Windows Business Review

August 10, 1997

Agenda

• FY97 Business Recap

• Unit/Revenue Summaries

• Win32 penetration topline research

• Windows marketing "top ten challenges list

• FY98 Plan Summary

• NTW Push

  • 4.0

  • 5.0

• Memphis Launch

• NC Attack

• PR/Messaging/Comm

Current Business Status

Win32 ships approx 5M WW units/month.

• 87% Windows 95 at 4.3M units

• 13% NTW 4.0 at just under 700K units

Win32 penetration in US business at 40% (OS Tracker)

NTW shipped 8% of units, accounted for 16% of rev.

• Key to increased revenue is to accelerate NT shift.

Total revenue & unit share for F Y97 $4.1B

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OS Business Review

N T W Shipments exceed plan by 37%

• Led by FG, 110% ahead of plan, driven by strong Select/MOLP sales*

• OEM shows strong growth during the year, but is behind plan

Win95 Shipments exceed plan by 17%, led by strong FG shipments

• Strong Q1 FG sales due to

• August reseller anniversary push to match prior years numbers

• NTW Launch drove OS momentum

• Strong Q2 FG due sales to Win95/IESK Bundle

Win16/MS-DOS as Percent of all Shxpments is fading:

• Will phase out Win3.1 at retail, (not Select/MOLP) in October

• Keep WfW at retail through Memphis launch

* Prior NTW "panic" was unfounded - based on .MS-Sales issue

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FY98 Forecast

• Overall desktop business grows by 15%.

• FG decreases 9% with Memphis only accounting for 3 months of FY.

• OEM increases 25% with CAGR driven volume and NTW share increasing. NTW up 193% with corporate shift.

• Biggest upside is NTW OEM shift and Win98 $99 price point. $35M increase per % point for OEM share. $100 if we price Win98 at $99.

* Includes custom agreements, maintenance, WFW, Win3.x & MS-DOS

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Windows Research

Win 95 will hold a 7:1 installed base advantage

over N T W in US Businesses by C Y 97

• We need to make sure NT5 is a extremely smooth upgrade from Win9x installed base.

• We need to ensure Win98 remains a viable upgrade alternative for those who don't move to NT5. Business represents 50% of the USWindows run-rate

CY97 Projected Business Market Metrics

Windows Machines Only

Source: OS Tracker

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Windows Research

Momentum zs behind W mdows 9x and IE

• Windows 9x preferred over NTW innew hardware acquisitions. We must do a superb job communicating why to make the move to NT.

Question: Finally, in the spring of 1998, you will have a choice of Windows 95, Windows 98, NT Workstation 4.0 or NT Workstation 5.0 on the new PCs you aquire. Which would be your preferred operating system for new _______ acquired in mid-1998?

* Workstation defined as having 32 megabytes or more or RAM

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Top Ten Windows Mktg Challenges

• Positioning Win9x vis-a-vis NTW vis-a-vis IE4.

• Shifting the OEM market to NTW before NT 5.0 is available.

• Launching Windows 98 with appropriate fanfare in the middle of a big NTS push.

• Examining where Win95 customers will really upgrade to.

• Coping with a delayed Win 3.x upgrade.

• Ensuring the NC doesn't gain any momentum.

• Figuring out how to increase desktop revenues by $lB.

• Leveraging the IE4 marketing machine.

• Figuring out how the field can demo our products as they get.increasingly complicated.

• Executing on a WW mktg plan with limited resources.

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Windows FY98 Key Objectives

• Begin the 18-24 month effort to shift the market to NTW 5.0.

• Launch Windows 98 as the no-brainer consumer and general purpose upgrade to Win95.

• Begin phase one of the Windows Vision: Natural Computing, with above two launches.

• Continue worldwide efforts to prevent the NC from gaining any critical mass.

• Determine where the the F Y98 $4, 7B desktop porecast has room to grow.

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NTW Push: 4.0

• Communications:

  • “N T is not just for the Chosen Few anymore "

  • August - December Ad Campaign at IT books & web.

• Field & NT/95 Positioning:

  • Updated "which to choose"; presented at MGS in Paulma & J onro general sessions as well as worldwide product manager session.

  • Now presenting in all corp briefings worldwide.

• Web:

  • New positioning docs launched 8; posted. With windows Platform Briefing.

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NTW 4.0 OEM Update

Current Situation

Current NTW run rates = 7.5% of total OEM Desktop OS mix

• Multinational accounts represent >90% of NTW volume

• 6 OEMs account for 60% of the NTW volume

OEM F Y98 forecast is to reach 15-20%.

