Microsoft Tweaks Its Carrier Strategy
Microsoft Corp. (Nasdaq: MSFT)’s Communications Sector unit is tweaking its carrier applications development strategy in an effort to light a fire under its telecom service creation plans.
Those plans center around the software giant’s service delivery platform, the Connected Services Framework (CSF), and its Connected Services Sandbox application mashup initiative, both of which are critical to Microsoft’s efforts to become an indispensible development partner to the world’s major carriers. (See Microsoft Lands CSF Deals, Accenture SDP to Use Microsoft CSF, AT&T Adopts Microsoft's SDP, Microsoft Touts SDP at 3GSM, and Insider: Telcos Embrace SDPs.)
And the world’s carriers are important customers for Microsoft, generating $2 billion in revenues in 2007, according to the software firm. More on that later.
Microsoft launched its Sandbox initiative -- bringing together carriers, equipment vendors, ISVs (independent software vendors), and applications developers in a service creation hotbed -- in December 2006 in an effort to stimulate the development of new services for mobile and fixed-line carriers using the CSF as the enabling platform. (See Microsoft Unveils Sandbox and Is the IMS Honeymoon Over?)
The initiative instantly attracted support from some of the industry’s big names. BT Group plc (NYSE: BT; London: BTA) got involved early and has already reaped the rewards through a joint applications development competition it ran with Microsoft. And now the British telco is well advanced in its next-generation services creation strategy. (See BT Inches Toward Telco 2.0.)
But BT is the exception, and Microsoft is aware that it needs to step up the pace of development and get more companies engaged in the development process: 14 months after its launch, the Sandbox has generated just 160 registered mashups, though that does at least include a transport logistics application that is now being used commercially by BT. (See Mashup Wins Competition.)
There's a sense, even among some of Microsoft’s existing Sandbox partners, that the initiative is still in its development phase and lacks maturity. Michael O’Hara, general manager of Microsoft’s Communications Sector -- which is responsible for all sales to service providers, from desktop software, to mobile platforms, to the software firm’s IPTV platform -- concedes there are fewer than 10 carriers involved in Sandbox currently. Besides BT, that group includes BCE Inc. (Bell Canada) (NYSE/Toronto: BCE) and a number of as yet unidentified operators.
So why the lack of interest from carriers in general? Many, says O’Hara, "have a different service creation philosophy. Many still have a vertical view. But I think that’s changing. BT is progressing, and gets it. BCE is getting there, and we have a number of unannounced carrier partners, including some big names."
So what’s Microsoft doing to fuel greater interest? First off, it is scrapping the fee it has been charging for companies to get involved in the Sandbox initiative.
Beth Morrissey, director of marketing at the Communications Sector division, says Microsoft has made revisions to make the Sandbox more open. "Initially, some companies, such as BT, BCE, and Nortel Networks Ltd. [a close partner], paid to be part of the Sandbox initiative," she says. "Now we have waived the fee. We’re looking to increase the number of ISV participants. There are 70,000 ISVs developing applications on Microsoft, and we need to attract more of those into the Sandbox." (See Nortel Sees $1B From Microsoft Alliance.)
Currently, says Morrissey, 131 of the 883 organizations registered in the Sandbox are ISVs, of which 10 are "registered as Premier Participants, meaning they have signed a partnership agreement with Microsoft." The remainder are "Standard Partners," which still allows them access to the mashup creation and test process, the ability to participate in competitions, and so on.
Microsoft is also set to encourage a greater level of participation from its carrier partners. "We’re hoping for a more RFI-based process, where carriers post their requirements into the sandbox, and developers and ISVs respond" with mashups, says Morrissey.
Notes O’Hara: "We believe that a greater involvement from the ISVs will drive forward the Sandbox concept," adding that the Sandbox "is a catalyst for applications development, not really a revenue driver. It’s an enabler."
An important enabler, though, as the resulting services should, ultimately, feed revenues back to Microsoft and increase its standing in the carrier world.
$how me the money
So what is driving the Communications Sector team’s sales? In 2007, revenues from carriers totaled $2 billion, of which about 60 percent, or $1.2 billion, came from the sale of traditional software products (PC operating systems, Office applications suites) while 40 percent ($800 million) came from "the developing areas of our business -- the IPTV, the mobile device OS, and the services revenues," says O’Hara. "The growth is in the services revenues, because the traditional sales are being impacted by the fact that carriers are employing fewer people and so need fewer traditional software licenses."
Those services sales come from revenue-sharing deals that Microsoft has struck with carriers around hosted services, like email and instant messaging. The vendor just announced a few more such deals at the recent Mobile World Congress show in Barcelona. (See Telefónica Uses MSFT in LatAm, Cbeyond Uses Microsoft, Microsoft Wins in Russia, and Microsoft, Omnifone Team Up.)
"We want people to use our applications. That’s our goal. We want adoption of the core services -- hosted email, hosted Instant Messenger, hosted CRM for businesses. These are the things that are driving revenues at the moment, and we’re making money from these services" through revenue share arrangements, notes O’Hara.
In the meantime, Microsoft needs to get more companies involved in its Sandbox, convince the world’s carriers that its Mediaroom platform (for IPTV and home networking) can meet the demanding needs of large triple-play operations, and sort out some M&A loose ends. (See Yahoo, Microsoft Merger Could Aid Telcos and French Firms Take On Microsoft.)
— Ray Le Maistre, International News Editor, Light Reading