Government Exhibit P3256 CID - [Non-designated testimony redacted]
6 | 1 | | 2 | | 3 | | 4 | | 5 | | 6 | | 7 | | 8 | | 9 | | 10 | | 11 | | 12 | | 13 | | 14 | | 15 | Q. Good morning, Mr. Ayala. | 16 | A. Morning. | 17 | | 18 | | 19 | | 20 | | 21 | | 22 | | 23 | | 24 | | 25 | |
7 | 1 | | 2 | | 3 | | 4 | | 5 | | 6 | | 7 | | 8 | Q. Okay. Mr. Ayala, could you please tell me what | 9 | your current title is at Microsoft? | 10 | A. I'm senior vice president for small and medium | 11 | business solutions group. | 12 | Q. And how long have you held that job? | 13 | A. About a year. | 14 | Q. And what did you do with Microsoft before that? | 15 | If you could just take me from the time you joined | 16 | Microsoft up to your present job, please. | 17 | A. I joined the company 1991 mostly to head the | 18 | Latin American division, nonexistent at that time. So I | 19 | was in charge of building that group. After that I moved | 20 | around the intercontinental group. That was as vice | 21 | president of intercontinental. That was mostly all | 22 | countries in the southern hemisphere. | 23 | Right after that, if I am not mistaken, in 1997 | 24 | or so I moved to run the Americas. That includes North | 25 | America and Latin America and the South Pacific region, |
8 | 1 | which is kind of the composition at that time. And in | 2 | 1999 I was promoted to run worldwide sales of the company. | 3 | And I did that for about three years. And after that I | 4 | moved to the new job about a year ago. | | | 6 | | 7 | | 8 | | 9 | | 10 | | 11 | | 12 | | 13 | | 14 | | 15 | | 16 | | 17 | | 18 | | 19 | | 20 | | 21 | | 22 | | 23 | | 24 | | 25 | |
10 | 1 | | 2 | | 3 | | 4 | | 5 | | 6 | | 7 | | 8 | | 9 | | 10 | | 11 | | 12 | | 13 | | 14 | | 15 | | 16 | | 17 | | 18 | | 19 | Q. Okay. But if not right now, very soon the | 20 | entire sales force for the MBS solutions will report to | 21 | you? | 22 | A. Yeah, that's correct. | 23 | | 24 | | 25 | |
64 | 1 | | 2 | | 3 | | 4 | Q. And as I as I hear you, sir, and please | 5 | correct me if I'm wrong, what you seem to be saying is | 6 | that one needs to analyze competition across all its | 7 | dimensions at the same time? | 8 | A. I think that any responsible company would do | 9 | that. That's why generalizing that we are in the | 10 | enterprise space is just so broad of a of a statement | 11 | that I said it's just wrong. It's hard to just look at it | 12 | that way. | 13 | Q. Because sometimes you are, and sometimes you | 14 | aren't; right? | 15 | A. Yes. | 16 | | 17 | | 18 | | 19 | | 20 | | 21 | | 22 | | 23 | | 24 | | 25 | |
69 | 1 | | 2 | | 3 | | 4 | | 5 | | 6 | | 7 | | 8 | | 9 | | 10 | | 11 | | 12 | | 13 | | 14 | | 15 | | 16 | | 17 | | 18 | | 19 | | 20 | | 21 | | 22 | | 23 | | 24 | | 25 | Q. Okay. Let me fair enough. That's a fair |
70 | 1 | point. Let me start over, then. Okay. With respect to | 2 | selling core ERP, finance and HR fundamentally, would you | 3 | agree with me that there's a greater opportunity in the | 4 | corporate account space over the next five years than | 5 | there is above that in the larger enterprises? | 6 | A. For Microsoft, absolutely. For the other | 7 | vendors I would say this is still opportunity in both | 8 | places. | 9 | Q. With respect to the other vendors, would you | 10 | agree with me that the dominant opportunity is | 11 | replacements? | 12 | A. Define opportunity. In terms of what? | 13 | Q. The dominant opportunity to make any kind of | 14 | of new license revenue is by selling a replacement of an | 15 | existing system. | 16 | A. I don't track as closely the number of licenses | 17 | you can sell of an established vendor like Oracle or SAP | 18 | into the corporate enterprise GSM space. My view of this | 19 | is for non-established vendors into the GSM space that is | 20 | nearly a zero opportunity to them, for non-established | 21 | vendors. | 22 | Q. And that is in part because you're always | 23 | competing against the existing solution, and you have | 24 | existing vendors there? | 25 | A. Is many reasons. I think having the footprint |
