but if they can’t actually hang up their shingle and say I’m going to write applications, the local Hindi-based or Mandarin-based, Chinese dentist office scheduling app in the future, then they won’t get the benefit of the access to all these technologies.

And so we know that the real power of computing in the past and certainly in the future is going to come from having millions of people who can write millions of unique applications. In the past, those things were largely done as a business. And I think at the scale that the globe needs these capabilities they’re going to have to be done as local software businesses, and the question is how you get those things to form, and we’ve been very focused on supporting that.

One of the things that’s pretty clear, I mean, just the absolute growth rate of the economies in the emerging markets is outstripping that, as you might expect, of the established economies, but I think one of the things that is fascinating is to realize that many of the things that today are boat anchors attached to the economies and investments of people in the established countries just don’t exist as a legacy problem in these emerging markets.

And I think it’s often times difficult for people who’ve only spent their time in the rich world countries or who’ve essentially grown up in a very natural way with computing as we know it to think, oh, well, you know, the way we got to computing will be the way that they get to computing. And the reality is that won’t be true and there are a number of examples. I think cellular telephony is a great one. This is the same data presented two ways. The map of the globe is color coded and essentially it’s color coded where yellow, the lightest color, is the place where the ratio of cell phones is to landlines, traditional telephones, is zero to one, in other words the way it is in the United States where there are still more landlines than there are cell phones.

But the other thing getting all the way up to red is where there are two or more cell phones for every existing landline telephone in the country. And if plotted as a graph, you can see that some of these get out to 6 or 7 to 1 and that’s plotted against the per capita GDP.

So what you can see is the countries that have the lowest per capita GDP or even out where the average on the global basis of per capita GDP is you have four or five cell phones for every traditional telephone in the country. Why? That technology was cheaper than digging up the streets and having to put twisted copper in the ground, it was faster and so it allowed them to start with a wireless telephone technology, even after years of struggling to catch up using landline technology.

And so I think this is instructive as you think about the role that technology is going to play elsewhere and what its ultimate effect is on the rich world. I think CK Prahalad talks a little bit about this, at least in the discussions I’ve had with him, but I think many people have yet to fully internalize how this may actually happen.

Today, because they don’t have this constraint around legacy, they can cherry pick the best technology in order to solve the problem in my country today, and you can make that choice as a government or as a business or as an individual.

And the historical view of many companies, in fact, what I kind of personally think of as more the period of the multinational corporations as opposed to what I think will emerge in the future, which is the more or less truly global corporations, in the multinational case more often the view was, well, we’ve developed some cool products, we’ve got them fully distributed here in the rich world, let’s go take them over there, there must be some version or maybe a simplified or cheaper version of this that we can use in these emerging markets.

And that produces, of course, a huge tension. If you have a world product like a drug or in our case a company software system and it has equal applicability but you don’t have a uniform ability to pay and you don’t have a homogeneous regime for intellectual property protection, you get the kind of tensions that people see in the drug industry where they say, well, we should have an entitlement to that drug, we just can’t pay what the rest of the world pays.

That ends up putting the burden of essentially shifting wealth around on the corporation, who’s trying to essentially market the product in a uniform way on a global basis, and that is a very, very difficult position to find yourself in if you’re running a company.

But mostly that view was what you could call the trickle down view where the product starts in the rich world and you kind of trickle it down into the emerging economies. But there really is sort of a new view that many of the things that may be developed specifically because there is no alternative in the emerging markets may, in fact, trickle up or if you’re not careful you could say it boomerangs and comes back around on you when you weren’t really expecting it and really redefines some aspects of the market in the rich world. And I think again if you look at the cell phone example, now that China has become the single largest cell phone consuming country and a lot of the other highly populated countries who need the communications technology and who aren’t waiting around to put up twisted copper wire infrastructure, they’re essentially defining more and more the market capability and where the manufacturing capacity is.

