Silicon Valley Speaker Series: Future of the Microsoft Macintosh Business Unit

ERIC WILFRID: Hi, I'm Eric Wilfrid with the Microsoft Macintosh Business Unit, and thank you for joining us today for the Microsoft Valley Speaker Series event. Today, Kevin Browne, General Manager of Microsoft's Macintosh Business Unit, or as we like to call it the MacBU, will discuss MacBU products, the status of Microsoft's technology agreement with Apple, Microsoft's continued support of Macintosh users, and what Microsoft's .NET means to MacBU.

As one of the founding members of MacBU, which was formed in 1997, Kevin spent three years as the group product planner where he helped to define the early MacBU products, including Office 98 Macintosh Edition, and Internet Explorer 4.5 for Mac. Since being named head of MacBU, Kevin has overseen the successful completion and launch of the award winning Office 2001 for Mac, Internet Explorer 5 for Mac, and Outlook Express 5 for Mac, as well as the resent release Office 10 for the Mac.

Kevin brings more than 10 years of experience at Microsoft to the role of general manager. Before joining the MacBU, Kevin spent seven years as a reseller channel representative, systems engineer, product marketer and product planner for Microsoft Excel, where he assisted in shipping every version from Microsoft Excel forward.

Prior to working at Microsoft, Kevin spent four years in the U.S. Army, where he was a tank commander of the Fourth Mechanized Infantry Division. Kevin also holds a BA in history from the University of Notre Dame. Please join me in welcoming Kevin Browne.

(Applause.)

KEVIN BROWNE: Thank you all for joining us.

So, today's talk is supposed to be positive, so we're going to keep it that way. There is always a way we can go in this. You know, what prompted this whole talk is kind of, there's been a spate of articles recently over the last couple of months that have said, gosh, what's Microsoft's intention? Some people have even asked the question more directly, like, will Microsoft pull the plug on Apple? So that's what we're here to discuss today.

David Coursey at the end of January wrote this article and kind of offered his opinions about what it would take to convince him that Microsoft was still engaged on the platform. So, just to dive right into it, why are people asking this question? There is this technology agreement that Microsoft signed together with Apple back in 1997, it was signed on August 5th, 1997, a five-year term, and that term, obviously, expires this August of 2002.

The assumption has been that without an agreement in place, there's no way Microsoft would be doing this business, and what I hope to convince you of today is the relationship between Microsoft and the Mac, the relationship between Microsoft and Apple, really just has nothing to do with the technology agreement. The technology agreement never has and never will define what it is that we do on the Mac, or how we do it.

We, Microsoft, began life as an applications company on the Mac. Microsoft Excel first shipped on the Mac back in April 1985. Microsoft Word first shipped on the Mac back in 1986. Microsoft PowerPoint, Microsoft Office as a suite was born on the Mac in 1989. We have been a company that has been dedicated to providing great software for Macintosh users for a long, long time, most of our company's history.

We have, with the business unit that I run today, we were formed actually before the technology agreement was even signed. People have asked, well, is there going to be a renewal, are you going to sign a new one? I want to be clear about it today, that we would absolutely welcome an agreement with Apple to advance the strategic interests of both companies. There's work ongoing about that. There's no anxiety on my side, and I think no anxiety on Apple's side about whether there's a technology agreement there. And what we're using this talk to do is to try and reach out to customers and say, you shouldn't worry about that either. If you're thinking about the technology agreement, you're thinking about the wrong set of things.

Microsoft's approach to the Mac since I've been involved in this Mac Business Unit, it's always been about doing the right thing for customers. If you take a look at the technology agreement and you said, here's the list of all the things that we're required to do, and then you take a look over the terms of the technology agreement and you said, what have we done? The two lists bear no relationship to one another. We've released three major releases of Office in four-and-a-half years. That's pretty extraordinary for the amount of code, the amount of complexity that's required in putting that product together.

We did Mac OS 10 versions of Internet Explorer and Office here in the last couple of years. The technology agreement never said anything about that. We built world class email clients on the Mac, including Outlook Express and Entourage, never was talked about in the technology agreement.

We've imbued our products with true Mac-like appearance and behavior. We've introduced features in our products that are not found in the Windows versions of our products. We provide great support for Apple technologies that are critical to our customers. In some cases, we provide better support for Apple technology than to similar Microsoft technologies, witness our support in the Office suite for QuickTime, which is actually better than our support for Windows Media.

We've also introduced a range of other products that are not talked about, not discussed at all, not required by the technology agreement. Again, from the beginning, our entire approach to this has been, we're going to make a business about this, we're going to do the right thing for customers, and we're going to try and continue doing that even after the technology agreement expires.

So, in the place of the technology agreement, what do you take away? What do you hang your hat on if you're a Mac customer and you're worried about Microsoft? One, Microsoft is going to try and do the right thing for both customers and the P & L. We're going to try and run a great business. We'll continue this business as long as the business case makes sense to do it. It's pure and simple, we've got to make a profit. We're a profitable company today. It's been kind of a difficult period in the PC market. The last 18 months has been the worst PC market probably in the history of the PC, and yet we've continued to make a good business out of this, as has Apple, Apple has maintained profitability through most of this dark period. We see growth ahead, and we believe that the business case will make sense over the long-term.

