Microsoft Financial Analyst Meeting 2013
Engineer Leader Panel
Moderator: Tami Reller
Julie Larson-Green, Kirill Tatarinov, Qi Lu, Satya Nadella, Terry Myerson
Bellevue, Washington
September 19, 2013
CHRIS SUH: When I talk to most of you, you tell me how interesting it is to cover
Microsoft. I guess this just adds to the folklore. We are back. We had a partial power
outage. The teams have worked furiously, and we're back online. So welcome back,
everyone. Welcome back to those on the Web.
We are going to go ahead and keep with the schedule. I do want to let you know also that
Kevin's full presentation will be posted shortly to the Microsoft Investor Relations
website. So you can access the entire presentation in its entirety.
We did just take the break, and so we're going to go ahead and move straight into the
panel. And with that I want to introduce Tami Reller, executive vice president,
Marketing.
(Applause.)
TAMI RELLER: Thanks, Chris.
CHRIS SUH: Thanks, Tami.
TAMI RELLER: Great. So it's a great pleasure to be here, and we are back to business.
I'm very honored to be able to host this panel. I think this will be a very good way for
you to get a chance to see our engineering leaders in action, hear from them, and get
some perspective on the opportunities ahead, the challenges ahead, and some of the
priorities that we have as a company. And so I'll bring them out shortly.
On July 11th we announced a pretty significant reorganization to really drive the
transformation of our company. And I can tell you that in the two months since that time,
I certainly have seen the senior leadership team working more effectively together, and
that was the goal, really to break down barriers, and instead of working in any kid of
silos, to really work as a team. And so that's part of the objective that we have today, too,
is to allow you to see that team in action. So we'll spend the next 45 minutes both
answering questions that you have already posed to us, and we'll take those on. And then
we'll also open it up to your questions.
So with that let me ask the panelists to come on out, and we will get started. So panel
come on out. Thank you. Please welcome them.
(Applause.)
Terrific. So while they're getting settled, let me just do some introductions. I think you
probably have a good sense of who these folks are. We have Julie Larson-Green, who
leads our Devices and Studios Group. Welcome, Julie.
We have Satya Nadella, who leads our Cloud and Enterprise Group. We have Terry
Myerson in the middle, who leads our Operating Systems Group, and that's across PC,
tablet, phone, and Xbox on the operating system side. We have Kirill Tatarinov, who
leads Microsoft Dynamics and has for many years. And we have Qi Lu, who heads up
our Applications and Services Group, and that now includes Skype and Office. So I
think we'll touch on a number of those topics as we go through this.
So I'm going to dive us right into the questions that came from you all already. And I
think some of these questions came from several of you, but let me kick it off. So the
first question came in various forms. I'm going to use a question from Kirk Materne of
Evercore. And he asked the following: What is the general thought in terms of the
availability of some of Microsoft's key productivity apps, he notes Office and Word
specifically, on iOS, specifically the iPad, and Android devices? How do you decide
strategically what to ship and on what operating system?
So, Qi, that is definitely for you.
QI LU: Thanks, Tami. Thanks for the question.
So strategically we use a combination of two factors to guide decision-making on what to
ship, on what devices, and on what timetables. The first factor is customer interest and
customer experience. It is quite important for us to ensure that there's genuine customer
interest, customer need, and at the same time we can also deliver a quality experience that
serves our customer's needs. The second factor is economics, and financially it has to
make sense for Microsoft. So those are the two factors that guide our decision-making.
So for example, we have developed versions that are touch first for tablets for some
products in our Office suite, Lync and OneNote. And we make those products available
on non-Microsoft devices such as the iPad. Now all said the Office suite will also have
Skype and SkyDrive, and they are available on Android and iOS devices.
But within the Office suite today we have versions of products that are designed for the
desktop, for mouse and keyboard. They are available on Windows and on Mac. And
they are touch-enhanced for Windows, but they're not designed to be touch first. And
then we have Web versions of those apps available across all the devices, and those apps
are also available via Terminal Services.
Now, we are working on touch-first versions for our core apps in the Office suite,
Outlook, Word, Excel, PowerPoint, and we will bring these apps to Windows devices,
and also to other devices in ways that meets our customers' needs, and the customer value
of those experiences, and in ways that economically make sense for Microsoft, and at a
proper timetable. That's how we think about making these decisions as the question is
being posed.
TAMI RELLER: That's great. Thank you, Qi.
SATYA NADELLA: I'll just add that on the enterprise infrastructure, we've been living
with these principles for a long time. If you look at where we are with the hypervisor, we
support both Windows and Linux; when it comes to the System Center and the ability to
manage a variety of virtualization infrastructure. There are many customers who today
use System Center to manage even ESX from VMware; when it comes to device
management we, in fact, have our mobile device management in System Center and
Intune that manages Android, iOS, and Windows devices. And then on the development
side, again, Linux is a runtime. We have Java support.
