Ballmer Aims to Overcome Mobile Missteps

The Wall Street Journal

Microsoft Corp. has struggled for the past two years in the mobile-phone market. But CEO Steve Ballmer says his company finally has a compelling story.

On Oct. 11, Microsoft and its partners plan to announce the initial wave of handsets that will use Windows Phone 7, a thoroughly overhauled version of the company's cellphone operating system. Mr. Ballmer believes the software will compete more effectively against Apple Inc.'s iPhone and Google Inc.'s Android operating system.

Microsoft has gotten more aggressive against Android in other ways. The company filed a lawsuit Friday against Motorola Inc., alleging the handset maker is infringing Microsoft patents in its Android phones. Motorola vowed to fight the suit.

Microsoft hopes the new phones based on its software erase the memories of missteps like Kin, a Microsoft-designed phone (based on different software) that was pulled from the market earlier this year after only two months. Microsoft's board docked Mr. Ballmer's bonus for the last fiscal year in part because of those missteps, the company disclosed last week in a regulatory filing.

A lot is riding on the new software. Mr. Ballmer is under pressure from investors to show Microsoft's bets in new high-growth markets like mobile can pay off. In an interview, conducted before Microsoft sued Motorola (and before Microsoft disclosed Mr. Ballmer's compensation for last year), he talked about how Microsoft plans to profit in the mobile market and the challenges of improving its share of the business. He also defended the traditional computer, and said he sees plenty of demand in the future for both for small- and larger-sized PC devices.

Excerpts:

WSJ: Your mobile business has gone through some pretty dramatic changes—new leadership, new software, a new way of working with handset partners. Why was that necessary?

Mr. Ballmer: In a sense, you could say we missed a cycle. We had some execution issues from an R&D perspective. In the time frame since the last significant release certainly the industry has moved, the technology has moved, the hardware has moved.

We said, we've got to move forward, not shoot for yesterday. We've got to shoot ahead in a way that's delightful to users, accessible to developers and prioritize everything else we do around those elements.

WSJ: You chose not to develop your own handset. Can you talk about why that is?

Mr. Ballmer: In some sense you could say we did some level of development. We put out to our partners that we were going to build on a certain minimal so-called hardware chassis. So you could say we did some design work, but we're certainly not selling phones.

WSJ: Did you ever seriously think about selling your own handset?

Mr. Ballmer: I think about a lot of things. We're working with HTC, Samsung, LG and a variety of partners.

WSJ: Are you trying to protect Windows or do you see Windows Phone 7 as a big revenue opportunity in and of itself?

Mr. Ballmer: No, I see it as a big opportunity. There's the sale of the device, there's potential for search revenue on top of that and commerce revenue. There's potential for subscription revenue from various entertainment or productivity experiences.

Job One here will be selling a lot of phones, and if we sell a lot of phones, good things are going to happen.

WSJ: You're still charging a license fee for the software.

Mr. Ballmer: Sure.

WSJ: Is that difficult in an environment where Android is free?

Mr. Ballmer: Android has a patent fee. It's not like Android's free. You do have to license patents. HTC's signed a license with us and you're going to see license fees clearly for Android as well as for Windows.

WSJ: It doesn't seem like the license fee alone is a big financial opportunity for Microsoft.

Mr. Ballmer: It's one of the opportunities. One.

WSJ: It's one of them.

Mr. Ballmer: Look, anything that can sell in the tens to hundreds of millions is a big opportunity, and we see big opportunity. Even in the world today, there's a bunch of different models in place.

The up-front gross margin per device is less on a BlackBerry, but then they choose to make more on the back end through subscription fees whether it's a consumer or business phone. There's a lot of ways Google chooses to make a little less on the front end and want to make a little bit more on the back end.

WSJ: If you look at the market share stats, the Apple guys have done well, the Android guys have really surged and you guys have lost share the past couple years. How hard is it to make that ground back up?

Mr. Ballmer: We'll see. The fact that things have been pretty dynamic means that they're probably still pretty dynamic.

