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Microsoft's BIG plans for India
Leslie D'Monte
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October 12, 2006

Everything at the nearly-$45 billion software giant Microsoft has been going "Live" over the past few months:  starting with its search offering "", to counter Google's search engine; to others like MSN Live, Live Labs, Live Cams, Windows Live, Live Meeting and Office Live.

The excitement is palpable at Microsoft India, too. For one, India is the only subsidiary outside the US where Microsoft has an end-to-end presence through six business units.

Moreover, the wholly-owned subsidiary is now an independent "strategic business hub" - no longer clubbed with the Asia Pacific business zone - like China, Taiwan and Hong Kong; Microsoft India now reports directly to headquarters in Redmond. The implication is clear: Microsoft India is now on the global radar.

"From an organisational perspective, the company now reports directly to the president of Microsoft," points out Doug Hauger who has now become chief operating officer of Microsoft India; he was earlier the business and marketing officer for the region.

"The move makes tremendous sense from a management-cost perspective as the market size becomes bigger and more sophisticated. Microsoft India can now sensitise itself to local needs," says Alok Shende, director, ICT, Frost & Sullivan.

Indeed, Microsoft India has increasingly been in touch with the domestic needs of the market (read: sensitising), especially over the past one year. The company, which is estimated to have a turnover of over Rs 3,000 crore (Rs 30 billion) in India (Microsoft officials do not discuss India figures), has reworked its price strategy to address different segments - starter, middle, and premium.

At the entry level, it launched the Windows XP SE (Starter Edition) last year in Indian languages, and then English. It then targeted the top of the PC-user pyramid with the launch of the MediaCentre entertainment platform, which shipped on HCL [Get Quote], HP and other PC brands.

"We have already sold over 80,000 MediaCentre PCs to date," claims Neelam Dhawan, managing director, Microsoft India. The company's advertising, too, will now feature fewer white people and more taxi drivers and similar local content, notes Hauger.

A'mass'ing goodwill

Microsoft and Hughes recently announced their commitment to roll out 5,000 broadband-enabled ICT kiosks across the country. Part of "Project Saksham" that aims to set-up connected PC kiosks in at least 200,000 villages, the ICT kiosks will be deployed across 200 small towns and rural regions across India and will be operated on a franchisee-based model offering entrepreneurs a chance to use technology for e-commerce, education and e-governance.

Canada-based IDRC and Microsoft have invested $100,000 each in the project, which is expected to create over 15,000 jobs and self-employment opportunities over a period of time.

There's 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 language can be a big hurdle," points out Dhawan.

Of course, not everything the company is doing will generate revenue immediately. Why is Microsoft investing so much money (it was only last December that Bill Gates announced an investment of $1.7 billion in India), though it can't see immediate returns?

"Microsoft is a serious and long term partner for India. Our focus is on strengthening India's presence in the knowledge economy and empowering the population to leverage the benefits of IT and realise their untapped potential," says Ravi Venkateshan, chairman, Microsoft India.

Analysts say this will create goodwill for the company. They note that  creating a social impact in this manner is working for the company since competitor.

Linux, which has no owner in a sense, cannot invest such huge sums. However, Novell and Red Hat (who support Linux versions in India) are also moving in this direction.

On another plane, Microsoft wants to be the preferred operating system (OS) on every PC. Assembled PCs come with pirated copies of XP or Windows, losing Microsoft huge sums of money. And the Linux OS on branded machines is often replaced with pirated copies of Windows or XP by the user. Packaged software piracy is in the 80-85 per cent range.

While Microsoft is stemming piracy to some extent with its "Genuine Windows Advantage" programme, it realises this approach will not suffice. It's 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, in May the company initiated a pay-as-you-go business model (Flexgo), aimed at making PCs more accessible by dramatically reducing the entry cost and enabling customers to pay for their computer as they use it, through the purchase of prepaid cards.

"We believe that making technology accessible and affordable to all is the key to increasing PC penetration," says Will Poole, senior vice president, market expansion group, Microsoft.

Small is beautiful

Microsoft is also betting big time on small and medium enterprises. Its Dynamics customer relationship management (CRM)/ enterprise resource planning suites (Navision and Axapta are sold in India) nearly doubled in sales this year, focusing primarily on manufacturing, textiles and auto parts.

There are eight million SMEs in India, only 25 per cent of whom have a computer. Microsoft believes that what SMEs need is affordability, ease of deployment and easy to manage out-of-the-box solutions.

"The affordability factor must encompass the ability to pay for hardware, software and connectivity on a usage or on a monthly basis. This will require a combined effort of hardware players, ISVs, services companies. This is exactly what we are attempting to do under Project Vikas. And we hope to have successful pilots in five clusters (each cluster may have 300-3,000 units) by the end of this year," says Hauger.

The first cluster should come up in South India soon. Analysts say Microsoft India should see a tripling of revenue in this segment over the next three years.

The company is also chalking out a "retail" strategy. It recently announced plans to double its reach from 16 to 32 cities across India by the end of the year. It also launched Open Value - a new licensing programme aimed at the SME segment, and made available the Microsoft Business Solutions Navision 4.0, an integrated ERP, CRM and supply chain management solution for SMEs.

Think globally, act locally

What Microsoft does globally will naturally impact how Microsoft India shapes its strategy. Ray Ozzie, chief software architect, Microsoft, has gone on record saying that Internet services will play a very important role for Microsoft moving forward.