So I think when you look, computing itself developed in the rich world essentially along this progression. It started from the computer, which you could say was the mainframe and it eventually through the microprocessor became the desktop. And to some extent the first computer in our lives was that PC and arguably the second computer in our life was probably the television. And as it got smaller and smaller and cheaper and cheaper, we now see the computer even in our cell phones and other places. But this was a natural progression because the technology was too expensive at the beginning to start and emerge in a very low-cost environment.

But if you actually look at what I think is going to happen in the emerging markets, it’s actually going to go almost exactly the opposite order. And part of this is driven by the cost issue and part of it is what is it that these people need to do first.

So I contend in most countries now the first computer that they’ll actually have, certainly the first one they own will be their phone and the second one will be their television and the third one will be a traditional thing we call a computer.

But in that case it probably won’t necessarily be their own real personal computer, their first access to that will be in a shared use environment. Whether it’s in a kiosk or a school or a business in their community, that’s where they’re actually going to go and graduate into the more complete capabilities that a traditional computer will offer.

And so it isn’t even going to be the traditional applications of information worker productivity and some of the traditional creativity support that you get out of a computer that will necessarily get the masses involved with computing. I think it’s going to come from these other applications that are traditionally going to be around communications and entertainment and those will be the things that get people involved with the technology that allow the infrastructure to be built at scale and then allow the infusion of all of these other capabilities over time.

So if you look at this and ask yourself the questions, if you want to lay a foundation for this growth to happen what are the problems that you need to focus on, who are the people that have to focus on those problems, well, one clear issue is infrastructure. But here, as I said, the traditional view of infrastructure is not necessarily the correct one. If you don’t have a legacy in either physical infrastructure or services or in particular even in a regulatory regime, then you may be able to start with a cleaner sheet of paper at least in trying to establish an infrastructure that would meet these needs.

I think one of the more interesting ones that we’ve been quite involved in at Microsoft is around spectrum policy. And you could say, hmm, you don’t make radios, what do you care about spectrum? And the reality is we’ve recognized for a long time, especially in these emerging markets, that it was going to be wireless technologies that would probably be the lowest cost, most rapidly deployed way to get connectivity into these bottom of the pyramid type of opportunities, and what we recognized three and four years ago was that the global regulatory regime around spectrum management was really not conducive to the broad, rapid rollout of these newly emerging radio technologies.

So everybody knows about Wi-Fi and perhaps WiMAX but there’s actually a bunch of new radio technologies, some of which don’t even work the way old radios work. And if you want to use those things in order to build high performance, super low cost radio capabilities, even if we’ll struggle to find a spectrum to stick them in, in the fully developed countries like the United States, Europe and Japan, it doesn’t mean that you couldn’t essentially today reserve access to that spectrum anticipating these things. The problem is most of the people who regulate these things in those countries don’t know anything about these new technologies.

So if somebody doesn’t come in and help them understand these issues, then they’re not going to get the spectrum policy right. Why? Because they’ll just sort of copy the spectrum policy that was largely put in place by other countries. In fact, the World Radio Conference, which only happens about every four years, is where the world agrees on some of these things in the air and the whole nature of that has been one that tends to homogenize the way people approach these things. That may not be the best approach here.

In the case of training and education it’s also pretty clear that we can’t really all do this ourselves. You can’t do it yourself if you’re the public teacher, you can’t do it yourself if you’re just the enterprise. So in training and education there’s going to be more of a requirement for collaboration up and down this opportunity chain in order to be able to get people acclimated and being able to take advantage of the technologies. So we have a lot of focus, as I said, at Microsoft in these programs around education and training.

Local development and adoption of products, I spoke a little bit about this a minute ago. It’s really the question of — and I think this is the essential question in the long term. If we’re going to see a lot of innovation happen by harnessing the collaborative capability of the world’s population and IQ, if you want this thing to essentially be a business as opposed to a giant collective of some type, then people are going to have to make money.