71 | 1 | to support those customers, having those capabilities. I | 2 | think it is kind of a very, very even if we had a | 3 | product, it's a very, very costly proposition. So for | 4 | non-established, I don't think there is a big chance to | 5 | there's zero opportunity, in my view. | 6 | For established vendors, I will say, you know, | 7 | basically because of their reputation, they have been | 8 | working on this stuff for a long time, they know how to do | 9 | it, they have the connections with the right people, | 10 | talking to the decision makers in these places, I would | 11 | argue that this is still probably some relevant | 12 | opportunity there. | 13 | Now, I can also understand how they don't want | 14 | to limit themselves to that. They want to also | 15 | participate down market, which is what Oracle and SAP and | 16 | others are doing. So you know, you got to look at these | 17 | things from that length. So kind of making a statement up | 18 | there there's an opportunity broadly, period, I don't | 19 | think is actually factual. It depends on who is the | 20 | player in that space. | 21 | And I would argue there is still a lot of | 22 | opportunity for Oracle and SAP up there. Now they want to | 23 | have more coming down, and I can understand that, too. | 24 | | 25 | |
135 | 1 | | 2 | | 3 | | 4 | | 5 | | 6 | | 7 | | 8 | | 9 | | 10 | | 11 | | 12 | | 13 | Q. And my question is, in your experience when | 14 | large customers procure we were talking about database | 15 | software. When large customers procure database software, | 16 | do they end up paying more if they have down selected to | 17 | just two vendors than if they had down selected to three | 18 | vendors? | 19 | A. If they pick the wrong ones they may end up | 20 | paying more. | 21 | Q. As a general matter does the number of bidders, | 22 | two versus three, make any difference on the price that | 23 | they pay? | 24 | A. Totally disagree with that statement. | 25 | Q. You think it does not make a difference? |
136 | 1 | A. It depends on who is there. I mean, I'm very | 2 | serious about my answer. | 3 | Q. Look, you seem to think that we're arguing, and | 4 | we're not. | 5 | A. No, I'm not. | 6 | Q. So let me let me be clear. Do I understand | 7 | you correctly that in your experience, you cannot | 8 | generalize that someone will pay more money because they | 9 | down selected to two than if they down selected to three? | 10 | A. You can't generalize that way. | 11 | Q. You | 12 | A. You cannot. | 13 | Q. You cannot generalize that way; okay. Now, and | 14 | that's been your experience with respect to database | 15 | software? | 16 | A. Yes. | 17 | Q. Has it been your experience with respect to | 18 | other products that are sold to GSM customers? | 19 | A. Yes. | 20 | Q. Is it is it fair to say that it's been your | 21 | experience with respect to all the products that you've | 22 | sold to GSM customers? | 23 | A. Yes. | 24 | | 25 | |
145 | 1 | | 2 | | 3 | | 4 | | 5 | | 6 | | 7 | | 8 | | 9 | | 10 | | 11 | | 12 | | 13 | | 14 | Q. And then I think you said that it would be | 15 | harder if Microsoft was trying to go above basically its | 16 | current target markets, which we'll call midmarket and | 17 | CAS; is that correct? | 18 | A. Yeah, I do believe that's a lot harder. | 19 | Q. And why would it be harder? | 20 | A. Again, I think the investment, even having the | 21 | money, I think the time to get there would take us a long | 22 | time. You know, we could even decide tomorrow, okay, | 23 | let's just build a product to compete directly with SAP. | 24 | Even that decision is made, I think the capability to be | 25 | built here and include all the aspects I described before, |
146 | 1 | you know, it will take us years. Now, that's why I do | 2 | believe that's not the smartest investment for the | 3 | company. | 4 | Q. Okay. Let me see if I can understand what | 5 | you've just discussed. You said even if Microsoft had the | 6 | money and decided tomorrow to enter, I'll call it the GSM | 7 | space | 8 | A. You mean like the product I said? | 9 | Q. I'm sorry? | 10 | A. Even if we had the product? | 11 | Q. Even if you had the product. | 12 | A. Let's say a product ready technically. | 13 | Q. Okay. You had a product technically ready? | 14 | A. Yeah. | 15 | Q. Which you don't have now, in your opinion. | 16 | A. We don't have now. | 17 | Q. But if you had had a product that was | 18 | technically ready, it would take you many years still to | 19 | enter the GSM space? | 20 | A. Absolutely, I believe that. | 21 | | 22 | | 23 | | 24 | | 25 | |