We are going to take one version at a time. We'll do a version, we'll see how that thing sells. If we think that the business case still makes sense, we'll start planning the next one. That's what we're doing right now. We're definitely approaching this thing, though, by taking the long-term view. I'm going to talk about things today that we may do that may take us the next five years to do, the next seven years to do. That's the right approach for this business.

The base of our business is to build great versions of Office and IE for our Mac customers. That's the base. We're very open to doing other products, but we have to do things in a way that makes sense for the business. Again, the criteria for us, it has to be a modest resource cost, and a good return on investment, or we won't do it. MSN Messenger is a product that we've recently really picked up our investment in. It's something that was done by a handful of people outside of our business unit. The MacBU has now adopted MSN Messenger, because we believe it's a great foundation for helping Mac users work together. As we talk to customers, we're finding more and more cases where individual Mac users want to collaborate on documents, or want to work together in ways that they're maybe not able to do easily today. And we see MSN Messenger as a great foundation for doing that.

People have said...in the David Coursey article, he specifically said, if you want to make us believe you're dedicated to this platform, you need to port these following products to the Mac. Well, it turns out that Project and Access both are great products, there probably is a market here, but it would take my entire team two-and-a-half to three years to port either of these products, during which time we wouldn't be working on Word, Excel, PowerPoint and Entourage and IE. And if we were to port Access, for example, we'd be going head to head with FileMaker, which is a great database, it's serving our customers well, and we just don't see a great ROI promise there.

So, please don't try and define the business by anything other than what good business terms are. Don't kind of set out there these things that you need to see in order to think that we're committed.

I'd actually like to give a replacement definition for support. What does all this business stuff mean, whether it's between people or whether it's between companies? Commitment, you might say, are you investing in the platform? Well, we have the Mac Business Unit, about 150 people. We still think it's the largest dedicated Mac team outside of Apple. I know there are a lot of other companies doing Mac work, typically they have their Mac and Windows people, their people doing Mac and Windows work at the same time. The people that work for me do only Mac products. They have no responsibility for Windows, Xbox, or anything else at this company.

Does it mean you believe? Does it mean that you support? Microsoft, the Mac Business Unit has been among the earliest and most vocal supporters of Mac OS 10, back when it didn't make any sense to stand up on a stage and say we believe in this because we just didn't know anything about it, we were up there to try and say we think Apple is going in the right direction. We are waiting to see what they do. Back in the fall of 2000, when we were launching Office 2001, which didn't support Mac OS 10, we said we'd move very quickly to support Mac OS 10, and thereby cut into our business, our own upgrade business. We have believed even where it didn't make sense to believe.

Does it mean you make a bet? All right, well, today we're going to make a big bet. We're going to say, Mac OS 10 is our whole future. We're not going to do another product on Mac OS 9. We'll do a little maintenance work as required for quality and security issues as we need to do. But every major release that my business unit does from now on will be based on Mac OS 10. If Apple is betting its business on Mac OS 10, it makes sense for us to do so, and my personal belief, as I stand here today, is that the only reason you'll see us go away is because Apple's going away, too.

Do you plan for the future? Well, absolutely, stay tuned. That's what the rest of this whole talk is about. We feel like the best way to show you that we're committed, that we're planning to be here for the long-term is to tell you what it is that we plan to do.

Microsoft's overall strategy is something called Microsoft.NET. And there have been a lot of talks about this, many hosted here. There have been a lot of people trying to lay out the strategy. I'm going to try and summarize it for you very quickly, normally it's a 35-slide presentation. I'll try do to it in a handful of slides, and I'll tell you what it means to us, and what we intend to do about Microsoft.NET. After that, I'll talk very specifically about the set of products that we're going to work on.

So, Microsoft generally sees the world becoming more and more connected every day. You've got these gigantic organizations. You know, I'll say this is Boeing, this is Ford, they need to do work together, they need to do work, employees need to work across departments inside the organizations. This solid line is the firewall, if you will. Increasingly, employees inside of a large organization talk to customers, suppliers, partners outside of the organization, whether those are small little satellite companies or independent companies, they talk to mobile employees. And increasingly they want to build links between employees and systems between large organizations and smaller organizations.

We often see the scenario where there's a small, completely Mac-based graphic-design firm that needs to do business with a large company. There is a small team here which may be one or two different employees in different departments here in the large organization together with suppliers and partners, they need to do work as a virtual team. Let's say they're doing a piece of work that is to design the new packaging work for a new product that's coming out. They need to work as a virtual team.

Today, it's kind of difficult. You have these problems like, how do we share documents? I've got a new illustrative graphic that shows a couple of prototypes, or all the different ways that we can approach this new packaging. How do I share it with the virtual team across all these company boundaries efficiently and get feedback that's all consolidated and easy to digest? How do I assign tasks to people? If I'm running this virtual team that owns this project, how do I say there's a single, consolidated list of names where everybody can consult it and know who is in charge of what, how far along they are, what dependencies they have, this is a very difficult thing today?

How do you schedule a meeting? Today, if you're just talking about Company A, they might be using a server product like Microsoft Exchange, which makes it very easy for users to schedule meetings directly with people just within that boundary. But across those boundary lines it is incredibly difficult. You're always falling back to the phone, which was 1940s technology. We need to make it easier for people.

