Coming of age

Microsoft India is knocking on the doors of adulthood, hoping to find its own identity as distinct from its Redmond parent.

Microsoft has seldom been good at making predictions. Soon after Bill Gates announced his decision to quit his executive position at Microsoft, he was asked at a technology convention what the company's new mission was.

The original mission to put "a computer on every desk and in every home" has already been accomplished in the West. After 33 hectic years, it has 90 per cent of the operating systems market.

Never a brilliant orator, Gates gave a less-than-reassuring answer involving dozens of quests, revolutionising television, automatic data centres and creating software 10 times faster.

Had he articulated it better, Microsoft's goal in the era after Gates would be (other than catching up with Google) to be a dominant force in cloud computing, in which the computing resources being accessed are owned and operated by third-party providers on a consolidated basis in data centre locations.

That sounds like a galaxy far-far away when one cuts to India. Microsoft's Indian subsidiary became an independent strategic business hub two years ago and reports directly to Redmond.

Yet, its disconnect with the headquarters could not be more stark, for in India the original mission of three decades ago is still a long-long way from being accomplished.

The connect becomes visible where it may not be desirable; like any child, Microsoft India has to face the fallout of its parent's history of anti-trust charges, the confrontation over open-source software, the excruciatingly slow pick-up of Vista, and issues of inoperability.

Interestingly, while the parent readies a $300 million rebranding that will kick off later this year, the Indian progeny has already "" quietly, until the writing of this article "" begun to reorganise itself with the view to connect better with consumers.

Masterminding the sculpting of the new face is chairman Ravi Venkatesan. Perhaps it is fitting that Venkatesan's previous job was with Cummins, which is as far removed from Microsoft as a mouse is from a spark plug. That is reminiscent of a hiring that took place 28 years ago.

Five years after its inception, Microsoft, struggling to come to terms with its own growth, hired Steve Ballmer, who had earned his spurs at Procter & Gamble, whose flagship product is soap.

The fewer, the better
India is Microsoft's only wholly-owned operation outside the US with an end-to-end presence through five business units: entertainment and devices, server and tools, clients, online services, and the Microsoft business division. This month, its 5,000 employees will be shuffled in many myriad ways.

Soon, a new "consumer organisation" will be created, as a by-product of which the five units will be amalgamated into two.

The consumer business segment will include personal computer, mobile and Live, a collection of online services that chief software architect Ray Ozzie calls "the hub to bring it all together". The second, the commercial business unit, will consist of sales and server businesses.

At some level, Indians' enduring fascination with the mobile phone is influencing Venkatesan. "Indians are buying fewer personal computers (laptops or desktops) as compared to mobiles. We want to touch the lives of every Indian through three screens "" PCs, mobiles and internet "" which are expected to touch around 750 million by 2012. Second, we want to get to $1 billion in revenue (the company does not reveal its India revenue, but third parties estimate it to be in the range of $850-900 million). And third, we want to improve our image in the public domain," he says.

There are over a billion PCs in the world; there are three times as many mobile phones. The latter's growth has been driven in large part by the emerging markets, where India has been adding 8 million new connections every month compared with 6-7 million PCs in a year. Microsoft is in the throes of a valiant attempt to infiltrate mobile phones with its Windows Mobile operating software.

At present, Symbian, thanks to its patronage by Nokia, the world's largest mobile phone manufacturer, lords it over 45 per cent of the market.

"The move to coalesce product groups by the markets they serve will draw better synergies and can lead to deeper focus in increasing the market share," says Alok Shende, principal analyst with Accendia Consulting.

On a new trail
"Redmond needs to think of India as its innovation lab," says Venkatesan. That sounds ambitious. To begin with, the technology industry does not think of Microsoft as much of an innovator. The company has often followed others.

The very first PC operating system was based on someone else's code. However, when Microsoft has followed, it has invariably taken what it has adopted to a new high and made a business success of it.

Microsoft India is determined to press ahead, with the $1.7 billion investment announced by Gates in 2005 providing wind to its sails. "We do one or two new things every quarter," says Jaspreet Bindra, country manager of MSN India & Windows Live.

Both of Bindra's responsibilities related to the internet, to which the parent was initially cold and in which it failed to take the pole position. The global internet software and services market is forecasted to grow by 112 per cent to $942 billion by 2011.

The buzzwords at Microsoft India are MSN Video, which provides an array of videos from breaking news to the latest in entertainment; and Messenger TV, a video application for Windows Live Messenger that allows users to play video clips from MSN Video in the conversation window.

MSN Video, says Bindra, is "seing significant responses to exclusive content...There is huge potential for innovative programming such as First Day First Show, which captures responses of movie goers on the first day of a movie".

The company has begun to provide a platform for Internet Protocol TV, which has for years been the next big thing. It launched a digital advertising platform in India last February along with four leading publishers: Bollywood Hungama, Equity Master, HDFC Sec and Facebook. The platform allows advertisers to buy search keywords on Live Search and display banners on MSN Mobile portal.

