Robbie Bach & Pieter Knook: Mobile World Congress 2008

ANNOUNCER: Ladies and gentlemen, please welcome Microsoft Entertainment and Devices President, Robbie Bach. (Applause.)

ROBBIE BACH: Good afternoon, everybody. Welcome to Barcelona. I want to spend some time today talking a little bit about the broad strokes of our strategy in the mobile space. We’ll also make a few announcements, and then Pieter Knook is going to come on stage as well to talk about the specific approaches we’re taking in the marketplace and how we’re going to make this happen over the course of the next few years.

Now, if you think about — if you were here three or four years ago, and you think about our vision for where we were in the marketplace, you would have said, you know, gosh, Microsoft is painting this vision of these rich devices that are going to do all these different sets of things, and you would have looked at the phones we had at that time, and you would have said, well, maybe.

But that vision is now here today. You see the devices that are coming out on the Windows Mobile platform, and they are rich, they are powerful, they’re easy to use, and they are bringing to life that vision we would have had three or four years ago.

If you think about the idea that a mobile device would be more than just a voice device, that it would do text, that it would do music, that it would do photos, that it would do e-mail, calendaring, a full range of functionality, that is now all here before us.

The exciting thing about that for Microsoft, as cool as the devices are and as excited as we are about the devices, is that software and services are playing a central role in making that happen. We think there is a tremendous opportunity for us in the marketplace to continue to make that happen going forward.

But our vision doesn’t stop with what we’re starting to bring to the market now. At the Consumer Electronics Show, Bill Gates showed a vision of the future for what will be possible with mobile devices and with the technology that is coming into the marketplace today.

Now, this is a foldable phone I suppose is the way to say it, but of course it’s much more than a phone, and would do a wide variety of productivity tasks.

And the point of bringing this on the screen isn’t to say this is some specific design, but is to point out the direction of what’s happening in the mobility space, and how powerful this is going to be.

If you think about five years from now, the mobile space will not be about voice. It’s about a general purpose computing platform. It will be the place where people can do a wide variety of things on these types of devices. It won’t replace the PC. It will add to the PC. It will be different than the PC. It will bring new things to life that you can’t do today.

And again because software and services are going to play a fundamental role in that, Microsoft is going to continue to invest in this space to make this type of vision become a reality, just like five years ago when we had the vision for today’s Smart Phones, to bring that to a reality. So, you’re seeing this migration of what we’re doing from a vision and from a direction perspective.

So, now if you think about the other type of changes that are happening in the marketplace, that’s a broad look at the vision for what’s happening, let’s think about what’s happening from the customer’s perspective. Again, if you go back five years ago, customers would have said, “Well gosh, these are business phones.” People would have bought them because they were doing business on the road, they were traveling, they were doing those types of thing, primarily for voice.

If you now look at what’s happening, people don’t think of these as business devices. Frankly, they don’t think of them as personal devices. These are devices that span your life. They go from what you do at work to what you do at home, and so the challenge for us in the industry is figuring out how to service that broad array of functionality.

So if you start on the left-hand side here, many of the things that we’re strongest at at Microsoft and the work we’ve done with Windows Mobile start in business. They start with integration into the IT organization, deployment, communications, e-mail applications, security, all the things that you’ve seen us work on to build the Windows Mobile platform over the last five years into a very powerful platform for business.

You see on the left-hand side of the screen application development, working with corporate developers and people who are building that. Now that’s exciting and it’s helped us build a great business today. Pieter will talk about the data in a little while but this year, in our fiscal year, we expect that 20 million devices will ship with Windows Mobile on it, and that’s very exciting.

Now as we look to what’s happening in the future, though, we are expanding the work we do with Windows Mobile to complete the picture, to reach out beyond your work life into your personal life so that one device can carry you from start to finish. So things like rich Internet access, personal communications as opposed to business communications, music and entertainment, gaming, a broader range of consumer applications that will be exciting for people and that they’ll want to perform on the same device, and just like the PC has a broad array of things that span what you do at home all the way to what you do at work, your mobile devices will enable you to do exactly the same thing. Some of this is here today; some of it is more work we have to bring forward in the future, but we are very excited about what we’re able to do in that space.

Now what’s at the center of this? What is key to making this happen, and I mentioned this already a little bit, but the company’s vision for software and services is what is fundamental to this. Again, hardware design, you’re going to see some cool hardware designs at the show here, including some today, which we’re very excited about. But the thing that ultimately enables and empowers all of these applications is the software and services that are built into and on top of that hardware.

