Friday, October 13, 2006
Thursday, October 12, 2006
Balmer's thoughts on competitors
Guys who can touch us in multiple places probably matter more than guys who can touch us in any one place. And actually we don't really have our big competition from any one company. Any one company, we know how to compete with. It's alternate business models that we will have to embrace or compete well with. You give me any enterprise software company, O.K., and I'll say c'mon. We know how to go do that. We do do that. And we're really pretty good at it. We haven't gotten any worse at it. Boom. Boom. Boom. We know how to keep coming.
Open source is not a new technology area. It was a new business model. In the last three or four years, we have competed very well by extending our value. Open source never goes away as a business model or competitor. We have learned how to compete with open source, and we will compete with it for the rest of time. But competing with open source will have to be something that's burned bright on the foreheads of our senior people.
The second big competitive force is advertising as a business model. Typically, people just want to reduce that to Google, and if you want to do that, you can. But it's do we embrace advertising fully enough as a business model? Because at the end of the day, anybody who comes at you with a cheaper-to-the-customer proposition, you got to worry about. And advertising looks cheaper to a consumer than something you pay for.
In the case of open source, we couldn't adopt the business model. We adopted a competitive approach that so far has worked very well. In the advertising case, we can embrace that model. We don't have to sit here and say it's that bad.
A third model I could sit here and write down on this list is that there are cases where software gets monetized through hardware. That's what an iPod is. iPod is a software thing. You just happen to collect the money on the hardware. You could say in China and India, it's unclear whether classic software will get paid for as much as advertising, hardware, subscriptions, etc.
So our ability to embrace and benefit from or compete with new business models—and I would say ad-funded and open source, more than this hardware thing—is more the way to categorize the key competitive dynamic for us.
Does Zune fit into the hardware piece of this?
Sure it does. Because the value of Zune, if we're successful, is all in the software. It's in community [the ability to share music and pictures with other Zune users]. I want to squirt you a picture of my kids. You want to squirt me back a video of your vacation. That's a software experience. The truth is, though, if it makes money, it will be built into the gross margin on the hardware. We'll figure out how to make money on the community perhaps later though advertising or other means.
How much money will you lose per Zune?
None. Apple (AAPL) put the hammer down there, dropped the price down to $249. If they had been $299, it would have been nicer. They have the advantage of scale. So we're at $249, too. We don't make a lot of money, not to start out.
Open source is not a new technology area. It was a new business model. In the last three or four years, we have competed very well by extending our value. Open source never goes away as a business model or competitor. We have learned how to compete with open source, and we will compete with it for the rest of time. But competing with open source will have to be something that's burned bright on the foreheads of our senior people.
The second big competitive force is advertising as a business model. Typically, people just want to reduce that to Google, and if you want to do that, you can. But it's do we embrace advertising fully enough as a business model? Because at the end of the day, anybody who comes at you with a cheaper-to-the-customer proposition, you got to worry about. And advertising looks cheaper to a consumer than something you pay for.
In the case of open source, we couldn't adopt the business model. We adopted a competitive approach that so far has worked very well. In the advertising case, we can embrace that model. We don't have to sit here and say it's that bad.
A third model I could sit here and write down on this list is that there are cases where software gets monetized through hardware. That's what an iPod is. iPod is a software thing. You just happen to collect the money on the hardware. You could say in China and India, it's unclear whether classic software will get paid for as much as advertising, hardware, subscriptions, etc.
So our ability to embrace and benefit from or compete with new business models—and I would say ad-funded and open source, more than this hardware thing—is more the way to categorize the key competitive dynamic for us.
Does Zune fit into the hardware piece of this?
Sure it does. Because the value of Zune, if we're successful, is all in the software. It's in community [the ability to share music and pictures with other Zune users]. I want to squirt you a picture of my kids. You want to squirt me back a video of your vacation. That's a software experience. The truth is, though, if it makes money, it will be built into the gross margin on the hardware. We'll figure out how to make money on the community perhaps later though advertising or other means.
How much money will you lose per Zune?
None. Apple (AAPL) put the hammer down there, dropped the price down to $249. If they had been $299, it would have been nicer. They have the advantage of scale. So we're at $249, too. We don't make a lot of money, not to start out.
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