So we have a pretty open way to go about both infrastructure products and developer
products. And it really stems from the same principles that Qi talked about, and also the
fact that enterprises are heterogeneous, and we recognized that and so that we're
executing on that strategy.
TAMI RELLER: That's terrific. Thanks, Satya. Thanks, Qi. I would also note that
Kevin Turner had a slide in his deck that really highlighted our offerings today on that
front, and so that's another good reference point for those interested there.
So our next question we also get a lot. We got a lot in submissions for today as well.
This one came from Hari at Neuberger and asked: How are you going to make progress
toward a common development platform across multiple screens, specifically phone, TV,
PC and tablet?
So, Terry, that obviously is right at you, and I know this is near and dear to your heart.
TERRY MYERSON: Thanks. We've been together, brought all the OS groups together
at the company for about two months now. And we really haven't been wasting any time
in terms of organizing all of our efforts in the operating system area around three key
beliefs.
The first of those is that we really should have one silicon interface for all of our devices.
We should have one set of developer APIs on all of our devices. And all of the apps we
bring to end users should be available on all of our devices.
The second belief was that all of our devices are becoming more cloud-powered. So
whether we're branding them Windows or Xbox, we really need one core service which is
enabling all of our devices.
And the third belief was that each of our devices require a tailored experience to be really
special for the customer, whether that's a three-inch phone, or it's a 9-inch tablet, or a 14inch clamshell, or a 60-inch television playing Xbox games, we want to facilitate the
creation of a common, a familiar experience across all of those devices, but a
fundamentally tailored and unique experience for each device.
So our team is now organized in this way. We had a core team that will bring those
silicon interfaces together, bring those developer platforms together, approach delivery of
apps to the customers in a common way. We have one team delivering the core services
that will light up our devices. And then we have satellite teams each focused on each of
the device categories, so each of them can be reflective of what the customer expects in
that place.
We have a very clear vision of what we want to get done, and we're moving very fast.
TAMI RELLER: Great. Thanks, Terry. And I am going to jump in with another quick
follow up directly to you, because I do know it's on the minds of the people in the room.
And that is, can you talk a bit about the role that Windows RT plays going forward?
How do you think about that as you just described the vision?
TERRY MYERSON: Certainly. So we have two very important chipset families in
everything we're doing in all of our devices, and that's X86 and ARM. The ARM devices
in particular in phones have incredible share given their battery life and the connectivity
options available with the system-on-a-chip ecosystem. Windows RT was our first ARM
tablet. And as phones extend into tablets, expect us to see many more ARM tablets,
Windows ARM tablets in the future.
With regard to Windows RT 8.1, which really is two significant new improvements this
year, the first is that Windows RT 8.1 supports the next generation of ARM silicon. So
it's really got great performance characteristics. And, secondly, the full Outlook
experience is now available on Windows RT. So the full Office suite is now available for
customers.
JULIE LARSON-GREEN: You know when we came up with Surface, the idea to do
Surface, and that tablet it was really about bringing the best of a tablet and productivity
all in one thing. And we still really believe in that vision and going forward. We have
learned a lot, where 8.1 adds a lot of capabilities and gets us closer to that vision. It was
a V.1 and we're committed to going forward with that.
TAMI RELLER: That's great. And, in fact, Julie I'll probably go to you next and ask
you some Surface questions, which I know are in the room, as well. We have a Surface
event next week, so obviously that will be a time for us to talk more about the future.
But, if we say what have we learned from what we've done so far, and how are we
thinking about how that's informing how we're going forward?
JULIE LARSON-GREEN: Sure we are very committed to creating great first-party
hardware and continuing what we started with Surface. I think what we learned a lot is
that you need to have balance to be successful in the market. So you need to have the
combination of great hardware, great software, apps and services in order to win. And
we learned this with Xbox. When the first Xbox came out it was hardly any games, it
took a while for us to get going with it. And we're very optimistic about what we're
doing in terms of the changes that are being made in the software, the applications that
are coming online, the services, and improving the hardware, both in terms of speed,
performance, and the integration with the software.
Now something mature like, say, the PC market itself, Surface Pro we saw the up-tick on
that very quickly, because it was a mature market with a mature software, and a mature
set of services. So I think we're learning about the nascent part of trying to create this
kind of Surface holistic device and we're going to continue forward. We have a lot of
things to announce on Monday that I'm excited to talk about.
TAMI RELLER: That's great. Thanks, Julie.
And then part of that balance is clearly our ability to execute in the market, and that's
something where we continue to just tune and get better and learn and it is making a
difference. And so in addition to all of the product work that we're doing, both on the
hardware and the software, again, we just continue to get better and better execution at
retail and with our commercial customers in executing on Surface.
JULIE LARSON-GREEN: And in particular we're seeing a lot of up-tick with students
who want that use and simplicity, the productivity of the tablet, but also the entertainment
and communication that comes with that.
TAMI RELLER: Yes, definitely one of the fastest growing segments there. So that's
terrific.
