Microsoft turns on the charm to delight its customers

The software giant's president of operations in Europe, the Middle East and Africa wants more customers and a better image, writes Fiona Harvey

Jean-Philippe Courtois is embarking on a charm offensive. The image of Microsoft in the information technology industry must be improved, he says: "I want people to talk about Microsoft in a different way [from the way] they talk about Microsoft today."

Since taking over as president of Microsoft's operations for Europe, the Middle East and Africa in 2000, Mr Courtois has seen revenues rise to $1.5 billion (€1.48 billion) in the last quarter, up from $1.1 billion a year before despite a worsening business climate. Yet his current obsession goes well beyond economic performance. "The core of my job goes beyond growing the numbers, to the way we are seen by other people," he says.

In 18 years at Microsoft, Mr Courtois has become used to the changing attitudes towards the software supplier. As he lugged early versions of products around European companies, he was laughed at by IT managers who said it would never work.

Since its Windows operating system has grown to dominate desktop computing, the ridicule has turned into grumblings about the company's power. Though he skirts delicately around the question of how Microsoft is seen today, his determination to change that perception suggests the company acknowledges it as a problem.

To counter these perceptions, he says: "People expect us to do more about delighting the customer. That's fair. And we're working super hard to do that."

"Delighting the customer" has been adopted as a mantra at Microsoft. From Mr Steve Ballmer, chief executive, and Mr Bill Gates, chairman, down to the lowliest marketing assistant, the concept of customer delight hovers over the company's public discourse.

Yet some of Microsoft's recent actions smack not so much of delighting customers as of antagonising them. Take the vexed issue of changes to Microsoft's software licensing agreements.

Eighteen months ago Microsoft began to moot the idea of changing its licensing to encourage customers to move from buying a single copy of its products, which could be used in perpetuity, to buying a subscription that must be renewed every few years.

The company's initial deadline for changing its terms was October 1st last year but a storm of customer protest forced it to postpone. At last the new licence terms - which still allow for perpetual licences but favour subscriptions - came into force on July 31st this year and the resulting rush to upgrade caused a sudden increase in Microsoft's revenues.

"Our licensing terms [with various discounts for different numbers of users under different circumstances] were very complex. Most users were grateful for the chance to simplify that," Mr Courtois insists.

Another reason for the increase was that Microsoft also took the opportunity to raise its prices. For instance, the reseller Softcat quoted a price of £325 (€506) for a perpetual licence to Microsoft Office Professional before July 31st but £600 afterwards, though the higher price included free upgrades for two years. Gartner Group estimates that companies will pay 35-107 per cent more for Microsoft products after the changes. Microsoft claims that some customers will pay more but others will pay less.

Mr Courtois is unwilling to endorse any generalisations on the pricing changes, arguing that the complexity of the previous licensing terms makes comparisons difficult.

Then, just as users digested the changes, a filing by Microsoft to the Securities and Exchange Commission disclosed that the company's profit margin on each copy of Windows was 85 per cent and the margin on Office was not much lower.

Is it not a little difficult for users to stomach price rises while Microsoft makes so much money? In his defence, Mr Courtois cites the matter of "a few billion dollars" of expenses that were dispersed across several product lines and so were not reflected in the SEC filings. These few billion still make little dent in annual revenues of $28 billion.

The profit margins on Windows must be the envy of Microsoft's 270,000 European resellers, who dispense the software to corporate clients. Their margins on selling Microsoft products are low, 7 per cent or less, and they make the bulk of their profits on selling services such as installation, training and consultancy.

Alex Tatham, vice-president of global software at Ideal Hardware, says resellers nevertheless see Microsoft as "a great opportunity. The work they're doing with new software such as Dotnet promises to be a wonderful business". For him, the real question for resellers and Microsoft is over Linux, which many companies are investigating as a cheaper alternative to Windows.

Mr Courtois, too, is alive to this danger but counters: "This isn't just about the price of the software itself but about the total cost of ownership, taking into account things like installation and maintenance and training and so on." He contends that on these measures Microsoft's products excel over Linux.

Though Mr Courtois is careful not to make it explicit, another of Microsoft's problems has been the security flaws found in several of its core products and the perceived unreliability of some of its software.

For instance, on last year's launch of Windows XP, Mr George Colony, chief executive of the research company Forrester, advised customers to steer clear of the product as he found it not yet ready for corporate use.

Obliquely, Mr Courtois observes: "People have a right to expect our stuff to work perfectly well. That's an area we're working on, how to make it as reliable and secure as possible."

Given Microsoft's dominance and size, it seems hardly surprising that it should have made enemies. The European Commission is investigating alleged antitrust activity, specifically whether it has used its dominance on the desktop unfairly to make inroads into the high-end server software market, which the company began to target in earnest only a few years ago, and whether it has behaved uncompetitively in bundling its media player software with its operating system.

Microsoft has been here before: its well publicised antitrust trials in the US were at length resolved with a judicial decision that the company did in effect hold a monopoly in some areas of the software market and that it had in the past abused that position in some instances.

But none of the remedies suggested by opponents in the early days of the trial, such as breaking up the company or forcing it to relinquish control of the Windows operating system, ever came to pass and Microsoft has emerged unscathed.

The European Commission should make its first rulings early next year. The decision is likely to be negotiated between some officials who would like to see Microsoft unbundle its media player from Windows, and open up parts of the technology behind its server software to use by rivals, and more cautious politicians who are wary of upsetting the fragile high-tech economy and the US government.

Mr Courtois politely deflects specific questions about the antitrust investigations, saying only: "Whatever the European Union thinks, we would love to discuss with them." What he hurries on to say is much more revealing about the company's tactics: "At the same time, there are a lot of great things we can do with the European Union.

For example, we are involved in a number of projects to deal with the digital divide, in terms of the unemployed. We are helping schools with e-readiness. In Greece we have a project to enable teleworking for disabled people. In 5,000 schools in Poland we're helping teachers with IT."

These initiatives seem to form the core of Microsoft's plan to improve its standing in Europe. Mr Courtois is keen to stress that "this is not about a PR blitz or a big advertising campaign" but a quiet internal transformation that will see the company present itself more persuasively to the world.

Mr Courtois lacks the brashness and boyish enthusiasm that characterise Mr Ballmer and Mr Gates but his subtle charm may win more support in Europe. If Microsoft needs to project a softer, friendlier image, he seems well placed to do it.