New consumer GM wants TVs, phones, microwaves…

Craig Mundie, 43, is the former CEO and founder of supercomputer maker Alliant Computer Systems who recently joined Microsoft Corp. as general manager of advanced consumer technology. Reporting to Microsoft’s VP of advanced technology and business development Nathan Myhrvold, Mundie takes

over a number of existing Microsoft projects — including Modular Windows 1.0 (future versions have mercifully returned to the drawing board for some tweaking) — as well as projects in Microsoft’s future business plans, including everything from interactive TV to Myhrvold’s long-desired “wallet PC.”

Three Digital Media editors ganged up on Mundie in a noisy Italian bistro a couple of months ago, and what follows is a patchwork of our conversation.

A SOFTWARE FRANCHISE IN CONSUMER PRODUCTS

Mundie begins the conversation by saying that he’s come to Microsoft to start a new business: a software franchise in consumer products. Though he says the “overhype and backlash” of interactive television these days is reminiscent of multimedia and CD-ROM a few years ago, Mundie believes that interactive TV has a “fairly favorable hype-to-reality ratio for them.” (And for good reason: this was right when the rumors were heating up about Microsoft’s partnership with Intel and General Instrument on a set-top decoder box, which was finally announced in late April.)

Architectural guide. Mundie was also anticipating Microsoft “guiding consumer electronics companies toward optimal architectures,” which we assume means Microsoft-based platforms. Asked about how this strategy squared with Tandy’s poorly received VIS multimedia player, he said, “What you see in VIS was the earliest product experiment in taking Windows and trying to meet the needs of low-cost consumer appliances.”

As the first in a family of products, he said, the focus for VIS was on “function and price.” (The VIS player running Modular Windows sells for $399.) “Over the next couple of years, Modular Windows’ name and concept will be applied to a suite of operating systems,” says Mundie. “Over time, Microsoft will have [different] flavors of Windows for major segments of the market.”

What’s the connection? We asked Mundie whether he thought it was logical to keep system software for consumer devices connected to the personal computer. His belief is that “interoperability between the PC and consumer devices is critical,” though this doesn’t imply that they will run the same operating system. (More on this later.)

MUNDIE’S CHARTER FOR CONSUMER PRODUCTS

Mundie says that his charter is fourfold: one, to leverage Microsoft’s existing technology; two, to use Microsoft’s experience in PC user interface for consumer devices; three, to provide the ability to interoperate; and four, as Microsoft enters new markets, to cultivate the “proper relationship” between PC and consumer electronics platforms to enable them to bootstrap “killer applications” at a higher rate of speed.

We thought this was interesting, especially considering that classical consumer electronics companies have shown a marked distaste for paying for other people’s software, which is how Microsoft makes money and commands market supremacy.

In addition, we suggested user interfaces for personal computers might not be really appropriate to consumer electronics devices, and things we’d seen that did a one-to-one map between the two were pretty dismal. And last but not least, it appeared to us that there was a real fear out there of getting into a close relationship with Microsoft.

THEY’RE AFRAID, BUT THEY ALL SHOW UP AT THE DOOR

“They say they’re afraid, but they all show up at the door,” says Mundie. “Success in the consumer business means mastery of software. The consumer electronics world just doesn’t know it yet.”

Mundie says that in the area that he and Myhrvold are attacking, they’re “completely open to working with other people. The qualifying clause is we have a vision about how things should relate. To the extent that people want to help us realize our vision, we’ll work with them in a reasonable way. We won’t compromise Microsoft’s ideas for integration.”

Munching on leftovers. And for those who are afraid that Microsoft wants to own everything, Mundie says “much that has to happen [in the consumer business] Microsoft has no interest in — manufacturing, infrastructure.”

And in any case, he says, Microsoft isn’t big enough to worry about. “We’re 6 percent the size of IBM. We’re 4 percent the size of AT&T,” he says. “Microsoft’s strength is in the homogeneity of its vision and mission. To us, who owns the work [i.e., who has ultimate responsibility for the product] is a big deal. And everything I see says people have a willingness to work with Microsoft.”

Consumers have tin ears. Using the analogy of stereo equipment, Mundie also addressed the perception that Microsoft isn’t known for its elegance in user interface design. Despite the fact that the technology is there for incredibly high-quality audio, most people don’t have the ear of an audiophile, and “the market isn’t interested in supporting it.”

But they are interested in products that aren’t so elegant but that are priced right, and deliver a certain percentage of professional quality and functionality. Thus he believes the “fundamental next step” in multimedia will be decided on the consumer side, and says he believes that computers will drive multimedia into the home.

DEVELOPING TECHNOLOGY THAT HIS WIFE WOULD USE

But, he says, it will be in applications we already recognize such as encyclopedias, replicating functions that people already know. “My own target for this is to develop technology that my wife would use,” says Mundie (without batting an eye, we might add). “Trying to use cable even today is a pretty raw experience. We believe some pretty compelling things can be done to change that experience.”

The Microsoft microwave. We asked Mundie about reports (recently corroborated) that Microsoft was working on telephone interfaces, and how that might relate to other projects. “The telephone per se is less related to what I’m responsible for, but user interface in telephony is the perfect analogy to what we can do in the TV world,” he says.

So, we said, does Microsoft want it all? Does it really want to be in the microwave oven business? “Absolutely. If the microwave is computer controlled, it’s a potential platform,” he said. “A standard way to communicate with applications in the home is very interesting. Once that exists, no device will be as useful as if it’s interconnected.”

Controlling the home. What Mundie is referring to is the potential software platform that could link home appliances and other electrical devices in a smart network; “home control” has been an extremely peripheral market and/or insanely expensive proposition for at least the past decade, but as companies like Echelon (headed by Ken Oshman, formerly of Rolm, and founded by the legendary Mike Markkula, a cofounder of Apple and other groundbreaking Silicon Valley ventures) — and now, perhaps, Microsoft — move into the area, expect home control to become (a) sexier and (b) easier and cheaper to do.

WHAT’S TO COME IS LIKE WHAT’S BEEN

Mundie believes that the multimedia industry is right now where the personal computer was “around the [Steve] Jobs and [Steve] Wozniak era; 1994 to 1995 is when IBM-Intel-Microsoft analogy will come to roost,” he says. (Now that the GI-Intel-Microsoft deal has come to light — which it had not at the time of our dinner — we see much more clearly what he means.)

A system for consumer devices that’s interoperable but not (necessarily) compatible has the potential to open up a whole new business for Microsoft in much the same way as the personal computer. Present Windows and DOS developers who want to play in a new market will need to make investments in a raft of new tools; even more significantly, a whole new generation of designers and developers will be target customers for these tools as well.

These interactive TV and information service developers aren’t likely to mind the buy-in: as Mundie says, consumer electronics has no software tradition, thus has no installed base to drag along behind it. And if Microsoft gets its software into anywhere near the 11 million homes that cable giant TCI owns — and, of course, it will be selling applications to the cable industry as well — servicing those developers could be a tidy business for many years.

I am the sun, you are the moon. So once again, Microsoft has come up with an overarching strategy to own a new market. As Mundie says, a personal computer designed from scratch today wouldn’t look anything like most PCs, and what would Microsoft consider the consumer market to be but a new kind of PC designed from scratch? Like many at Microsoft, Mundie is excited by the clean slate — sans a constantly clamoring installed base of users who don’t have the equivalent of “tin ears” — that the consumer market can provide.

“I have a record of scratch starts with big programs,” he says. “I have enough vision to be dangerous and enough experience to do something really big.”

Denise Caruso