Microsoft.NET is intended to address this problem. The problem is fundamentally one of integration. How do you get users to talk together, devices to talk together, applications or systems to talk together? Integration is the problem, and it's a common one. It's a problem inside organizations as well as between organizations. It's a problem on a personal basis. We see so many customers who have a PC at work because that's what their company is standardized on. They own a Mac at home, because they love the Mac platform. They own a Palm because they like the convenience. They own a cellphone. Keeping the one single address book of the people who they call all the time and their numbers up to date on every one of those devices is a really hard problem today. And that's just the easiest, most basic use of that. Keeping the individual personal network intact and up to date today is difficult. Between systems, it's way to hard and expensive to keep things integrated and up to date. Companies have an inventory database where they keep the list of stuff that's in their stock, their stock rooms. They have a sales database, which lists all the orders, and where they're supposed to go. They have a customer relationship management system.

Commonly what companies are trying to do today is to stitch these systems together and say, how do we get all these things to work together so we have a single integrated view of our business, and we know where problems are immediately. Today to do this, you go in and you bring in a busload of IBM consultants, and you pay them a lot of money, and they put all the things together. Then you upgrade one of those things, and you've got to bring the same busload of IBM consultants back in to put it all back together. Integration is an afterthought today, resulting in islands of technology which could be working together, but it's often too hard to get it to do so.

When we talk to Mac customers, integration is one of the hardest problems they face. It has been for a long, long time. You talk to CIOs who have a couple of Macs, maybe 15 percent of all their desktops are Macs, all the rest are PCs. Many have taken the approach of just saying, you're going to use a Mac at your own risk in our organization. And if you need access to whatever, you're going to have to have a PC on your desktop. In the mid to late '90s, it caused many organizations to move away from the Mac entirely.

We're starting to see more and more customer who are saying, that isn't good enough anymore. We really want the Mac to be a first client in our organization. And they want help from Microsoft and from Apple to get there. This is a place where we feel like we can make a difference with .NET.

So, what is .NET all about? Microsoft.NET is a platform for something we call XML web services, which are intended to address these problems of integration. It spans a number of different platforms. First, the client platform, you see a number of different devices here, the PowerBook right there in the center, it indicates our readiness, our willingness to make this a part of the .NET platform. The tenets for addressing the client are that you fully exploit the enormous amount of computing power that's available on the client. The edge of the network is rich with computing power, and it's tremendously underused today. You fully exploit the device's capabilities. If you've got a tablet PC like is over there toward the right-hand side of the list, that has enormous new capability for people who are mobile, where the desktop PC is going to be able to be much richer in terms of its constant connectivity over a high bandwidth network. These clients will be connected to XML web services, which we believe provide the next layer of rich features that add to the value you get from our products.

Microsoft.NET also spans a layer that we call web services, and the servers that those services run on. Web services are, think of applications that can both talk to users, that can adapt themselves to devices that they might be talking to. You need to talk to a cell phone in fundamentally different ways than you talk to a desktop computer because the user experience of the user interface is entirely different, the service they run on.

We have a specific kind of web service that were very keen to integrate with from our Mac products, and its called .NET My Services. .NET My Services is kind of a building block set of services that well try and -- well field from Microsoft, well also sell to ISPs and ASPs, well sell to individual companies, and theyll be able to install these services and run them inside their fire walls.

A user will get an account on a .NET My Service server, and theyll get 15 things, 15 different services that well provide. They have a documents folder, they have a calendar, they have a set of contacts, in-box, a unified set of favorites, theyve got a profile that talks about who they are, they can register all the different devices they use, applications settings so you can roam to any PC thats connected to that, and get a single, consolidated set of kind of the way you work inside of Microsoft Office, or other applications that can take advantage of this.

In the same way that we see being able to connect you between your Entourage Calendar and the calendar that sits on your Palm handheld, we ought to be able to connect to you and synchronize the data from Entourage up to this .NET calendar. And thats kind of the first layer of it. Whats really exciting is what you can do with that. Assuming a bunch of users actually have access to a .NET calendar, we can do these rich group calendaring and scheduling things that today you can only do inside an organization, with something like Microsoft Exchange, or the MeetingMaker product. It makes it easy for us to consider allowing you to establish a calendar, give permissions to a bunch of other users, and then have a group view of all the people connected to that project team that I talked about, it crosses lines, makes people much more productive than in the past.

Microsoft.NET also defines a set of tools, Visual Studio.NET, the .NET frameworks, the XML, the .NET My Services API. These tools span in a single, consistent programming model across client, server, and service to provide very high productivity experiences for developers to set up these Web services, or the clients that access them.

And finally, something called experiences that were talked about. We see experiences as a combination of the devices that you use, and services that you talk to so that, for instance, youll have a calendaring experience, youll be able to view your calendar from your Mac using Entourage, from your PC using Outlook, from your cellphone using whatever interface that things is going to allow. But, overall, its a single consolidated -- its kind of your calendar brought to you wherever you are, wherever you go.

Microsoft.NET is built on simple, open, broadly ported protocols and standards, for ubiquitous communications, really HTTP and the Internet, the universal data format for .NET is going to be XML, a self-describing kind of package of data. SOAP, Simple Object Access Protocol is the protocol were going to use to allow services to talk to services, or devices to talk to services, and it will make the services do things. And then theres kind of a yellow pages of all the services that will be out there, defined by the UDDI, Universal Data Description protocol. So this is something that many, many companies can participate in and add richness to their own platform with.

