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'Naturally we know it’s (Linux) on the server.'–Joachim Kempin, Senior VP, OEM Division, Microsoft

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DQI Bureau
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As Senior VP, OEM Division, Joachim Kempin looks after Microsoft’s worldwide OEM sales, marketing and support activities. He is also responsible for developing the company’s relationships with its PC manufacturing partners and OEM distribution partners worldwide, as well as for licensing desktop operating systems and other Microsoft products for PC hardware vendors. 



A mathematics graduate from the University of Hannover, West Germany, Kempin is also a member of the Microsoft Business Leadership Team. In an interview to DATAQUEST, Kempin fielded questions on how the Redmond giant plans to deal with the threat from ASPs, Linux, the 64-bit operating system and other such issues which threaten to unseat the company from its dominant position. Excerpts:

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How

does Microsoft view the evolving ASP business?

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If you look at hosting in

general, the pre-requisite is that you should have adequate bandwidth. But that

is not the case. You have it in some countries but there are many others who don’t

have it. So whenever you come out with any type of application hosting, you must

have solutions which take you around to the countries where you can go and do

business. So you just can’t get up tomorrow morning and say that you can do

hosting and that’s the only way you can get my products. You will still have

to do the traditional distribution.

So for us it’s just another way

of licensing. In good old days, you bought packaged products and signed a paper

license for use. Tomorrow, you would use an electronic network and just choose

the product. And for Microsoft, this, except the fact that you have a network

challenge here, is truly not anything bold. The execution is a little difficult,

for you will need partners who will be able to run big data centers and this can

be generic for the public or specific for certain companies when they are

outsourcing things or they want to have their own security. But this is more an

implementation chance than an intellectual chance.

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But, in a country

there may be one geographical region which is adapting more quickly to this

rental model than the others. Over there, how will you manage issues such as

planning the contribution and cash flow?

There too it is very similar to

what we do today– that is we would basically have resellers. These will be

companies who will sell services to the customers. Then it comes down to who

builds it and that too would probably continue to be the way we do it now. As

all the partners are same, it’s not really any different.

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In shrink-wrap

the cash flow remains clear, that is you sell and then you have the credit, but

in this case you won’t be selling.

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Due to the time element in

introducing this, I don’t think this is a big deal for us. And, may be, there’s

a quarter where we won’t grow that fast because of this. At the same time, you

probably have this system in place where you actually are able to forecast your

business with that.

Are you saying

that Microsoft has already got its pricing structure ready for ASPs?

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I have no clue, I don’t think

we have done that yet. I think they are still working on that.

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Many vendors,

especially in the OEM space, are looking towards the Linux model. How does

Microsoft plans to deal with this?

OEMs still continue to ship a lot

of PCs with Windows on it. And I think, here you need to differentiate a little

bit on what and where Linux may be attractive, and what and where it may not.

What we are seeing is that on traditional PC desktops, there is no Linux, there

is Windows and Windows applications. I have not seen a lot of people write a lot

about it. But we are definitely seeing Linux activity on the server. And this

has been there for last 3-4 years.

Then we are also seeing some

Linux activity in devices other than the PC–on small compactors and little

gadgets. But the environment there is so entrepreneurial and undefined, that you

don’t know what is going to succeed. Oracle, for the last 4-5 years, has been

talking about internet access devices taking over the computing world and PCs

becoming extinct. They have in fact also come up with Linux solutions for these

devices. But consumers are disappointing them, as they still want to buy PCs for

a long time, since it enables them to do many things that they can’t do

otherwise. And a lot of these devices depend heavily on high bandwidth network.

Here again, countries like India still have sometime to go before they can

really reach some where. I see some activity on the development side on small

devices, but not PC devices. And naturally, we know it’s there on the server.

Regarding WinCE,

what is the current competitive situation? How does Microsoft look at WinCE’s

usage in new information appliances where OEMs would not be PC OEMs, but where

one would see a lot of manufacturers coming in?

You are correct, traditional PC

OEMs are not customers for that. But I think we have done an OK job to see CE

into these companies. I have a special group that does nothing else but sell to

these types of companies. I also see a lot of potential there. The key for us

here is to be sure that they understand the value which CE can offer. And

hopefully, we should gain some good market share over the next 2-3 years.

You are saying

that the continuous uptake of PCs is not a surprising thing for Microsoft. So

what is the company’s perspective on these devices? Are you seeing them

picking up much later, even in the US and Europe?

A lot of these devices actually

work best with a PC. I mean, there are a lot of devices which you can call

companion devices. These are around PCs and some of them are standalone as well.

At the end of the day, one would actually sell more PCs because of all these

devices.

You would see people using little

more of what I call electronic gadgets. But this doesn’t mean that PC has to

slow down. The PC is adaptive and the PC technology can be used as a whole power

and so we are not only a part of the whole, we are part of the parts as well. So

we will evolve that.

Some years back

Sun talked about Network Computers taking over the computing world, apparently

strongly contended by Microsoft. But if you see today, thin clients are actually

a version of the same Network Computers.

Good for Scott McNealy. This is

his second or third round to sell his device, and what I am hearing is he is

facing the same disaster as he had in the first round. Think about this, the

device needs a Sun server, so how many servers does Sun sell, and how many

PC-based servers of, say, Novell or Win 2000 are sold. I don’t have the exact

data, but if there are half-a-million PCs sold around the world, Sun is lucky to

sell 150,000. So to force a customer to go from a better price-performance

server environment to a Sun server environment just because he can have cheaper

clients, I don’t think that is a viable proportion.