The Microsoft India Development Centre (MSIDC) in Hyderabad is its largest product development centre outside Redmond. The centre, according to its head, Srini Koppulu, has contributed to generating 180 US patents for Microsoft over the last three years.

Microsoft's Live search service via SMS, developed completely at MSIDC, is accessible to Vodafone subscribes. If your phone does not have GPRS, the search result comes back as an SMS. MSIDC recently released the Mobile Ad Platform to monetise Mobile Live Search services.

There is also Project Bhasha, through which Windows and Office interfaces have been made available in 14 regional languages. "You have to think about issues of power and connectivity. The inability to access technology in local languages can be a big hurdle," says Venkatesan.

Cheap and friendly
Microsoft has often been criticised for the high price of its software. Its ambition to be the preferred operating system on every PC has suffered due to piracy. Besides, the Linux system on branded machines often gets replaced by the user with pirated copies of Microsoft's Windows or XP.

The Genuine Windows Advantage programme has helped to an extent, but Microsoft realises that it won't suffice, that it is better to enter the rural markets with a starter edition (cheaper, basic version) and "become relevant" as soon as possible to India's one billion-plus population.

Keeping this in mind, the company has initiated a pay-as-you-go model (Flexgo) that reduces the initial cost. Customers can pay for their computer as they use it, through pre-paid cards. Microsoft is also expected to reduce the price of its popular gaming device, Xbox, in India.

To clean up its act on interoperability "" many governments including the European Commission have admonished the company "" Microsoft has created tools to build a technical bridge between the Microsoft Office Open XML Formats and the open document format.

"This work is in response to government requests for interoperability with the open document format because they work with constituent groups that use that format," says Vijay Kapur, national technology officer with Microsoft India.

The company has also launched an Interoperability Lab in India, in Bangalore, whose focus is to develop open source applications on the Windows platform and advance Windows-Linux interoperability through operational support and sustained community involvement.

Venkatesan also wants to deepen relationships with companies and governments and build the company's image.

"We're taking an innovative approach to enabling new avenues of social and economic empowerment for the underserved populations of the world". The investment in this is $20 million.

Microsoft India incubates and nurtures an ecosystem of independent software vendors (ISVs) to ensure support to the cluster.

"Although our efforts are on in 10 clusters across five different industry verticals, Tirupur (the underwear town in Tamil Nadu) is the first milestone in what we hope will be a successful endeavour. We recently formally rolled out Project Vikas in the city in partnership with Tirupur's Exporters Association. The initiative, ongoing for 18 months, has enabled the cluster to enhance its manufacturing competitiveness in the domestic and global market," says Venkatesan.

No wonder, when asked at an informal meeting how it felt to work with the often-maligned Microsoft, Venkatesan said he wouldn't have it any other way.

(With Suveen K Sinha)

MS INDIA SWOT ANALYSIS

Strengths

Strong brand image. Ranked second globally with a brand value of $58.7 billion in 2007, behind Coca-Cola

Spent over $6 billion continuously on R&D for the last five years and increased R&D workforce to 31,000 employees (approximately 40 per cent of the total workforce)

Leading position in operating systems and browsers

In fiscal 2007, no sales to an individual customer accounted for more than 10 per cent of the total revenue. In comparison, for Dell, this figure was approximately 11 per cent and 10 per cent of the total revenues in fiscal year 2006 and 2005, respectively. Evenly-spread revenues buffer the company from fluctuating sources of income, note Ovum analysts

Weaknesses

Low search engine market share

In financial year 2007, Microsoft earned nearly 61 per cent of its revenues from the US region out of more than 100 countries that it is operating in. In contrast, competitors like IBM and Sun Microsystems have a more diversified revenue structure

The company's online services business accounts for just over 5 per cent of its total revenues. However, the global internet software and services market is forecasted to grow at 112 per cent to $942 billion by 2011

Opportunities

Healthcare is being considered a key vertical by Microsoft, as seen in its recent move in the European healthcare market with the European launch of Microsoft Amalga "" its new unified intelligence system for hospitals. In India, it has done a lot of work in Gujarat and has tie-ups with private players like Apollo Hospitals and Fortis Healthcare. It has also introduced a "Health Vault" concept here

The global market for IT applications is projected to grow at a CAGR of 10.08 per cent between 2007 and 2012, out of which small- and medium-sized enterprises will grow at 11.1 per cent and 10.91 per cent, respectively. Microsoft India has made significant inroads here

Threats

Software vendors globally are losing close to $40 billion annually because of piracy. Legal proceedings in countries like India and China against software pirates have yet to bear fruit

It faces intense competition across all markets for its products and services. Internet as a distribution channel and non-commercial software model has further reduced barriers to entry

Microsoft's business conduct and products face scrutiny from government agencies under the US competition laws and the laws of other countries