AS Microsoft prepared to unveil its Xbox videogaming console on MTV last week, Bill Gates was in Las Vegas to talk to 2,000 software developers about something more arcane — specifically, mobile-phone operating systems and “killer” new programming interfaces.
It is not for nothing that Microsoft’s chairman and founder has the official title of chief software architect. Despite his celebrity, Gates will always be more at home with computer code than consumer hype.
The razzmatazz for Xbox 360 was left to Elijah Wood, who played Frodo in the Lord of the Rings film trilogy. Wood fronted the MTV show that on Thursday lifted the lid on the stunning graphics possible on the new console.
Like many technology companies, Microsoft is traditionally dismissive of mere devices, but it is starting to learn the hardware game. The white Xbox 360 is elegantly styled with concave sides, and is capable of either lying flat or being stood on its end — a big advance on the original uninspiring design. One reviewer described the new console as being like an iPod on steroids.
The Xbox and mobile-phone software are both important areas for Microsoft, whose overwhelming dominance of the PC market makes it difficult, if not impossible, to sustain the historic growth from its enormously profitable Windows franchise and its Office suite of “productivity” software.
To grow, Microsoft is looking to create new businesses centred on the internet (MSN), home and entertainment (Xbox) and mobile phones.
The home-and-entertainment and mobile divisions have both been heavy lossmakers, but it is arguably the latter that is more in need of Gates’s help.
The Xbox business is much the bigger lossmaker — running up $3.5 billiion (£1.9 billion) of red ink over the past three years. However, the console has attracted a large following, with 20m sold since 2002. Microsoft has also demonstrated that it can produce blockbuster games, such as the record-breaking Halo 2.
With the Xbox 360 set to go on sale well before Sony’s next Playstation, Microsoft has an opportunity to seize leadership of the games-console market from the struggling Japanese electronics giant.
On the face of it, the progress of the mobile business has been much more modest. The mobile and embedded-devices divisions produced revenue of less than $250m last year — almost an irrelevance for a company that has annual sales of close to $37 billion.
Speaking to The Sunday Times last week, Gates was not downheartened. “We are just at the beginning of this,” he said. “Three years ago, we came out with our first mobile software. Two years ago, we had the first mobile operator shipping a version — Orange in France. Today we have 68 different operators (working with us) in 48 different countries. We are shipping 1m units a quarter in Europe.”
It is not hard to understand Microsoft’s ambition. Today there are about 650m PCs in the world, the overwhelming majority of them running Windows. But there will soon be three times as many mobile phones — 2 billion in total.
At the moment, most of these rely on simple proprietary software. Yet as the processing power of chips and memory storage improve, mobiles will increasingly become mini- computers, capable of managing contacts and diary information, displaying documents and spreadsheets, providing access to e-mail and the internet, playing music and video — in fact, doing just about everything that a grown-up PC can do.
Such “smart phones” have been available for two or three years, but as yet they represent only a fraction of the overall market — 17.5m of the 684m handsets sold last year, according to Strategy Analytics.
This is the opportunity for Microsoft, and for Windows Mobile, the cut-down version of its operating system. Gates was in Las Vegas last week for the launch of Windows Mobile 5.0, an update touted as offering important enhancements both for consumers and for application developers.
“As phones get richer software, we can make a bigger difference,” said Gates. “The change that’s taking place really plays to our strategy. If you want more speech recognition, more productivity, it’s software that’s going to help provide that.”
Windows Mobile 5.0 will make it simpler for users to access their music, videos and photos, making it easy to share (or synchronise) such content between their PC and their phone. They can attach pictures to their contacts, perhaps as an aide-mémoire. And businessmen will be able to review and rehearse their Powerpoint presentations on their phones.
This latest version of Windows Mobile will also support high-speed “3G” mobile services, and other wireless technologies such as wi-fi. Gates said: “The future for us is to do with market-share growth as these new services become mainstream. Our concern is understanding what operators need, and coming out with rich new versions of the platform.”