• This would account for an additional $500 million revenue

4QFY97 NTW Run Rates

• Digital >25%, Dell/SNI at 14%, HP at 10%, Compaq 7.5% estimate

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NTW 4.0 OEM Push

• Implemented royalty incentive for increased NTW4 penetration

• Waiting for dual install tools

  • Dual OS recovery CD developed as interim solution

• Driving NTW in technical workstation market

  • Compaq - Joint Ads

  • HP - Field engagement! Sun VAR recruitment

  • Digital - TCO White papers, Benchmarks, direct mail campaign

• Completed NTW focused Technology Leadership Advertising Campaign

• Completed NTW "Train the OEM Trainer Event" with new positioning

• Executing NTW Up-sell Program Kicked Off

  • Sales training focused on direct and named accounts

• Planning NTW4 push on portables

  • Website, joint promotions with OEMs

  • IBM Think-pad 770 announcement

• Syncing NTW and PII messages with Intel

• Driving NTW Barriers and Bridges program

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NTW 5 .0 Corp Push: Barriers and Bridges

Situation

• NTW 4.0 adoption is not meeting expectations

• Customers and analysts state primary reason is the product

  • Limited legacy application compatibility

  • Lack of driver support for all H/W

  • High Deployment Costs

  • High System Requirements

Plan-B&B exercise to identify and prioritize specific product issues

• Joint exercise with development (see below for resource/time allocation)

• Visit l0 accounts with diverse needs, interview l5 others (MSNA and lntern'l)

• Solicit feedback from field SEs and Consultants

• Interview top analyst (Gartner/Forrester)

• Analyze NTW 4.0 customer and call data from MTS, and interview TAMs

• Publish prioritized list of top 15 issues that need to be addressed (Sept. l5th)

Resources

• program manager, 1 product manager for 1 month

Decision

• Frankar approval to commit resources-done

• Jimall approve overall program

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NTW 5 .0 Corp Push: SWAT 3K Effort

Situation

• In-house testing matrix limited

• Corp beta sites don't test thoroughly, deploy widely

• Feedback loop is too long, not focused/specific

Plan -Test sponsored SWAT 3K program

• Objective-Ensure NTW 5.0 setup is seamless, quality of OS in real world is high

• Tactic- Install NTW 5.0 on 3000 corp. desktops with an 100% success rate prior to RTM

• Breakdown- 2000 LORG, 1000 MORG desktops-variety of scenarios defined by test

• Accounts-RDP, local and concentrated when travel needed

• Timing- 500 desktops with Beta 1, 1000 with Beta 2 and 1500 w/ RC1

• Process

  • Test/PSS go to chosen accounts for real world testing

  • Setup 5.0, Generate thorough and actionable bug reports for development, uninstall (optional)

Resources

• coordinator part time, length of the project

• 3 test, 1 dev, 1 Product Mgr. per account visit (Program Mgr. optional)

Decision

• Somase approve test resources-done

• Moshed approve T&E budget, J imall approve program

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NTW 5 .0 Corp Push: Rapid Dep Program

Situation

• Windows NTW 5.0 is positioned as the default corporate desktop

• Important to show corp. momentum, ease of migration and worldwide support at launch

• Need early experience to develop migration docs, tool and generate PR

Plan-Windows NTW 5.0 Rapid Deployment Program

• Objective - To roll out 1000 seats in each of 12-15 WW named accounts by launch

• Accounts- Field will nominate, product group will decide based on test profiles

• Proiiles- NTW 4.0 and Win9x upgrades w/ diff. servers, NTS 5.0 (synch w/ 4 NTS RDP)

• Account Responsibility- Migration Team, PR, Ads, On-stage at launch

• MS Responsibility- On-site MCS/MTS support, migration assistance, resolve key issues

• l high level contact in product group for CIO, VP of IS at each account

• Deliverables-Migration and deployment tools and documentation, Case Studies, MCS Blueprints, MTS training/expertise

Resources

• Virtual Team- Per Account-1 MCS, l MTS, l TAM, l Rep, l SE S-l2 weeks

• Product Group-Product Mgr. to facilitate issues, dev/test to address key issues

Decision

• Frankar, Somase approve respective team participation/focus-done

• Moshed approve budget similar to NTS, Jimall overall program approval

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NTW 5 .0 Corp Push: Preview Program

Situation

• Corporate migration is a slow process

• Need to get evaluation copies in customers hands early

Plan-NT 5.0 Corporate Preview Program

• Objective: Generate huge industry momentum and allow wide-scaIe (l00,000 customers)

• evaluation of Windows NTW 5.0 prior to launch for our MORG customers

• LORGs will receive beta's via standard beta channels

• Pay for beta-cost recovery program ($TBD)

