Who: Kurt DelBene, President, Microsoft Office Division
When: Wednesday, February 29, 2012
Where: Morgan Stanley Technology Media & Telecom Conference
ADAM HOLT: We're going to go ahead and get started. I'll introduce us all. I
should know all of you by now if you've been in this room for the last few hours. So,
I'll stick with introducing the companies. So, we have Microsoft here, and Kurt
DelBene, who is the head of Microsoft Business Division, which as some of you all
may know from listening to Microsoft conference calls over the last several years is a
segment that's very near and dear to my heart, and I love the Office story, and have
for many years. And so, we're excited to dig into that a little bit.
Bill Koefoed, who most of you know, is going to give a brief Safe Harbor statement,
and then we'll start with the questions.
BILL KOEFOED: I just want to remind everybody that we may be making forwardlooking statements that are subject to risk and uncertainties. Please refer to our
regulatory filings for a list of those uncertainties, and that includes the 10-Q and 10K. Thank you.
ADAM HOLT: All right. Great.
Let me sit down and get going. So, I think an interesting place to level set is to
maybe give a sense of what you've been focused on recently, and what your
priorities right now are as you move from Office 10 cycle into an Office 15 cycle?
KURT DELBENE: Sure. Well, the first thing I would say is, the results that we've
had on the 2010 product across the board have been just phenomenal. It's been the
most popular version of Office ever, having sold 200 million copies at this point that’s more than one <copy> per second. So, the success of the core client has
been very, very strong, and I think that's because the value that the client itself
brings, certainly in synergy with the uptake of Windows 7. The longevity we've had
in that product relative to previous versions has really even surprised us in terms of
how long that upgrade cycle has occurred.
And the other thing we're super-focused on is, while some people think about our
business as primarily about clients, we're really about clients, servers, and services.
If you think about servers, think in terms of Exchange Server. Think in terms of
SharePoint which is really becoming the leader in the collaboration space as social
collaboration is really becoming a core part of how people run their business in all of
our customer base these days. And then the most recent one, Lync, which is our
unified communications offering, growing phenomenally well, 30 percent growth last
quarter, just really taking off.
And we've really spent a lot of time working on, how do you bring those things
together into a connected ecosystem, so you have clients that talk well to servers,
and really help people get the work done that they want to get done. And we see a
lot of continued ability to innovate in that space. If you just look at what Office was
ten years ago versus now - very, very different kind of span of what we influenced in
the modern organization.
And then the other thing we're very busy on is moving all of that to the cloud. And
so Office 365 is our cloud offering. It really takes those capabilities that our
customers have depended upon in the enterprise, and moved that to a cloud
offering, a multi-tenant offering, disaster redundant across the world, and we offer it
not just for enterprises, but we've also tailored that so that it scales down to small
and medium businesses as well.
And so, we've particularly seen good results among fairly small organizations that
could never have had Exchange and could never have had SharePoint – they are
really embracing Office 365, and getting those capabilities that big companies have
for the very first time, those leading capabilities. And so, expanding what Office is
all about, making sure that we satisfy customers.
It's probably worth saying that Office 2010 is the best-received, and has the highest
satisfaction of any version of Office so far. So, that becomes important to us, and
then really expanding that value proposition to the cloud as well.
ADAM HOLT: A question I get all the time, it's probably not a fair question, but a
lot of questions I get aren't fair. Office, it's been around, everyone has it. How does
Office grow? How has Office been able to drive growth?
KURT DELBENE: Well, I think one of the things if you talk about the client first,
thinking about expanding the set of scenarios that our desktop software works
under. So, we have recently <launched> OneNote, which is a note-taking
application. It’s a brand new space that we entered a few releases ago, and we've
really seen some great take up of that, in terms of ad hoc note taking, shared note
taking across multiple people. All of us here could have a single notebook, share it
in real time and take shared notes. Moving into the meeting space and making that
rich. Lots of new scenarios. The web applications. We have web versions of the
Office applications, and creating those as a great environment, even on Live, or on
SharePoint. So, it's about expansion of what it means to do productivity on the
desktop.
And then it's about these server scenarios and services scenarios. As I said, 90
percent of the customers in Office 365 are small and medium business customers.
And those are people we didn't address before. And so it's a brand new market that
we can expand into and deliver what our enterprise customers have loved for a long
time.