How does Microsoft.NET relate to the MAC? This is a tough one, weve kind of been trying to struggle our way there. Im going to suggest the way that were currently thinking about it, and were obviously open to talking more in the future. The way were looking at the Mac is as a great client platform for connecting to .NET. Microsoft Mac Business Unit, the unit I control, will create connections between our client software, Office, Internet Explorer, other things we might do, and these back end services that provide you the next level of services that we can provide, so that the computing platform becomes that much more compelling. Well build high quality XML Web services support, well build the integration that we need with Passport and .NET My Services, well build all the features on top of that that will allow the next great versions of Office to exist, and to be attractive to you.

What we wont do at this point, it doesnt make sense to us to promote .NET as the thing you do if youre a Mac ISV. So rather than having Apple out there saying, heres OS 10, and heres the kinds of things you do in an OS 10 application, and then having us on the other side saying, forget all that COCO stuff, what you really want to do is this, were just going to kind of take a step back. Were going to say, were open to Apple participating in the .NET platform is they want to. Were going to over time try and describe to them in more and more detail what we think the benefits to them as a platform vendor are, to make OS 10 that much richer in terms of developer proposition, but we dont plan today to work the Visual Studio.NET tools, the .NET framework, the set of APIs, we dont plan to actually show up at WWDC and say, heres how you build .NET client software on the Mac. Again, thats kind of the approach that we think is the right thing to take, definitely sensitive to Apples views as a platform vendor, definitely doable on our part.

So what do things look like if were able to integrate to the Mac. We have that Mac design firm, we have the employees within this company and its partners and suppliers up here, each set of users is able to have their set of .NET services in the sky, they provide access to any of the other people on their virtual team, and no one else can see their stuff, everyone can also set up a user account for the whole group of people, so you have a group calendar, group set of contacts, group task list thats kept in the .NET list, and we feel we can create through Office and Internet Explorer these very rich connections that allow people using Macs to tie very easily into worlds that are using PCs today. We can take more of that in the Q & A if I havent explained it well enough.

So the next step for us in .NET, trying to establish a strategy, were feeling our way towards what the right thing to do is, both for the platform and for customers. Were beginning work now on the building blocks that we need, weve taken over the .NET messenger client for Mac, and were making major investments in that code, building an XML and SOAP implementation that we can use and put in our products, building authentication through Passport into our products, and well enable customers to very easily tie into this world that Microsoft is trying to build.

As an application company, the last point is probably the most important. We need to actually focus on scenarios rather than technologies. Well have a set of people doing the work required to do the XML parser, but the work only begins there. Well focus on whats the absolute best experience for somebody to do group calendaring over these .NET calendars in the future, whats the way that somebody can have a single consolidated project list, where everybody has assignments, and you can bug them automatically, and they can provide automatic updates as to how far theyve gotten along. Those are the kinds of things we have to define.

So thats pie in the sky stuff. That may take five, seven years to deliver if were here this long. I want to talk a little bit about the closer in future, and say what it is that well be working on. So Office Version 10 for Mac was a product that we released, a native OS 10 version of our suite for the Mac OS 10 platform. We released it in November of 2001. Our intent with this product was to make really the poster child app for Mac OS 10. Apple came out with OS 10 and they said, heres what the whole promise of this platform is all about. And we went right down the list and tried to say, what is it theyre promising, lets deliver on that in our products so people can wee it.

For instance, the AQUA user interface is beautiful, easy to use, easy to discover. We completely ripped the entire face off of our Office 2001 product, put a whole new AQUA-fied face on it, so that is just personifies what Apple means by the AQUA user interface. Apple put this new 2D graphics layer in called Quartz, that allows for beautiful, high resolution graphics right on your desktop. We integrated that in our charts, in our entire drawing layer, every graphic you use is beautifully drawn, with rich fills, full support for transparency. We greatly improved Entourage 10, Entourage 10 in this is a real version 2 product. We redesigned the product based on feedback from our customers from Entourage 2001, and provided much tighter integration with the rest of the Office applications, and we took the opportunity to go and address some feature requests that we heard from customers in the other applications. So in Word sees the addition of multiple selections, you select multiple sets of text and you can apply the same formatting commands to all of those simultaneously for a much higher productivity.

Weve had really fantastic response from the press and customers so far. Heres some of my favorite quotes over the last couple of months. "Mac OS 10's first killer app has arrived," I love that one, Mac World Magazine. John Fort from Merc, "Happens to be the best looking piece of software Ive ever seen." Thank you. "Office 10 is far more than a mere port of Office to 0S 10, a compelling upgrade." Thats what weve been trying to say. And then from the AP, "Strongest case yet to switch to OS 10 comes from Microsoft." I love to hear that, thats exactly what we intended.

So where is Office 10 today. Id hoped by now to be able to say, heres how were doing, and heres how were doing against our goals. Its still a little bit too early to tell. Anecdotally Ill tell you that weve had very, very good results working with Apple to sell OS 10, or to sell Office 10, along with OS 10 and machines through the Apple retail stores. This appears to be everything that Apple is trying to achieve with the Apple retail stores, to create a platform for Mac software developers, for Mac hardware developers, to reach the Mac customer, they appear to be doing that.