The technological advances will make mobile phones increasingly serious rivals to digital music players such as Apple’s iPod. Samsung has already developed a phone, the i300, with a 3-gigabyte hard drive — enough, said Microsoft, to store about 1,000 songs.
“We have taken leadership here,” said Gates. “The Samsung i300 (has) a fantastic user interface to select your tunes or playlist. It would be a better way to carry your music around. It will be a very high- volume thing.”
Apple, current kingpin of the music-on-the-move business, has recognised the threat from the mobile-phone industry. The maker of the iPod is working with Motorola to incorporate its iTunes software into a mobile- phone handset. But the scheduled unveiling of this product in March had to be pulled at the last moment — seemingly because of resistance from network operators, who have their own plans to sell songs over the airwaves, and at prices significantly higher than those charged by iTunes.
Gates is dismissive of Apple’s efforts so far to get into the mobile industry. “They’re not in the mobile area,” he said. “They did an announcement. We are doing more in this space than anyone.”
THE growth of Windows Mobile has previously been hampered by considerable industry suspicion of Microsoft. Even mobile giants such as Nokia have been concerned that Microsoft’s longer-term goal is to grab as big a share of the economic pie as it managed in the PC sector.
The company’s reputation as a partner was not enhanced by its legal dispute with Sendo, the British mobile-handset company that was one of the first to embrace Microsoft’s operating system as the basis for its own smartphone plans. The 2001 agreement quickly fell apart in an acrimonious legal dispute, with allegations of intellectual property theft and financial skulduggery aimed at undermining Sendo. Microsoft settled the dispute last September.
Nor did it help that early Microsoft-powered phones were prone to bugs, and some menu structures were poorly designed.
Many of the early problems have now been tackled. Gates said many of the advances in version 5.0 “are kind of under the cover. The advances in quality and security — substantial work went into these things.”
Microsoft has also taken a bigger role in the core radio technology. “We’ve really advanced the state of the art,” said Gates.
Perhaps Microsoft’s biggest advantage is the familiarity of working with phones that use Windows Mobile. Programs such as Word and Internet Explorer are instantly recognisable; there is little need to relearn the software.
Slowly, the strong pull of the Windows environment is taking hold. Microsoft has recently displaced Palm’s operating system as the leader in handheld computers, or PDAs (personal digital assistants) — an adjacent but much smaller market than the fast-growing smartphone business.
“Our share of the PDA market is up around 70%,” said Gates. “That’s a good market we are very committed to.”
Microsoft’s mobile rivals have started to license key parts of its mobile technology. Nokia surprised the mobile industry in February when it agreed to install Windows Media Player software in its handsets. Separately, the Finnish handset maker has adopted Microsoft Exchange Server software, reflecting Microsoft’s strong position in e-mail for the business market.
In March, Symbian, the British software company that currently has an 80% share of the smart-phone market, took a licence for Microsoft’s Active Sync software, which manages the sharing of information between the PC and the phone.
Symbian has its own synchronisation software, and it’s fine. But many users find that Active Sync produces neater results with less hassle.
The big operators, notably T-Mobile and Orange, are becoming increasingly enthusiastic about Windows Mobile devices. They are finding that the range of features and services — and particularly e-mail — is encouraging customers to spend more time connected to mobile networks.
In Britain, O2 has heavily promoted the XDA — a futuristic-looking smart phone made by HTC of Taiwan — to enhance its own rebranding (it used to be called BT Cellnet). Orange and T-Mobile have their own versions of the HTC designs, which they respectively call the M1000 and the MDA.
Hamid Akhavan, chief technology officer of T-Mobile, said: “We are enthusiastic about the MDA family. The people who use these devices are early adopters, who see the benefit of this kind of device.”
