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Microsoft Pri0

Welcome to Microsoft Pri0: That's Microspeak for top priority, and that's the news and observations you'll find here from Seattle Times reporter Sharon Chan.

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January 7, 2009 6:30 PM

CES: Microsoft announces Windows 7 beta, partnerships with Verizon, Dell, Facebook

Posted by Benjamin J. Romano

LAS VEGAS -- Microsoft CEO Steve Ballmer is set to take the stage here now. Here's a rundown of the news he's planning to announce, along with some analysis, based on an advanced briefing from Microsoft and an interview earlier today with Robbie Bach, president of the company's Entertainment and Devices Division, who is expected to join Ballmer on stage. Check back for color from the speech and any surprises.

Windows 7

Widely expected and already leaked to the Internet, Microsoft is officially launching a test version of Windows 7. Subscribers to Microsoft's MSDN and Microsoft TechNet will have access to the code today, and a public beta will begin Friday.

Microsoft also is demonstrating the new operating system, officially due out a year from now, but widely expected to appear perhaps in time for holiday shopping or even back to school. From what I was told, the demonstration will mostly cover features that Microsoft unveiled at its Professional Developers Conference in October.

Distribution deals

Microsoft has landed a deal with Dell to pre-load Windows Live Essentials and Live Search onto the majority of their consumer focused and small business PCs around the world, as Mary Jo Foley reported in early December. According to Gartner, Dell had 13.6 percent of the global market in the third quarter.

Microsoft already landed similar deals with market leader Hewlett-Packard, whose global share was 18.4 percent (however, this deal is only for PCs sold in North America, beginning this month), and with Lenovo, which had 7.3 percent of the global market.

Some analysts have questioned the effectiveness of such arrangements at building search market share. Wrote Danny Sullivan, editor of the online news site Search Engine Land, in his "Tough Love for Microsoft Search" essay on Dec. 30:

"The problem with distribution deals for Microsoft is that they don't stop the Google habit. Give someone a new computer set by default to search at Microsoft, and I think there's an excellent chance they'll still go to Google. I base this from the many emails over the years I've gotten from confused searchers who don't understand why some adware or other program has shifted their defaults. They want to get back to Google. And if they do arrive at the Google home page, Google can merrily pop-up a suggestion that they switch back. Distribution won't be a cure-all, though it's something Microsoft is right to try."

After a reportedly grueling two-year negotiation, Microsoft is partnering with Verizon to offer several Live services -- search foremost among them -- and advertising to the wireless carrier's roughly 80 million U.S. subscribers. (With its acquisition of Altel, Verizon is expected to edge out AT&T this week as the largest U.S. wireless carrier.) The five-year deal, on new Verizon Wireless phones, includes a customized mobile version of Live Search, including local and location-aware search; access to the MSN portal; and Microsoft management of search and display advertising for Verizon.

Microsoft apparently beat out Google for this deal, too. The Wall Street Journal reported in November that Microsoft was offering Verizon guaranteed search advertising revenue of between $550 million and $650 million over the life of the deal, roughly twice what Google was offering. Others have suggested those figures were inflated. Microsoft did not comment on the financial terms of any of its deals.

"All these deals have economics," Robbie Bach, president of Microsoft's Entertainment and Devices Division said in an interview this afternoon, "so I'm not going to say that there's not economics involved because of course there is, but the logic behind the deal for us is, the mobile search and advertising business is a very large opportunity and it's very early in the process of defining what it is. ... The challenge, and what will determine our success, to me, isn't necessarily the underlying economics, per se, but it's do we find the right experience for people for search on a mobile phone?"

Analysts had parsed a potential Microsoft-Verizon deal, at $500 million, as a strategic market-share play, rather than a grab at profits -- which will may be tough to come by via the nascent, but promising, mobile advertising business. Citi analyst Mark Mahaney calculated in November that Microsoft would need each Verizon customer to conduct 17 searches a month on average to break even on the deal. (Via Tricia Duryee at mocoNews.net.)

