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15	Q. Good morning, Mr. Ayala.
16	A. Morning.
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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
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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.
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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.
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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.
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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?
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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.
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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.
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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.
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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
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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.
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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."
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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.
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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.
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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.
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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
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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

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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.
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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
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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
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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,
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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
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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.
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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
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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
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