Fast Times for Microsoft's Home Products

Peggy Watt, PCWorld.com

MOUNTAIN VIEW, CALIFORNIA--Microsoft flew into the consumer products market with Flight Simulator 20 years ago. Today, the division behind that title and its many offspring has reached $1 billion in annual sales, making it the fourth-largest revenue producer at Microsoft behind such monsters as Windows and Office.

Flight Simulator itself has spawned Flight Simulator Combat and numerous upgrades. An ongoing priority is to retain the attention to detail that caught the interest of armchair pilots in 1982, said Lisa Brummel, corporate vice president of Microsoft's home and retail products division.

Who would have guessed? Not Microsoft, which wasn't sure what home PC users wanted back then, Brummel recalled.

"Bill [Gates] kept saying we had to be in this market," she said, describing the challenge of figuring out what people might do with PCs besides bringing their work home. The quest prompted continuing research and investment, dozens of successes that remain on the market today, and some less successful products--like Microsoft Bob, a graphical buddy that never caught on except as a punch line.

Brummel reviewed the home division's evolution and offered a peek at upcoming products at the company's Silicon Valley Speaker Series event here Wednesday.

Early Hits Still Here

Some of those earliest products are keepers. Microsoft Encarta, introduced in 1995, has blossomed with online and CD-ROM components. Sports products like Golf and Baseball have endured. Microsoft introduced its first mouse in 1983 and continues to market an array of input devices.

Best-sellers include Flight Simulator and Age of Empires, a real-time strategy game. This season, Microsoft has introduced a companion game, Age of Mythology. The same division markets mice, keyboards, and the Microsoft Home Networking Kit, introduced this year and already one of the division's top sellers.

Encarta encapsulates the ongoing goal of looking at familiar resources in a new way, Brummel said. People understood the concept of an encyclopedia, but they regarded it a set of static books used for school research. Technology has upgraded the encyclopedia to become a more easily updated multimedia resource. "We took advantage of technology and made something that is compelling and better," she said.

That's the clue to what's next from Microsoft's consumer division. Home broadband is growing, so Microsoft has launched Xbox Live, offering multiuser online games. Digital cameras are among the hottest sellers of the year, so Microsoft has released a new version of its photo-editing software, Picture It Digital Image Pro, with advanced functions that pick up where bundled software leaves off.

What's Next?

"Broadband has changed the home," said Brummel, who expects to produce more multiuser games and real-time play that combines local and online elements, like the Asheron's Call series. "You'll see our games evolve. Broadband is one of the key areas that will allow us to innovate in the future."

New versions of Money and Encarta are scheduled to ship in 2003, as are upgrades to Microsoft's Macintosh applications. A new title, Impossible Creatures, will join the selection of fantasy-themed software.

Hardware products, which make up about half of the Home and Retail Division wares, are also evolving.

"We'll continue our innovation in mice and keyboards," Brummel said, pointing to such input devices as those with an ergonomic focus and various wireless devices. At Comdex, Microsoft showed a Bluetooth keyboard. On deck are devices that support biometric functions, both for security purposes and for ease of use.

Familiar Flops

Microsoft has also learned from its failures--and its biggest lesson is that the home is decidedly different from the workplace, Brummel said.

Bob is the most famous flop, but Brummel also cited the Actimates, a combination of software and talking plush toy--from Barney to the Teletubbies--that proved to be an ill-starred venture into an unfamiliar market. "Consumers said, 'You are not a toy company.' They didn't fit with what consumes expected from Microsoft."

Still, some partnerships in unfamiliar fields produced successes, such as the pairing with Scholastic for the Magic School Bus series. Consequently, Microsoft continues to seek new shared ventures, Brummel said.

Microsoft also abandoned a brief venture into running a retail store. One operated for about two years at the Metreon in San Francisco. "Our strength is not in running a retail shop, although it is certainly in participating in the retail environment," Brummel said.

Still Learning

The company has learned that consumer products carry a different price tag. Business software sales trends don't mirror home budgets, Brummel said.

"We didn't understand that--if there was a $29 product and a $49 product and the $49 was way, way better--people would still buy the $29 product," Brummel said. "We learned to produce $29 products. Good thing, too, because today they're at $19."

Nor are consumers willing to spend 3 hours learning to use, say, a spreadsheet, she noted.

Today's primary products include education, reference, personal finance, and digital imaging software, games, and hardware entries.

"It's been a great 20 years," Brummel said. "I'm looking forward to the next hard bets we'll make and seeing whether they make it in the marketplace."