ADAM HOLT: You mentioned that the Office 2010 release has been the most
successful release of all time. Where do you think we are in the adoption cycle and
how much longer do we have in the adoption curve?
KURT DELBENE: Well, it has done very, very well to date. I wouldn't speculate on
when it will plateau. It's still doing quite well and the goal there is to have it cycle in
and then when we have the next release to have that start kicking in and I think we
feel pretty good overall, but I wouldn't speculate about when that specifically will tail
down.
ADAM HOLT: And Office 365 does a few things for you. It expands your market.
It's complementing some of your existing applications. Talk about what the impact
has been more broadly for you with Office 365?
KURT DELBENE: So, the first thing is, it really does transform how my
development teams think about building software. One of the great things about
Office 365 is the teams that actually run the service are the development teams.
And so, what it does is really says, the people that were building the code, building
Exchange on premises, they're now the <same> people who are on the front lines
every day running Office 365 online for the millions of customers, the millions of
mailboxes in Exchange's case. And so it drives us to really take any point of
vulnerability out of the system. If ever there's going to be a bug, you're going to get
called in the weekend and you're going to be the one that's going to be fixing that.
And so that cycle time of improving the service I think improves over, and over, and
over again in a very rapid, rapid fashion.
I think it focuses on really, really good ease of use. I think the expectations among
small and medium businesses are of coming to a user experience and intuitively,
immediately knowing how to do everything. I tell my developers, you shouldn't have
to read a manual to use any of our products. And I think getting down to the small
and medium businesses, particularly on our server services really drives that across
the workload. And then ultimately it also changes the cadence with which we do
software. Since we <initially> shipped, we have added 22 new languages for Office
365. We now have a product that address about 95 percent of the businesses in the
world. We also have done instrumental improvements to the service. We do this
quarterly and we didn't need to do that as much when we were just shipping onpremises software. So, the whole cadence changes, as well.
ADAM HOLT: When you talked about the release of Office 365 and what you
thought it could do for you, you said it would open up new markets. 90 percent of
the customers are SMBs. Do you have evidence that these customers were not
customers previously?
KURT DELBENE: We do know the percentage of customers that were previously
running Exchange, or previously running SharePoint, for instance. So, if you take
Exchange, I believe the statistic is Exchange is at about 32 percent <penetration> of
SMB today. And about 80 percent do not run SharePoint today. So, 20 percent
usage of SharePoint and then Lync being a fairly new product, it's probably a bit less
in the small and medium business space, as well. And so those are penetrations that
are actually pretty light, relative to if you think about us in the enterprise space. A
full three-quarters of enterprises today, maybe a little bit more, actually run
Exchange today.
So, the penetration there on enterprises is actually quite strong. So, that's one
opportunity. I think the other opportunity not to miss is that if we look at where we
compete for IT dollars today, we compete for about 15 percent of the IT spend. And
if you think about us sourcing the entire running of all of these mission critical
systems, there's just an opportunity to compete for more of those dollars, and to
capture more of those dollars.
At the same time, we save money for our customers. So, it's a win-win.
ADAM HOLT: Another promise to moving into the cloud is the potential to reduce
piracy. Is it too early to know whether or not you've actually seen the impact in
piracy on the attach side?
KURT DELBENE: I think it is too early. The piracy effort is going to be a sustained
effort on our part. Every version of the product we work on that problem, we try to
figure out ways to make it better. I'm optimistic that the movement to services has
that potential to reduce piracy in the high piracy areas. But, it's really too early to
say with any kind of certainty.
ADAM HOLT: I'm going to shift gears and I'm going to wander into some territory
where I understand that you might not be able to say a whole lot. People are
starting now to talk about Office 15, you've previewed to some extent Office 15. I
think the first question is what can you say about the potential for Office 15 from a
functional perspective? You talked about touch. You showed ARM today. What else
can you tell us about what Office 15 might mean?
KURT DELBENE: I do think the announcement we had today in terms of having a
version of Office that works well with Windows 8 on ARM devices is very exciting for
us.
And one of the things - you don't just take Office and put it on ARM and make it
good for a touch device. You actually have to think about how the software behaves
for users that are only going to use touch in most cases, and you have to adapt the
software to work well in that kind of a device. You have to figure out how to adapt
the software to have the performance characteristics, or a device that has a battery
longevity that's much longer. So, I think in terms of ease of use, in terms of
freshness of the user experience, I'm very excited. We only showed some glimpses
of what the UI looks like but, I think people will be very, very pleasantly surprised
there.