All right. So Kevin did a terrific job talking about enterprise and our execution there, our
opportunity across enterprise and so let's talk enterprise, panelists. So it seems like not
that long ago that people would say that Microsoft was even credible in the enterprise.
So clearly with all those statistics you saw from Kevin no one is saying that now. So
we're going to start with you, Satya, and I think there's one part of our business in the
enterprise that's definitely been on a roll, and that's our SQL business, which I know you
love talking about. So we've got several questions around this, but let me phrase it this
way. Can you continue to outpace Oracle, and how will the big data trend really impact
Microsoft going forward?
SATYA NADELLA: Yes, I mean the SQL business is just an amazing business for us.
I mean this last fiscal year we crossed the $5 billion mark and we grew 15 points, which
is, what, 3X Oracle, and 2X the market. So we are now -- I mean we've always had
usage share leaders, but for the first time now sort of revenue share is growing and Kevin
referenced that. And so we've crossed IBM in revenue share and we're gaining share
versus Oracle even on the revenue share front. So that's just a fantastic growth story for
the company. But, the story behind it is the technology and what's happened is we've
become much more competitive on the high end. So SQL Premium growth is being
fueled by the fact that we have all time peaks in terms of mission-critical workloads
coming onto SQL. And then we lead when it comes to self-service BI.
So on the edge, because you have lots of data doesn't mean you have insight. So in fact,
it leads to fueling of the warehouses on the edge, and Excel, and SharePoint, and so that
loop is something that is really vibrant for us and we see the growth. And we are adding
to it.
So we have now added Hadoop capabilities in Azure, as well as the distribution for
Windows Server. This cloud BI, our Power BI service, is just an amazing service for us.
It's got natural affinity to both Azure and Office 365. So we are very excited that's going
to launch now. And then SQL Server 14 is going to be a pretty big step forward. It's
going to have an in-memory database, which we've always had when it comes to
analytics now in the core engine. So that means you're going to see something like 7X,
10X increases in speed of you core OLTP applications, without having to rewrite them.
And that I think is going to be a very, very important value proposition that resonates
with our customers.
TAMI RELLER: Perfect, thank you.
So, Terry, how about Windows and the enterprise, what are you seeing?
TERRY MYERSON: [In] Windows we're continuing to see strength and commitment
from the enterprise. Kevin talked about our progress in migrating customers off of
Windows XP. Now we have 75 percent of all enterprise desktops running Windows 7,
and that contributed double-digit growth in the Windows volume licensing business,
contributing over $4 billion in revenue last year.
The Windows 8.1 release that's becoming available now has had a strong focus on the
enterprise, both bringing back sort of the familiarity of Windows for productivity work,
bringing back the start button, revitalizing the desktop for that core Office user, but also
focusing on innovations for the enterprise, the great improvements in biometrics for
customer IT departments that are looking at adding that layer of security. We also have
some great work to support the IT challenge by bring your own device trends, supporting
remote business data wipe on all Windows 8.1 devices.
So with everything we do in Windows we have this focus to making sure that Windows is
that great enterprise desktop for productivity work, as well as any other form of desktop
deployment that an enterprise might have for data entry kiosks, whatever it might be. We
want Windows to be that most secure, most manageable, lowest TCO way to deliver that
desktop experience.
TAMI RELLER: Great, thank you.
Qi, I'll ask you about Office 365 and business, what are we seeing?
QI LU: Yes, we see tremendous momentum for Office 365. And just to build on what
Satya said, Terry said, I believe KT also talked quite a bit about it, we are growing at a
very, very rapid pace. And last quarter our run rate was about a $1 billion annual run
rate. Now, this quarter it's already moving up at the run rate of $1.5 billion annual run
rate, and it's continued to accelerate. It's very, very strong. And it's available in 125
markets already. And over the last 12 months, among small and medium-sized business
we grew 150 percent. And some of the specific products, for example, Yammer, now it's
fully integrated as part of Office 365, worldwide we have over 200,000 organizations
signed up for using Yammer and there is more than a million registered users for that
product. It's the social fabric for our future generation of enterprise productivity suite,
delivered through the cloud. So there's tremendous momentum.
There's a couple of things I do want to emphasize on this. One is the way we can drive
product innovations for the generations to come, because that's part of the ability of the
cloud. And we have this concept of evergreen customers, because in the on-prem world
upgrading to a new version to get new features is so hard, a lot of work. Now any time
we ship new innovations all our customers get the benefit immediately.
But, even more importantly, the cloud you can observe what a customer does
immediately. The pace of innovation picks up with cloud-scale infrastructure, and the
machine learning capabilities. There's so much more we can drive, based on what we
learned from our enterprise customer base to drive future product innovations.
And one more thing I want to emphasize is the engineering muscles, and this I truly one
of the great stories that are unfolding, because our engineering team is going through this
massive transformation. They have deep know-how, years of knowledge on how
productivity works, how enterprise workloads work, how our customers use our products.