Things in Japan and Europe are a little softer than we had hoped. There are definitely economic considerations on both sides that play in here. But, well try and keep you up to date on how were doing as we go through. Weve had a great co-marketing, or joint promotion with Apple called Sweet Deal, that was you got money off if you got Office in connection with a new computer from Apple. Anecdotally we know that to be great, weve heard wonderful things from our channel on that. And were actually trying to drive evaluation and adoption of the OS 10 platform through our own means.

One of the things that we chose to do was something called the Office 10 Test Drive. The test drive is a 30 day free evaluation product that you can get, you download it from us. Its a 123 megabyte file. Weve had over 90,000 downloads to date of that file. So theres a bunch of people who are just trying to figure out what OS 10 is about, and hopefully were helping them see how compelling it is. Weve distributed over half a million CDs, with Mac magazines, both in the United States and internationally. Weve offered a smaller subset of the Office Test Drive in Japan, its just Entourage. OE 5 is one of the most popular Mac applications that we know of in Japan, and were just trying to appeal directly to those customers, to get them trying out Mac OS 10.

So whats next? The first thing thats coming, late May or early June, is a service release for Office. We released Office in the end of 2001, and weve been working very hard to make sure hat it is the experience that our customers need. Weve gotten a lot of feedback from people, a lot of great feedback. Apple has also been working very hard on Mac OS 10 with updates like 10.12, 10.13, that address a lot of issues, and were trying to keep pace. Were releasing it all in one major service release. This will include over 1,000 behavioral tweaks, bug fixes, performance improvements. Some things are dramatically better, dramatically more stable. Were pleased to actually provide, finally, the full support for anti-aliased text throughout the suite, this is something that some of our customers had dinged us on. Entourage looked absolutely beautiful, and is so much easier to sit in front of for eight hours a day with this anti-aliased text support. Well be providing ODBC, which allows or products to talk to these large Oracle, or SQL Server databases, in this SR.

Were also extending our support today with Office 2001, and Office 2001 and Office 10, were able to talk directly to the desktop copy of FileMaker Pro that might be on your desktop, in order to bring data from FileMaker Pro databases into Excel for analysis, or into Word for mail merges. Now, were able to talk through the desktop copy to any FileMaker servers that are out there on your network, So these massive sales databases, or shared contacts databases that people are keeping on the network are accessible to you, as well. This is planned as a free download, it will be available from microsoft.com/mac, again, end of May or very early June.

I list this separately, although it may come into this service release. Were just really not sure at this point. Were working very hard on our Palm Sync conduit. We know this is something people really want, we want to get it absolutely right. To some extent being Mac OS 10 only has set us back a little bit here. But, weve been working hard with Palm, and Apple to get all the pieces in place, and the team is working on it. Youll see this again. It will be either with the service release, or shortly thereafter. But, our feeling was we had to get it right, this is just too important a piece.

Were also working on a new version of MSN messenger. This is going to be available probably at the same time as the SR. This provides a greatly enhanced Mac experience, a greatly enhanced international experience, and a couple of nice things people have been asking for. That will be coming out this spring. And what a lot of the team is working on in parallel is just planning the next major releases of our products. Were doing -- again, to reiterate my message from the beginning of the talk, were planning for the long term, were taking it one version at a time, but we plan to be successful and we plan to be here in the long term. The .NET strategy provides the overall framework for thinking about the future, but were doing a ton of customer research to figure out what it is exactly that we do over time.

Theres a couple of target markets that we focus on. Obviously, we focus on individual Mac users, while the Office Windows team focuses on Windows users. In terms of organizations, we tend to focus very highly on the small organizations. We try and make a product that works pretty well for our medium and large organization customers. But, where the Office for Windows team will put in specific things that solve problems that only appear in very large organizations, like unattended scripted set up, something theyll do, something we wont do. And then for solution developers, currently not a focus for us. So we put a little bit of effort into making sure that individuals can script actions, but where the Office for Windows team will put a ton of effort into making sure that you can use Office as a platform for business solutions, we dont tend to follow that.

The next versions of the products that were working on, for the last five years weve worked on the fundamental value proposition that you should buy this latest thing from us, because its more Mac-like than the last one. This is much in reaction to customers concerns that Microsoft had neither the skill nor the desire to build good Macintosh applications. So this is what weve focused on. Even in work where weve done -- like in Excel 2001, where weve built a whole new way for managing lists of data, very simple flat lists, theyre kind of at the very lowest end of database usage, this was a good category enhancement overall, but we talked about it in terms of Mac first, because we knew customers were just that sensitive to the notion that Microsoft didnt get the Mac.

Hopefully, with Office 10 weve put all that to rest. We get it, I hope we showed it with Office 10. Well continue to do that work to stay at the level weve achieved, but fundamentally we need a new value proposition. And were kind of feeling our way towards this one, as well. I want to try this one out and just see what sticks. The latest thing that were trying to thing about is, empowering the Mac. There are all kinds of places where its difficult to be a Mac user today, or where the Mac itself doesnt lend to doing some of the same things that the PC does. And were going to try and attack those things to solve them for people.

