Microsoft R

1
Microsoft RD uncovered

• Olivier EZRATTY
• Innovation Strategies Consulting
• oezratty_at_hotmail.com, http//www.oezratty.net
• July 2006

2
Agenda

• Microsofts business overview
• Microsoft RD processes
• Microsoft innovation challenges

3
Microsoft business overview

• Portfolio breadth, role of platforms and
  ecosystems, company organization, innovation
  categories

4
Technical Consulting
Technical Support
Books and Courseware
Internal IT
Software Applications Tools
Hardware
Internet Services
Hardware Reference Designs
Operating Systems
Internet Hosting
Media Centers Ultra Mobile PCs Tablet PCs
5
Microsoft Products Portfolio

• Windows
• Windows XP
• Windows XP Tablet PC
• Windows Media Center
• Windows Embedded
• Windows Automotive
• Windows CE
• Internet Explorer
• Windows media Player
• Windows Desktop Search
• Windows Defender
• Servers
• Windows Server
• Windows Small Business Server
• SQL Server
• BizTalk Server
• SMS Server
• Virtual Server

• Developer Tools
• Visual Studio
• Visual Studio Team System
• MSDN
• Office
• Access
• Communicator
• Excel
• FrontPage
• InfoPath
• Live Meeting
• Office Live
• OneNote
• Outlook
• Powerpoint
• Project
• Publisher
• Small Business Accounting

Windows Games Flight Simulator Combat Flight
Simulator Age of Empires Age of Mythology Zoo
Tycoon Fable Dungeon Siege Rise of Nations Kings
and Myths Halo RalliSport Challenge Freelancer Imp
ossible Creatures MechWarrior MechCommander Board
Games Train Simulator Return of Arcade
XBOX games Halo Shadowrun Mass Effect Crackdown Fo
rza Motosport Gears of War Too Human Viva
Pinata Kameo Perfect Dark Zero Project Gotham
Racing Fable Conker MechAssault Blix Sudeki RalliS
port Challenge CounterStrike Project Gotham
Racing Crimson Skies Grabbled by the
Ghoulies Midtown Madness Shenmue Tao Feng Brute
Force MechAssault Blood Wake Quantum
Redshift Azurik Fuzion Frenzy
Home Encarta Money Streets and Trips Digital
Image Suite MapPoint Pocket Streets Works Microsof
t TV Hardware XBox XBox Wireless Controler XBox
Memory Unit XBox Headset Xbox Wireless Networking
Adapter XBox Live Keyboards Mouses MSN Live Messe
nger Hotmail Search Spaces AdWords Premium Music
Source http//www.microsoft.com
6
Market share or penetration
Xune
Product Category Market Adoption
7
Revenue mix
FY06 revenue mix in and B. Source Microsoft
Reports Fourth Quarter Results and Announces
Share Repurchase Program
8
Revenue and profit growth
FY06 vs FY05 revenue and profit growth in
m. Source Microsoft Reports Fourth Quarter
Results and Announces Share Repurchase Program
Available on http//www.microsoft.com/msft/downlo
ad/fy06/letterhead_Q4.doc
9
Microsoft top level organization
CTOs lt120 p
Field 28000 p
Product Divisions 30000 p

• Sales / marketing
• Services

Microsoft Research 850 p

• Platform services
• Windows
• Server tools
• Live MSN
• Business
• Office
• Business Solutions
• Entertainment devices
• Xbox, games
• Media Center
• Mobility, hardware

Functional 8000 p

• Mathematics
• Development optimization
• Scalable computing
• User interfaces
• Nanotechs

• HR
• Finance
• Legal
• IT
• Operations

Estimated headcount as of June 2006, various
internal and external sources used
10
RD geographical split
Denmark
Ireland
UK
Redmond
France
Fargo
Spain
China
San Francisco
Israël
India
11
RD budgets
Budgets in m. Not all Fortune 500 shows up here.
Only high tech and pharmaceutical market leaders.
Sources budgets in m, 2004 financial results
published on company investors relations web
sites. Microsoft data relates to FY2005 ending
june 2005.
12
Incremental or disruptive innovations