A lot of people talk to us, and I think there was a really interesting comment that Bill Gates made at one point, somebody asked him if he thought in these environments everything will be free, that everybody just wants to have this stuff as an entitlement. And Bill said, “Frankly, when I go to most of these emerging markets, the thing most of the people come up and tell me about and ask me about is, ‘What do I have to do, I want to be the Bill Gates of my country.'” And that’s about as far away a dream as you can get from saying I just want to be contributing my effort in order to be able to help everybody in my country.

And so clearly there are people at both ends of the spectrum but the bulk of eradicating poverty through profit is going to require a huge number of local, small and medium businesses and not a giant method of doling out everything from the governments.

And so it’s very, very important to think now about how does this intellectual property regime work, how is it balanced over time between the needs to get the countries established in a global environment and recognizing what the capability to pay is, for example.

So I think in part these things will be altered by changing the business model of intellectual property based businesses, but some of those things can’t be changed, it just doesn’t make sense to think that, well, for example, you can’t rent access to a pharmaceutical. You take it, it fixes you up and you’re done. If it took you a huge investment to invent the drug but then people don’t pay for the use of it, why is this an issue? It isn’t just an issue for software, pharmaceuticals, music and movies; basically everything we do today, everything we write, everything we design and, in fact, everything we tangibly have access to is largely at some point either represented as a digital virtual description of some kind, the way it’s manufactured, for example, or it can be synthesized from the actual object.

And so in a world where counterfeiting and cloning can be done on just about anything, whether it’s an intangible good or a physical good, the world is going to have to come to grips with this fundamental question of how do you pay people for their invention.

One of the things I’ve been personally advocating and Microsoft and other big companies are working on with some governments now is the question of how do you reform the global patent system.

When I visit most small countries or even large emerging economies the sense you get from talking to them isn’t that they don’t value intellectual property, it’s that they think the world is too asymmetric today, that it’s only the big, rich countries who have patents, can get patents and can get them in a large number of countries in the world, therefore it looks like a rich world tax on the poor countries.

But then you have these millions and millions of people who think they’re just as inventive as anybody in the rich world. Their problem is they don’t know how to get a patent and tax the rich world.

And so we’re actually working on a way of coming up with regional patent systems, for example, that would allow someone to have the same facility to get a global or regional patent, if you will, in a tiny country as a small enterprise as you might have if you’re at Microsoft or DuPont or General Electric. And I think if we can get that kind of symmetry in the system with the active participation of these emerging economies, then you’re a lot more likely to see people realize the dream that says, hey, if I sit in India or Russia or China or Malaysia or wherever it might be, if I invent something, the Internet should be my vehicle to market it around the world and support it around the world, but I want to get paid around the world.

And so I think there are some really fundamental issues here. We’re super active at Microsoft in these questions and welcome a dialogue with more people about that.

And then finally I think you look at the whole range of emerging technologies and I think there are two important things to realize. One is that technology hasn’t really slowed down, the dot-com bubble wasn’t the end of invention in information technology or any other area for that matter. If anything, it’s accelerating on a global basis. And the diversity of this is really quite spectacular.

Just as I mentioned, for example, that novel radio techniques could redefine the cost-performance equation of new, for example, rural wireless networking capabilities, that would really create even an alternative for broadband connectivity to the idea that you just build 3G or 4G cell networks and hope that that will provide enough capability.

These technologies represent huge opportunities and frankly the emerging markets represent a great place to try to employ them to their fullest capability because you don’t have a legacy to overcome.

And that’s the way that we look at this at Microsoft. We have assets that we know are applicable out of our traditional products but every day we come to work and we try to build products that we think are going to appeal to these people and we think about new ways we can market them and support them and involve people in the development of these local economies and push this all forward.

The one thing that is very important about software and information and communication technology is that no matter which of these interesting new technologies you might aspire to be involved with, you just can’t really advance in the field of science and engineering without information technology; it just doesn’t really get done anymore.