To put the

question differently, if it is thin clients versus PCs, then what is the

perspective?

We have Windows terminal servers

built into NT as well. But let’s go back in history–we had this type of

computing environment when I started going to university. I grew up on

mainframes and later on Digital Equipment’s time sharing systems. Today, they

are roughly around 0.5 million of these dumb terminals being sold around the

world. And that is not going to go away, but compare this with 110 million PCs

sold. They don’t want to depend on a central administration to tell them what

to do and what not to do. And what if this network is unreliable. We think that

there should be computing on your desktop and there should be computing power on

your server and that it should be balanced. And in a way, people feel empowered

by PCs, think about what you can do with this thing today. I don’t think you

can take this away from anybody. This is just not going to work with end-users.

Sure not in homes or a company environment. I think at the end of the day,

customers will buy the balanced approach.

So to give it a

logical extension, the PC is getting fatter and fatter and so is the operating

system, as well as the applications. Where will all this lead?

I have a way to express this a

little differently. Instead of calling this a personal computer, I call it my

personal mainframe. But then, it is both good and bad. If I want that

multipurpose service then I will accept it. I think the real issue today is of

simplicity of use. We are working to make this better. It’s hard and might

eventually need a very different interface. You are used to a typewriter, to a

keyboard and to icons on a desktop with mouse clicks. So graphic viewers will

have to eventually develop more advanced interfaces with, say, voice type

technology, speech technology and even more in the future to come to a user

interface which gets you out of this nerdish type of environment.

Essentially, are

you saying that appliances are not too much of a challenge to Microsoft?

I am not saying that appliances

are not much of a challenge. I am saying we do have products in that space. We

don’t have a dominant market position in that space today and that’s for two

reasons. First, it is totally a virgin territory and you don’t know what’s

going to be successful. Second, there is lot of entrepreneurship and people have

not totally figured out how to do this. But yes, I am hopeful that we still will

have a good part of this market. And again, it might appear as big as the PC

market. It all just depends on how good we are in developing the operating

systems, and whole tools around it. I still believe that the environment which

we have built is the environment that enables you to get to the market fast. As

these services would probably have product cycles in the neighborhood of one

year compared to a PC life cycle which may be two-and-a-half years or three

years, meaning you need to have tools which are much faster than those you have

in the PC environment.

Among all these

areas, appliances, ASP and others, where does the technology challenge lie from

an OEM perspective?

In appliances we would like to

keep a wait and watch policy. We have better products on the NT side and Windows

2000 and they fit fine. We are also working on a lot of OEMs to get into this

area. Sometimes, it takes time before you see actual results, which is OK.

Most of the vendors today look at

our market very differently. We put software components and hard disk components

in them and then we sell these products. Now for the PC I get $500, for that

thing I might get only $80-90. Mind you it’s the same power. So that actually

brings down my gross margins, and I can’t keep my gross margins down. So I

will have to sell more devices if I have to make money. And the only way to

create money is to source some kind of servicing so you might find the whole

industry for these services to be very different in the future. For us, the

challenge is to work with the company that markets the products or that actually

manufactures the product. And to gain profit, you have to work with both, and we

do that.

What about the

64-bit OS? Will the OEM scene change as you will have all these guys looking at

Linux and SCO Unix?

There too, I will say the better

product will win in the end and that’s the reality. The 64-bit version is

basically written for the Merced processor and the next one, which will come and

we are making efforts to get the products out. Plus, we are also getting some

independent software vendors who have add-on products.

And yeah, we can compete with

Unix, I am not saying we can compete very nicely. Moreover, the PC

manufacturers, the way I know them, they can’t care less about that. There are

very few who really have investments there. And even they, over the last couple

of years, have come along and have been selling NT servers and Windows 2000

servers. It will depend heavily on us to create demand from large corporations

for this type of product and the OEMs will just gobble it up.

But are these

OEMs also not looking at Linux very seriously in the 64-bit?

I believe if 64-bit Linux is

actually done, it has to be a lot of Intel alliance not of OEM side, sure though

it will be there. And again, in the end it depends what’s the better product,

we are actually pretty confident that we can drive successfully there. Again,

you have to have a crystal ball, but what we have seen so far will be the

acceptance of Windows 2000 in the market particularly on the server side.

For example, SGI

is looking at Linux very seriously for its workstations?

I think that company is totally a

bad example, they are probably engaged in nothing but selling of parts for the

whole company. 



So I don’t know what their future might look like. I think probably it’s
fashionable to do that. Will SGI be successful in the market, we will ourselves

find out later.

Now tell us, how

much of Microsoft’s revenue comes from these OEMs today?

It’s around 30%, can be

31%-32%.

With change in

technologies, will there also be any change in your general terms of agreements

with OEMs?

I don’t see that. The key for

us, when we work at OEM agreements, is to make sure that our intellectual

property gets protected and an OEM has the right to give licenses to end-users

on our behalf. I don’t think that’s going to change.

Finally, what

percent of its revenues does Microsoft lose to piracy?

Well, if you start with the OEM

business, here we are losing probably $2 billion to piracy. The total company

probably loses $7-8 billion. It can also be as much as $10 billion. It’s hard

to predict. But if you take some numbers out, get some surveys done, it’s in

the neighborhood.

Arun Shankar and

Manisha Singh



in New Delhi

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