So, you guys have heard an awful lot about Zune already leading up to the press release, what can we clarify?
Well, we've been following it pretty closely, obviously, since we first started hearing about it. Obviously today is the big unveiling, and we wanted to get a better idea of Zune not just as a device, but as a platform, and where you guys want to take all this stuff. So maybe you can start off by giving us an overview of where the device is, and where you see it going both as a device and as a platform.
Sure, I think it's a great question the way you phrased it because we actually really think about Zune more as a platform than a device; you used both those two key words. If you step back a little bit in terms of where we're going as a company and where we think we can move forward with the industry in the entertainment space, we have this idea of connected entertainment. You're too familiar with the transition from analog to digital, we think there's a transition that goes one step beyond that called "connected," where the community gets to have greater participation with their entertainment experiences. We want to bring that across all forms of entertainment. What we're doing with Xbox and Xbox Live in the gaming space, what we're doing with MS TV and the Media Center in the television space, and Zune is really our first foray into a deep connected music experience. The first product we'll introduce this holiday will be a connected one -- that's why we put in WiFi in every device, because we think those connected experiences are really going to signal what the future of the music industry looks like, and the future of television and film and everything else. And the community wants to play a big part in it. So while we're starting now and sharing between devices where you can share songs with your friends (3 plays for 3 days), and sort of get the recommendations of your trusted circle of friends and experience and discover new music. You guys know all too well 802.11 devices there are out there. Think about what else we can connect to. Think about all the other scenarios we could do, whether location-based, etc. The device itself is intended to be a future-proof platform that's part of this connected entertainment world where entertainment will become more personal, more interactive, and more engaged with community.
Could you tell us a little bit more about the connect aspect? I assume it's going to be users creating profiles? Something like Xbox Live, so you'll have a trusted circle of friends -- could you give us a little more depth as to what the experience will be like?
Xbox Live is a good example and I think it's appropriate: with Xbox Live we really took a very incremental approach. If you remember, we put an Ethernet adaptor in the console but it didn't ship with Xbox Live. Then we shipped Xbox Live, but we didn't have all the capabilities that you might think because what we really wanted to do was start a discussion with our customers, with the audience. So we shipped the Xbox with Halo and then we could start talking about what they wanted to see on Live. We're sort of taking the same approach here: the whole idea -- both for the music industry and for the consumer -- of finding and sharing music through your social network is a pretty new idea. Specifically at the device level it's a super new idea. So we're gonna start there and we're saying it's really about proximity -- we're saying if you're sitting in the room with somebody and you're having a physical social engagement with them in person, that's when you can exchange music recommendations. And then we'll get some customers who've had some experience with that and they'll say "where do you want to take it next year?"
We've got thousands of ideas and we're going to sort those ideas based on what our customers are telling us and what kind of experience they have with it. It could be that customers want to be able to make recommendations to their friends while they're on instant messenger and have instant messenger integration. That's the beauty of having 802.11 in every device: we can do that. We can do more device-to-device, or we can do more PC-to-PC, so the combination of the device, the PC software that we're doing, and the online service is going to allow us to really shape how the community and the social aspect of Zune marries with the music experience. It also helps in terms of moving the music industry's way of thinking about integrating social networking and peer to peer in a really healthy way that works for them.
If I'm in an internet cafe with my laptop on WiFi and I don't have my Zune with me but I have my Zune software client running on my PC, can I interact with Zune players?
That's a direction that we think we'll likely go down. We're not starting there however, we're trying to keep the messaging and the experience simple. You and I are in the same room and I say, "Here's the soundtrack you love, check it out" and I push the send button and it gets to your device. Next year we can start going through some of the things that you hinted at that are very much what our customers are going to want.
So the other angle when it comes to connectivity is not only about the Zune device, but about how it's going to connect to the rest of Microsoft as a product of software and hardware. That's what a lot of people are wondering about because a lot of the information leading up to Zune was that it was a radical departure from what Microsoft was doing -- people thought that it wasn't going to play nicely with anything else.
Well we didn't say that!
You know, it's been our philosophy that digital music is just getting started. The world is gaga about iPods, but everybody in the world listens to music, not just 50 million people that have iPods. And so we're taking a real deep approach when it comes to music and saying, "There's an opportunity with this technology to narrow the distance between artists and their audience." What does that look like? And we're talking about a lot of different artists saying, "What can Zune be doing to change the medium for you in really exciting new ways? How can we get beyond just getting the zeros and ones off of CDs and putting them in people's pockets, and change that?" We're talking to consumers and saying, "How can we change the way that you discover new music? You know, we'd love you to find new people based on the music you love, we'd love you to find new music based on the people you love." How do we change that dynamic?
And you know, Zune is really about music, it's our deep dive with music first and foremost. Now, that said, the technological platform -- back to the earlier conversation -- and the way we're designing it, knowing that gamers love music and there's going to be scenarios where they're going to want to connect those two things. We know that people are going to be watching TV and want to have some kind of experience with their Zune and their music and the social community they've developed there and the types of video programming that they're interested in. I think there's a lot of opportunities for cross-pollinated experiences and we're building the technological foundation to do it. But right now, we're just starting with a real focus on music, and over time we'll light up more and more of those capabilities and ideas as the consumer gets a little bit more conditioned. Look, there are a lot of people out there who aren't going jogging with MP3 players. I go out for a run and I see Discmen all the time, I see Walkmans from time to time. I see people listening to wireless FM headsets and people are buying XM and Sirius radio. The world where consumers are right now -- relative to digital music -- is really in its infancy. We're going it take them along and prove digital music and try to take the digital music experience to the next level -- and sort of as a background thread and a lower priority for us right now: are those integrated experiences?
