Singing to a new Zune

Microsoft is working hard to transform consumer perceptions that it is solely a software company with a significant push into the consumer electronics sector. ECN spoke to Armagan Demir, head of Microsoft's Entertainment & Devices division in the Middle East, about its strategy in the region.

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By  Administrator Published  February 1, 2007

Electronic Channel News: Microsoft is recognised as the world’s biggest software developer. How does the entertainment and devices division fit into the company’s overall structure and what is its main purpose commercially?

Armagan Demir: We established the entertainment and devices division in the Middle East in September last year. In turn, it contains three sub-divisions. We have a consumer product division, which manages our entire range of consumer-focused IT peripherals, such as keyboards, mice and web cameras. The second division, which is still in its early stages of development, will manage our consumer gaming products, such as the Xbox 360 gaming console, which we expect to officially launch in the region sometime this year.

Our third division is the consumer and entertainment business, which is again in the early stages of development. This group will primarily manage the introduction of our portable music player, Zune. We still haven’t set a launch date for this product in the Middle East. It was launched in the US last year, where it has achieved considerable success.

ECN: Why did Microsoft move to establish the division in the Middle East?

AD: There were a number of reasons. Microsoft is focusing more on the digital lifestyle and consumer electronics product categories internationally. This was evidenced by our focus on convergence products at CES 2007 (which was staged in Las Vegas last month).

The Middle East consumer markets are developing rapidly, and we felt the time was right to establish a dedicated division that could capitalise on consumer demand for these types of products.

Our future product strategy also requires a dedicated sales team based in the region that has the capacity to promote these products in the marketplace and provide support to our retail and distribution partners.

ECN: What is your primary role as head of this division?

AD: My main role at present is coordinating sales and marketing initiatives. We also have local distributors, but dealing with them is not the primary role of the group. We expect to expand the team further over the next six months to support our growth ambitions.

ECN What countries does the Dubai office service?

AD: The entertainment and devices division team deals with customers in the countries of the GCC, in addition to Jordan and Egypt.

ECN: How many distributors do you work with in the region?

AD: We recently appointed a new distributor (Delta) for our consumer products line (mice, keyboards, etc) in addition to a new distributor for our PC gaming range. We now have five distributors servicing the GCC markets and four in Egypt.

ECN: There have been reports that some retailers in the UAE have been selling grey market Zune players imported from the US. Are you aware of this situation?

AD: That may be the case as we don’t officially import it as yet, but I don’t have any specific cases I can provide you with.

ECN: But surely grey imports pose some commercial challenges to your business?

AD: Frankly speaking we aren’t really concerned with this trade prior to an official launch of one of our products in the region. However, once we officially introduce a product, we work hard to protect our channel partners and crack down on unofficial distributors.

There is always going to be a certain amount of parallel trade in regions such as the Middle East because it’s the nature of the industry operating in a rapidly developing market. Channel engagement is hugely important to protecting the growth of our business.

ECN: Do you think such activities could harm Microsoft’s reputation or negatively impact the product’s official launch in the region?

AD: When we officially launch Xbox 360 and Zune here we will have to address this problem in conjunction with our retail partners. But at the moment it’s not a major concern.

ECN: What challenges will the introduction of Sony’s PlayStation 3 console present to your business in terms launching Xbox in the Middle East this year?

AD: We face competition in every market but of course Sony will steal a march on us here, with the launch of the PS3 this month in the Middle East.

We plan to launch the Xbox officially here soon, but it has been available for some time on the grey market, and a number of major retailers are currently selling the consoles in the UAE.

ECN: What will be the first two countries to receive officially deliveries of Xbox?

AD:
The UAE and Saudi Arabia are scheduled to receive the first batch of consoles, but I cannot provide an official launch date.

These two countries offer huge potential to our business. Egypt and Kuwait are two emerging markets that also offer strong commercial opportunities for our entertainment and lifestyle product ranges.

ECN: Do you foresee any issues in terms of distributing the console, given strong anticipated demand from consumers in this region?

AD: We have very strong relationships with our distribution partners and customer base in the Middle East. It’s not an unknown market for us. I don’t perceive any specific challenges facing our business in terms of launching these new products.

ECN: What’s your impression of the retail landscape in the Middle East?

AD: The UAE retail market is very mature and Saudi Arabia is becoming more so, as is Kuwait. However, we expect emerging markets such as Egypt to rapidly develop over the next decade, which will provide our business with new commercial opportunities.

ECN: What sort of opportunities do you think the region’s smart home technology market offers companies such as Microsoft?

AD: Home networking and media server style technologies are proving very popular in the region’s developed markets, such as the UAE and Saudi Arabia.

Middle East consumers are technology-savvy, they generally have high levels of disposable income, and they have a keen interest in high-tech gadgets. This is demonstrated by trends in the mobile phone market.

The GCC has one of the highest penetration levels of smartphones in the world. Consumers in this region are really interested in new technology, and this extends to their home environment.

ECN: Most consumers perceive Microsoft as a software company. How hard is it to alter consumer perceptions about Microsoft given its push into the consumer electronics market?

AD: We see Microsoft as a ‘technology’ company. We are one of the biggest technology companies in the world – we are not only about software. We have a presence in nearly every sector of the technology market, either as a third-party supplier of technology solutions or as a branded entity in our own right.

We have two global business interests: digital business and digital lifestyle. We are also committed to investing in technology and growing our business across all product segments.

ECN: How important is the consumer electronics market to Microsoft’s future growth?

AD: It is hugely important. Our digital lifestyle products are key to our expansion plans. Today, we talk about connected and convergent entertainment solutions. At CES, Bill Gates talked about this concept extensively. We are working to encourage the development of products that can be used across a variety of platforms, and can be interconnected.

For instance, we are developing technology that will enable a consumer playing a game on their PC to challenge another player over the internet who is playing the same game but using an Xbox console, while someone else could join the game on their mobile phone. We are trying to make all technologies interconnected and platform free.

We want to provide consumers with the ability to enjoy shared experiences regardless of what hardware platform they are using.

ECN: What new products is your division planning to launch this year?

AD: In addition to Xbox 360 and probably Zune, we have other new consumer IT peripheral products scheduled for launch. Every two months this year we plan to release new products, including a range of VoIP headsets. We are planning a major product rollout in various categories in 2007.

ECN: What is the main message you are trying to get across to consumers and your channel partners?

AD: To consumers we want to promote our entertainment ‘experiences’. The design and functionality and the connectivity of the products in our portfolio is very important.

This extends to our range of PC accessories. We launched a new range of keyboards, mice and associated peripherals at GITEX in November, which have proven very popular with consumers.

Microsoft fact sheet

Founded

1975

CEO

Steve Ballmer

Chairman

Bill Gates

Headquarters

Seattle, Washington (USA)

Corporate divisions

Platform & Services, Business, Entertainment & Devices

Regional offices

103 worldwide

Middle East locations

UAE, Saudi Arabia, Egypt, Lebanon, Bahrain, Iraq, Oman, Jordan, Qatar, and Kuwait

Employees

71,000

Male: female employee ratio

75: 25

Net revenue

(2006) US$44 billion


"We are committed to expanding our presence in the entry-level handset market but we are also acutely aware of the greater profit margins and kudos associated with success in the premium handset sector. We are looking to this market to underpin our commercial ambitions."

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