The second thing I'd say is we haven't really announced what we're doing with 15
yet. We've gone to technical preview at the very end of January. And it will go to
beta, to broad beta, this summer.
But, what I will say is, it will be the biggest release of Office we've ever done. It will
be a simultaneous release of both our desktop software, and our servers and our
services, as well. We are moving to a point where you don't think about the services
coming out after the client and the servers come out. They'll all come out at the
same time and we'll be able to roll all of those folks when we get to general
availability.
The other thing I would say is, I've been in Office actually for quite a few years now
and I have never felt as bullish about the scenarios that are left untouched <scenarios> that we haven't actually talked about yet or invested in. And the
development teams that we have are only limited by the amount of hours in the day
in terms of the innovation we can drive.
Actually, if you want to get a sense of what's behind our thinking about things
further out, I know on the investor relations page for Microsoft.com, we put together
this “Vision of the Future” video every couple of years and that's out there, and it
gives you a sense of what we think farther out is accomplishable, in terms of the
interactions between hardware and software and natural user interfaces that we can
develop. So, take a look at that and it will give you a sense of what we think is out
there a little further out in the horizon.
ADAM HOLT: One of the things that I get asked all the time is Microsoft on tablets,
how are they going to be able to differentiate? The iPad has been in the marketplace
for a long time. One of the obvious answers is Office. How do you think about
leveraging Office as a differentiator when you go to market with tablets and Windows
8?
KURT DELBENE: The way I think about those devices, it's really a no-compromise
device. Think about having full Office at your fingertips. Having it tailored for a
touch-user experience, having it be able to work on the go, but then if you go ahead
and dock it, or you're cranking out lots of spreadsheets, cranking out the documents
that all of you write, it does that, as well.
So, instead of thinking about those devices as being separate, think about them as a
continuum. So I can think about having a great experience on the go and I can think
about having a great experience when I'm back at my desktop, as well. And I think
that is going to be a unique value proposition.
I think another unique value proposition to Windows 8 is we have the hundreds of
millions of <Windows 7> PCs out there, and those will be Windows 8 PCs at the get
go. So, it's not just a new ecosystem that has to form - it's a continuation of the
ecosystem and the large install base that we have, with all of the new capabilities of
those touch devices, as well. So, I'm actually super-bullish about where things are
going with Windows 8 and Office in particular.
ADAM HOLT: It doesn't make any sense to me, and you may be limited in what
you can say here, but I get asked all the time, so I've got to ask you, it doesn't make
any sense to me to move Office to the iOS, either in front of or concurrent with a
Windows 8 release. It seems that's one of your crown jewels that you would then be
handing to somebody else as you're entering a product cycle.
What is your view on the move of Office to the iOS?
KURT DELBENE: The first thing I would say is, we've actually done a lot of work on
iOS up to this point. So, many of you may not be aware of that. We have built Web
versions of our applications. So, we have Web versions of Word, Excel, PowerPoint,
and OneNote that work as documents that are in the cloud, whether that be out on
SkyDrive and Live.com, or for many of our users, for SharePoint. So, any place
there's a document on SharePoint, you click on that document, and you can bring it
up in an editable Web browser session right there.
We've been working with Apple on improvement to the Safari browser so that those
Web applications work well on an iPad. And so, we hear from customers, they go to
SharePoint, they go to Live, and they bring down the documents, and they want to
have that kind of Web experience.
In terms of how we think about iOS devices, we take a very scenario-based approach
generally speaking. So, the first thing that people want on those kinds of devices is
mail, calendars and contacts. And that's why you saw us license the Exchange
ActiveSync protocol. I mentioned 75 percent of customers use Exchange in
enterprises today. We've broadly licensed EAS to cover those scenarios.
The next thing that we're driving towards is note-taking. We did a lot of research.
Note-taking is the next thing that people actually do on these mobile devices. And
so we've built OneNote. I encourage all of you guys to try it, if you haven't, but we
have a great experience around OneNote on iOS devices as well.
Unified communications is the next one. And so we do actually look at it from the
perspective of what are the scenarios that people are after. At the end of the day,
we do believe that at this point in time, these are mobile devices. And those are the
scenarios that we actually focus on, and really drive our attention on.