We think theres great compatibility today, but it can be better. Theres work that we can do, theres work that Apple can do. Were going to try and work together to deliver that much better compatibility, so that no one has to know youre using a Mac, its just that things just work. We talked about the case of the individuals personal network of devices, how do you keep that in sync, how do you make it work for you to make you more productive. We think Microsoft can add a ton of value here. As I said before, were seeing more and more cases where Mac users actually want to work together, and there hasnt been defined a way that you do that very well. Weve done some features, but we havent put a lot of focus on it. We think we can make this much, much easier to facilitate teamwork, not only between two Mac users, but between a mixed group that uses Mac and PC.

And then access to organizational resources is something that we havent put a ton of effort into. We think we can do a lot there that makes a big impact for people. Access to the network, access to the databases, these are all concerns that people have today. And its a place where we feel the Mac Business Unit can add a lot of value. We typically release our major versions 18 to 24 months apart. So if you know when we released the last one you get the general time frame of when well be talking about the next one. Im very excited about some of the early work that were seeing going into there.

Internet Explorer is also an application that we intend to work a lot more on. Today I would say its the best of the OS 10 browsers out there, its the most complete. It allows you to do the most things. But, it isnt the product that we want it to be yet. And were putting a lot of time, effort, and ingenuity into getting it to the place where we want it to be. It can be a lot better Mac OS 10. In part we can solve that by my earlier announcement that were going to do OS 10 work only. We have straddled OS 9 and OS 10, and had to make tradeoffs accordingly. Were discarding the OS 9 work from now on, and were going to be an OS 10 browser, and the best damn OS 10 browser you could ever dream of.

Performance is a specific area of concern. A lot of people say its not as fast as theyd like it to be. We agree, theres a lot of work going in there. Security and privacy are going to mean totally different things two or three years from now than they do today. The infrastructure that we have in Internet Explorer is adequate for todays use, but not where we want it to be for the future, for this great connected world that were driving toward, so well redesign that completely. HTML and XML rendering, weve got compliance to standards today, great forgiveness for pages that arent written to standards, but the area where we somewhat fall down is in the way web designers perceive designing for Win IE versus Mac IE. You definitely have to account for some differences and theres work that we can do to make that easier. So well do that.

Again, Mac OS 10 only is the direction that were making. If OS 10 doesnt succeed, neither will we, but we dont see straddling the line as a way to get there successfully. So were committing to OS 10 only in the future.

So weve gone through a lot of stuff, I see a lot of people glazing over, but I want to summarize. The agreement is ending, our business is absolutely continuing. As I said before, wed be happy to sign a new agreement with Apple if it represented the strategic interests of both companies. Were not just going to renew the old one just because people are worried about whether were going to be around, because the old agreement doesnt represent todays realities. And the old agreement was fundamentally oriented at laying to rest business issues between the two companies. Today our relationship is great, were working better than every together, and on a business basis I think we can help each other be successful, even without an agreement in place.

Our future development will be on Mac OS 10 only, hopefully thats clear. For .NET what were thinking about is that well connect our client software to .NET services, and illustrate to the world how great that is, and then well move forward from there, but as of now were not planning to go out to other ISVs and say, heres how you make a .NET client on the Mac. Were planning today for the next major versions of Office and IE. Weve got this new value proposition thats centered on places where we think Microsoft can add value to the Mac experience, and that is to empower it. I hope that empower the Mac doesnt sound arrogant, its not intended to be, its purely there are places where we havent done the work that we can do, and were going to reinvest there.

So thank you so much for coming. Ill be happy to take questions.

(Applause.)

QUESTION: Two multi-part questions, one concerning IE, and the other concerning Office. What versions of MSXML are available for what versions of the IE for Mac, and do they support behaviors, and what versions of XSLT?

KEVIN BROWNE: Let me answer that one. Its XML 2 that exists today. It does the very basics of knowing what an XML document looks like, parsing it, and making it available in memory. We dont have behaviors today, thats an area to work on. Im not sure exactly when were going to get that, but thats something that were looking at right now.

QUESTION: And the IE version for Mac?

KEVIN BROWNE: Im sorry, thats in IE 5. IE 5.1 for Mac OS 9, and Mac OS 10. IE 5 shipped originally.

QUESTION: Also you didnt mention WSDL at all?

KEVIN BROWNE: Didnt mention?

QUESTION: WSDL, W-S-D-L?

KEVIN BROWNE: I thought that was too in-depth for this. Youre talking about Web services description language.

QUESTION: Okay. The other question I have is, will the MSDN Universal subscribers ever get Office for Macs, and other Mac products? And along that line, is there some product that is available for simulating Mac on a PC so that we can test it for our customers?

KEVIN BROWNE: I dont know the answer to the MSDN question, I wasnt aware that they got a bunch of free software anyway. Ill talk to the MSDN team about it, and see what makes sense.

Making Mac software run on a PC?

QUESTION: (Off mike.)

KEVIN BROWNE: There is not a product that I know of today that simulates a Mac on a PC. That wouldn't be a business that we'd be interested in through our Mac company.

Yes, sir.

QUESTION: (Off mike) -- Three percent of those probably are Macintosh, and we're very committed in supporting our Macintosh users. Our back office is all Microsoft products, and hopefully this is in the future. For example, we're very committed to Entourage. I can see from your slides you are. We just upgraded to Exchange Server 2000, LDAP services do not work on Entourage. It is frustrating for us because we want to push the integration. We want to be just like it's shown up here, but where do we go, what do we do. It has a problem.

