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Paul Thurrott, Chris Capossela and Mary Jo Foley on Windows Weekly.

Windows Weekly, with Microsoft watchers Paul ThurrottMary Jo Foley and TWiT founder Leo Laporte, features a wide-ranging interview this week with Chris Capossela, Microsoft’s chief marketing officer, a member of the company’s senior leadership team — and a regular Windows Weekly listener (on his dog walks).

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Chris Capossela, Microsoft’s chief marketing officer. (Microsoft image).

Midway through the interview, Foley asks a question about Windows Phone from her own perspective as a longtime user. “Give me something to hope for in the new year as a Windows Phone fan, Chris, because I’m abandoning hope,” she says. “This year, I actually even toyed with the idea of going Apple, and you know what? For me, that’s the rock bottom right there.”

“I hear ya,” Capossela says. “We’re clearly very cognizant of our position in the phone world, and frankly we’ve done the hard yards to retrench and have an approach that, in this coming year, is very much about trying to satisfy our fans, and trying to have a great success in the business world, for businesses who want to buy phones for their employees.”

Capossela cited the benefits of Windows 10 running on his Lumia 950, and implicitly confirmed the existence of the unreleased Lumia 650. He also addressed Microsoft’s universal app strategy, saying, “The more we get a big installed base for Windows 10, the better off our phone is.”

But beyond that, he said, “I think we have to do more breakthrough work. … To really do something that would allow me to compete for a 15-year-old’s dollars on a phone, and ask them to move from an iPhone to one of our phones, I think we need more breakthrough work. We need more breakthrough hardware work. We need more breakthrough experiences.”

As an example, he pointed to the way the Microsoft Surface tablet has established momentum. “With Surface, we had a bunch of early misfires, but that notion of a tablet that could replace your laptop, that notion of saying, ‘Hey, Apple wants to sell you an iPad and they want to sell you a Mac. We think there’s one device that exploits the seam between those two devices.’ …

“We need some sort of spiritual equivalent on the phone side that doesn’t just feel like it’s a phone for people who love Windows,” he said. “It’s got to be a phone where it’s like, ‘Wow, that’s a real shock or that’s a real breakthrough, and (for an Apple customer) that’s going to make me pause before I buy my 17th iPhone.’ And we need time to actually go build that.”

It’s not exactly confirmation of a “Surface Phone,” but it does hint at Microsoft’s future approach in the phone business — a topic that Microsoft hardware chief Panos Panay was a little more reluctant to address in our recent GeekWire interview.

At the outset of the show, Thurrott and Foley ask Capossela to give his own recap of Microsoft’s 2015. It’s an interesting rundown, from the perspective of an insider, on what has turned out to be a pivotal year for the company — covering topics including Windows, Microsoft hardware, phone apps, the cloud, and the cultural changes at the company under CEO Satya Nadella.

Watch or listen to the full Windows Weekly show here, and continue reading for a few highlights from Capossela’s comments that stood out to me.

surface book surface pro 4On Microsoft’s new OS: “Windows 10 was an incredibly important release and milestone for us, and getting 110 million people to upgrade in the first 10 weeks. And that has continued to move in a really positive direction, and in the new year we’ll probably have more to share on the latest numbers there. But just getting the installed base to be really large is so critical to getting developers back to writing Windows apps, and it’s really our best shot at phone apps. As you have mentioned many times, that is the strategy to getting developers back in the fold.”

On Microsoft’s hardware lineup: “There’s no doubt that the hardware has generated a huge amount of press, from HoloLens to (Surface) Book. Pro 4 generated some press. Most people of course are interested in the bright shiny new products, but (Surface) Pro 4 for me is the real winner. It’s the one we’ll do the most volume on. It’s the one that I think is the best experience right now, and it will get better and better and better. For me, the hardware is secondary to Windows 10, but it’s incredibly important to the Windows 10 story as well.”

Microsoft CEO Satya Nadella. (GeekWire File Photo)
Microsoft CEO Satya Nadella. (GeekWire File Photo)

Microsoft’s cultural change: “What you may not see as much is the culture, and the cultural change that Satya has brought about the company. You’ve seen him at events. You’ve seen how we tried to change the staging, and make sure we look like a different company in our marketing, but most importantly, are we authentic to who Satya is. I don’t think you can see that as much in the products we ship, or how we show up every week, but if you were in the halls of the company each week, I think the cultural difference is really stark. We’ve got a long way to go … but he’s established a new culture that most employees seem to be eager to try to live.”

What’s changed for Microsoft recruiting: “You’d be amazed at how many college kids talk about the hardware when we’re recruiting on campuses. The big thing that’s changed in the last year and a half is college kids talk about Satya to us, and they talk about HoloLens. It’s just become this incredibly interesting recruiting motion for us.”

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On the Xbox Elite Controller: “Here’s the product we totally underestimated. If I could have built 10 times the number I built, I would have. We got that feedback at E3 that it was awesome, but maybe the price was a little too high, and so that influenced how many we produced. On the Monday and Tuesday before Thanksgiving, myself and Kevin Turner our COO, and the guy who runs our stores, David Porter, we go around and visit 30 or 40 different stores. Best Buy and GameStop and AT&T and Verizon and Microsoft Stores, just to see how things look, and the one thing we heard from everybody was, you needed to make way more of these controllers.”

Microsoft vs. Amazon in the ‘business cloud’: “This really was the year that Azure became No. 2 in what we think is going to be a two-horse race with Amazon, with AWS. We were just thrilled at our last quarterly earnings where a lot of the press talked about how the cloud actually lives in Seattle. It’s Amazon and it’s Microsoft. Not the consumer, ad-funded cloud, but the business cloud. And for us and for the future of the company, that’s just unbelievably important. …

“I think it’s going to be hard for others to catch up. Clearly Google has the capability. They certainly have the IQ and the DNA if they wanted to go after it. But so much of their revenue, 97 percent of their revenue, is ad-funded, so it’s hard for them to get excited about a different model, I think, whereas for us and for Amazon, that’s something that’s very natural to us. We’ve been there on the enterprise side for many years, and moving it from a volume license to the cloud is a pretty natural thing. Now, Oracle is going to talk about how much of their revenue is cloud-based, and I just don’t — I like our position and Amazon’s position, frankly, for the business cloud, and I think the other players in the space are going to have a hard time with the scale that Amazon and Microsoft are operating at.”

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