ADAM HOLT: That's interesting. That's a different answer than I expected.
So, with that, I'm going to go back to some of the other products. SharePoint has
become a big business for you.
KURT DELBENE: It has.
ADAM HOLT: A faster growing business than a lot of people realize. Can you put
some parameters around that, and talk about why you've been so successful driving
SharePoint?
KURT DELBENE: Yes. Fastest product in Microsoft's history to a billion dollars is
the way we really talk about it. It is the leader in Gartner's Magic Quadrant in terms
of collaboration, in terms of social collaboration. The reason - and it's just been
broadly adopted by our customer base - the reason for the success of SharePoint is
that it really satisfies the core needs that people have in an organization around
finding others, finding content, sharing that content with others, working
collaboratively with others. And so, I think we've got that sweet spot of capabilities
really right. And there's a path of innovation with multiple releases into the future in
terms of SharePoint.
And then the second thing is, we didn't just say it's an out of the box product. It's
actually a platform for people to build mission critical applications on top of. And so
we see a lot of people building those line of business processes directly into
SharePoint. Or they want to say the portal is where I go in my organization to find
information to interact, to do HR processes - I'd better surface my key business
processes inside of SharePoint portal.
And then the other thing we've done is, we've taken the other workloads that are
part of Office, including the Office clients themselves, and richly connected those up
to SharePoint. And so the ability to do version control, and checking the document
out, or just authoring richly on the desktop, doing co-authoring sessions among
multiple people - that's all enabled directly and inherently within the Office client, or
the Office Web Applications as well.
So, we've really spent time thinking of the scenarios end to end, and making sure
they work super, super well. But thinking in the future, SharePoint remains one of
those places where I can see the next several releases of SharePoint in terms of
what the features are that we need to deliver.
ADAM HOLT: And along that line, a couple of slots ago Marc Benioff was here
talking about how his movement to social has changed the way that he can sell into
an enterprise, bigger deals, more customers, et cetera.
It seems to me that SharePoint is your gateway to more of a social play in the
enterprise. Am I right about that and, if so, how does that vision evolve for you?
KURT DELBENE: I think SharePoint does play a critical role, but as much as it's
about collaboration, and social collaboration is about a single product, it's about a
feature set that you want to deliver across your entire suite. So, take for instance
Outlook - people spend tons and tons of time in Outlook. Outlook is all about
interacting with other people, and you have people you talk with a lot. A natural
place for you to start thinking about infusing social context into your work
experiences is Outlook. So, we created this thing called the Outlook Social
Connector, where you can connect up Facebook, you can connect up LinkedIn, you
can connect up SharePoint data into the Outlook experience, and see everything
that's going on when you're talking to somebody about a particular topic.
SharePoint, as you know, is another place that you need to deeply integrate those
social capabilities in. Lync is another one. If I go to Lync today in the existing
product, if I want to find somebody who is an expert in my organization about
SharePoint, I can do an expertise search in Lync and say, show me everybody who is
an expert on SharePoint. And I will actually get information that's based on what
they've authored in the organization, what their title is, what department they're
from, and I can real quickly get to those experts. And I didn't have to do anything
different - I didn't use a separate product to do that. It's just something I expected
out of the products I already use.
ADAM HOLT: You touched on Lync, I want to move to Lync next.
KURT DELBENE: Sure.
ADAM HOLT: And I'll start with Lync, and then I want to talk a little bit about
Skype. Lync has also been an extraordinarily fast growing business. What do you
think your attach is now, and is that the right way to think about it, that Lync is
being sold as an extension of some of the other server products, or has it really
carved out a standalone space at this point?
KURT DELBENE: I do think that -- I don't know that I could tell you the exact
attach numbers. I know that the growth rate is really, really strong in terms of Lync.
As I mentioned, last quarter growing 30 percent. When we talk about it, we talk
about a productivity suite of applications and servers either on premises or in the
cloud. And we really do think of the three pillars there. We think about e-mail. We
think about sharing documents and collaboration in SharePoint. And we think about
unified communications. And that those three work together to provide the
environment for the organization. And we think about it from a scenario perspective
as richly intertwined as well.
I think we see a progression of how people purchase Lync. They start with instant
messaging and presence, and they move to real-time collaboration and conferencing.