Now we are going through the hard journey of moving them to the cloud and building
strong service muscles. And we're going through that transformation so that your
technology go to the next generation, but our customers are going through this very
smooth migration path.
So the net, this is truly a strong, strong locomotive. I really want to leave you with that
particularly important concept. It's a very, very strong locomotive with a lot of growth in
business; it's going to be future earning for Microsoft with a lot of power, and with
engineering muscle, with new way of driving innovation for enterprise. And this
locomotive can carry many strategic payloads for our company for years to come. So it's
quite exciting for this to happen.
TAMI RELLER: Great. Thank you, all three of you.
And Kirill, maybe I'll ask you a two-part question. Terry talked about 8.1 for enterprise
and the focus there. I know that probably means something to you, as well. And then I'll
also ask you about cloud-based enterprise apps and where you see the future there and
how you think about that for the growth of dynamics, and what opportunity you see.
KIRILL TATARINOV: Right. It's a tremendous growth area for the company. And as
Kevin noted earlier today, we have pretty phenomenal assets in the market and we have
also -- we also see tremendous opportunity for the future. Dynamics CRM was
essentially one of the first services we delivered in the cloud to the enterprise, in a way it
blazed the path to all of the Microsoft moving into the cloud.
Dynamics CRM also pioneered our approach to the cloud, where essentially our
customers can run the same solution, from fully multitenant Microsoft cloud, partner
hosted, also deployed on their own services, and private cloud on-premises. Now today
two out of three new customers choose Microsoft cloud as their preferred deployment
option. But, those customers also tell us that that choice is very important to them,
especially those customers who got burned by Salesforce.com and switched to Dynamics
CRM tell us that.
Now, overall Dynamics CRM business has been a tremendous growth story, 35
consecutive quarters of double-digit growth. Over 40,000 customers, 3 1/2 million users,
it's a growing business at scale and we're really proud of what we accomplished there.
We're also proud and excited about the opportunity to take share from all of Oracle and
Salesforce.com in that market.
Now in Dynamics ERP, which in and of itself is over a $1 billion business for us today,
we actually see small organizations increasingly looking for cloud as a deployment
option. And that's why we have Dynamics GP and Dynamics NAV, our SMB solutions,
now delivered on Azure with our partners, who essentially put their industry vertical
solutions on Dynamics on the Windows Azure platform, great win for platform, for our
applications, for our partners for our customers. And yet again, it's the full flexibility of
the mode of the deployment. And next year our flagship Dynamics AX will be offered in
the same manner for larger organizations.
So overall, I would say it has been a great story. Windows 8 is a tremendous opportunity
for us to bring business solutions in a modern application fashion to the enterprise. In
fact, next month Dynamics CRM 2013, which is a major user experience release for us,
and major push in this modern applications, will be delivered. It will run in this native
modern app fashion, and we have received tremendous feedback from customers and
partners who have seen this application.
So it's a great business. As an increasing number of our enterprise customers add
Dynamics to their lineup of products from Microsoft, we see our role as trusted advisor to
the enterprise getting much stronger. We see our overall share of wallet in the enterprise
grow very significantly, and the overall opportunity for growth is phenomenal.
TAMI RELLER: That's great. That's great. Thank you, very complementary to what
Kevin talked about in terms of trusted advisor.
All right. So Rick Sherlund had a question which is also on a lot of your minds, and that
has to do with apps. So as a leadership team this is something we talk a lot about for sure
but, Terry, I'll have you take this one. And maybe start by talking about some of our
progress, and how we're thinking about the opportunity ahead. I think talking about both
would be good.
TERRY MYERSON: Well, as Tami said, this really is a significant area of focus for
our leadership team, and my team in particular. We understand where we're at. We have
a plan. We're making progress. And we think we're going to be a leader here as we
execute our plan.
The signs of progress are pretty significant there. With Windows Phone, we now have 49
of the top 50 apps. With Windows 8, we're seeing great apps which really take advantage
of the platform from great brands, Facebook app, Twitter app, Foursquare app, really
taking advantage of the Windows 8 platform as they bring their apps to both tablets and
PCs.
Our developer programs just keep growing and keep getting better. We just released
Windows 8.1 to the Web. Great tools are coming which really facilitate differentiated
apps being built very efficiently. We just had our developer conference in San Francisco,
thousands of developers came to learn how to take advantage of the platform. We're
lowering our fees for developers, introducing competencies for developers to recognize
publicly those ISVs that have shown the capability to produce great Windows apps.
So we really are working our angles on this locally, globally. We're looking at all of it.
We're looking at domains for ISVs. We're looking at consumer apps. We're looking at
enterprise apps. We're looking at how the virtuous cycle works on other platforms, how
it should work on our platform. And it really is a top priority for me and my team, and
we're working it.
SATYA NADELLA: So one thing I would add is when we think about the platform as
Terry and team are working on even bringing all our client platforms together and the
tooling around it is, in fact, going to facilitate a lot of the sharing of the assets for the
developers, which is very, very important for us.