So when we think about thing, whether we’re in the PC and the online space, working on the enterprise, working on personal devices, for us the skill set we bring, and we think the thing that’s powerful is our ability to deliver software and service solutions on top of these great devices.

So you see two big trends in what I’m outlining today. One of those is the idea that mobility and these applications are going to span work and personal life. That’s a big part of what we’re bringing to this year’s congress. The second thing you’re going to see is the idea that software and services are fundamental to the experience and the most important part of what we think we can add going forward.

Now that does bring us to a couple of announcements, one of which — the first of which — I’m very excited about, which was made last night by Sony Ericsson. We’re very excited to have Sony Ericsson join us in the Windows Mobile space, with the Expera X1. You can see a picture up there. I’ve got one here in my hand. Very nice device, it slides out, turns around, nice keyboard, touch screen — very rich environment.

We think this is the awesome example of that thing I talked about, of spanning from your work life to your personal life. A combination of Microsoft’s expertise with Windows Mobile and what we bring from the work life with Sony Ericsson’s incredible expertise in what they do in the personal space with cameras and music and other types of functionality.

So when we look at devices like this, we think there is a rich opportunity for the future and we think this is another example of us expanding in that space. Note that with the addition of Sony Ericsson to the Windows Mobile lineup, we now have four of the top five hardware manufacturers producing Windows Mobile phones, and I think again that speaks to the momentum we’ve gained in the marketplace, to the acceptance we’re getting with both operators — now with 160 operators around the world carrying Windows Mobile devices — and work that we’re doing with the highest quality OEMs in the world, who are designing some really cutting-edge devices on top of Windows Mobile.

So that’s the first announcement we’re making today. The second announcement we’re making today is that Microsoft is announcing that we have reached an agreement to acquire the assets of Danger, which is a company based in the United States. Danger creates software and services that run primarily today on T-Mobile in the United States and a few other operators in Europe, but primarily on a sidekick brand of devices today.

These are software and services that relate to that right-hand side of the picture that I talked about, that enable social networking, enable personal communication, enable an audience of people that constantly want to be connected with their friends and that constantly want to be connected with their data, their pictures, and their media experiences. Danger brings tremendous software and services experience to Microsoft and really helps us complete that story, and will help us build out our services lineup over time.

So this is an exciting opportunity for us. We’ll be incorporating Danger into the work that we do and continuing the work that they already do, and I think as you see going forward, it completes the picture for us in terms of making the transition from just being on the business side of things to being in the lifestyle side of things.

Again those two themes — software and services, and working from business to lifestyle — both of these announcements today fit perfectly into those broad trends and to what Microsoft is trying to accomplish. Now you might say okay, where does that leave us? I want to present sort of the all-up picture for how Microsoft thinks about mobility. Mobility is a core function and a core process for what Microsoft is doing today. We are very focused on this as a key platform for the future. If you went across the company and said what are the top two or three or four things happening inside Microsoft, mobility is one of those top two, three, or four things.

Now with all the other excitement about other things going on in the company right now, this is critical to our future and a big investment that we’re making for that future. So if you look at this from the bottom-up, it starts obviously with the work we’ve been building over the last five years with our partners, whether that’s in the Silicon space, the device space, operators, and developers — really a critical investment. This is what enables us to produce a rich platform. This is what enables us to produce devices that span a lot of different operators and a lot of different target audiences. So it’s this fundamental work, which takes lots of work, to build the trust and partnerships with these key partners to make that happen.

The second thing that’s part of our strategy is development tools on top of that, again a core experience for Microsoft since the beginning of the company, really. Whether that’s Visual Studio Silverlight or our .NET framework, these are tools that people need to build on top of the core operating system work that we do and to build on top of the environment that we create with our partners. Again what you’re going to see as this becomes a general purpose platform, people are going to need tools to create custom experiences, and that’s why this layer is so important.

Certainly we’re not moving away from the business space, so the work we do with IT infrastructure continues to be incredibly important. Businesses count on Microsoft to enable this technology to integrate into their infrastructure. They now think of phones not as oh a device that people buy; it’s a fundamental part of the way information flows within the company. It’s part of the IT assets that they have to manage. We have to build and integrate that into the other IT products that we do at Microsoft and I think we’re doing a great job in that space.

And finally, and in most ways most important, are the experiences that actual consumers experience on our devices. Now in some of these cases those are things more focused on productivity like Microsoft Office; in other cases they’re things more focused on personal productivity, personal entertainment, some of the things you get in communications with Danger, with games for Windows, things we’re doing in our live services platform. All of these things come together to create this set of experiences that can span your work life and your personal life.