WSJ: So you think things could change quickly in terms of market share?

Mr. Ballmer: I said they can. There's no doubt that things have changed quickly, and at least in my undergraduate degree in math, that's called an existence proof. We know it's possible, we'll see what happens.

WSJ: The software on Windows Phones looks more different from the other phones than any of the other products that are out there [with a homescreen featuring a grid of colorful tiles, some of which change with fresh content from the Web]. Is it a risk bringing such a different user interface to consumers?

Mr. Ballmer: Well, we've got to look forward. The market's still pretty nascent, but at the end of the day, I think the wall-of-icons [on iPhones and Android devices] is getting pretty complicated for people. That doesn't mean people don't want applications, though I'm not sure that's really the way the average person really wants to work.

Putting the activities that are most important in people's lives and the people that are most important in people's lives front-and-center through these hubs, I think we're going to capture hopefully the imagination of quite a good number of people.

WSJ: Will there be an immediate uptake of Windows Phones?

Mr. Ballmer: I don't make forecasts. It's partly how many we can get made, it's partly how much we can—can not only build a great product, but how does the word of mouth work, how effective is the advertising that we'll do?

WSJ: Do you think Windows phones will evolve into something that becomes a replacement for full-blown Windows on PCs?

Mr. Ballmer: It's a complicated subject. Do I think the world's going to live all on small-screen devices? No. I think people are going to have small-, medium-, and large-screen devices.

Will the technology that powers those be absolutely 100% radically all different? No, I think there will be a lot of shared technology across the devices. You don't want the same user interface, actually, on every one of these devices because they do have different modalities of operation. I think you're happy you've got a full-sized keyboard right now, for example.

I don't think any part of the market stops being healthy. What's the most popular smart device on the planet? It remains the PC. 350 million PCs sold this year, and smartphones might be—what?—a little less than half of that. So smartphones are very important, so are PCs.

Ballmer: Tablet coming 'As Soon as We Can'

Associated Press

 

Microsoft will compete with Apple's iPad, but it isn't saying when.

Microsoft Corp. CEO Steve Ballmer says the company is working with Intel Corp. and computer makers to perfect tablet touch-screen computers.

Analysts attending an annual meeting at Microsoft headquarters on Thursday got few concrete details. Ballmer did say Windows tablets will use Intel processors for the foreseeable future.

Ballmer said, "We'll be in market as soon as we can."

But he added that whether it's "really, really soon, or just really, pretty soon, I'm going to wait until I have a device I want to hand you and tell you to go use."

Ballmer says Apple Inc. has "done an interesting job" with the iPad, and says Apple has sold more of the devices than he would like.

Tech Giants' New Way to Thwart Patent Suits

Business Week

Frustrated by litigation costs, Microsoft, Sony, and Nokia are paying third-party patent acquirers such as RPX to fend off patent lawsuits

Forgive Microsoft CEO Steve Ballmer if he's frustrated by litigation. Aside from high-profile government investigations into the company's alleged monopoly power, Microsoft (MSFT) has been sued at least 49 times in the past six years for patent infringement by small shops that buy up patents from inventors and bankrupt companies, according to researcher PatentFreedom. Lawsuits from "patent trolls," says the software giant, are a costly blight on the technology industry. "[Patent litigation] costs the industry billions of dollars per year," says Horacio Gutierrez, corporate vice-president and deputy general counsel at Microsoft.

On Jan. 28, Microsoft signed up for patent insurance. It's not insurance such as you might get for your car or house, but a startup called RPX provided what's probably the closest thing to it for tech giants. Companies such as Microsoft, Sony (SNE), and Nokia (NOK) pay RPX annual fees to avoid patent-related litigation. The fees depend on each company's revenue and can range from $35,000 to $4.9 million per year. The 14-month-old RPX is one of the first companies to offer the service, It's already signed up 30 members, including IBM (IBM), Cisco (CSCO), Hewlett-Packard (HPQ), and Samsung.