But there's no application that gets built today in the enterprise or in the consumer space
that doesn't have a huge cloud element. In fact, even Office 365 is a programming
surface area.
So we're really building out our tooling across all of our assets and enabling these
developers to exploit our broadest platform, and I think that's another source of
innovation around our platforms that I think will translate into sort of unique app
experiences for our platforms.
TERRY MYERSON: And we have all that work going on for our game developers as
well to take advantage of the cloud. So multiplayer gaming is incredibly important, and
you have these very powerful end points that people can play their games on. But you
need the piece in the cloud, and so Azure now helps developers take advantage of that
and create these very high-quality applications that can use the power of the cloud, both
for state and keeping a sense of the universe between these multiplayers but also to
offload computing.
TAMI RELLER: Great. And speaking of Azure that was also a common question
through all that you inputted. Brent Thill had this one. He said, "How will you
differentiate your cloud infrastructure versus Amazon's?" So Satya, that's yours.
SATYA NADELLA: Yeah. So when we think about Azure -- in fact, Qi said it well
when he sort of started talking about Office 365. We really don't conceptualize Azure in
its isolation. In fact, we think about the Microsoft cloud as Office 365, Azure, Dynamics,
all coming together.
If you think about it, any customer who has signed up for Office 365 effectively has also
signed up for Azure because the Azure AD or the Active Directory gets populated for
every tenant of Office 365.
SharePoint extensions, so you build a SharePoint application in Office 365, all its
extensions are in Azure.
You buy any of our server products, you get Azure with it. So you have backup, you
have Hyper-V replica for disaster recovery. If you buy SQL Server, you can have read
only secondaries in Azure.
You get Visual Studio, you get to do source code control in the cloud, you do build in the
cloud, project management in the cloud.
And not only that, we also package up all of what we do in Azure as part of our server
product. In fact, that's what's driving some of our server products' premium growth in
build-out of private cloud, because we really want a vision where distributed computing
will remain distributed going forward, and that means we need to be able to even support
people who want Azure functionality in their own datacenter.
So we're pretty unique in all of these fronts when it comes to in comparison to Amazon.
In fact, Amazon also carries a bunch of our workloads and is a reseller of some of our
workloads.
But as far as we are concerned it's about really coming, bringing the assets I talked about
together in unique ways for both IT, as well as developers.
TAMI RELLER: That's great.
All right, I've got one more question that I'm going to ask of you.
So I will tell the audience that if you want to think about questions, we have microphones
that will come to you, so if you just raise your hand. When you ask your question, if you
wouldn't mind just standing up so we can see you and introducing yourself briefly, that
would be super helpful. So get ready. This is the last question.
We've got a number of different questions asked in a number of ways but essentially all
asking about the Nokia deal and how we're thinking about that. And so no surprise that
that's of particular interest.
And so maybe we'll tackle this in a couple of different ways. Terry, I think it would be
good for you just to talk about it from an engineering perspective. You're closest to that,
have been closest to that team. So what will be different? How do we think about what
the advantages will be having the team part of our team?
TERRY MYERSON: Well, I'm pretty excited about having the Nokia folks as part of
our team. It's really just from the point of view of accelerating innovation, and really
trying to produce these really epic devices.
When it comes time to collaborate on creating these great devices with any of our
partners, which is what my team does, it works with all of our partners to try and bring
the innovation onto Windows, there's times where you get to that hardware/software
boundary where sometimes having two companies, there's just the company boundary
gets in the way of the collaboration. And we're removing that seam. I mean, we have
this proven ability to work together with the Nokia team. It's a great team. But
sometimes that seam between the companies has slowed progress or sometimes hindered
what we could have done.
And so removing that seam I think really will enable new things, and not just for the firstparty devices from Microsoft but also as we invest in that software, all of that software
makes its way back into the platform, at least the platform components, which we then
make available to all of our partners.
So I foresee even better, more compelling, more innovative hardware support coming
from our platform and more epic devices coming from Nokia as a result.
TAMI RELLER: Great.
And I think on the integration side I would just remind folks at the time we announced
the deal we actually had integration executives that had already been named and have
been mobilized. And so we think that's a great running start just to make sure that
everything is successful once everything closes.
On the marketing side I think we have tremendous opportunity to not only be more
efficient, whether it's sort of brand synergies that can just be cleaned up and taken care of
or whether it's more effective marketing because the teams are working together and
really going after this family of devices that we talk about, this Windows family of
devices.
JULIE LARSON-GREEN: Well, I think it actually says a lot about improving our
commitment and capacity to hardware. I don't know how many of you know but one of
our very first hardware products was in 1980 called SoftCard, and not too long after that
in 1983 we did a mouse. And those are always in the service of completing a software
experience, and now we have the opportunity with the acquisition of Nokia to go and do
a hardware-first-based experience and really deliver our software and services through
the hardware. And so instead of kind of turning it inside out, instead of being in service
of the software, the hardware is leading where we're going to go in innovation.
