ITWeb: Can we kick off with Microsoft`s latest international financial results?
Hill: The results were fairly spectacular, driven by exceptionally good sales of Windows 98 in the Far East and elsewhere in the world.
General business has also done very well, especially NT and Office, which have sustained earnings. If you look at how much profit we can actually produce on that amount of revenue, I think it`s an astounding business. I think we`ve done very well this first quarter.
ITWeb: How does the current anti-trust case affect your business? Does it hurt at all?
Hill: Considering a lot of the negative press that we are getting regarding the Department of Justice and the confusion that users have, we have produced remarkable revenue.
When the average person hears that somebody is taken to court they immediately judge them as guilty. We had the Windows 95 antitrust and now we have Windows 98 antitrust, and users can get very confused. I think all this could sometimes negatively affect businesses. But the users have voted with their money, they have gone and bought our products, and that to me is heart-warming. Users get good business and value out of our products and they continue to buy them.
ITWeb: Are you equally happy with the results achieved by the South African operation?
Hill: In South Africa we don`t release our results like we do in the US. This quarter, being July, August and September, we saw a lot of turmoil in the entire African market, not just South Africa.
In South Africa we had very good growth and good Windows 98 sales, like anywhere else in the world. But we have an economic climate where interest rates have risen so dramatically, 6% in the space of two or three months, and the exchange rate has gone mad. During this period, our products that would normally sell for R299 have gone up to R400 or R450.
At the same time, individual disposable income has just disappeared. People who used to have R400 to spend every month now try to find another R400 to pay their bond. So in the low-end of the market, the retail side, we have seen a slow-down. The economic climate changes from month to month.
ITWeb: How did the economic climate affect your corporate sales?
Hill: Corporates have been a little bit less touched by what has happened and we have seen a dramatic increase at the very high-end of the market. With the larger companies, we are about 140% over budget in our sales to the top 20 accounts, so the one has balanced off the other.
Without a doubt, we have felt a pinch at the lower end. The local growth rate is very similar as in the US, although on the top scale the growth has been dramatic and on the bottom scale it has been declining slightly.
ITWeb: Bearing in mind your enterprise ambitions, what`s the revenue split like? How much do different sectors of your business contribute to it?
Hill: If I split between enterprise customers, medium-size businesses and small businesses, you`ll probably find that 45% of our revenue comes from enterprise customers, about 20% from consumer products, 20% from very small business, with the last 35% from small and medium-size businesses.
ITWeb: Who are your major competitors in the corporate market?
Hill: There is quite a diverse set of competitors there.
ITWeb: Let`s start with the network operating systems...
Hill: The only real competition is NetWare from Novell. We used to go into sales scenarios where we had to fight against Novell. Today it`s no longer a fight against Novell; it`s a business issue. Customers, if they had a choice, would probably put in Windows NT - it`s popular and there`s lots of support.
I`m talking high-end companies. For the last two or three years we have never had to fight against a customer buying Novell.
However, some companies - and there are less and less every year - have a very old and very large installed base of NetWare.
Therefore it depends on whether it is cheaper or if, with the year 2000 around the corner, they can afford to invest in an upgraded network. It`s not just the cost of the software, because we would match that price. It`s the cost of going into every single workstation across the country and rolling it out.
ITWeb: Is customer loyalty also an issue?
Hill: There could be some customer loyalty. Although when you think about it, customers do what`s best for their business, not what`s best for their suppliers.
If I had 40 000 workstations around the country and a limited amount of resources as an IT manager, I would probably put them into solving my year 2000 problems. I`d say that we would leave it as it is this year and next year we`ll buy NT.
No large customers are deciding to implement new network architecture around NetWare. NT is just so much richer from a technology point of view. Maybe the game will change with NetWare 5 being on the horizon now, but NT 5 is also just around the corner.
ITWeb: NetWare is already here and it`s getting a nice response. NT 5 is still in the making. Are you concerned about Novell?
Hill: For almost six months we have been saying that NT 5 is going to be out in the first half of the next year. We actually watch the competition closely. I wouldn`t say I`m concerned, but I`m also not blas' about it at all. As a matter of fact, we are always paranoid about everything. We are paranoid that somebody is going to invent new Windows [laughs]. So imagine how paranoid we are about NetWare, but I wouldn`t say there`s concern at all. I think we have a really good product even with NT 4. We have a very good value proposition for customers. NT gives you an applications platform; it`s difficult for NetWare to do that.
ITWeb: Messaging is another enterprise battlefield for Microsoft?
Hill: We`ll continue to roll down that road. Exchange has become very popular. Exchange and NT are the two products with which we rarely lose wide-scale deployment deals in an enterprise. If somebody needs to choose a messaging environment for 1 000 users, we have a very strong proposition to make - much stronger than either GroupWise or Notes.
However, when you have a network already installed, it`s almost impossible to sell Exchange on top of Novell. It`s much a better dollars and cents value right now to carry on with the implementation of GroupWise.