And so it is very, very essential to get the policy, infrastructure, regulatory regimes, business models and in general cultural mores around the importance of these technologies to be well established, because otherwise I don’t believe there will be the kind of rapid growth of the economies that are possible in the broad adoption of these technologies that will really help to achieve this goal of eradicating poverty and hopefully disease and a few other things.

So those are the formal remarks that I wanted to make this morning and I’d be happy to answer your questions.

MODERATOR: Great, thank you very much. Please have a seat right here. Craig Mundie.

Your questions for Craig Mundie are welcome using our card system. Craig, thanks very much, a superb address and very instructive.

How does Microsoft think of the bottom of the pyramid market? Do you call it that? Do you have a business unit that’s focused on people who earn less than $1,500 a year and thinking about how you’re going to address that market? Do you see it as a source of significant profit for Microsoft in the immediate or midterm or distant future? Talk about it, would you?

CRAIG MUNDIE: First, we haven’t organized the company in any unusual way to address this. We think that the opportunity to provide software in any manner of device to anybody on the planet is the business objective of all of the people at Microsoft. And so we think of this as just a natural progression in terms of where we can sell our technology.

So each business groups, the Windows group, the MSN group, I know Keith Kegley was here and spoke on one of the panels, he’s from the MSN group. MSN today provides the world’s largest e-mail service, Hotmail. I guess there are over 400 million active people who use it. It’s a free service. In a sense it’s ad supported. What they recognize is that unfortunately advertising as a business model doesn’t really work in most of these emerging economies so they’re actually leading Microsoft in the direction of offering prepaid cards just like they’re used for cell phones in order to be able to have an alternative payment system so that people who want to get access to these more advanced features but where it’s non-economic for the company to provide them in a place where there’s not sufficient income levels to allow an advertising market to emerge, can actually have an alternative way to get started and offer features for those people who have the ability to pay.

But unlike the traditional model that says, well, you know, you’d have to pay for this all in some lump sum, the way you’ve always bought our historical products, in this case it’s a service and they may be able to sell you things on a pay-to-use basis.

So this is just an example where as a natural byproduct of being there and doing these things at scale we’re forced to examine alternative business models, payment mechanisms and product offers frankly that we think would work there.

MODERATOR: Okay, so while you have not, as you put it, reorganized the company to address this, each of your business lines do you think is thinking about the bottom of the pyramid as part of their regular decision-making process as to which markets they’re going to approach? Has this been discussed? I mean, have you had meetings internally about this bottom of the pyramid thing? Does it have a level of prominence in the company?

CRAIG MUNDIE: Well, yes and no. (Laughter.) Well, I’ll just say personally I started sponsoring our work in China five years ago and today there are two people, both on the management committee at Microsoft, myself and Kevin Johnson who runs our worldwide operations, who are the personal sponsors of the company’s incremental investments in emerging markets. So in that sense it has the support and sponsorship operationally, independent or above the level of the individual business divisions, from the top management group in the company.

We tend to think of it, if you will, more as just the opportunity of these emerging markets as opposed to specifically saying, oh, we have to have something special for the bottom of the pyramid. We tend to actually just look at the whole pyramid and say we want to have some way to be involved in support of the opportunities that range throughout that entire spectrum. And we deal with the practical reality of in a country understanding what are the income levels at various groupings of the population, what offer can you make in that segment and in essence we are moving well beyond the sort of one size fits all model of either the product or the business model and that’s being sponsored throughout the company.

So we have a number of business divisions for a variety of reasons who say my product doesn’t have a low cost alternative, so I either have to market it to the upper part of that country or if there is some other problem, like intellectual property. Xbox is a great example where just because of the nature of the product that if people can’t afford to buy the game at sort of a world market price, then it isn’t clear you can bring it there because the market really depends on the ability to buy the games.

If you don’t believe that there would be adequate protections for intellectual property, then you can’t actually be there because the company would just be paying people, the company would be paying the people to have the box as opposed to the people paying the company for the box.