Xbox

On Monday, Microsoft declared 2008 the best year yet for its video game console business. The company said it had sold 28 million Xbox 360 consoles since the system's introduction in 2005, that's up 58 percent from last year.

It also counts 17 million subscribers to the Xbox Live online entertainment network, which is being outfitted with a Primetime channel, announced last summer and subsequently delayed until this spring. It's an online venue for people to compete in game shows, starting with 1 vs. 100, against thousands of other players.

Bach, in the interview, was pleased with the games business success, but acknowledged that Microsoft has noticed some softness because of the economy.

"Certainly, if you look at the long-term financial health of the division, increasing the install base of consoles is probably the best thing we can do because over time those people buy games, they get Xbox Live subscriptions, they download things on Xbox Live, they buy extra peripherals, et cetera.


"So, in the medium- to long-term it's a very very positive thing. In the immediate short term, it's just a question of how fast people buy games, and how that plays out over the fiscal year.

"The reality is, my guess is attach rate on games when people buy consoles probably is going to slow down, and we did see a little bit of that in the holiday season where people, last year, if they were buying five games when they bought a console, maybe this year they only bought four ... and that will have some impact on us."

That's important, because while game consoles are typically a break-even proposition at best, software sales drive profit in the video games business. Microsoft has boasted the highest number of games sold, on average, per console.

Halo

In 2009, it's launching two new titles in the blockbuster "Halo" franchise, which is widely credited with making the original Xbox, launched in 2001, a success. The company announced the new games at the Tokyo Games Show in October.

"Halo Wars," a strategy based riff on the space combat series, is due out March 3 from Microsoft's Ensemble Studios, a date Microsoft announced in December.

Another title, "Halo 3 ODST," (for Orbital Drop Shock Trooper -- a class of soldier in the game), is coming in Fall 2009, Microsoft restated. This title is from Kirkland-based Bungie Studios, the originator of the Halo franchise, which split from Microsoft shortly after the record-setting launch of "Halo 3" in 2007.

Windows Mobile

Other than a demonstration of the forthcoming Internet Explorer 6 mobile browser, Windows Mobile news was expected to be scarce.

I asked Bach whether Microsoft risked losing any mindshare during what seems to be a bit of a lull for Windows Mobile, at a time when the iPhone and Google's Android mobile platform are top-of-mind in the tech world.

"We actually had a very good year," he said.


"Steve will announce tonight we shipped 11 phones that have done over 1 million units each. We did 18 million plus phones in our last fiscal year. Obviously we continue to see growth in that number this year so we feel very good about where that business is going.


"Part of the reason why you don't hear about it quite as much is because our model and approach is very different from Apple and RIM, in particular. In their case they have a small number of handsets. It's their handset, it's a vertical ecosystem. In our case, we're about choice. We believe that people are going to want a lot of different types of phones, that everybody wants to use a phone a little bit differently. So sometimes it makes the marketing part of what we do actually a little bit harder, because people don't see the accumulation of what we do, but we've actually had a very good year and I think 2009 is going to continue to be a good year.

Other items of note

  • Microsoft took its latest set of Windows Live services, such as instant messaging and online storage, out of "beta" or test, signaling they've reached a requisite level of stability.
  • A new feature of the Live services is a personalized home page that aggregates updates from an individuals various third-party social media sites. When it was announced in fall, one social network was conspicuously absent from the list of partner sites. Wednesday, Microsoft said Facebook will be added to the list in the next few months.
  • Microsoft's foray into Internet protocol television (IPTV) continues to gain users. It now counts 2.5 million households, up from 1 million a year ago, mostly through AT&T's U-verse service.
  • A new version of Sync, the in-car entertainment software Microsoft is building for automakers, will be available on all 2010 Fords, Lincolns and Mercuries. One new feature includes improved voice recognition and control capabilities.

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