T-Mobile is planning to introduce the MDA IV, the first 3G phone powered by Windows Mobile. Akhavan said the phone would also support a connection to a wi-fi hotspot, thus offering the fastest possible data speeds at all times.
Thames Valley Police has been running a trial of Windows Mobile devices. Keith Gough, project manager, said 70 officers had been using O2’s XDA and Orange’s M1000 to give them faster access to the police national computer (PNC), as well as the electoral roll, e-mail and the police intranet.
Gough said officers were finding the smart phones were saving them anything from 40 minutes to an hour a day. One of the biggest gains was in accessing the PNC, a key tool for checking the records of suspects. PNC checks now take 15 to 20 seconds, instead of a couple of minutes over the radio.
“Some officers can save a lot of time by not having to go back to the station to do checks,” said Gough. “The system has proved to be very reliable and very useful.”
MICROSOFT’S other great strength is the depth and breadth of the developer community that has built up around Windows.
So far, Windows Mobile has racked up a few million sales — a drop in the ocean in the mobile market — yet there are already 18,000 applications available for use with the operating system, including everything from maps of London to accounting software, from diet managers to electronic games.
Sentient, a British company, has developed Rundo, a programme that uses Global Positioning System (GPS) technology to allow runners to measure their speed, distance covered and calories burnt.
Gates said: “Getting (developers) to build great applications is important to us. We have way more applications than other operating systems.”
Once again it comes back to the power of the software. Gates can see many more possibilities. That certainly includes greater use of voice commands to control the phone. But he also talked of a phone that could translate a foreign sign into English just by taking a picture of it, or recognise expense receipts and process them.
Despite this potential, and the scope for rapid growth, Gates played down the scale of the revenues that could be generated by Windows Mobile. “The actual mobile-phone software, we price it low,” he said. “It’s low-price, high-volume stuff. It will never be as big as Microsoft Office or the server-software business.
“We will get a business that’s hundreds of millions of dollars. The main cost that we need to defer is our R&D cost. If you can scale volume . . . you get way beyond the R&D costs and get a very healthy business.”
He added: “We’ve put a lot into this. We’ve put great people on to it. Making it work with all the services is of critical importance to us.”
What Windows Mobile 5.0 will offer
Better access to music and video
The ability to attach photos to contact lists
The ability to view Powerpoint presentations
Improved presentation of web pages
Better security and stability
Does this box have the X factor?
THE video-games industry is a particularly brutal form of capitalism. Big as it is — global revenues are estimated at $25 billion (£13.5 billion) a year — it seems to struggle to support more than one profitable console maker at a time.
So Atari made way for Sega, which was overtaken by Nintendo, which was itself displaced by Sony.
Microsoft launched the original Xbox in late 2001, 18 months after Sony’s Playstation 2. It has sold 20m boxes, yet has still lost more than $3.5 billion.
The lesson is: be first or be nowhere. You’d have better odds of defeating the Covenant, the alien villains of Halo 2, the Xbox game that racked up $125m of sales in its first 24 hours last November.
Microsoft’s determination to try again with the Xbox — launched on MTV on Thursday — partly reflects the size and importance of the industry.
“People are going to see the next generation of Xbox is a real breakthrough,” said Bill Gates last week. “The MTV programme will allow us to give gamers an idea of how incredible their games are going to be, of the breakthrough graphics and the capabilities that we’ve got.”
The Xbox 360 will come with a detachable 20-gigabyte hard drive, and will be powered by three dual-core processors running at 3.2 gigahertz. What that means is that the Xbox 360 will deliver stunning graphics.
It will also feature a DVD player and will be able to wirelessly share music with a PC.
Beyond games, this is a pitch for control of the digital home. Along with much of the industry, Microsoft is betting that consumers will use the power of wireless broadband to receive and record much of their entertainment through a single box.
This week, at the E3 games show in Los Angeles, Sony is expected to strike back, giving further insight into the capabilities of Playstation 3, expected some time next year. Let battle commence.