But over time I think there'll be a greater emphasis. Counter to Microsoft's DNA, the type of stuff that you hear from time to time, it really isn't. 20 years ago we said, "The business world is going to change because of technology and we have to get world-class at numbers, we have to get world-class at manipulating words, we have to get world-class at drawing pictures. And over time people are going to figure out that words, pictures and numbers all go together and will increase the focus on the Office-like experience. Well we didn't start with Office. If you remember Lotus Symphony? Lotus Symphony was an idea that was ahead of its time. We really needed to get numbers right, words right, and pictures right and then bring them together with the communication back-end with email. That's what built the Office proposition. I think you're going to see a very similar thing here where once interactive gaming and connected interactive gaming really takes hold and people really get their head around it and we take gaming mainstream; we do the same thing for digital music, we do the same thing for digital television -- IPTV and the like, and people really get their heads around it there's going to be all sorts of scenarios that connect those dots and the emphasis will start shifting to the integration across those things. But we have to be world-class in music, games and video before we put too much attention on what it means to put those things together.
Great. Obviously the centerpiece here is going to be the digital music, the music and the movies, and games, too. But there's a lot right now of pre-existing content out there, users have their MP3s, WMAs from PlaysForSure partners, they have iTunes tracks. Where is Zune going to fit in with people's pre-existing media libraries? What is it going to support? What can we expect when we actually get a Zune and want to be able to use it with the media that we currently have?
We have really pretty strong commitment to being compatible with your existing libraries. We know we're not the first player in this space, and that there's a ton of media out there, and so we put a bunch of codec support in there. You know, iTunes by default rips in AAC, there's a lot of AAC content out there, so we'll play AAC natively. MP3s, obviously. Windows Media files, obviously. The video resolution is 320 x 240, QVGA resolution. And so we'll do H.264 playback as well, because there's a lot of content out on the web for video iPods. Lots of DVD ripping software out there that encodes to those formats, so the most popular formats out there, whether it's MPEG-4 or H.264, we'll support those. So, we really are taking a relatively agnostic approach to different formats.
For us this is not a format play, we're not trying to tell consumers what format they have to keep their media in. We're trying to embrace the most popular formats out there. We won't have every codec, we won't have an extensible codec architecture, instead we want to make it really, really simple, and we're prioritizing the media that's out there and the media our consumers have.
So up until this point Microsoft's digital music strategy has been largely to create an ecosystem and be a supplier of a DRM platform to manufacturers and online music stores. PlaysForSure was the thrust of Microsoft's strategy until the announcement of the Zune. How does PlaysForSure fit into Microsoft's strategy going forward? It doesn't appear that the Zune will be compatible with any PlaysForSure retailers. How does that affect Microsoft's current partners who rely on PlaysForSure?
I think there's two answers to the question. First answer is, this whole digital music revolution is really just starting. There's still a lot to be figured. We certainly don't think we have it all figured out, and we think there will be change. The second thing is that specifically when it comes to PlaysForSure, think about you might buy a Windows PC versus how my mother might buy a Windows PC. My mom calls up Dell and says, "I have seven hundred bucks, get me a computer. What's the best thing I can get?" She doesn't specify the keyboard, the monitor, the memory configuration. The conversation might get as specific as, "Do you think you want to burn DVDs?" Then she gets a product that shows up and it's all pre-installed.
There are other people that go to Fry's Electronics and hand pick the graphics card, the case for their computer, they build a Windows-based PC from the ground up. We have a solution for both of those things. We at Microsoft have a platform that is Windows, we have a solution for the crowd of consumers that are very deliberate about how they build their PC solution, and we also have a solution for people who just want turnkey. And I think that's how these two strategies complement each other. The PlaysForSure is still a program we're going to invest in, we still have a lot of partners there, and for a class of consumers who that want to have a hand-crafted media media experience and maximize their choice, we have an answer. There's another class of consumers that just want to get digital media, and they just want to be able to go to one store and have it all just plain, dead simple, and don't want to know what a codec is.
Wasn't that the point of PlaysForSure?
Well, it's like asking a question about Windows -- and the point of Windows was to bring personal computing to the world -- some people are going to pick their PCs, they're going to pick their monitor, they're going to pick their printer, they're going to pick their graphics card, and combine the things that they've chosen. Other people just a want a system that's end-to-end -- all compatible out of the gate -- and that's what Zune does. Zune says there is no choice; you get a Zune device, you hook it up to the Zune service, and it just works.
When PlaysForSure was introduced, the premise was, we make it simple so that you don't have to worry about whether your player works with the music you're purchasing...
That continues to be the premise for devices that are branded in that category, and we think that we've clearly done a lot in that program, where there's a lot of devices out there, there are a lot of services out there, there are a lot of partners, and there are a lot of satisfied customers. We like that program. We've also found that there's a category of customers that say, "Give me a brand experience, advertise it to me on television; I want to be part of the digital music revolution, and that solution [PlaysForSure] doesn't work for me." So they're two complementary solutions -- not everyones gonna want Zune and not everyone's gonna want PlaysForSure. They're different paths there, and we're okay with both of them.
Thank you very much for your time.