164 | 1 | | 2 | | 3 | | 4 | | 5 | | 6 | | 7 | | 8 | | 9 | | 10 | | 11 | | 12 | | 13 | Q. Okay. Let me go back to Government 162 again on | 14 | the first page. Moving down about a sentence, but still | 15 | in that first paragraph, it says, | 16 | "I do believe a real part of the problem today | 17 | is that there are no boundaries, so everyone seems to | 18 | believe we should go for a lot of things including | 19 | geo expansion in all markets all big markets, | 20 | multiple lines in more countries than we can afford, | 21 | et cetera, et cetera, et cetera. As Steve B puts | 22 | it," that would be Steve Ballmer, "our eyes are | 23 | bigger than our stomach." | 24 | What is it that you were trying to convey by | 25 | that sentence or two sentences there? |
165 | 1 | A. Two things come to mind as very precise examples | 2 | to illustrate the point. I think customers with | 3 | multinational presence, there was a tendency to believe | 4 | that we are able to support Axapta pretty much everywhere | 5 | where they had offices. | 6 | And clearly they have caused issues with | 7 | customers that go to Japan and say, "Okay, I'm ready for | 8 | the Japanese installation of Axapta. Where is it?" Well, | 9 | it's not going to be here for the next two years. So when | 10 | I say our stomach our eyes seem to be or when Steve | 11 | says that, it is really referring to the fact that we have | 12 | to be very precise. | 13 | If we're going to say to a spoke situation, got | 14 | to tell them very clearly what's the capability of the | 15 | product, what countries you have support and which | 16 | countries you don't have support, to ensure a customer | 17 | walks into a situation with wide-open eyes. If that means | 18 | for us to lose the deal, we'll lose it. | 19 | Q. And why is it preferable to lose those deals? | 20 | A. As a leader of this group, I do believe you | 21 | don't build relationships for one year. You really I | 22 | really believe in the lifetime experience of our customer | 23 | should be there at all times. So it is the only way you | 24 | will build credibility. | 25 | Q. Would it be fair and please correct me if |
166 | 1 | I could somewhat sum up some of your concerns by saying | 2 | that in trying to build credibility by making sure you | 3 | don't oversell the product? | 4 | A. Yeah. There may be some of that. I don't say | 5 | that that was basically my intention or I intended and | 6 | premeditated way people was trying to do things. I think | 7 | it's more we didn't take the steps to clarify precisely so | 8 | the sales force can do a responsible job selling these | 9 | products. | 10 | Q. So you're saying that you don't blame the sales | 11 | force for, quote, overselling the product, but there | 12 | wasn't enough clarity for them to focus on the customers | 13 | they could best serve? | 14 | A. Being the leader of the team, I take the | 15 | accountability for not providing more detailed guidance. | 16 | | 17 | | 18 | | 19 | | 20 | | 21 | | 22 | | 23 | | 24 | | 25 | |
175 | 1 | | 2 | | 3 | | 4 | | 5 | | 6 | | 7 | | 8 | | 9 | | 10 | | 11 | | 12 | | 13 | | 14 | | 15 | | 16 | | 17 | | 18 | Q. And I believe we started the discussion of | 19 | Chanel by you listing it as an example of a case where, as | 20 | Steve Ballmer put it, our eyes were bigger than our | 21 | stomach? | 22 | A. Exactly. We ate all of. | 23 | Q. That's okay. | 24 | A. But it's a good example. | 25 | Q. Can you think of any other examples, customers |
176 | 1 | like that? | 2 | A. Well, more than customers, it's really countries | 3 | in which I know | 4 | MR. WALL: Excuse me. What did you say? | 5 | THE WITNESS: Countries. Countries. I would | 6 | say in places like Brazil is a good example. We don't | 7 | have the capability to invest in four multiple ERP lines. | 8 | So I guess nobody has told the country that we are not | 9 | going to do four lines. So some people sold, midmarket | 10 | customers sold, you know, all these lines. And I know we | 11 | cannot support four whole lines in Brazil. | 12 | BY MS. BLIZZARD: | 13 | Q. So would it be would it be fair then to say | 14 | that there are countries where you are similarly concerned | 15 | that partners have sold products that you do not have the | 16 | means to support or implement or they don't have the | 17 | features that will meet those customers' needs? | 18 | A. That is correct. | 19 | Q. Let me turn back to 162. | 20 | A. Just wanted to make that I'll tell you, it's | 21 | been a humbling experience to get into this business. | 22 | Q. It's been a humbling experience in the last | 23 | year? | 24 | A. It's very highly complicated, even for the | 25 | midmarket. |
