Koefoed Touts Windows 7 at Investor Event

A key Microsoft executive answered questions about the company's business prospects at the Thomas Weisel Technology & Telecom Conference on Monday.

Bill Koefoed, Microsoft's general manager of investor relations, pointed to Windows 7 and Xbox sales as the company's main financial highlights over the last calendar year. His view echoed Microsoft's second-quarter financial earnings, in which Microsoft reported that more than 60 million Windows 7 licenses were sold. Xbox Live memberships increased 35 percent year over year, according to the 2Q report.

Despite the good news for Windows 7 sales, Koefoed said that December was "better than expected, but still roughly flat." Business PC sales, representing a higher price point for Microsoft, are "starting to pick up," he claimed. Both Gartner and IDC have talked about a coming increase in businesses buying PCs, Koefoed said, "and if it's going to happen, it will happen in the third quarter," he predicted.

When asked if businesses were waiting for Service Pack 1 of Windows 7 to deploy the new OS, Koefoed just acknowledged that "it's not easy to upgrade to a new operating system" since enterprises typically have a lot of legacy apps to worry about. However, Microsoft is expecting a "relatively robust move toward adoption" of Windows 7.

Microsoft makes most of its Windows money from original equipment sales, Koefoed explained. "Roughly 80 percent of our Windows revenue comes from OEMs," he said. An additional 20 percent comes from Software Assurance licensing and retail sales.

Koefoed pointed to the Internet cloud as a big part of Microsoft's consumer strategy. It fits with Microsoft's "three screens and a cloud" concept in which Microsoft plans to provide a connected experience across PCs, phones and the TV. The cloud will serve as a way for consumers to move their data, he said.

Office 2010 will be Microsoft's next big product rollout. People can expect a lull in Microsoft product announcements until June, when Microsoft announces Office 2010's general availability, Koefoed said. So, far, there have been more than two million downloads of the beta version, he added. Microsoft will offer a free ad-supported version of Office 2010, but the company expects to gain additional revenue with Office upgrades. One untapped area is the pirated software market since about 50 percent of Office users have a pirated product, he said.

Koefoed was asked how Microsoft has been working with its channel partners on the Windows Azure cloud computing platform. He didn't respond specifically to that question but said that Microsoft is using Windows Azure to tap into the global IT market, which is huge. Also, having a consumer capability is important for Microsoft in building out the cloud, he added. Microsoft launched commercial services on Windows Azure on Monday.

The biggest success so far for Microsoft's online services business has been Exchange Online, with more than one million seats, Koefoed said. Microsoft will either host its online services or let its partners do that work.

Koefoed acknowledged that VMware is the "early leader" on virtualization technology, but Microsoft is undercutting VMware on price with Hyper-V, he said. Microsoft has made some key improvements, such as adding live migration capabilities in Hyper-V when Microsoft released Windows Server 2008 R2.

Microsoft's relationship with Cisco Systems is at the "cooptition" stage with regard to unified communications technology. Microsoft focuses on software whereas Cisco concentrates mostly on hardware. Koefoed described the state of unified communications technology as "really at its infancy."

Finally, Koefoed claimed progress with the Microsoft Bing online search engine, although the company's Online Services Division continues to be a loss leader. Big has gained market share every month, he said. Microsoft is hopeful that it will get a boost with its collaboration deal with Yahoo, which will add scale to the service. Regulatory approvals for that deal may come "in the next couple of months," according to Koefoed.

An audio recording of Koefoed's talk at the San Francisco-based investor event can be accessed here.

About the Author

Kurt Mackie is senior news producer for 1105 Media's Converge360 group.