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Microsoft Tweaks Its Carrier Strategy

Ray Le Maistre

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.

Sandbox update
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

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User Rank: Light Beer
12/5/2012 | 3:46:49 PM
re: Microsoft Tweaks Its Carrier Strategy
Ms was involved in the telco service arena for quite long time. even if all the ms application is running on the x86 architecture.

the latest trend of the SOA telco architecture change give ms more flexibility to support the telco service, in the new architecture OSS and the service delivery system is more important than the network infrastructure, the traditional vendor will suffer more than the company like oracle/ms/IBM in this transformation.

if MS and yahoo finally come to a agreement to emerge into a big ISP, the whole telco service industry will change completely.

MS and IBM will then try they best to neutralize the network infrastructure and emphasisi the paramounting importance of the service delivery system. the pipe will be alinated to be a pure commodity rather than any service enabler.

Very positive for ms and oracle/IBM etc.

User Rank: Light Beer
12/5/2012 | 3:46:47 PM
re: Microsoft Tweaks Its Carrier Strategy
No it isn't.
User Rank: Light Beer
12/5/2012 | 3:46:47 PM
re: Microsoft Tweaks Its Carrier Strategy
The real goal of the MSFT-YHOO merger is to use the last potential layer of incompatibility, between the browser and web sites, to break the compatibility of the Net and reduce the open Net to a MSFT Sandbox. The competing product is the ADBE AIR.

Once MSFT has YHOO, they will put Silverlight everywhere, which will work with YHOO but not with anything else. Maybe not at first, but eventually. Then, they will load up the site with DRM-infested Hollywood eye candy and sell downloads to ever dumber users who pay up to stay in their fancy walled garden. Users will be stuck with their "service provider" and behave well.

It will all work at first for the service providers, who sell the bundle in lieu of voice. But then, just as they did with PCs, MSFT will creep in those price increases and push out the service provider, who will be reduced to a dumb pipe anyway. And, just as they have done with Vista and especially with Vista SP1, they will continue to push Silverlight onto ever more desktops, which will work with less and less until all desktops only connect to YHOO.

With any luck, they will have driven a stake into the heart of that unruly "open internet", all in the name of "innovation". Eventually I will be paying the MSFT tax to even make this post.
User Rank: Light Beer
12/5/2012 | 3:46:44 PM
re: Microsoft Tweaks Its Carrier Strategy
With any luck, they will have driven a stake into the heart of that unruly "open internet", all in the name of "innovation". Eventually I will be paying the MSFT tax to even make this post.

A native American perspective in the eighteen hundreds probably was that a bunch of Europeans proposing property rights and carving up "public lands" was equally disheartening. Today, the only way to get some of that land back is for land trusts to convince philanthropists to buy it and donate it. Either we pay for freedom and it's associated responsibility with something like an ecommerce tax or we end up with gated communities built by Disney, not so different than Celebration, Florida where concepts like democracy and self governance become farcicle.


Regardless of Disney's motives for building the town, people came in droves to Celebration--many at great sacrifice. In doing so, they signed a code of conduct that dictated not only rules regarding outward-facing curtain color (white), but also rules regarding complaints about the mosquitoes, hanging clothes on outdoor clothes lines, the number of political posters one could have on the lawn (one), the number of garage sales per year (also one), the types of permissible shrubbery, and more. After reading this book, I'm still not sure why--ultimately, what was the fundamental attraction to Celebration? Perhaps the attraction was more than the search for Mayberry, and whatever of the proverbial American dream could be found along with it, as the authors suggest. Perhaps people came to Celebration expecting, and anticipating, Disney to be benevolent dictator of the town. One of the residents is quoted in the book as having said: "When we moved here ... it was comforting to know that there would be accountability from Disney, but living here I think there are times when we need a voice" (323). It is a shocking revelation that a citizen in a self-acclaimed democratic nation would suppose that sometimes the people need a voice.
User Rank: Light Beer
12/5/2012 | 3:46:44 PM
re: Microsoft Tweaks Its Carrier Strategy
And another question from Celebration that we might want to think about as many idolize "market participants" as the solution to our communication infrastructure problems.

Frantz and Collins state that, perhaps, "it is simply a question of whether or not a corporation can engineer a good place to live or if that good place has to evolve on its own" (322). A better question to ask, it would seem, is why so many people would expect that a corporation could engineer a good place to live? How would Disney be able to provide the cornerstones of place and community?

The obvious answer is that Disney can't and won't. Neither will the FCC. We're going to have to get our hands dirty and solve these problems ourselves.
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