• Beta 2 or RC1 candidate (based on test feedback)

• Customer receives time-bombed beta, migration tools, resource kit, and PSS support

• Channel will assist/jumpstart their customers in evaluation and deployment

Resources

• Product Management planning and coordination, Order process center, PSS support

• No development team resources needed

Decision

• Jonro approval of program-done

• Jimall approval of program

• No budget decision as this is cost recovery model

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NTW 5 .0 Corp Push: Migration Team

Situation

• Customers need to be pushed through the evaluation/migration process

• They also need daily contact with Microsoft to clear roadblocks, address issues

• Data shows once account hits 20% migration, speed of migration increases rapidly

Plan-Windows NT 5.0 Corporate Migration Team

• Objective: Drive the top 1000 named accounts through the 5 migration steps prior to launch and have 40% in the deployment phase 90 days post launch

• Team of 20 technical reps handling 50 accounts each (MSNA only)

• Evaluation starts with Beta 2 of NTW, continues to 90 days post launch

• Direct contact with the product group for updated info, migration tools, product issues

• Monthly reporting of account status, key product and business issues, tools! info needed

Resources

• Full time product manager for management, training, issue resolution

• No resources from development team, just buyoff to address product issues

Decision

• Jonro, Jimall approval of overall program

• Jonro budget approval for 20 temp heads for 9 month period (approx. $500K)

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NTW 5 .0 OEM Push

• Developing NTW 5.0 "Ready to Run" Program

  • Work with leading vendors to deliver ACPI machines that will

  • support NTW 5.0 power management

  • Trademark and brand OnN0w

    • Don't create a logo, but reference it like Nutrasweet

    • Using the OnNow brand equals support for NTW 5.0 power management

  • Drive program within Designed for Windows Logo program

  • OEMs who participate in NTW 5.0 "Ready to Run" program gain preferred status at launch

• Develop early beta preview program for OEMs

  • Enables OEMs to seed machines early in evaluation cycle

• Use FY98 NTW 4.0 OEM push to accelerate NTW 5.0 adoption sooner

  • Best way for customers to migrate to NTW 5.0 is to ship NTW 4.0 machines today

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Sustaining Win95 and NTWthis Fall

• 'Get up to Speed!' Fall Campaign --

  • What is it? - Drive the "last wave” of consumer Winl6 desktops to Win95

  • Objectives - Increase fall Win95 sales by 25+% (80k units in the US)

  • Canadian subsidiary is also participating. Increase Win95 consumer installed base for easy Win98 upgrades.

  • Timing - 8/1 through 9/30

  • Cost -$4M ($lM merchandising, $3M radio/online). 2x ROI

• Windows 95/ IE 4.0 bundle

  • What is it'? - Put a CD with IE 4.0 in the Windows 95 box.

  • Objective - Keep Win95 PP "fresh" between IE 4 release and Win98

  • Timing - Must RTM by 9/22 to be in channel by Thanksgiving

• Win NTW / IE 4.0 bundle - repeat the bundle by January g

• Risks/Issues with Win95/IE 4.0 bundle:

  • Need two weeks of IE team dev + test resource to update and test Win95 online services clients to support IE 4.

• If we can't be in channel by Thanksgiving, we won't do the bundle

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Windows 98 Launch

• Theme:

  • Windows 98 is Phase l of the '2nd generation ofthe Internet' and the first step to Natural Computing .

• Objectives: I

  • Sell 2M NA FG units in FY98, $96+M NA FG revenue ($152M WW)

  • Reach 75% consumer awareness for Windows 98 at launch

  • Focus on a hardware partner launch (OEM, IHV) for the first time ever

  • Match Windows 95 launch channel depth (7k resellers in the US)

• Launch Plan:

  • Tie Win98 launch to a major Strategy Day event

• Introduce broadcast architecture, broadband, service component with partners

• Integrated March 4th retail launch with OEM and IHV partners

• Retail strategy

• New PC purchasers: Make sure OEMs are in store with great PCs that take advantage of all Windows 98 features

• Upgraders with new peripherals; Launch Partner Program to promote IHVs with hardware add—ons that add great value to Windows 98 (ex: USB, monitors, digital cameras, tuner cards and RAM)

• Upgraders without new hardware: Have great instore presence with merchandising that make it clear that Win98 is a great upgrade to Win 95

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Windows 98 Launch

• Launch Tactics:

  • Compelling merchandising and incremental display in-store T

  • Radio ads, consumer print and online (details TBD)

  • 100k "Pre-release" program units for consumer lEUs with Beta 3. This program is self-financing.