• Disruptive innovations
• Relational databases
• Spreadsheets
• GUI and Xerox Star
• Electronic publishing
• Web browser
• XML

• Incremental innovations
• GUI improvements
• Word spellchecker
• Commonplace in software
• Based on customer feedback and competition watch

13
Innovation and integration

• Parallel hardware and software integration
• Integration must create real user value
• Many integration combinations
• Integration and complexity trade-offs
• Interoperability and legal limits to integration

14
Exploding Platform Ecosystem
ADSL modem Wifi, Bluetooth Smartphones and
PDAs DVD drives Digital cameras Digital
camcorders MP3 players TV screens HDTV Hifi
5.1 USB discs External disk drives Smartcards Mult
i-core processors 64 bits processors Tablet PC
Color printers Multi-function printers Scanners Jo
ysticks Microphone Loudspeakers CD-ROM drives 32
bits CPUs USB connectivity
PC peripherals
BW printers Network cards Mouse
1980s
1990s
2000s
Printer sharing File sharing Modems
Mainframes connectivity Local networks Web Newsgro
ups Electronic payment Online music Messaging Inst
ant messaging Calendaring
Wifi connectivity Blogs RSS Mobile
messaging Mobile calendering Visio-conferencing IP
TV VOIP Home automation
Communication tools
15
Windows innovations categories
Usages
Quality
Ecosystem

• GUI evolutions
• Information organization
• Search
• Digital convergence
• Mobility
• Communications

• Reliability
• Security
• Deployments
• Internationalization
• Upgrade easiness
• Certification

• Developer tools
• New hardware support
• DRM
• Interoperability standards (XML, IP V6)

Pleasure
Productivity
Consumer
Entreprise
16
Microsoft Innovation Process

• Growth and innovation drivers, leadership and
  management culture, research and development
  organization, partnering with the ecosystem,
  external growth

17
Microsoft key growth drivers

• Share and value gains
• Server, desktop
• Beyond the PC
• Mobility, living room, games
• Up in the applications foodchain
• ERP and CRM for small businesses
• Advertising revenue
• Search, Live!
• Geographic / penetration
• Particularly China and India

18
Microsoft Innovation Drivers

• Leadership and management style
• Product teams environment
• Big long term quests
• Fundamental research investments
• New products incubation
• Partnering with the ecosystem
• External growth

19
Decision making process

• Top to bottom
• Billg memos
• Competition watch
• Product reviews
• Opportunity analysis

• Bottom up
• Customer feedback
• Technical support logs
• Geek ethnocentrism
• Skunk projects

20
Successes and Failures
Sales successes Open game Failure or withdrawal
Desktop MS-DOS Windows 3.0 et suivants Multiplan, Word Office, Access, Project Visio MapPoint Tablet PC Windows XP Embedded MS-Mail Windows 1.0 et 2.0 OS/2
Servers Windows Server Exchange SQL Server SharePoint Server BizTalk Server Commerce Server Architecture .NET OS/2 LAN ManagerArchitecture DNA
Tools Basic Visual Basic Visual Studio QuickPascal Visual Basic for MS-DOS
Business Applications Business Solutions MS Finance MS Tax
Mobility and new medias Pocket PC Windows CE SmartPhone MSTV WebTV
Consumer Encarta Flight Simulator Money XBOX Windows Media Center MSN Bob Magic Schoolbus Smart Displays
Hardware Mouse Keyboard Joysticks Windows Sound System
21
Microsoft Research

• MSR brain trust
• Research partnerships
• Joint MSR/INRIA lab

• Publications
• Patents
• TechFest

22
Themes

• Algorithms and theory
• Hardware development (including nanotechs)
• Human-computer interactions
• Machine learning, adaptation and intelligence
• Multimedia and graphics
• Search, retrieval and knowledge management
• Security and cryptographics
• Social computing
• Software development
• Systems, architectures, mobility and networking

See list on http//research.microsoft.com/research
/default.aspx
23
outcome examples