MODERATOR: I’m glad you mentioned Xbox and brought this along from AMD, right?

CRAIG MUNDIE: That’s AMD’s, yeah.

MODERATOR: Yeah, right, this is AMD’s. What about, I mean, Xbox is your piece of hardware. What about hardware to address the bottom of the pyramid from Microsoft, Microsoft branded? Has this come up at all?

CRAIG MUNDIE: No, not very much and the reason is we generally are not in the hardware device business.

MODERATOR: Right, it’s unusual with Xbox.

MODERATOR: Xbox was a unique market and a unique business model and to some extent it required that it was a product brought to market by us.

I think that the PIC from AMD is probably — and a lot of the work we’re doing in cell phones and television, frankly, area lot more like our traditional partnership that we have with other companies to produce the hardware products as appropriate and be able to support them and deliver them at scale in those countries, and we don’t think that our core competency is in the hardware area.

MODERATOR: I was surprised to hear you discuss how you’re making software available absolutely for free in some instances. I’m sure everyone would agree this is a wonderful thing, but I’m wondering about the business model that underlies that decision. These schools, ministries of education and what not may not be wealthy but that doesn’t mean they have to receive things completely for free. Talk about that decision.

CRAIG MUNDIE: Okay, well, the decision we made you could say was part one that was in service of some sense of corporate social responsibility and supporting the goal of educating people in a more uniform way. What we did is we actually used a World Bank metric to determine what we thought was a cutoff between where a school system in any country would have the capacity to pay for software on a normal school agreement basis. The company has always offered its software at a very, very substantial discount on commercial terms to school systems, but once you get below a certain level the school system itself can’t even afford to buy at the discounted price and so that was where we made the decision that we would rather support the idea that all the students would have access as opposed to not.

And what was fascinating about that decision to me was that we didn’t make the decision by country, we made it essentially by school district globally. And so the poorest school in Alabama it turns out qualifies for this program but that’s a small part of the United States that actually qualifies for it, where if you go to some of these emerging markets the whole country, every school qualifies for the program.

MODERATOR: Interesting.

CRAIG MUNDIE: And so we really did want to address the question of making the technology, as much as we could, available to everybody independent of their capacity to pay in that basic education environment.

MODERATOR: Regarding trickle up technology, that will be wonderful to see that happen. Is Microsoft funding new technology development outside the U.S. that might indeed turn out to be some of those technologies that trickle up to the developed world?

CRAIG MUNDIE: It’s possible. It turns out that Microsoft has built development and research operations in a number of countries. We have research, pure research done in the United States, the United Kingdom, China and we just announced the opening of a lab in India. We have development centers in actually more countries that actually do the product development or localization activities.

In many cases we treat the development capability of all of these laboratories as essentially a global resource, so the people in China work as hard to make things for the global rollout of these technologies as they do to make something for China itself.

We do take advantage of the fact that some have local knowledge, local language capabilities that doesn’t exist and where we need that to service that market they may produce something.

At this point, we have not started and identified and said, oh, let’s do a whole lot of special products just for this market or just for the bottom of the pyramid, but I think that as we’ve done things like the Starter Edition, for example, today we’ve rolled that out in five countries and we’re looking at each country to determine where is there appropriate balance between the government’s interest in supporting these kinds of really low-cost PC programs and our ability to support them, too, and I think you’ll see more countries supported in the future.

Starter Edition is an example where when we went in and looked at what does it take to take someone who’s never seen a PC before and who has nobody to call for tech support, not even the kids in the village understand this stuff — (laughter). You kind of laugh but in the United States most families actually depend on the teenagers and the networking among the teenagers frankly as a principle part of how they manage the technology in the household. But that presumes that there was access in schools or some core part of that. And you go to a rural village and there isn’t any of that yet either. And so we have learned lessons as we’ve really done the engineering of these products to say, look, if people are really, completely cold starting, what do you have to do.