The rapidly-growing threat called Google is evidently on the company's mind. Of course, it can be argued (and rightly so) that Google is not a very serious enterprise player - at least, not yet.

Besides, Microsoft is getting into Google's "search" space with and MSN. Having completed six years in India, MSN recently announced the addition of four new channels and special effects advertising packages.

"The Web is moving to 'My Web'. Microsoft believes that the PC computing experience increasingly includes an online view," says Jaspreet Bindra, country head, MSN and Windows Live India.

MSN has also entered into a strategic global agreement with Yahoo! to ensure its Messenger users can talk to Yahoo! and vice versa.  Moreover, it recently launched a Hindi version of Messenger and will add other languages.

The software giant also recently published the Microsoft Open Specification Promise - a document that says Microsoft will not sue anyone who creates software based on Web services technology, a set of standardised communication protocols designed by Microsoft and other vendors. What this means is that the company is becoming more open and may gain goodwill from the larger community.

These are all clear signs that the old, lethargic company that earlier simply sold box products is gradually giving way to a new and dynamic company. Effort is being put in increasing its revenues through non-Window and non-Office products and solutions.

A case in point is the revenue Microsoft India sees in business processing outsourcing units, where there is much competition from products like StarOffice (from Sun) and Linux. "This revenue stream does not exist in any of the other Microsoft business units. It has the potential to be adopted worldwide," notes an analyst.

On the consumer front, Microsoft is preparing to go live with its new, user-generated video service and is ramping up to take on YouTube soon. Codenamed Warhol, the service's final name is said to be "Soapbox". It's also laying the Internet Protocol TV platform that promises to change the way we watch TV.

With pirated OS and Office products eating into sales, pricing remains a sore point with the company. To combat piracy, Microsoft India launched the "Genuine Windows" campaign and introduced the "How to Tell" website that distinguishes between counterfeit and genuine software.

The efforts appear to have paid off as piracy rates dropped two points to 72 per cent. "We see a major opportunity to increase sales by reducing piracy," says Poole.

Microsoft India currently has around 4,000 employees and plans to hire an additional 3,000 over the next four years. It is also set to file for 70 patents this fiscal (up from last year's 40) as it works towards creating a Microsoft ecosystem that already has over 650,000 developers in India - its second largest in the world.

Microsoft's India Development Centre, too, has embarked on its next phase of innovation and growth with 1,000 employees on board: it will double its headcount in three years.

The Hyderabad Development Centre, the largest outside Redmond, has witnessed an impressive growth over the past eight years - starting as an R&D centre with 20 people working on two products in 1998 - to what is today: 1,000 innovators working on over 50 products.

And with the desi touch, rural penetration and a booming economy that will demand more PCs, Microsoft India should only see its revenues growing.

Out of the window

Microsoft India has always been a leader in the PC operating system (OS) space - over 70 per cent market share. The company is now attempting to make inroads in the high-performance computing space, or HPC - estimated to be growing at 40 per cent and dominated by Linux/Unix offerings - while simultaneously warming up to end users with offerings in the gaming - a nearly $35 million market that is estimated to be growing at nearly 70 per cent with 1.6 million gamers in the play - mobile and home entertainment arena.

While Zune (Microsoft's dig at Apple's iPod) is expected to hit the US market during the holiday season, the Xbox (its answer to Sony's PS3 and Wii's Nintendo) has already hit the Indian shores.

The Indian gaming market is expected to touch around $300 million by 2009. However, gaming software licences make more money than the hardware (Xbox, in this case), whose prices keep on falling. The problem in India, though, is that Xbox can be tweaked by hackers to accept pirated games, hence eating into its potential revenue.

In the server space, IBM, Hewlett-Packard, Sun Microsystems and others offer their own variant of Unix preinstalled on server hardware, and nearly all computer manufacturers offer server hardware for the Linux operating system. IBM's endorsement of Linux has accelerated its acceptance as an alternative to both traditional Unix and Windows server OSs. Microsoft India Managing Director Neelam Dhawan, however, is unfazed.

"We believe our server products provide customers with significant advantages in innovation, performance, total costs of ownership, productivity, applications development tools and environment, compatibility with a broad base of hardware and software applications, security, and manageability."

On the database front, Alok Shende, director, ICT, Frost & Sullivan, says the "gap between [leader] Oracle and Microsoft is closing rapidly". In other spaces, Frost & Sullivan 2005 figures show Microsoft having a 21 per cent share in the business intelligence market (SAS has 19 per cent and Terradata 12 per cent). In the mid-market ERP space, SAP comes first with around 25 per cent, Oracle is second with 15.5 per cent and Microsoft comes third but has gained share - 11.9 per cent.

In the consumer space, MSN India competes with Rediff, Yahoo! and Google and websites and portals that offer content and online services.

The company has gone mobile too, having taken a swipe at Research in Motion's Blackberry by tying up with Airtel to ship "push" email smartphones. However, in the mobile and embedded space, Nokia is the clear leader and analysts believe Microsoft has a very long way to go. The Windows Mobile software faces competition from Nokia, Openwave Systems, PalmSource, QUALCOMM, and Symbian. Hauger admits the revenue is insignificant for now, but adds that it's a long-term strategy.

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