News

Microsoft Exec Slams Android, Outlines Windows Phone 7 Strategy

• By Kurt Mackie
• September 16, 2010

A Microsoft executive answered questions today about the company's Windows Phone 7 business strategy at the Deutsche Bank Technology Conference in San Francisco.

Tivanka Ellawala, chief financial officer for Microsoft's Mobile Communications Business Division, said that Microsoft has been integrating its existing software products (such as Office, Bing search and Xbox games) plus Microsoft services with the new consumer mobile phone operating system. This integration offers an additional way for the company to monetize its existing business lines.

Microsoft expects to see Windows Phone 7-based products appearing on the market sometime this holiday season. The phones will be available in multiple form factors and offered at a wide variety of price points. The devices will vary in terms of screen sizes offered and whether they have keyboards and cameras, Ellawala said.

The questions at the event seemed surprisingly tame since Microsoft's consumer mobile OS business is a favorite punching bag for the number-crunching analyst crowd. Ellawala certainly came with the street credibility to handle such questions. He formerly served as an investment banker for Merrill Lynch's Global Merger and Acquisitions Group.

In response to a question, Ellawala specifically said he would not talk about how Microsoft expected to profit from Windows Phone 7. He portrayed a broad strategy, working from Microsoft's existing mobile base to gain mindshare, and then moving on to greater profits.

"It is an investment period. We are very conscious that we do need to create a business here. We can't be in investment mode forever," he said. "But it is a journey -- it's a longer term proposition for us."

Windows Phone 7 represents Microsoft's latest foray into the consumer space. The company's earlier Windows Mobile OS consumer line has typically trailed leaders such as Nokia's Symbian mobile OS, BlackBerry, Google's Android and Apple's iOS. Microsoft is taking some risks with Windows Phone 7 because not all Windows Mobile-based devices will be able to upgrade to the new OS.

Many of the questions centered on Android, a free Linux-based mobile OS overseen by Google. Microsoft has specialized in competing against free OSes, such as Linux. However, Ellawala even contested the "free" designation for Android. He suggested that future litigation might be a cost for OEMs developing phones based on the Android platform.

"It's interesting to think of Android as a free model," Ellawala said. "At the most simplistic level, the IP [intellectual property] issues around the Android situation and certainly the IP issues that we have discussed, it does infringe on a bunch of patents and there are costs associated with that. And this is not just an issue for us. It may also be an issue as some companies have already stated. So there is an upfront fee cost associated with Android that, I think, doesn't make it free."

Microsoft settled in April with mobile device maker HTC over patented technologies allegedly used in HTC's Android-based devices. At the time, one of Microsoft's legal counsels indicated that Microsoft had been talking with "several device manufacturers to address our concerns relative to the Android mobile platform." Since that time, Microsoft has stayed relatively quiet about any possible IP violations.

Ellawala generally downplayed Windows Phone 7's competition with Android, saying that "we haven't really been in the market with a competitive product."

"About two years ago, we did a complete reset of our mobile business, and have pretty much been out developing a new phone experience during that time," Ellawala said. "It's a fundamental rethink, from our perspective."

In response to a question about Microsoft's enterprise strategy with Windows Phone 7, Ellawala explained that much of the focus will be on meeting consumer expectations for the devices. However, in terms of making it easier to access e-mail, Office and SharePoint through a company firewall, Microsoft expects to make Windows Phone 7 attractive to the enterprise segment.

Microsoft has been focusing on getting compelling apps developed that people really want, Ellawala said. Volume is less important than quality, but Microsoft is relying on its developer partners to produce most of the Windows Phone 7 apps. He added that Microsoft has already released more than 300,000 of its software development kits for Windows Phone 7.

Ellawala refused to identify which carriers and OEMs would support Windows Phone 7, but he said that those partnerships will be apparent "in the coming months." Microsoft took the initiative to indicate hardware specs for its OEM partners with Windows Phone 7, even though different form factors are allowed. In response to a question, Ellawala denied that Microsoft is building a mobile phone hardware device itself, saying that the company "is in the software business."

One questioner asked why Microsoft should even be in the mobile OS business. Ellawala cited the product leverage afforded by the consumer mobile platform, adding that "from an overall company perspective, [consumer mobile] is a new opportunity that we are quite excited about."

An audio recording of Ellawala's Q&A can be accessed at Microsoft's investor relations Web site here.