• Windows Media Codecs
• Cryptography libraries
• ClearType
• Tablet PC concept and ink management
• Speech recognition in Windows Mobile
• Chinese and Japanese Input Method Editors
• Spot watches

• Word automatic language recognition
• Grammar checker in Word
• Email mining in Outlook
• Junk mail filters
• Answer wizards
• Smart Tags
• Antipiracy technologies

Tools and support

• TCP-IP V6 implementation
• Datamining in SQL Server
• TerraServer and SQL Server scalability showcase
• SkyServer and .NET Web Services showcase

• Microsoft knowledge base automated translation
• Security code audit tools
• Automated bug detection tools

24
Product Groups Organization

• Team jobs
• Developers only 1/3rd of product teams
• Team size
• 5 to 60 developers per component
• Up to 30 components per product
• Special roles
• Lead Architects
• Business Managers
• Hardware reference designers
• Ethnologists
• User Interface designers
• Marketing in a separate division
• Usability labs

Approximate product team HC split with enterprise
software
25
Development process tools

• Processes
• Specifications
• Yearly Engineering Conference
• Developer Security Training
• Software build process
• Alpha Beta Testing
• Internal IT  dog-fooding 
• Tools
• Automated Testing Tools
• Automated Security Audit Tools
• Automated User Interface Localization
• Windows Error Reporting database

26
Organizational Innovation Drivers

• Hiring and staffing
• Risk culture
• RD budgeting
• Industry collaboration
• Incubation
• Acquisitions
• Standards creation

• Bureaucracy
• Installed base
• Hierarchy
• Interdependencies
• Unbalanced aged pyramid
• Badly managed acquisitions

27
Product lifecycle
lt2 years
2-6 years
3-10 years
Service Packs
Major releases
Research
Patches
Hardware
OEMs
Large accounts
Other customers
Involved parties
Integrators
Chercheurs
ISVs
Consumers
Communauties
28
Technology Evangelism

• Feeding the ecosystem
• Driving killer apps creation

29
Growth strategies

• Internal growth
• RD
• Hiring and staffing
• gt90 of historical growth
• India / China new RD labs

• External growth
• Merger and acquisitions
• Investments
• Joint ventures
• Technology IP acquisitions
• Joint innovation with customers and partners
• Startup programs

http//www.microsoft.com/msft/invest.htm
30
External growth track record
Investment type Server and tools Windows Desktop Business Solutions Mobility Consumer MSN
Acquisitions Placeware, Connectix, Flash Communications, Network Courrier, Softway, Zoomit, Valence, VXTreme, LinkAge, Cooper Peters, Intersé, NetCarta, ResNova, eShop, Active Views, Giant, FrontBridge, ProClarity, AssetMetrix, Whale Communications, Softricity Entropic, Dimension X, Colusa, Giant, FrontBridge, Alacris, FolderShare, Winternals Visio, Powerpoint, Project, Vermeer, Groove, Media-streams.com AG, iViews Great Plains, Navision, SMS SNTC, Sendit Rare, Ensemble Studios, Digital Anvil, NetGames, Bungie, Access Software, Fasa Interactive, Bruce Artwick, SofImage, WebTV, LionHead Hotmail, Vinciniti, Mongo Music, Driveoff.com, Jump Networks, Comparenet, LinkExchange, Firefly (Passport), Teleo (VOIP), MotionBridge, Onfolio, Massive, Vexcel
Acquired IP NetIQ, NatSystèmes, Panorama, Prologue, Citrix, Unveil Technologies FinJan General Magic
JV or investments Avanade, Commerce One Corel Lernout Hauspie, Apple Lots cablos, telcos and mobile operators, Digex TMM/TAK, Dreamworks SKG, Inprise MSNBC, RealNames
31
Microsoft Challenges

• Success and failures, business challenges, Vista
  and Google case studies, competing with open
  source, innovations marketing challenges