RPX's approach doesn't guarantee that its members won't be sued. The company buys up patents that could be used against its clients, having spent to date $130 million to acquire more than 1,000 patents and patent rights in the mobile, Internet search, telecommunications, networking, and e-commerce areas. In return for yearly fees, member companies get licenses to all the patents RPX acquires. "By working together with entities such as RPX, the industry can collectively reduce the costs of this needless litigation," says Microsoft's Gutierrez.

Microsoft's settlements with Acacia

Patent trolls are extremely controversial in the tech industry. They're typically small firms that acquire patents from individuals or small companies and then try to extract licensing fees from companies selling products that infringe on those patents. The patent-licensing firms are more politely referred to as "nonpracticing entities" because they sell patent licenses to technologies they don't design, manufacture, or distribute. Microsoft is one of the most-pursued tech companies by these small firms, according to PatentFreedom. The patent disputes almost always start with a lawsuit. In 2009, one of every five of the 470 nonpracticing entity cases filed involved software defendants, according to RPX.

In late January, Microsoft settled two patent disputes for an undisclosed amount with subsidiaries of a nonpracticing entity called Acacia Research (ACTG). One lawsuit involved a patent for software compilers and the other involved technology that can be used by interactive Internet maps. RPX conducted a study of the top 60 technology companies in the U.S. and Asia and discovered that 80.6% of all patent cases against them were filed by nonpracticing entities. "Today the preferred path is litigation," says John Amster, CEO of RPX. "It's a highly inefficient, friction-filled way of conducting business," he says.

ShoreTel (SHOR), which sells business phone systems, is one of the companies looking for a more efficient solution. The company signed up as an RPX member because of high—and unpredictable—patent litigation costs. "Our payments in a quarter to a patent troll can take us from being profitable to unprofitable," says Ava Hahn, vice-president and general counsel at ShoreTel. "We look at it as an insurance policy," she says.
"not a wolf in sheep's clothing"

RPX's approach is attracting venture capital backing, too. Its investors include Charles River Ventures, Kleiner Perkins Caufield & Byers, and Index Ventures. "There ought to be a market-based mechanism for inventors to be paid for their inventions without having to build products or to sue," says Izhar Armony, a general partner at Charles River Ventures. That company has invested in four companies in the intellectual property market, including Nathan Myhrvold's Intellectual Ventures. Intellectual Ventures both acquires patents from companies and comes up with its own inventions.

Still, it's unclear how much a firm like RPX can do to prevent litigation. "It's unrealistic to say you could buy up all the patents that may be asserted against you in the future," says Professor Mark Lemley, director of the Stanford Program in Law, Science, and Technology. "There's a very thin line between a patent troll and a company [that] buys up a bunch of patents and says: 'For a fee we won't sue you,'" he says.

For its part, RPX says that it doesn't sue or threaten to sue companies with the patents it has acquired, even if they're not members. That would run counter to its approach and could cost it customers. RPX has even pledged in its charter not to sue anyone. "We can buy rights to protect our members," says Amster. "Companies are getting comfortable that we're not a wolf in sheep's clothing."

10 Ways Microsoft Disappointed At The CES

eWeek

When Microsoft CEO Steve Ballmer took the stage at the Consumer Electronics Show Jan. 6, the tech world was expecting something major. Earlier in the day, reports were swirling that Ballmer would beat Apple to the punch and talk about tablet PCs. It was also believed that he would talk about the future of Windows 7, Windows Mobile 7 and much more. Expectations were high. But for the most part, Ballmer disappointed.

He had the opportunity to set the pace for the tech industry in 2010. He could have come on stage, given details on new and exciting products, and fired a few shots over Apple's bow. Instead, he spent far too long discussing things that too many consumers don't care about and not long enough on those topics that they do want to learn more about. There was no charisma in Ballmer's keynote. The CEO provided the press with very little to take away. And in the end he left the door wide open for Steve Jobs to swoop in and save the day at the end of the month.