TAMI RELLER: Great, thank you.
All right, it's up to you now. Questions. And we've got numbers and I think I will just go
to those numbers. So number two.
JOHN DIFUCCI (J.P. Morgan): Hi. It's John Difucci from J.P. Morgan.
I have a question for Kirill. Kirill, I know you don't break out the Dynamics business
within MBD but along the way some of the information that's been given by Microsoft
gives me the idea that you've had significant growth in this business.
I guess since it's the time of change at Microsoft, even with that growth, the way you
depend on the channel not only for sales and implementation but even support, I wonder
if that business can ever be meaningfully profitable. But since it's a time of change, has
there been any thought to the go-to-market strategy for the Dynamics business, at least to
-- I don't know if any of these panel partners are listening but taking some of the support
back, which is hugely profitable?
TAMI RELLER: So Kirill, it sounds like just a straightforward question.
KIRILL TATARINOV: It sounds like it's directed right at me.
TAMI RELLER: I think it's you.
KIRILL TATARINOV: And I know this group has been asking the question about the
profitability of Dynamics business for the longest time, and I can only ask that I'm
quoting you this business is meaningfully profitable, and there is a way to run this vibrant
partner channel that we have, channel that is really an envy of all of our competitors.
There is really a way to run that channel at scale and at the same time run this business as
a profitable business for the company.
TAMI RELLER: Right.
JOHN DIFUCCI: (Off mic) corporate overhead and still -TAMI RELLER: I mean, our channel has given us scale and growth.
KIRILL TATARINOV: And our channel has given us amazing marks. Our partner
satisfaction in Dynamics has been growing dramatically in the course of the last two
years and it's actually at its peak right now.
SATYA NADELLA: And every Dynamics sale is a sale of our entire stack of
Microsoft, and that channel is a pretty vibrant channel for a lot of our infrastructure
products as well.
TAMI RELLER: Great, thanks, John.
Let's go to one.
WALTER PRICHARD (Citi): Hi. Walter Pritchard from Citi.
I just wanted to follow up on the first question that was asked about the Office business
or the MBD business. And you talked about the strategy around moving that to other
devices. And I think most of us would argue here that it's really not a first class -- the
other devices aren't really first class citizens for non-Windows devices with those
properties.
You know, I think everybody uses iPads Notes. You know, there's new information
worker type applications being used, whether it's Evernote, Dropbox, you know,
whatever it may be.
And you put up stats showing SharePoint and all these businesses growing nicely, but it
does feel like under the covers there is kind of a groundswell of a competitive alternative
building around your MBD sort of stack of products, for lack of a better word. And I'm
wondering how you think about it. I understand how you're thinking about it. You
explained it earlier. But I guess the risk in my mind is five years down the road you may
find yourself in a situation where there's been sort of a competing ecosystem that's been
built and is now heavily entrenched, maybe fragmented but heavily entrenched in this
area. And the slower you move with your own products as first class citizens on those
platforms, the more you sort of build that competitive ecosystem.
I'm just curious how you think about it from that perspective because we hear quite a bit
of that thought process from investors.
TAMI RELLER: Well, I mean, I do think that the way that Qi outlined it at the
beginning really does describe how we think about it. We think about it from a customer
perspective and we think about it from the economics from Microsoft's perspective. And
that will always be the lens through which the team looks at it. Qi also added in timeline.
We just will make sure that when there's a time for us to talk further about the road map,
we'll make sure we do so. But I think you covered everything in your first answer on that
one.
All right, I will go to four.
KASH RANGAN (Merrill Lynch): Hi. Thank you very much. Kash Rangan at
Merrill Lynch.
Sorry, can you hear me?
TAMI RELLER: Yes.
KASH RANGAN: You wanted me to stand up. Okay, let me stand up.
TAMI RELLER: Yes.
KASH RANGAN: Kash Rangan at Merrill Lynch. Thank you so much.
My question is directed to Qi and Terry.
Maybe you could talk about what exactly you're seeing with respect to the reorg. I mean,
that's a pretty big step. It doesn't happen that often. How are you handling and coping
with this? What are the specific actions you're taking in your individual businesses as far
as the reorg is concerned?
And secondly, if you could just comment on both you come from more of a consumer
background but you're going to be running enterprise scale products as well. And
historically the issue that investors have and I also have thought about is the enterprise,
you've got enterprise tech companies, you've got consumer tech companies. Only
Microsoft tries to do both. I wonder what thought is given to being able to release
products at the right cadence for the enterprise market while not missing a beat on the
consumer side. It would seem to be a fairly complicated exercise. And you've got a
wonderful opportunity but I wanted to get your thoughts on that. Thank you.
TAMI RELLER: All right. Nice job packing a lot into one question. So let me maybe
start with you, Qi, and get more focus on the first part, and then we can expand, which is
how have you gone about really operationalizing the reorganization? And at a high level
I would say as a common theme across this entire lineup is there's been this balance
which Terry talked about, which is executing on current business and product delivery
while we get ready to set up to really take the next big transformation. So do you want to
bring that to life, Qi?