32
Microsoft challenges

• Engineering challenges
• Products complexity (Vista)
• Product delays (Vista, Office 2007)
• Software revenue models
• Open source competition
• Google competition
• Organization challenges
• Talent drain
• Organization complexity
• Legal challenges
• Limits to software integration
• IP protection and litigations mitigation
• Marketing challenges

33
Windows history
Longuest delay between versions
34
Vista delays

• Way too complex product
• Track record of exec in charge
• Desynchronization with licensing

• Learned lessons
• Complex technology management requires
  businessmen
• Align product roadmap with business roadmap
• Prefer modular software design

35
Software Licencing Models
Subscription
Licences
ASP
OEM
Embedded
Freeware
Commission
Shareware
Advertizing
Open Source
Services
36
Competing with Open Source

• Non traditional competition
• Challenges software business models
• Challenging intellectual property grounds
• Software with many so-called benefits
• Microsoft response
• Evangelize fundamentals of software publishing
• Continue to heavily invest in RD to make a
  difference
• Communicate on value and TCO
• Debunk some open source myths
• Improve software interoperability and standards
  endorsement
• Embrace but not extend
• Shared Source licences and tools

37
Software vs Advertising
Internet Advertising gt 25B With gt45 on search
Worldwide advertising revenue gt 550B
Online ads
TV gt 160B
Source based on IAB Internet Advertising Revenue
Report, April 2006, 2005 data.
38
Competing with Google

• Situation
• Google and search new darlings in town
• Microsoft Internet assets not well valued
• MSN lagging behind with search but leading with
  communication tools (IM, Hotmail)
• Software as a service trend
• Internet advertising market growing faster than
  software market
• Challenged traditional software revenue models
• What should they do ?

39
Marketing Challenges

• Product portfolio complexity
• Customer and partners segmentation
• Ecosystem drive vs spin communication
• Consumer vs enterprise schizophrenia
• Global strategy vs local execution

40
Conclusion

• Software development is becoming a real
  industrial process
• Size matters but its a growing management
  challenge
• Innovation still comes from small teams or
  companies
• Business model innovations as important as
  technology innovations

41
Appendix

• Bibliography and speaker bio

42
On innovation strategies
43
On Microsoft
44
Olivier Ezratty bio

• Olivier Ezratty has 20 years of experience in
  software research and development, marketing and
  business development. He started his career in
  1985 at Sogitec, a wholly owned subsidiary of
  Dassault Aviation, where he was a software design
  engineer then project manager and group manager
  of a development team working on custom
  electronic publishing projects. He then became an
  early adopter of the Windows platform, starting
  projects on its initial 1.0 release.
• Starting in 1990, he then acquired at Microsoft
  France a broad experience in all dimensions of
  marketing products, channels, customer,
  communication and public relations. He launched
  the first version of Visual Basic in 1991 as well
  as Windows NT in 1993, and a bunch of partner
  programs. All these are now IT industry
  standards. Olivier Ezratty became Chief Marketing
  Officer of Microsoft France in July 1998. He
  reengineered internal and external communication
  tools, charter, processes and vendors, reshaped
  its public relations including starting dealing
  with government institutions, managed customers
  and partners transition to Year 2000 and Euro,
  consolidated its call centre and telesales
  operations and also launched Windows 2000 and
  Office 2000.
• In May 2001, Olivier Ezratty became Director of
  the Developer and Platform Evangelism Division
  which he created and staffed for the France
  region. This organization of 50 is chartered
  with driving the adoption of the Microsoft
  enterprise platform by software developers, IT
  professionals, software vendors, as well as with
  the computer science academia and research. He
  launched the .NET platform, new partnerships
  with the best universities, research
  organizations and local software vendors, as well
  as initiated the first strategic .NET projects
  with large accounts across many industries.
• Since June 2005, Olivier Ezratty is coaching and
  consulting for innovative high-tech start-up and
  in the venture capital community. He also
  delivers conferences and speeches on innovation
  strategies, digital convergence and management.
• Olivier Ezratty graduated from Ecole Centrale
  Paris in 1985, MsC in computer science.

oezratty_at_hotmail.com 06 67 37 92
41 http//www.oezratty.net