So when you put all of that together, you see a couple of important trends. I think we made two announcements last night with our partners at Sony Ericsson, today the acquisition of Danger, that really position us very well in this space. And so what I want to do now is I want to call Pieter Knook up as the Senior Vice President of our mobile communications business and have Peter take us through kind of how we’re going to take that high-level vision and strategy and operationalize that inside the company. Peter? (Applause.)

PIETER KNOOK: Well good afternoon, everybody. It’s an exciting time for us to think about how we implement that vision that Robbie is talking about, and to give a sense of progress I thought I’d look at what was happening at Mobile World Congress this time last year, and what’s happening today, and certainly if you look at our share of the top five device makers just before Mobile World Congress this time last year, we had two big partners in the top five: Motorola and Samsung. We added LG last year and of course with the addition of Sony Ericsson this year, we’ve grown from two to four. So that’s 100 percent growth.

We’ve also seen some fairly significant expansion of our developer environment. Up until Mobile World Congress this time last year we had had total downloads of our software development kit of about a million and a half units, and in the last 12 months we’ve seen an additional one and a half million downloads, leading to a total developer download of three million units of our software development kit.

And the other area that’s worth thinking about is the expansion in terms of the acquisition that we’ve made to supplement what we’re doing with Windows Mobile.

ScreenTonic was an acquisition we made a little bit over a year ago. We’ve added to that over the course of this year with Musiwave, a French company building white label music services for operators, and of course our most recent announcement here today of Danger. So you’ve seen continued investment, continued momentum behind the Windows Mobile portfolio and the services that support that.

So I think from that point of view you see a lot of growth. But of course the story doesn’t end with Windows Mobile. First of all, when we think about our services, we see those being made available on a range of platforms. Of course there are clients for services like Live on Windows Mobile. There are also clients for other platforms like Symbian. So we have both a rich story where we bring the full stack together, on top of Windows Mobile, the range of services and applications, but equally make those available on other platforms.

Similarly, we have other people’s services that are available on the Windows Mobile platform. Of course we have GoogleMaps clients, we have Yahoo! Go clients; we have a range of different products that will supplement the Windows Mobile platform with other service and applications offerings, and again we see that extending the reach, extending the utility of what we’re doing in Mobile beyond just the business productivity space to other areas that are more consumer-oriented, lifestyle-oriented.

So for us that’s an important expansion of what we’re trying to do. Another way of looking at this is to think about how the operators might segment their device portfolios. When you walk into a typical operator store, you might see a specific counter talking about the business productivity slot, where typically a lot of the Windows Mobile devices would be. With the addition of all the work that we’ve done around live access on Windows Mobile, we’ve also seen expansion into what we call the personal productivity slot. The mobile Internet slot really expands that reach into an area where we can bring to bear all of the Microsoft Internet technologies and expand our presence in that Internet portfolio.

And then some of the things that we’ve announced here today, that we’ve announced over the last 12 months, and of course some of the core assets that we have in Robbie Bach’s division will allow us to expand into other multimedia, photo, and music slots in that operator portfolio. There are of course a couple of other slots in the operator portfolio which we as the software-rich player don’t really participate in today: the fashion-oriented phones, the voice-only phones are not areas where Windows Mobile has real presence.

So software is what makes the difference in this portfolio, and certainly you see us expanding what we’re doing with Windows Mobile the platform and the services infrastructure that supports that outside of the business productivity space and moving beyond that into other areas.

Of course as we do that, we also see some other changes, because the business model by which we make our money will change too. So today we license our software on an OEM basis to device makers. That is a big business model for us. As the unit volume continues to increase that becomes a more and more interesting business, even by Microsoft’s scale.

But with the addition of new capabilities like the Mobile Device Manager, we’re also expanding into the classic Microsoft licensing to enterprise and business IT departments, and so we’re collecting both server and client access licenses from people who are deploying servers in their IT infrastructure. So that becomes a second source of revenue from mobility.

Thirdly, we’re seeing the whole idea of mobile services as a brand new area for us. We’ve certainly seen with Live the ability to charge subscription, whether it’s bundled into an operator’s plan or whether it’s built as a tariff plan on top of a data plan. Either way there’s a recurring source of revenue and Microsoft shares in that source of revenue. And of course then there’s the advertising business model. Since we really started talking here this time last year about the local search client and some of the other search activities that we’re doing at Microsoft, we have built an advertising model that we see expanding and leading us to new areas.

So we see a diversification of where the money comes from, but we also see a bigger play across Microsoft where the way that we monetize mobility moves beyond just the device itself to the services, the application, and indeed the servers that all support mobility. Sometimes that’s expressed on our PNL, on Robbie’s divisional PNL which we break out separately; sometimes you might see that in other P&Ls inside Microsoft if we’re selling servers or other infrastructure that might appear there.