  • User Group tours in top 15 PC markets starting in January, reaching an estimated 10k consumer end-users

  • Reseller training tour in October for Top 20 resellers and distributors

• Risks/Issues for Windows 98 Launch:

  • Customer reaction to lack of a Win16 upgrade at launch

    • Lack of a Win16 upgrade forces the 150k/month Win3.x users who are upgrading to Win95 today to go through a difficult multi-step upgrade path

    • Be prepared for negative PR

  • Dev resources for the upgrade "check" need to be spec'd

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Win98 Upgrade Pricing

• Current research tested purchase intentions unaided and then at 4 price-points: $49, $69, $99, $129

• Findings:

  • Research suggests this is not a $49 product:

    • Lowest resistance price-point is $62:

      • Among Win95 upgraders it is $74 (expected from typically more engaged users)

    • At lower prices, significant hesitation regarding product value

      • The percentage of users that say the product would "too cheap, and would have concerns over its value or effectiveness" rises dramatically at $50 and below.

  • Research suggests that customers "expect" an $89 price-point

    • Large difference in purchase intentions between $90 and $100 suggests a clear breakpoint

    • Minor difference in purchase intentions between $99 and $129 suggests past the critical price

• Next pricing exercise objectives

  • specifically measure impact of IE 4 on Win98 pricing.

  • Specifically test $69 versus $89 price-point

  • Results due Monday 8/11

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Win98 Packaging

• Win95 package was one of our most successfull packaging designs

• Want to leverage that success

• Cross-Divisional initiative:

• investigated having a white box to synch packaging look with Office, IE

• White box and other "office compatib|e" boxes did not test nearly as well in side-by side comparison with blue cloud concepts. Awaiting final monadic results.

• Final Research Round

• Testing 3 blue/cloud concepts monadically and side-by-side

• Side-by-Side will include white box as final sanity check

• Results due Friday 8/8

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Win98 IEU Preview Packaging & Localization

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Memphis OEM Update

Current Situation

• Windows 95 at about 77% of run rate

• Windows NTW 4.0 run rates increasing

  • Current run rate 7.5 % growing to 15-20% in FY98

• Expect relatively smooth OEM transition to Memphis from Windows 95

  • New hardware support motivating OEM transition

• Memphis will become default OS in place of Windows 95 on new PCs

• Majority of Windows OEM marketing efforts focused on NTW 4.0

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Windows 98 OEM Push

Key Objectives

• Successfully launch Memphis with support from leading OEMs

  • >l00 OEMs support at launch

  • Top OEMs shipping Memphis pre-installed at announcement

  • Rapidly transition OEMs off Windows 95

• Launch Memphis with key international language support at introduction

• Effectively position Memphis relative to NTW 4.0

  • Memphis recommended consumer and general purpose PC platform

  • NTW 4.0 is Microsoft's recommended business OS for new systems with 32MB

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Windows 98 OEM Push

• Marketing priority with OEMs will continue to be NTW transition

  • Windows 98 is the default OS and only provides incremental revenue gains

  • Windows 98 focus will be on new compelling hardware capabilities

• Partner with key OEMs to drive new PC sales

  • Drive OEMs to build Broadcast PCs

  • Sub $1000 PCs

  • Multimedia capabilities with DVD, 1394 support

  • Key OEMs focused on consumer channel include: Compaq, IBM, Packard Bell, ACER, HP, SNI, NEC, Fujitsu, Toshiba

• Memphis provides Microsoft opportunity to use OEM pre-install transition to shift % mix to NTW

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NC Attack: What we've done

• Products - Released ZAK for NTW. Announced NetPC, Citrix/WBT

• Marketing/PR

  • Launched ZAK at Cebit. 70 articles and 2 product reviews

  • Trademarked and began using IntelliMirror

  • Windows Platform briefing resulted in 22 articles to date

• Accounts

  • Talked to 50-60 accounts FedEx, St. of Florida, MCI, British Telecom, Norfolk Southern, AARP, Citibank, Newport News Shipbuilding, Fidelity, PiperMarbury and First Chicago.

  • Found they have need to run Windows apps, are positive on our Window strategy, and view the NC primarily as a terminal replacement.

  • Account visits got us back in the race at FedEx and St. of Florida, whereNetPC's have been added to NC evals. Visit to AARP resulted in no further NC deployments.

• Tools

• Which to Choose document, TCO slides, NetPC demo units, and TCO calculator

• Need to deliver final Gartner Group numbers and more packaged demos for the field

• Events & Training

  • NC/Java competitive session #1 rated session at MGS. Delivered tech sessions on NC, Hydra, and ZAW

  • Completed TCO district tour to every US district office

• Conclusion

  • Luster starting to wear of NC and Java in the press. Customers who have been implementing NC's and Java are now having problems and are talking about it.