Lotus Notes is a different story - it`s very infrequent that a customer will decide he is going to put Lotus Notes through his entire organisation, within a certain division, for some functionality.
ITWeb: What`s your biggest problem in selling to corporates? The legacy situation?
Hill: It varies. Some customers say they have other priorities with Y2K, or they have put everything on hold trying to replace Cobol systems. Some customers might not have the hardware platforms that our products require. Others are large NetWare customers who are saying: "In two years I`m going to go NT, but right now I don`t have the money. Come see me next year." There`s not much you can do in that regard.
ITWeb: Who is your biggest local competitor?
Hill: Without a doubt, piracy is our biggest competitor. In the last three months, piracy has doubled, it`s gone mad. Some 51% of Microsoft software in use today is pirated.
ITWeb: How big is the remaining 49% share?
Hill: [Laughs] Well, there`s lots of ways to answer that question. What customers spend on Microsoft products is very different from what Microsoft gets - there`s distribution involved. Customers would spend well over a billion rand on Microsoft software a year and we get a small portion of that.
And than there are OEMs, who can buy software anywhere and if they happen to have a factory here it still gets distributed here, which skews the results. It`s almost impossible to release our results without revealing confidential information about our partners.
ITWeb: How closely do you follow Microsoft headquarter`s strategy?
Hill: In our business strategy there are some unique factors. We are a local company; we`re all South African. We have a very clear business strategy based on four areas. We have to do things the US doesn`t have to. We have to build digital villages, educate people who have been previously disadvantaged and grow our market share within 10 years. The US doesn`t have to do all that.
We`ve gone through a massive amount of growth and change, whereas the US is a much more stable business. We`ve got this geographic expansion as well as new offices, new people, a new division and a new MD. That`s part of our business strategy, we`ve got to build the local business.
ITWeb: When you were appointed MD a year ago, what were you commissioned to do?
Hill: To come here and figure out what needs to be done while not doing what the Europeans or the US tell me to do. I was commissioned not to change our products or licensing, but to build the business. We need to create this African Microsoft, which is like Africa - a bit of everything.
ITWeb: You hesitated for quite a while before introducing a paid for support model?
Hill: I don`t see it as implementing paid for support, I see it as providing the right support for the right people. Some of it will cost. Let`s analyse where the costs are coming from. Who are the people that need better levels of support? When a large customer, a big bank, buys R3, R5 or R20 million worth of software, we`ve given them such a big discount that there`s no free support whatsoever.
I don`t care how large the customer is - there`s no free support. We find, however, that some users bought a copy of Office three years ago and today they spend half an hour on the phone getting us to explain how to do tables. Now, there`s a difference between support and on the phone training. My mother has Office and she refuses to go on training. So I said to her: "Don`t phone Microsoft and beat them up because you happen to be my mother. Buy a support contract, then you can spend all day on the phone."
ITWeb: Microsoft has an image problem...
Hill: Image challenge, rather.
ITWeb: OK, image challenge. What are you doing about it?
Hill: The one thing that we cannot do is over-react. We don`t think we`ve done anything wrong. We are perfectly legitimate and legal in all our dealings, and we are very confident that the current antitrust suit against us will prove that.
However, we need to try to get people to evaluate all the information in a reasonable light. You can`t react to any accusation because then you give people a platform to attack you. We`ve been conservative in disputing every single claim because it just becomes a nightmare. We now have the official opportunity to explain all. We will address official accusations against us through the court process and I`m very glad that the court process has started. We can get it over with; we can win and then explain the truth.
ITWeb: There is a perception in the market that Microsoft is an aggressive company, a bully even.
Hill: It happens that when we visit customers, they say: "Ah, you`re here to bully us." And we say: "Well, if you think so I can always stay away, but I don`t think I`m here to bully you. As a matter of fact, I`m offering you this great software. We have a new support model and we can give you a discount to reward your loyalty."
So you talk to them in reasonable business terms and every customer turns around and says: "It was a silly statement for me to make the first time round." It`s a tough situation, but we just have to be reasonable and honest, we have to work hard at giving customer service.
Otherwise, our official worldwide policy is that we will dispute issues in court and give explanations there.
ITWeb: Is Bill Gates Microsoft`s biggest asset?
Hill: He certainly has been in the past, but I`m not sure you`d say Bill Gates is Microsoft`s biggest asset. I think Microsoft`s biggest asset is what Bill has given to the company. Our business is the intellectual property and Bill has propagated that into people.
ITWeb: Perhaps like intellectual offspring?
Hill: That`s a great word. That`s the biggest asset to the company. It`s not just in Bill`s head. It can never be. Look how big and diverse our business is. Bill doesn`t tell us what to do in Africa. We have to figure it out, using the processes that Bill has taught us. His legacy and what he`s given the company is the biggest asset - although he is a big asset [laughs].
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