So, for example, that Starter Edition product, I told the funny story about the mouse as a foot pedal, that product when you take it out of the box and turn it on, it doesn’t presume you know what a mouse is or how to use it. So you can actually get the machine going and get it into the point where it’s starting to train you without having to understand what it means to point and click.

And these things seem you could say almost ridiculous but for people that have never seen it, it’s the difference between getting frustrated and not knowing even what the direction mean and in being able to have a positive first experience. So that kind of thing we do project back up into all the products.

MODERATOR: A number of questioners, at least six or seven are asking about Open Source as opposed to Microsoft branded OS, which is more proprietary and the likelihood that Open Source with its lower cost point may come to dominate business in the developing world. How do you think about this struggle in terms of the bottom of the pyramid market?

CRAIG MUNDIE: Well, I think there are several important aspects to what lays under that question. The first is it’s important to distinguish between Open Source as a way of sharing knowledge and allowing shared work, which has been around for a long time, that’s not a new thing in this country or anywhere else. And Microsoft has always been a supporter and, in fact, a beneficiary of the fact that that kind of intellectual commons has existed and been a fundamental part of education, particularly in our field of technology.

What I think has become more of an issue is when people decide to extend that model to one that eschews the idea that people should own or be able to make a business out of software directly, then you start to see a tension in this.

It’s also pretty clear that in these markets at the end of the day the software itself, the fundamental platform software isn’t going to be the most expensive part of the acquisition of these capabilities. And it comes back to this question of whether you think, whether it’s for us as an infrastructure supplier or whether it’s the local companies, is there going to be an economy in software or is software just going to be something that you get as a byproduct of buying some other goods or services.

The earliest days of computing were ones in the IBM mainframe era, Univac, Control Data, Honeywell, all those companies were vertically integrated and said, hey, software, it’s just something you get when you buy the machine. And eventually the world became more horizontal and the world we know today said, no, you want to tease these things apart.

In that world, how the world of community developed software plays out, whether or not people are really allowed to make money in software itself or whether that goes away, we don’t think it will go away because the ultimate cost of running these systems are dwarfed by the actual cost of acquiring the software component of them. But it is a challenge and frankly one because many people don’t think down the road a ways to whether they need a local software economy.

Our view, which I would tell you is largely taking hold with the top people in the Chinese government, for example, and in a number of the other places, is that they have made this leap to the idea that they want to have a local economy, they know they’re going to need tens of thousands, maybe millions of people who get paid to write software in China to meet China’s requirements to, as they call it, “informatize” all the sectors of the economy. Today they’ve also been proponents of using free software or Open Source Software as a way to create an alternative platform.

But I think that these things will come into a new equilibrium and that you won’t see the world even in the bottom of the pyramid environment completely overrun, for all the reasons I said about the Bill Gates’s anecdote, you know, the people at the bottom of the pyramid are some of the ones that come up and say, hey, I want to be the next Bill Gates and those people are going to demand I think some way to ultimately be paid for their effort.

So today we have a large, you could say, under-employed population of high skilled people, the Internet has allowed that community to come together and work on some of these problems, but I don’t think at the end of the day it will be to the elimination of traditional notions of having software as a business.

MODERATOR: Craig, the audience here, half corporate and half governmental and NGO, brings a lot of background to this area and I have said since the beginning of the meeting that when we don’t have a chance to ask all the questions that have been submitted we will give them to the speakers to read after they leave, and I’m going to hand you a few now that we don’t have time to get into, ideas about, for example, multi-user licensing for poor, small businesses in emerging economies, more about trickle up, more about open technology, lots of things you may find interesting, these little tidbits where you’ll see what was really top of mind for these folks as they had the opportunity to speak with somebody from the top of Microsoft, Craig Mundie.

CRAIG MUNDIE: Thanks a lot.

MODERATOR: Thank you very much indeed, good presentation, Craig, thank you.

CRAIG MUNDIE: Thank you.

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