177 | 1 | Q. And let me ask you just to expand on that. Why | 2 | has it been humbling? | 3 | A. Well, because I think as a company perhaps our | 4 | business model has been of high velocity of business. | 5 | These are sales that take a lot of time and resource and | 6 | very expensive to do. Even with great partners like ours, | 7 | it's expensive to do. You need a lot more support. | 8 | So in some ways I think putting boundaries | 9 | around is really acknowledging the fact that you don't get | 10 | into this business overnight. You really don't. Even for | 11 | midmarket. We just our ability to be, quote, unquote, | 12 | "a multi-country player" in the business applications | 13 | space, it will take us years, even for midmarket. So | 14 | market share is still very small. Not to say I mean, | 15 | in the enterprises space, forget about it, you know. But | 16 | no chance. | 17 | Q. Okay. When you say that it's been a humbling | 18 | year, are you sort of contrasting your experience this | 19 | year to your prior experience as head of sales for a | 20 | different set of products? | 21 | A. Absolutely. | 22 | Q. And what and what what is the difference | 23 | between this past year and your prior year? | 24 | A. I was not as acutely aware of how hard it is to | 25 | get into these type of how hard it is to get into these |
178 | 1 | type of business. I mean, I will say let me tell you, | 2 | give you an example which I think is now very true. | 3 | If you talk about entrenchment and the | 4 | capability to convince a customer to change something, I | 5 | think the thing that touches closely business process is | 6 | the hardest thing to change, the hardest. That's why I | 7 | would say that at the top of the enterprise in GSM it's | 8 | very, very difficult to enter, very difficult. | 9 | Virtually you come to our CIO and say, "Okay, | 10 | let's change his AP." Probably we have to be thinking of | 11 | writing a hundred million dollar check. And I'm sure | 12 | that's not going to fly by. I'm totally sure. So that's | 13 | why it's very humbling. It's a lot more than I expected | 14 | it. It's harder, very hard. | 15 | | 16 | | 17 | | 18 | | 19 | | 20 | | 21 | | 22 | | 23 | | 24 | | 25 | |
230 | 1 | | 2 | | 3 | | 4 | | 5 | | 6 | | 7 | | 8 | | 9 | | 10 | | 11 | | 12 | | 13 | | 14 | | 15 | Q. So would it be fair to say that you think people | 16 | generalize around enterprise as opposed to focusing on the | 17 | CAS space that you're going after? | 18 | A. Yes. Especially in the early times, you notice | 19 | in the e-mail July 21st, 2003. Probably I was one month | 20 | on the job, you know. Today I'm very acutely aware of | 21 | propounding in any interview the characterization we | 22 | are and here perhaps I didn't spend enough time with | 23 | them really saying, so they just think enterprise is a | 24 | very, very general word. | 25 | What tends to confuse people is to say, hey, |
231 | 1 | these guys are going to go and change the biggest ERP | 2 | system in the world, which is totally, totally bad. So | 3 | part of the education, moving forward and the effort we're | 4 | making is really clarifying what we it's not about | 5 | changing strategy. I think it's consistent with a year | 6 | ago. Now I learn that there was not emphasis enough made | 7 | on characterizing the spaces where we are is very | 8 | important. | 9 | | 10 | | 11 | | 12 | | 13 | | 14 | | 15 | | 16 | | 17 | | 18 | | 19 | | 20 | | 21 | | 22 | | 23 | | 24 | | 25 | |
243 | 1 | | 2 | | 3 | | 4 | | 5 | | 6 | | 7 | | 8 | | 9 | | 10 | | 11 | | 12 | | 13 | | 14 | | 15 | | 16 | | 17 | | 18 | | 19 | | 20 | | 21 | | 22 | | 23 | | 24 | | 25 | Q. I believe you already said you well, let me |