KEVIN BROWNE: So, there are changes -- did everybody hear the question? I hope everybody heard the question. So, there's a whole area of authentication that is an area that I think Microsoft and Apple can do work together that solves that problem. The whole area of Exchange connectivity is one that is central to our business unit, and we're trying to figure out what the right thing to do there is overall.

QUESTION: (Off mike.)

KEVIN BROWNE: No, there's nothing in the SR that specifically relates to that. We are -- there's a longer term set of efforts that will be delivered inside of our products, and outside of our products, possibly also in Apple products. We get agreement about the right thing to do, the right ways to do things, that will make this a lot easier for you. This is something that I don't see us being able to work productively on this platform without trying to tackle some of these problems. I'm just encountering it in enough places where customers need to hear answers on those things before I can ever talk to them about upgrading the next thing that I'm trying to sell them in.

QUESTION: (Off mike.)

KEVIN BROWNE: What's the best way to share this? Well, for you only, I'll trade cards with you after.

Yes, sir.

QUESTION: (Off mike) -- basically, I'm asking you about output, and when we can see a feature for feature client on the Mac that will be in synergy with the PC working into our Exchange Server?

KEVIN BROWNE: Well, there are two parts to that question. There is a feature for feature compatible -- well, there's a feature for feature, and then there's a compatible client. I don't think Microsoft ever plans to do everything that's in Outlook for Windows on the Mac. What we can plan to do is make a very Mac-like client that enables you to interoperate completely with Win Outlook users across the Exchange Server. Today, we really have nothing to announce. There's two premium clients on the Mac. One is Entourage, one is Outlook. One is running on OS 9 and talks to the Exchange Server. One is running on OS 10 and talks to the Exchange Server only through IMAPI, it doesn't do the calendaring thing or anything like that. We're trying to figure out what's the quickest way to get you the capability that you need. So, we're talking to every customer that we can possibly find and say, what is it you need, what's good enough, what's the interim steps, and when we have a straightforward story, we'll absolutely share that.

Yes, sir.

QUESTION: Do Services for Mac on your server products work with OS 10 clients at this point?

KEVIN BROWNE: Can Services for Mac work with OS 10 clients? Yes, absolutely. Our whole organization runs on Services for Mac. There's even a -- what the hell do we call those things?

Omar, help me out, what's the thing that we install? UAM, thank you. Brain dead. There's a UAM that's available from Microsoft from our -- you can get to it from a pointer from our web site, Microsoft.com/mac, that enables you to connect, that enables you to even you didn't change your password on the NT server from your Mac box.

Yes, in the back.

QUESTION: I know a couple of years ago there was a version of Visual C++ for Macintosh that was, I think, Version 2.2 or something.

KEVIN BROWNE: Correct.

QUESTION: And so, why is it that difficult today to do something like that? I knew there was a version of MSC that was very easy to port and see through Mac. So why isn't that included with something?

KEVIN BROWNE: Why is it difficult? Well, I can only speak from our side. We're a company -- we're a division of a company that produces development tools for Windows, and there's just really no organizational desire to do Mac development tools. So, we've actually switched to the Metroworks Code Warrior set of tools, and that's what we've been using for the last two versions and will for the foreseeable future.

QUESTION: So, you never did that version of --

KEVIN BROWNE: We used -- well, Office was never a MSC ap. But it used the cross compilation tools in Office 98. To a large extent the improvements that we made to become more Mac-like, definitely to be ready to run and then to actually do the port to Mac OS 10 required us to divorce ourselves in large part from the stuff that we were using in those cross platform tools. So, we're entirely a Mac app today.

Yes.

QUESTION: (Off mike) -- and using Passport. Do you foresee integration with Apple's Keychain?

KEVIN BROWNE: Yes. Do we foresee integration with Apple's Keychain? Today, Entourage itself works with Keychain. You can store your Exchange password, for instance, in the Keychain, and it works just great when you're talking to Exchange through IMAPI. We see absolutely taking advantage of every possible technology that provides a better user experience that we can take advantage of in Mac OS 10. The work I was referring to, the authentication, authorization work is work that I think Microsoft and Apple need to do between kind of the server set of products Microsoft offers and the OS 10 operating system to make sure that it's just easy to be a Mac OS 10 user in a Windows network, and there's a prescribed set of steps that we think will make it easier to do. Just putting those things in place will take a little bit of time.

Today, there's decent experience, but our customers are asking us for things like, sign on once when you first start your OS 10 box, and you never need to type in another password, just like it happens from a Windows XP desktop today on a Windows network. That's the kind of seamless interoperability that we think that this business unit can facilitate to work to do.

Yes, sir.

QUESTION: You're planning to get Office and IE for the Mac ready, so to speak. Is there something that has to be done on the client itself to connect the Mac client to a .NET environment?

KEVIN BROWNE: Is there something that has to happen on a Mac client to talk to these XML Web services?

QUESTION: Other than in the applications themselves?

KEVIN BROWNE: There's a set of building blocks that we'll use, and that we'll include in Office and IE in order to be able to have a conversation where the data type is XML, to be able to issue instructions. You've got to be able to talk to Web services in a very specific way that says, here is what you do, and if you don't understand this part, pass it on to this next server, and it's a simple object access protocol (SOAP). We're going to build all those pieces ourselves, and there will literally be libraries that will shop with our products.