And then the most advance workload, if you will, for Lync is about replacing your
PBX and being a complete voice over IP solution for your organization, and not
having that be a separate system as well.
And we get people along those continuums. It's probably pretty quick for them to
actually just insert Lync as their instant messaging and conferencing solution, and
collaboration solution, and then they'll go to departments and say, okay, out of this
subsidiary, I'm just going to pull the PBXs out, and you're just going to use the VOIP
capabilities of Lync. And so it becomes an evolution over a period of time.
ADAM HOLT: What can you tell us in terms of an update on Skype. Let's start with
Skype as a standalone, and then talk about Skype in regard to Lync. So, just in
terms of the integration of Skype, where are we?
KURT DELBENE: Actually, I think that's the right way to think about it. We were
excited about Skype purely as an incredible consumer product, a consumer property,
if you will. And so we continue to see great growth in terms of Skype in terms of
their user base. And it is doing well since we announced its purchase, and we
continue to be very bullish there.
We continue to look at, and these are all things that Steve talked about when we did
the initial acquisition, the opportunity for it to build upon the Live properties to have
a really strong consumer set of properties there - that's all Skype on its own.
And then, if you think about Lync as the business class unified communications
solution where you need to think about things like compliance, and so saving all the
UC conferences that you do so that you can do compliance and e-discovery on top of
them.
But there's still a desire to be able to connect that to that broad set of people out
there that are my Skype buddies. And so, I think the scenarios we talked about for
Skype interoperating with Lync when we actually did the acquisition are still the ones
that we're very, very excited about, giving you access to all of those people out there
in the broad world is still the one that we're actually very excited about, and we're
working on it.
ADAM HOLT: I've got a couple more questions actually on that topic, but we're
down to only a few minutes here in terms of time. So, I'll open it to the audience, if
there are any questions out there, I want to make sure I get you all recognized. Any
questions?
In that case, I'm going to ask another one about Skype and Lync.
KURT DELBENE: Sure.
ADAM HOLT: So, you talked about the theoretical synergy - how about the
practical synergy from a go to market and a customer penetration perspective, is
Skype something you think you can bring into the enterprise with your current sales
organization? And talk a little bit about how in practice you actually manage the
integration.
KURT DELBENE: I think the go to market in the business space will continue to be
about Lync, and will be thinking about Skype interoperability as a feature of
purchasing Lync. That's what our customers want. We haven't actually heard a lot
of customers say, hey, I want to go to Skype as my unified communications solution
in my enterprise instead of Lync. They say, I want that interoperability across the
two.
In terms of the consumer go to market, I think it's the ones that we have today. I
don't want to speculate too much, or talk too much about the particular places that
we've got integrated shipping plans. I think it's best left to those particular products
to talk about what their feature set is. But, again, I would go back to the ones that
Steve thought were exciting - the whole notion of how do you take advantage of the
Windows Messenger base to get them to be Skype users in the consumer space,
opportunities around Windows Phone, and opportunities even around Xbox. Lots of
our consumer properties could get lit up, if you will, through a Skype experience.
ADAM HOLT: I'm going to finish with Dynamics, unless there's a question. So, on
Dynamics, we think that the application market is still in something of a refresh cycle
in the last few years, and your Dynamics numbers have been good. Do you think
that's the case, or do you think you're seeing more companies <adopt Dynamics>,
or both?
KURT DELBENE: I think it's probably both. We have some very strong products in
the Dynamics space right now, with Dynamics CRM growing at a very, very fast
pace. I think the number there was also about 30 percent growth over the last
quarter year on year. So, we see a very strong product in Dynamics CRM. The fact
that it is both an on premise product and a cloud product gives people that choice.
And it also locks in their future - they can settle on a product now, and if they want
to be on premise now, fine, as they know they'll be assured of being able to go to
the cloud in the future <if that’s what they choose>.
I think we actually see that also on the products in Exchange, SharePoint and Lync
as well. We get a lot of people that talk to us about moving to the cloud, and then
they say, thank you, and I want to upgrade to the next version of Exchange on
premises.
So, on Dynamics in particular, we see a lot of strength in the products, and I do
agree with you that we're in kind of a spike where it's been strong as well.
ADAM HOLT: All right. We're about out of time. Thank you all for coming.
And thank you, that was terrific.
KURT DELBENE: Thanks, appreciate it.
END