244 | 1 | ask. Did you attend Convergence 2004? | 2 | A. I did. | 3 | Q. And what is Convergence? | 4 | A. Convergence is the prime customer event for | 5 | Microsoft Business Solutions. Partners happen to attend, | 6 | too. | 7 | Q. And do you recall seeing this document before? | 8 | A. Yeah, I think I read this document. | 9 | Q. Is it something that would have been prepared | 10 | for you in sort of as part of your preparation for | 11 | Convergence? | 12 | A. For all the executives attending. | 13 | Q. For all the | 14 | A. All the executives attending. | 15 | Q. All the executives attending. If you turn to | 16 | the first page where it says, "Top executive Q and A." | 17 | The third question down says, "How does Microsoft Business | 18 | Solutions define its target market?" And it says, | 19 | "Using Microsoft internal customer segmentation | 20 | taxonomy Microsoft Business Solutions targets the | 21 | core small and mid-size business segments and | 22 | divisions of large organizations. Microsoft defines | 23 | core small business as having one to 49 employees, | 24 | mid-size businesses as having 50 to a thousand | 25 | employees, and divisions of large organizations of |
245 | 1 | having 1,000 to 5,000 employees. In terms of | 2 | revenue, Microsoft Business Solutions targets | 3 | customers with 1 million to 1 billion in annual | 4 | revenue." | 5 | Do you think that's accurate? | 6 | A. Yeah, it's accurate. | 7 | Q. Do you think it's accurate with the | 8 | clarifications that we've discussed today about the | 9 | appropriate types of divisions of large organizations that | 10 | would be good fits for the MBS products? | 11 | A. That would be more precise. | 12 | Q. Do you think that MBS products can fit all | 13 | divisions of large organizations? | 14 | A. I don't think so. | 15 | Q. Do you think MBS products are good fit for all | 16 | organizations up to a billion in annual revenue? | 17 | A. I don't think so. | 18 | Q. The next question says, "Is Microsoft Business | 19 | Solutions planning to take its products up market into the | 20 | enterprise market?" And the answer says, | 21 | "To move to the large enterprise market is not a | 22 | natural extension of Microsoft Business Solution's | 23 | current business model. It would mean creating | 24 | different products, different price points, different | 25 | sales channels and building an infrastructure around |
246 | 1 | that business." | 2 | Do you think that's accurate? | 3 | A. Well said. | 4 | Q. Well said? The next sentence says, "Rather than | 5 | pushing to move up into the enterprise space, we are | 6 | looking to move out into a broader range of global markets | 7 | and industries within the small and mid-sized businesses | 8 | and divisions of large organizations." | 9 | A. That's very accurate. I think it's a very good | 10 | characterization of the strategy as it stands. | 11 | | 12 | | 13 | | 14 | | 15 | | 16 | | 17 | | 18 | | 19 | | 20 | | 21 | | 22 | | 23 | | 24 | | 25 | |
250 | 1 | | 2 | | 3 | | 4 | | 5 | | 6 | | 7 | | 8 | | 9 | | 10 | Q. Right. And but you have been involved on many, | 11 | many occasions in the process of selling software, | 12 | Microsoft software, and Microsoft products to GSM | 13 | customers, even if those sales were consummated through | 14 | partners; correct? | 15 | A. Define for me process. | 16 | Q. The sales process, and whether it's in a general | 17 | level of marketing or talking evangelizing, talking to | 18 | customers about your products. | 19 | A. I talk to the customers about our products, | 20 | sure. | 21 | Q. So you're not ignorant about the dynamics of | 22 | selling business software to GSM customers, are you, sir? | 23 | A. I know some about it. | 24 | Q. In fact, you were the head of worldwide sales | 25 | for Microsoft for many years, were you not? |
251 | 1 | A. Correct. | 2 | Q. Now, Mr. Ayala, do you have any particular | 3 | expertise in knowing when it is that a large enterprise | 4 | may or may not have a viable option of implementing a | 5 | spoke solution? | 6 | A. Not personally, but we have technical people who | 7 | do that. | 8 | Q. But personally don't know when that would be | 9 | technically feasible and when it would not be; correct? | 10 | A. It would be I think impossible for anyone to | 11 | know precisely that. | 12 | Q. It has to be assessed on a case-by-case basis; | 13 | correct? | 14 | A. People should look into the details of customer | 15 | requirements. | 16 | | 17 | | 18 | | 19 | | 20 | | 21 | | 22 | | 23 | | 24 | | 25 | |
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