QI LU: Yes. That's a terrific set of questions. So I will just take maybe three parts to
briefly comment on each of those areas.
First is with regard to this reorg. It's important for us to remind there are three key
components for my new group: Office, which is really the productivity suite, on-prem, in
the cloud, clients and services. The second is communications, Skype and Lync. And
the third is the search engine information category suite of products.
And they are very much having a commonality why these groups fit together, because if
you take a step at the high level, as KT talked about, our company's focus is to deliver
high-value scenarios, to enable our customers, our users to do things that really they care
about, of high value to them. And that central theme is to enable our customers to be able
to get more done. Do more is the theme. And certainly Office is at the center of do more.
And we always do things in conjunction, in combination of collaboration with somebody
else. So communications always is also at the center of do more activities, high-value
scenarios.
And then what about Bing, and it's important to emphasize Bing from the get-go we took
a different point of view. We said people search with a purpose in mind. You never
search just to do a search. You have something, some purpose, some task in mind. So
we want to change the search paradigm, drive innovation so that we enable our users to
get things done. And there are infrastructures, there's data, there's machine learning. All
these assets can come together to truly enable us to deliver the next-generation workload.
So that's the common theme.
With regard to how they all come together, it's a combination of the two. So each of our
teams, they all have a strong road map. We asked all the teams to stay focused, full
speed ahead, because we all have strong, strong products in the org and I want to ship all
those.
At the same time, we do need to work together in a thoughtful process to say how these
assets can come together in a very, very organic, coherent way so that we can truly
deliver the next phase of high-value experiences.
So we're in the midst of going through all those activities. The teams stay focused and
my leadership team, myself, we spend a lot of time to come together to say what are the
new opportunities in front of us we can do. So that's on the reorg side.
And I'll also maybe briefly cover the previous question about what about the new
scenarios, and that's really on our radar screen. We watch very, very closely about
what's going on in Silicon Valley, for example. There's a lot of startups innovating in the
new type of productivity scenarios. We pay full attention to all those, because we believe
these are our opportunities to take our current core customer base and not only take that
customer base and give them new experiences, but enable us to find, discover those new
scenarios that you can use phone, tablets, using natural interaction models to have
different ways of doing productivity scenarios, whether it's note-taking, meetings,
communications, expressions, reading. There's all kinds of different opportunities on our
radar screen. As part of this all comes together we really think there's great opportunities
for the new org, in particular in collaboration with Terry's team and Satya's team to take
that on.
So one last thing I do want to briefly comment about, the leadership question that you
mentioned, because Terry and I, as you said, come from more of a consumer focused
background because we've been building products in those areas.
And the simple thing I would just briefly mention is one is you always start with a strong
leadership team. I can say this I'm truly blessed with very, very strong leadership teams,
truly fantastic. They are all well-versed in enterprise workloads, and I learn a ton.
And as I said, it's early. Office 365 is one of the -- such a powerful locomotive that we
drive many generations of new enterprise products for years to come for our company.
And I spend a lot of time reviewing technologies, working with the teams, because
learning is important. It's always about teams, and I would learn as much as we can,
because it's core to our company's future. It's a strong, strong cloud infrastructure, strong,
strong way of focusing our businesses on the enterprise side.
At the same time, it's always about building strong teams so that the collective wisdom,
the collective experiences, particularly in partnership with people like KT, Kirill and
Satya, they all have a lot of enterprise experiences.
So the net of it is learning as fast as we can, onboarding, work with the teams and unleash
the teams' collective power so that we can truly deliver the next generation of high-value
experiences and take our products to the businesses to the next level. That's at the high
level to kind of answer your questions.
JULIE LARSON-GREEN: If I could add onto that, one thing -- I've been at Microsoft
for 20 years, and one thing that is different is the leadership team that is up here and how
we are working together. So we are all invested in each other's success and need to work
together to deliver these high-value experiences across a set of devices to our customers.
And so we're working in a new way. We all have various amounts of enterprise
experience. Terry worked on Exchange, I worked in Office for a third of my career. So
we all have things to offer to each other to help us be stronger in our own individual parts
that we're working on, but how it comes together is really where we see the magic and
the synergy going forward.
As far as getting into the enterprise, we do believe that consumers drive a lot of what's
coming into the enterprise. When I was in Office, Excel was brought into the enterprise
because consumers liked Excel and brought it in over Lotus Notes. We've seen the same
thing with the iPad. Consumers have the iPad and bring it into the business.
So we think these end points of these desirable, high-quality devices, combined with the
power of our high-value scenarios and services is what's going to propel us forward into
reaching customers the way we'd like to.
TAMI RELLER: Great.
TERRY MYERSON: This is sort of ironic for me because I think five years ago at
FAM someone walked up to me and said, you're an enterprise guy, why would you be
working on phones now? So it just shows I think there's so much about -- at least it's true
of pretty much so many things, whether it be the applications or the devices, that is
common between the consumer and the enterprise environment.