So all in all the point I’m trying to make is that this really becomes a very significant business for Microsoft all-up, both because of the volume of the sockets that we’re supporting, the devices themselves, but also the servers and services that support that.

So one thing that I’d like to just talk about a little bit is this notion of a platinum device for Microsoft Windows Mobile. We’ve seen a range of devices that have shipped a million units, and up until this point there are several devices that have reached that status, and we’ve got some new recent additions certainly since this time last year with the addition of the Samsung BlackJack, which is now a million-unit shipper and also the HTC Touch, which has already shipped two million units.

So we continue to see the club of platinum devices expand and grow, and that’s very exciting for us, and in fact these newer devices are getting into that platinum club faster than any previous device. So we’re getting into that club in months rather than years. So what that means is that we’re ready to talk about how many units we sold over calendar 2007.

As many of you know we have talked about 20 million units being our goal for this fiscal year. Our fiscal year runs through June 30 and we’re ready to say that up until the December 31, we sold 14.3 million units of Windows Mobile, which puts us handsomely ahead of both Rim and of course by a significant margin ahead of Apple iPhone. That puts us on track to reach our 20 million unit goal for the full fiscal year and we’re very excited to share that number with you. So we continue to see that momentum.

In your press packs you will see a large number of additional announcements that Microsoft is making. I’d like to just pull out a couple and as we get into the Q&A we’ll be glad to talk about any of the other announcements. But a couple I’d like to focus on at least for everybody, first of all is the MTS announcement. MTS is an operator in Russia. It’s the biggest operator in Russia and Ukraine and a couple of other countries, 65 million subscribers, and we’ve announced a broad agreement with MTS to work together on consumer services, the first of which will be a subscription offering of a Vista-based PC with a broadband 3G card inside, expressed as a business model on a subscription basis. So that’s a very exciting announcement, certainly gets us into consumer provision of mobile laptops to consumers in an emerging market like Russia or the Ukraine.

The other announcement I’ll pull out is the Telefonica one, talking about how that expands what we announced last year with play-ready support from several operators this time last year, to now also include Telefonica and indeed Wind and (Arascot ?). But that again demonstrates the level of commitment and support we’re receiving for that play-ready technology which is clearly a foundation of the content access, protection of content in a music video, downloads, and other purposes. So this covers all types of content from music and video to software.

So there are a range of very exciting announcements there. Now what I’d like to do is just to show you a couple of these software experiences very briefly and to do that I’m going to ask Greg Sullivan to join me on stage, so he can really show some of the latest devices in consumer experiences. Greg, Welcome.

GREG SULLIVAN: Thanks, Pieter. Well I’m really excited — yes, thank you very much. Don’t hold back, don’t hold back. A couple of my fans and my family in the back there.

PIETER KNOOK: Right.

GREG SULLIVAN: Well I’m really excited to share with you a glimpse of some of the great consumer experiences that are available from Microsoft and our partners on Windows Mobile today. As you’ve talked about, we’re already in this space more than people realize and these investments will bring us further, but a couple of exciting things.

This is the Palm 500V from Vodafone. It’s a very popular device here and one of the interesting things about this is that our development team worked to develop a great new home screen that’s a little bit different than what you see on a typical Windows Mobile device. So I can go ahead and hit Start and I can scroll through a whole range of programs, third-party —

PIETER KNOOK: That’s not my normal grid layout.

GREG SULLIVAN: That is not normal grid layout. We’re proud of the fact that our Windows Mobile Home screen is dense in information but consumers want a little bit different access and somehow to be a little more fun. So we have this handy little toolbar that we can scroll through, I can get my music and my videos, I can log into Windows Live Messenger and stay in touch with my friends, really exposing all of the rich information that’s on that device. So that’s a pretty exciting new device that’s in market today.

Another one is the T-Mobile shadow which has done very, very well, and this is another example of the work that our development team did to really develop a new take on what the Home screen can be. This is a particularly interesting one in the combination of the hardware and software integration where this scroll wheel lets me fly through some of the available things I have on my phone. I can go ahead and go through all of my e-mail options, MMS, set up a new message, look at my calendar. Of course I can get right to my music from the Home screen and in fact one of the really cool things about this one is —

PIETER KNOOK: You’ve been around, yeah.

GREG SULLIVAN: — on my trip to Barcelona I had a chance to get out and snap some shots, and so I can scroll through these and excite my friends and family with the vacation slideshow, right from my Home screen.