Yes, ma'am.

QUESTION: Can you just talk about a couple of the major fixes that are going to be coming out in the service release?

KEVIN BROWNE: Not to talk about it right now. When we get closer to downloading it, we'll provide a fairly comprehensive list of things that you expect to be fixed. You know, in general terms, there are a lot more printers available today, printer drivers available today. So we've made a lot of changes to printing to be sure that you get the best possible quality out of printing. On OS 10, the way we're thinking about it, the clipboard really wasn't used very much. With a lot of OS 10 applications that are native applications, you just didn't have a lot of people doing that. So, we heard some things from customers about clipboard operations. You know, it's general fit and finish stuff that normally we would do prior to release. This time we just didn't have the user base, the internal experience, the long experience with the code to be seeing the right set of things. So, we've just tried to go and pick up all those things. When you get Office with the SR, it's just going to be a terrific experience.

Yes.

QUESTION: Today, you continue to sell Mac OS 9 and Mac OS 10 applications. With your revised strategy has anything changed in that context?

KEVIN BROWNE: Does anything change in that context? No, I think it's really the forward looking work that we're talking about. There is still demand today for Office 2001, so we'll keep it on the shelf until demand dries up. And that's really just going to be a discussion between us and the distribution channel to figure out what makes sense. Already, we have shifted so that our development in going forward will focus on things. We'll definitely provide service patches as needed for problems that customers have, especially security problems to address the trustworthy computing motto that our company has embarked upon. But we're talking about major development going forward, OS 10.

Yes, sir. Just a second, we want you to be recorded so this can all get on the transcript and everybody can understand the context. We are transcripting. Honestly, I want the message to get out to everybody we can get it out to. I don't want people to waste time speculating that we're going away, because we're really not.

QUESTION: Apple ships AppleWorks, which is a suite, and I'm wondering if your respecting that in any way in terms of interoperability or communication between the two applications?

KEVIN BROWNE: We have an agreement with Apple to share platform documentation so that AppleWorks will be able to open some Office files. It's an integrated product, so every part of the product is able to do less than our versions do. So it will display what it understands, and we'll be able to do the reverse. So today we have the ability to open AppleWorks word processing documents, spreadsheet documents I think are in the pipe as well.

QUESTION: If you're in Excel, for example, can you save as AppleWorks data?

KEVIN BROWNE: Today they're import filters only. We haven't focused yet on doing a complete roundtrip thing. Right now, saving would be so lossy that we're not sure that it makes sense. But, we'll see. We're always going to listen to our customers, and if that becomes a theme that we hear over and over and over again, we'll definitely look at doing it.

Yes, in the back.

QUESTION: You said that a lot of the network that you're doing is going to be built on building blocks. Will you be making the building blocks available to other developers either as an OS 10 framework so if somebody wants to use your SOAP plumbing or your whatever communications plumbing, will you be supporting that?

KEVIN BROWNE: Currently, we don't have plans to do that. I'm working as an application vendor, and we'll do the things that make sense for our business. I think that will be the opportunity where, as ISVs we get together and we try and see if there's a way to do it. I'm not staffed to be a support organization. So, I don't want to get myself in trouble by delivering things and you not being able to work with them.

To a larger extent, though, if there are a lot of ISVs interested in doing that, we should all get together and go talk to Apple and say, there's interest here and lets see what we can work out so that it's officially supported as something you do in a Mac app. That's the way we're looking at it today. I think things can change, but we should talk.

Yes.

QUESTION: I believe the sweet deal promotion you mentioned ends March 31st.

KEVIN BROWNE: That's correct.

QUESTION: I'm wondering if there's any promotions in the next quarter or so that are going to be used to help migrate people over Mac.

KEVIN BROWNE: We're looking at a couple of different promotions, but I don't have anything to announce right now. You know, we had some talks about extending it with Apple, but I think Apple's got a great promotional calendar that they do. So we just weren't able to fit it in. So, we're going to look at other ways to make sure that people see the value in upgrading.

Yes, sir, down in front.

QUESTION: I noticed from a lot of the things you're mentioning that the MacBU is making tons of effort to improve Mac support, but is Microsoft kind of focusing Mac support within the organization of Microsoft as a whole exclusively in MacBU, because it seems like as time goes forward, you know, MacBU is doing a lot more than a lot of people might expect from Microsoft, but the rest of Microsoft is doing a lot less. Is that the direction, or is that just the impression?

KEVIN BROWNE: There's probably something to that. There are definitely other organizations at Microsoft that do Mac development, the Windows Media Player group actually has a team that does Windows Media Player for the Mac. I think, you know, the things that we can do, we know this customer base, we know Apple, we know how to get things done on the platform. So, to a large extent, we feel it makes sense for us to have our hands in everything. I think anything to do with authentication, authorization, the kind of single sign on dream, if we were to do that, it would be our people kind of trying to build a bridge between Microsoft Server groups and Apple's system group to say, here's the right things to do and, oh, by the way, we're an ISV that actually will take advantage of everything that you can do so that customers see immediate benefit from it, to say, you know, we'll have an immediate impact, we'll have people know about all of this stuff as quickly as possible.

So, I think so is the short answer to your question, but I think it's appropriate.

Other questions? Two more or nothing? Okay, thank you very much.

(Applause and end of event.)

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