  • Using the “high road “ strategy works because it shows customers they made the right choice with Windows.

  • Field is now educated, armed, and motivated to win this brittle because they can stand behind our strategy.

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NC Attack:Next 6 - 12 months

• Products - Announcing WBT spec. Waiting on ZAK for 95, NT 5 beta, Memphis beta 3

• Marketing/PR

• Launch NCFacts.com with WagEd in August to deliver low road NC/Java messages. Continue to use ms.com to deliver hi gh road messages .

• Continue to push the high road - MS solutions via IntelliMirror, NT5, Memphis

• Accounts

• Field driven with assistance from corp in high profile accounts

• Adamt/Onlee - Phillipines National Computing Center, Telecommunications Commission, Dept. of Science & Technology, press, and partners, Keithw/Brianr - Dutch Ministry of Education, Stevengu/Charlesf CSX CIO in Redmond

• Tools

• Customer ready scrub on MGS slide decks (End of August)

• Deliver NC trial/rejector case studies (One by end of Sept)

• Technical whitepapers on IntelliMirror and Hydra/WBT (Deliver at PDC)

• Deliver Windows ROI information and updated Gartner numbers (End of August)

• Provide packaged demos to field via NetPC's provided by NEC (Mid-September)

• Develop whitepapers on why Windows benefits specific audiences (ie. Education IT Mgr Channel, etc) (October)

• Events, & Training

  • Leverage fall events, including Java Internet BusinessExpo, IT Forum, Gartner IT Expo, N+I, and Comdex to continue coverage of messages from Windows Platform Briefing.

  • Train channel via district events and TCO TSB training

• Conclusion

  • Sun and Oracle plan to ship their NC s in volume in the fall, we must continue to utilize the press, events and partners to get the word our that the NC's and JavaOS are the worst of both worlds.

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Update on Competition

• Infighting between Sun and Oracle

  • “I'm not sure that Java by itself is a platform for a new industry, but it is certainly the way you program a new platform.” Larry Ellison, Internet World, 8/97

    • Oracle not waiting for Java OS anymore, proceeding with new version of NC OS

  • "You know, Larry Ellison keeps picking a fight with a $500 fantasy computer. I don't know what that is. I don't care." Scott McNealy on CNET

• Oracle/NCI lots of hype, little progress

  • NCI laid off 45 employees (30% of workforce) on 7/22 (CNET), plans to sell via partners only

  • "Over the past year, we haven't generated the revenue we had hoped for,” NCI CEO Jerry Baker

• Sun, despite delays, the primary competitor we are facing

  • Biggest mindshare of any NC vendor in our accounts

  • Sun internal users reported to be "kicking and screaming,” (CNET) becusethe JavaStation lacks fullcompatiblity with internal email systems and Solaris backends

  • Lost Burlington Coat Factory due to delays in shipping stable JavaOS(CMP Techweb)

• IBM might give away devices to get services business

  • Claims to have sold 10K NC's, now contemplating giving NC's away to get server and services business

  • Announced new versions of their NC's with varying levels of Java support and performance

  • "There is next to no value in a terminal device. The value is in the content. The [NC] market eventually will resemble the razor-blade market. The devices will became handles and the content, the razor blades” Brian Murphy, The Yankee Group

• Digital is hedging their bets

  • NCI plans on Digital to sell their NC's, then Digital announces they are ramping down NC activities over next six months to lead with Strong-ARM processor based WBT's

• Conclusion

  • Delays in delivery of key technologies (such as the JavaOS) is causing pain for customers attempting to deploy NC's and is further fragmenting the NC market.

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NCFacts.com Screen Shot

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NCFacts.com Screen Shot

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PR Activities

Desktop Talking Points Program

Drive proactive PR with rolling 6-week calendar.

Continue "PR911" Program.

Immediate response for urgent PR issues.

Reviews push for Win98, NT5 & TCO.

Resurrect Customer Reference Program.

Reviewers Workshop at PDC.

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FY98 Windows advertising

FY98 Windows Marketing Communication pnnt advertising calendar

July August September October Nmember December January February , March April May June

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Summary

• NT shift is a long haul. We start the investment*now*, expecting Win9x to remain the dominant seller for 2-3 years.

• We can't screw up with Win98. Win9x represents 70% of FY98 revenues. Mktg must spend the cycles to do this right.

• NC is likely a long term thrust, despite initial success over the last 6 months.

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