PIETER KNOOK: All one click away.

GREG SULLIVAN: All one click away, really exciting new device. Well one of the other really exciting things that’s going on is the great new service from MSN Direct. MSN Direct from Mobile was announced today. There’s an evaluation that’s available, a technical preview, that you can download. Any Windows Mobile 5 or Windows Mobile 6 user can go ahead and download this from MSN Direct and really get great, at-a-glance, relevant, up-to-date and free information right on your Home screen.

So one of the exciting things here is I can see the weather here in Barcelona. It is of course sunny and warm. We don’t have that in Seattle always, so I may save this screen and bring it back with me.

PIETER KNOOK: Yeah, exactly.

GREG SULLIVAN: So I can drill into that a little bit and it shows me more information, again right at a glance, really nice-looking. I can go ahead and find out what the weather over the next several hours is going to be. Remain sunny, we get a little bit of cloud here.

PIETER KNOOK: Yeah, exactly. What are you doing? Don’t tell these people. We’re going to spend more time inside.

GREG SULLIVAN: Well here we’ve got the next few days in Barcelona, but I think if we happen — oh look, it’s raining in Seattle. It’s real-time data. It turns out that one doesn’t have to be updated as frequently as the Barcelona one. But again, I can scroll through and if I’m in here I can switch to the left or right and go ahead and just like changing channels on a TV, get right to my entertainment information. I can go ahead and find out what’s going on in the world of entertainment. Again, Britney Spears is in the news again. Again, that’s real-time as well although that’s —

PIETER KNOOK: Doesn’t change.

GREG SULLIVAN: — been the same for six months. That one doesn’t change much either. But I can go sports information, top news — the neat thing about this though is when I click on that, it can give me the chance to drill a little bit further into that information and then go onto the Internet and download a web page and really read the whole article. But I get just the information I want in a really accessible, at-a-glance, easy-to-use way. It’s very fun and we’re excited about the technical preview that was just announced.

Well the next thing I want to show you is a really exciting new application from a partner of ours called Zumobi, and Zumobi is a way to get all kinds of relevant information that you care about, that’s personalized, and access it and share it and update it in a really fun way. We’ve got this new zooming interface. This tiles, and what I see here is called my] zoom space. I create my own personal zoom space. I go up on their website and I select from a vast array of information and web services that I can personalize in my own personal zoom space, and then I literally can zoom around. I can click and zoom in if I want to look at news or sports, I can zoom back out here if I want to look at the little clip from the latest Family Guy episode. You know, cartoons are big now.

But I can really — for example, I’m going on vacation here soon. I’m going to take a ski trip. I can drill into the tile that has the latest weather information and ski report in Vale, so — I’m taking next week off by the way. I hope that’s all right.

PIETER KNOOK: So am I.

GREG SULLIVAN: Good man. But this really provides a great way — a glanceable — again, up-to-date, always up-to-date free way for me to get that information and I can share it. I can send these tiles via SMS to my friends, who if they don’t have Zumobi will then be pointed to how to download it and get this great, fun information right on their phone. So that’s a really exciting new thing that’s available now as well.

I think the last thing I want to show you is on this phone. This is a game from a company called Amiga and what Amiga has done is this game called Invasion. It’s a really fun kind of Space Invaders or Galaxian and one of the neat things I like about this is the graphics are just incredible. I’m literally seeing what, until very recently, would have been kind of a PC-like experience on a mobile device, and so I can scroll through here and the graphics and the sound are really powerful. These guys are taking the power of the platform, the power of the device, exploiting it through our development kit and really building on to exploit the device capabilities, the display capabilities, and have something that’s really fun.

So now you may realize when I pass you in Building 117, often I’m looking down at my phone doing e-mail and hard at work, and —

PIETER KNOOK: That’s why, right.

GREG SULLIVAN: — now you know actually what I’m really doing.

PIETER KNOOK: Yeah.

GREG SULLIVAN: But the ability to actually go and work anywhere I want and play anywhere I want is one of the exciting things, and so I think from these quick demos you can see that today Windows Mobile is ready to come home from work.

PIETER KNOOK: Great, thanks very much, Greg.

GREG SULLIVAN: Thank you.

PIETER KNOOK: Thank you. (Applause.)

ROBBIE BACH: So I think we’ve tried to paint a picture there of what’s even possible with Windows Mobile today. The kinds of things that obviously we’ve become renowned for in the business productivity/personal productivity areas are being supplemented by new capabilities that will expand the range of products. Certainly our core strategy to expand into new areas with entertainment, music, video services, help by acquisition, certainly help by other Microsoft assets that we’re bringing to bear.