Let's look at the various reasons why Microsoft disappointed at CES.

1. Where's Windows Mobile 7?

Ballmer took the stage on Jan. 6 ready to discuss several divisions within his company. He did. But he failed to bring up one of the most important topics of all: Windows Mobile 7. Microsoft's mobile division is in serious trouble. It's trailing far behind the competition and the longer Windows Mobile 6.5 carries that division's banner, the worse it will get. Ballmer had the platform to build hype for Windows Mobile 7. He didn't use it.

2. The 'slate' debacle

Rumors were swirling prior to the keynote that Ballmer would talk about slate computers. And although he did touch on them for a while, it was an all-around poor discussion. He simply pointed to three products that feature slate technology and demoed the Hewlett-Packard device. But most saw it for what it is: a product that's too big for a pocket and too underpowered to get real work done. So far, Windows slates are nice-looking, but seem to lack real utility.

3. The boredom

Ballmer's keynote was a bore. He spent far too long talking about Microsoft's performance and not enough time demoing new products that consumers and enterprise customers would really care about. It's unfortunate. Jobs rarely goes on stage and disappoints. For well over an hour, Ballmer did just that.

4. 'Project Natal'

"Project Natal" could be a groundbreaking product in the gaming industry. The device basically turns the user into a controller. It was discussed during the keynote, but details were slim. For now, we know that it will be coming out by the end of 2010. We still don't know how much it will cost, how integrated it will be with games or which games will support it. We need more details.

5. Nominal upgrades galore

Just about every announcement Ballmer made during his keynote involved relatively minor product upgrades. For example, Microsoft talked about Bing Maps and the new features that will work with the service's Streetside feature. Some might like to add a snowflake effect to Streetside, but the fact that that option even made its way into the keynote tells you what happened on Jan. 6. There was simply nothing revolutionary that would get users excited.

6. Iterative PC updates

Microsoft also spent an inordinate amount of time talking about all the different PC options available to customers. Ballmer and a sidekick showed off desktops, notebooks and netbooks. But a quick glance at those devices reveals a serious problem for Microsoft and the entire Windows ecosystem: There's little innovation in PC design. The notebooks looked just like notebooks of old. The desktops, while featuring touch technology, still perform the same basic functions. In other words, they're boring. And they lack an aesthetic that can match anything from Apple.

7. The Google competition

Ballmer had the opportunity during his keynote to share just how Microsoft plans to compete with Google in 2010. Instead, he said Bing would be the default search engine in HP computers and provided a few more details on the service. It's not enough. He didn't talk about future improvements to Bing that would push search forward. He even failed to talk about its online advertising efforts. Microsoft might have plans, but so far, no one knows what they are.

8. Windows 7 talk

Ballmer spent considerable time discussing the value Windows 7 has already provided to customers. He even talked about sales figures. But he spent all that time without discussing any improvements to the platform. How will multitouch play into Microsoft's strategy? Will it improve Windows 7 Starter Edition? When will Service Pack 1 hit the market? What will be in it? We were left with more questions about Windows 7 than answers.

9. Where's Courier?

Prior to the keynote address, there were rumors swirling that Microsoft would announce its own brand of slate PC, called the Courier. It didn't happen. Instead, Ballmer spent time showing off products from third-party vendors. That doesn't necessarily mean that Microsoft won't be releasing Courier or something like it in the future, but it was disappointing to see that the company doesn't have a product to take on Apple with.

10. The Microsoft excitement is gone

Going into 2010, some folks (including myself) were excited to see what Microsoft was preparing for the new year. It seemed at the end of 2009 that the software giant was finally realizing what it needed to do to dominate in an increasingly competitive market. But after the keynote address, it's clear that Microsoft hasn't changed nearly as much as some might have liked. There was nothing announced at the keynote that will drastically change Microsoft's ability to confront threats in the marketplace.

All in all, it was a lackluster showing for Ballmer and company at CES this year.