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 THE STAT 26Percentage of wireless customers who use their cell phones to take picturesMore Vitals
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DECEMBER 7, 2004
Inside Microsoft's Consumer Strategy [Page 2 of 2] Q: As the next generation of consoles comes out what specific areas are you really raising the bar from where it is right now? A: Set aside the console thing just for a second. I think you have to step back ask what are the things people want to do? I'll put on my Consumer Leadership Team hat here, instead of my Xbox hat. What are some of the scenarios that we think are powerful and rich that people are going to want to do whatever device they're working on, whether it's an Xbox, a Media Center PC, a handheld, or some other device? Four or five come to the forefront relatively quickly. Certainly, there's the idea that you're going to want to share what I'll call for lack of a better phrase your digital memories, whether that's digital photos or digital video. People are going to want to find cool ways to share those types of things. You're going to see a lot of work across all parts of the company to figure that out, to make it a richer scenario, and to make it a lot easier. You can think about sharing broadcast video. That's going to be a richer scenario. The work we're doing in Microsoft TV with Comcast is really good. It's well integrated. The idea that you're going to want to share that, that you're going to want to have that on a network -- that is going to happen. It's just a question of time and figuring out the process for that to happen. Music is clearly a scenario that everyone is focused on. Certainly, Apple (AAPL ) has done some good work there. But we're still very early in the curve of what's possible and what people want. The consumers we talk to in MSN or Xbox or the Windows team say music is a very essential part of what they do whether it's on an Xbox or a PC or some other device. Communications turns out to be a very important scenario as well, whether that's chat, messaging, blogging, telephony. All those things are important scenarios, and there will be things that Microsoft will be doing to deliver those. Now in some of those, we may be an infrastructure player, rather than a direct consumer player. There are tons of ways where software can play a role. This isn't so much about [information technology] meeting [consumer electronics] or vice versa. I'd pose it in a slightly different way. It's really [consumer electronics] meets software. Certainly, there are IT aspects to this. But the real powerful thing that's happening here is the value of software and the value of what consumer-electronics companies do are coming together. All of these scenarios I've just talked about require some hardware and some very cool software to enable them. Q: When Microsoft first announced plans to get into the game-console business, rivals suggested it would fail because it has little consumer-electronics experience. And clearly that hasn't happened. Other tech companies -- from Apple to Hewlett-Packard (HPQ ) to Gateway (GTW ) to Dell (DELL ) -- have gotten into this business, some with pretty good success. Does it say anything about the ability of tech companies to jump into consumer electronics? A: It's hard to generalize. All the companies you cited are incredible companies, but they're all different. You have to go back to the general principles and say, what did Microsoft do well to enable them to be successful at this? Can other companies do those things well? Can they get in and really understand the nature of the market? Can they find a way to leverage the strengths they have -- software, in our case -- that help them in a consumer-electronics context? Software has been a big part of our success on Xbox. Can they find a way to differentiate themselves from the existing solution, as we did with Xbox Live, because in a commodity business, the new guy has a really hard time? Those are the kinds of lessons that people need to look at. It's not so much a more general statement about companies that you would have thought about as PC companies or as software companies suddenly making it in the consumer-electronics space. My guess is there will be examples from the whole list you gave of companies that will be successful and some that won't. Q: Can any broad lessons be learned from tech companies getting into consumer electronics? It certainly seems like many more are doing it today than there used to be. A: Being a consumer-electronics company today isn't just about having some cool hardware technology. iPod is a great example. The actually technology in the iPod, with perhaps the exception of the size of the hard disk -- which Apple didn't come up with, Toshiba did -- isn't very innovative. What's innovative in that product is the design, no question; the software, no question; and the way the design and the software and the hardware integrate with each other. That's the underlying thing that has fundamentally changed. If you go back 20 years and could ask about TV design, they'd say it's just about hardware. The TV experience now isn't just about hardware. It's about software. It's about services. And the telcos and the cable companies of the world are going to be in a business that's going to involve not just hardware, not just the pipe, not just service, but software and the combination of those things. It really is revitalizing a business, and not just for Microsoft. You could say the same thing for the consumer-electronics companies because that business has been a commodity business in many parts for a long time. There's an opportunity for them, through this change that's going on, to take advantage of that and get themselves into a more value-added business. In a world in which everyone is beating themselves up over [traditional] TVs at $299, there aren't a lot of ways to differentiate yourself. In a world in which you're talking about a video-on-demand experience that involves high-end hardware and software and services, there are lots of ways to differentiate yourself. For us, for the cable people, for everyone in the ecosystem.
 Edited by Jim Kerstetter
BW MALL
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