JULIE LARSON-GREEN: We make products for people.
TERRY MYERSON: Yeah. It's really the key thing. I think that so much applies to
both, whether the user experience, the reliability. There's just a lot common across there.
And so I think we're fortunate to be able to apply both domains across. And certainly for
Windows, Windows is very much an enterprise product I would say, and it is very much
an end-user product. There's so much of our effort, you know, the Windows we build is
used on the client, it's used in the cloud, it's used in datacenters. And so having that
diversity is essential to delivering the Windows franchise for Microsoft.
TAMI RELLER: Great. And that was a rich question. You asked about cadence, and
clearly 8.1 is a good example of what a great cadence can get.
Let me go here and then I'll get to these three questions. Number one.
QUESTION: Hi. This is Phil Winslow from Credit Suisse with a question for Qi.
I appreciate the fact that some of the learnings from the consumer Internet side have
helped probably things like Azure and the build-out of that, but when you think about the
profitability of the OSD division on a standalone basis, you know, a couple FAMs ago
you gave out this target of maybe you'd hit 20 percent share, and that's when we'd hit
break even in OSD.
I'm wondering if you could just walk us through sort of what's sort of the new thinking
and sort of the path to profitability is there and sort of what the targets you're going to hit
or just high level kind of how you think about that path. Thanks.
TAMI RELLER: Maybe very high level, Qi, just given time, just a high-level view.
QI LU: Yeah, just briefly. We are making good progress. Thank you for that question.
One is we're gaining share. Number two, we're driving innovation. So we have a set of
product ideas we think truly differentiate our search experience. In Windows 8.1 we'll
deliver; they haven't tried it. We have a complete new way of seamlessly integrating
search with information on the devices. Terry's team, Julie's team, their former teams,
we're able to build that. We have a very good set of ideas to truly disrupt today's search
model.
But your question is about the profitability. For my organization we're hard-core.
Essentially we're absolutely committed, always monotonically making progress towards
profitability, driving always to. Volumes we're gaining share, we obviously have more
volume. Great.
Last year, one of the best stories for my division is we're growing year over year at very,
very high percentage. Finally, our R&D, our product, our go-to-market are truly coming
together. We are growing our search space at the very rapid pace.
So great question. The team is hard-core executing. We have full confidence we're
going to get there.
TAMI RELLER: Great. Thank you.
One last question. We'll go to two.
QUESTION: Hi. It's Ed Maguire from CLSA.
You've articulated how you’ve harmonized all of your enterprise services so it's actually
very simple for your customers to move from one product to the other, but in the
consumer there are a lot of different constituencies, Xbox, Skype, you have the Windows
Store, a lot of different ways to get your services to consumers. And I'm interested how
the team is thinking about harmonizing that experience or getting at a more consistent
experience across all of your different offerings and how you can tie that into a business
model that may go beyond devices where you control the platform.
TAMI RELLER: You want to take it? Yeah, Terry, do you want to maybe take that
one?
TERRY MYERSON: I can try to start. I mean, we want to be a family of devices with
a family of services. When we think about delivering that family of services, the road is
we approach that bottoms up and top down. Bottoms up we're embracing Azure in
everything we do, and Azure broadly defined. That brings with it a number of
capabilities which actually project all the way out to the end user. Likewise coming out
top down, adopting common design language, adopting common navigation, adopting
common taxonomy, we're absolutely committed to that and are making great progress
across all the applications and services we build.
And so Skype just joined our family recently. Bringing that in I think the integration has
actually gone fabulous in terms of that technology and that team, but it takes a little bit of
time to integrate an asset of that scale. That's how we're approaching it and we're making
good progress I think.
TAMI RELLER: As we go to market we really think about consumer services. The
Skype CMO is now the CMO for all of our consumer services and really thinking about
how we make that more seamless as we go to market as well, so a lot of opportunity.
SATYA NADELLA: The one thing I would sort of say is that -- and it was referenced
earlier, but there is this graduation process, right, which is from consumer to enterprise
that is actually the thing that we are probably the most focused on, which is what does it
mean to have SkyDrive, SkyDrive Pro, what does it mean to really have these
experiences where there's viral adoption even in the enterprise of our consumer products.
And that's a place where things like Yammer has taught us a lot, and that's something that
I think you'll see in a lot of our product design. This notion that this is an enterprise
product and this is a consumer product I think is not the way we will approach things.
We'll think about these products as sort of meeting end user needs and enterprise IT
needs, and how to balance that.
TAMI RELLER: Great. Well, please help me in thanking our panel. Thank you to Qi,
Kirill, Terry, Satya and Julie. Thank you very much, guys. (Applause.)
I also want to thank you for the questions that were presubmitted and the ones we were
able to get to here. These guys will join the reception. So I know you may have some
additional questions, which I invite you to ask them at the reception as well.
END