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June 26, 2013 at 4:50 PM

Analysts question Microsoft app plans, silent on re-org rumor

SAN FRANCISCO _ Nobody mentioned the elephants in the room at Microsoft’s subdued meeting with financial analysts today.

Perhaps the 30 or so analysts didn’t want to rock the boat now that Microsoft stock has finally perked back up, rising 26 percent so far this year.

But during the analyst meeting held during its Build developer conference, nobody brought up recent moves by activist investors who may be hoping to shake-up Microsoft’s board of directors and perhaps spin off the Bing or Xbox groups.

Nor did anyone mention rumors of an impending reorganization of the company’s leadership, which could lead to changes in how the company reports earnings for different business units.

Instead, analysts peppered Steven “Guggs” Guggenheimer, vice president of the company’s developer and evangelism group, with questions mostly about how the company can attract more developers and better compete against Apple and Google on mobile devices.

After a somewhat cool initial reception, Windows 8 is warming up with developers, Guggenheimer told the analysts. He said they’ve gone from “lean back” to “lean in” conversation about developing apps for Microsoft’s platform.

“Right now it’s a lean-in conversation,” he said. “The conversation’s gone from if to when and in some cases how.”

Microsoft’s annual financial analyst meeting – referred to as FAM – used to be a gala event on the Redmond campus that ended with cocktails and analysts crowding around Ballmer, Bill Gates and other top executives. In recent years it morphed into low-key receptions held concurrent with big Microsoft conference.

This year, FAM was an unpublicized, hour-long session in a windowless room in the basement of Moscone Center, with Guggenheimer sitting akimbo on stage with his lieutenant, Microsoft Technical Fellow John Shewchuk.

Here’s a heavily edited selection from the exchange:

Q: Apple’s iOS and Google’s Android have huge momentum. What strengths does Microsoft have and how is it advancing?

Guggs: Microsoft addresses this question with app developers in several ways.

“People care about the number of devices, or have confidence you’re going to be shipping more devices … hundreds of millions of PCs will ship this year and sometimes we lose track of that,” he said.

Microsoft also pitches its “common core.” Windows Phones and PCs have a common core that makes it easier to develop apps for both platforms – “it’s not exactly the same … but you have a good starting point,” he said.

The platform is richer, with common user experiences on phones, tablets and PCs; a variety of interfaces and Windows 8 features such as the “charm” controls for search and sharing.

Apple’s iOS “doesn’t bridge experience across phone, tablet and their PC – Android doesn’t really have a PC,” he said.

Microsoft also offers more flexibility in its commerce platform, with a sliding scale for sharing app store revenue, for instance, and improvements in app store merchandising that were highlighted during the morning keynote.

Q: What is Microsoft doing to encourage enterprises to build business apps? Is it taking advantage of its strength in enterprise computing?

Guggs: Big companies don’t necessarily want to turn their internal programs into apps.

“Very few companies who have a decent amount of code or apps – they don’t want to throw it out and replace it,” he said.

Microsoft is offering them ways to develop programs that run online in the cloud, or span internal and cloud infrastructure or move back and forth, he noted.

The company is now “tuning” its enterprise sales to press harder on services and apps, in addition to traditional business products.

“We’ll tune that up big time.”

Q: What incentive is there for developers to write for new Windows 8 interface, when they have apps that work in old interface?

Guggs: “That new UI is a great user experience, especially with touch … To be fair, it goes app by and app and it depends on what they’re trying to do.”

Still, Windows 8 is far off for many big companies that are still moving to Windows 7.

“The number one conversation we have today truthfully is, if you have a lot of XP apps, let’s get them to 7 apps,” he said. “We sort of have that ‘let’s get to the right point’ conversation.”

Q:  Windows 8 enables developers to write apps in JavaScript or HTML. How many apps are built solely with those technologies?

Guggs:  “A lot of apps are mixes.”

Q:  What are companies deploying on Microsoft’s cloud infrastructure?

Guggs:  A lot of deployments in the crowd generally are apps being moved to virtual machines online, which is different than developing cloud apps.

Amazon has done this hosting of virtual machines longer and has the lead, he noted.

“Our offering’s off to a great start.”

Q: Why is Microsoft’s platform more consistent for developers than Android?

Guggs: We have a set of requirements for PC developers, and stricter requirements for Windows Phone developers.

“Windows has enough ‘guard rails’ that you get a decent amount of predictability.”

Q: How easy will it be to migrate apps across Windows phones, PCs and the Xbox?

Shewchuk:  In some apps Microsoft sees 80 percent of the code being re-used across the platforms. “It’s a journey; we make forward progress on this.”

Q: Apple and Android have tremendous momentum and networking effects in their favor. How does Microsoft compete?

Guggs: Microsoft gets momentum from the hardware platform – “there’s 300 million PCs that are going to ship one way or the other.” Microsoft is also “bootstrapping” development on the platform. It’s also working with phone carriers and partners like Nokia.

Q:  Has Microsoft considered giving a bigger share of app revenue to developers?

Guggs: That’s possible but a better approach may be to continue working to get more apps in the store, merchandise them better and then promote them.  “I actually think that’s more useful than giving back 5 percent or something else.”

Q: What’s the future of Windows RT – it doesn’t seem to have a lot of momentum.

Guggs: “There is momentum,” and Microsoft will continue to invest in the RT version of Windows for mobile ARM processors as well as Intel hardware.  PC makers “really want both chipsets.”

“I would say give it some time – we’re invested in it, you’ll see some new designs”

Q: Where is money being made with Windows 8 apps?

Guggs: Monetization is similar to other platforms, with games making the most money.

Q: It’s hard to believe Windows Phone will get to critical mass. Can you be successful if you don’t have 15 or 20 percent share? What if you can’t?

Guggs: “We don’t tend to be a ‘can’t’ company, we tend to be a ‘keep going at it’ (company).

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