Microsoft's mideast strategy

Q. What's the outlook for Microsoft for 2003 and 2004, globally and in the Middle East region?

A. We just released our financial numbers for the third quarter, and we're happy to report 10 percent growth in revenue and 12 percent growth in operating income. But we've got to be cautious when talking about the next 12-18 months, given the fact that the economy is slowing down both in Europe and in the United States.

When you look at Western Europe, it's true that many of the countries are experiencing the same pain: slow GDP growth, growing public deficits, CEOs who are cutting costs. Therefore, IT spending might increase by three to five percent, which isn't too bad. It's not negative.

The Middle East and Africa is growing fast, which is why we have opened a number of subsidiaries in the region. We started five years ago in Turkey, which is our headquarters for the Middle East and Africa, and then we created another headquarters in Dubai to serve the Middle East. We created a headquarters in Morocco for North Africa, and in South Africa for the continent. All in all, the growth in the region is above 30 percent, which is extremely healthy.

Q. Where is growth highest? What's the outlook for Saudi Arabia and Egypt, for example?

A. All the Gulf states are seeing very strong, solid growth: the UAE, Kuwait, Oman and Qatar, where we have opened an office. For us, Egypt is a key market. Why? Because we've been able to develop some very strong and deep partnerships with the government. Dr. Nizif, the IT minister, is a visionary.

Working with the IT ministry, we've developed an education partnership, a partnership with local IT companies, with whom we work to provide services to both government and the private sector - and not just in Egypt.

In Jordan, the king has been adamant about providing a very good IT infrastructure environment, and we've established a number of partnerships there. In North Africa, we've seen pretty good growth in Morocco and also Algeria, where we decided to open an office. In Tunisia, where we've been for four or five years, we see positive signs as well.

Q. When you talk about deals in the region, you use the word 'partnership.' What does that imply about the way Microsoft does business in the region?

A. Having held this post for the last three years and having worked at Microsoft for the last 19 years, I know that there's no way that you can succeed unless you take a very long-term approach.

That's true not just for the Middle East; it's true for every country in the world. You've got to find a way to define your expectations, and so does the community you're working with. You've got to be very clear about the building blocks, about who will do what.

Q. What does that mean? You've got to be clear about, for instance, intellectual property rights. There's no way you can build a software industry if there's no legal support for intellectual property rights. There's no way to do that. It's also about building e-government solutions. It's about education.

Providing your products at very affordable rates, especially in this region. It's about donating your software to the poorest communities. In many countries in the region, you've got rural areas where people have no access to technology. We can do good things, with governments, to create the right environment for that.

A. Yes, we are a big company. Let's be honest, we are there to develop our business. But, as we learned from a recent study, for every Microsoft job we create, there were 70 more jobs created in the country. We have an incredible upstream and downstream impact.

That's because our business model is indirect: you need PC assemblers, training companies, services companies, software developers. So when I talk about partnership, I'm talking about partnerships with governments that are looking to strengthen the IT economy.

Another arena is security. Many governments are concerned about the security of the IT system, and as they use Windows more and more as their platform, they ask us to provide them with real evidence of the security of our system.

So what you're doing is selling governments products that will protect the other product you've just sold. And, if you take the case of B2B or even e-government, there's not much evidence that there are benefits.

Whenever you try to track a return on investment, you have to be very precise before you start a project about what you expect the return to be. Are you talking about rationalizing your existing infrastructure? That could be one goal. You have a lot of legacy systems, a lot of servers, PCs. You could save money by having a cheaper operating environment. That's another way.

Q. How do you measure the increased effectiveness of public services? How much time does it take to provide a service like granting business permits?

A. Many countries have taken an integrated approach to this, and technology can help a lot there. I'm not saying that everything is perfect; I'm saying that as long as the people leading change understand and are clear about what they expect, then technology is an enabler to achieve that. If they are confused from the start, there's no way there's going to be any gain. Technology has to go hand in hand with the willingness to change. To do that, you need some champions of change within government.

Q. You've talked about the importance of the leadership being clear about where they want to go. That's true in Dubai; is it true in Saudi Arabia?

A. In Saudi, we've seen a number of positive moves over the past 12-18 months that resulted in very strong growth. But, as you rightly said, the UAE has been the leading example in the region. But Saudi is certainly picking up very nicely. We've increased our investment in terms of people and resources in the country.

Q. Oman has just launched its technology oasis; Bahrain is now working on something similar. Does Microsoft lead these kinds of developments or just support them?

A. We try to. We try to leverage our experience as much as possible. Both the mistakes we've made - not us only, but also with governments and the private sector - and the best practices.

So you'll see a real exchange of ideas on projects like this. One of the most positive comments I hear from ministers of finance or IT in those countries is when we've made them aware of great developments going on in other countries in the region. All these countries look at their own benchmarks, and if you can bring them to a place where you can actually show that, you're off to a good start.

Q. In which countries have you encountered the greatest difficulty with IT projects?

A. That's an embarrassing question, and I don't want to embarrass any country.

Q. Okay, let's pose the question differently. In your opinion, which Arab country has the greatest potential for IT that is not being fully realized?

A. I'd say that North Africa has not realized its potential. To be honest, I still feel frustrated with North Africa. We've done some good things in Morocco, when I think about the government work, the election system. When I think about Tunisia, though, where we started our business a few years ago, I'd have to say that, yes, we are far from getting the best from our investment.

Q. Why are Microsoft products so expensive?

A. I'm not sure that they are so expensive. Everybody is entitled to a point of view, but customers wouldn't buy our products if they were so expensive.

Q. But, in the region, people don't buy your products. They buy a pirated version.

A. Yes, but our business has been growing very fast in the region. We are always seeking flexible ways to work with emerging countries. We are very much aware of what it takes, in terms of budget spending given the per capita GDP, for people to consume our technologies. As much as we can do it, we want to make it happen.

Q. But why are your products so expensive?

A. I would again say that I'm not sure they are that expensive. We have many licensing schemes for our products: depending on the volume you buy, depending on your status - as a student, as a school, as a government, as a big business - you might have a different price. We try to have that make sense in the context of those countries. That's the best I can tell you.