Home > Uncategorized > Microsoft Corporation’s (MSFT) Management Presents at Citi Global Technology Conference (Transcript)

Microsoft Corporation’s (MSFT) Management Presents at Citi Global Technology Conference (Transcript)

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Sep. 9, 2015 12:26 AM ET | About: Microsoft Corporation (MSFT)
Question-and-Answer SessionQ – Walter Pritchard

Walter Pritchard – CitiI’m Walter Pritchard the software analyst here at Citi and thank you everybody for joining us for our last session which is with Microsoft. We have Chris Capossela, who is the Executive Vice President and Chief Marketing Officer. I think I’ll start out Chris may be you could just give us, you’ve been with the Company a long time. You’ve had tours [ph] through a few areas, mostly offices, is my recollection, but maybe you could give us a little background on sort of your tenure at Microsoft and then we’ll dive into some business que

Chris Capossela – EVP and Chief Marketing OfficerYes great, so thanks so much for having me everyone. So as Walter said my name is Chris Capossela. I am the CMO and I have been at Microsoft for 24 years, which is kind of shocking to me and grew up at Boston, Massachusetts and got a job right out of college with Microsoft and I’ve done just a ton of different jobs at the company.

Marketing has been a big focus, but also product development and some sales. I was Bill’s speech assistant in the late ’90s which was a great job. About 18 months ago Satya, our new CEO became CEO and one month into his tenure he asked me to move jobs from where I was to take on the CMO role and so, yes it’s been an incredible run for 17 months or so.

Got it, got it. So, I guess I wanted to start out, so there have been a lot of changes we’ve seen at the company in the last 18 months as you’ve highlighted with Satya Nadella taking over as CEO. May be you could sort of take your marketing hat off, because I know there is a lot of it is messaging and then things like that, but some of it is actually real changes going on at the Company. May be you could just articulate to us from the inside, what the change has been and then I’d like to dive down into some of the business, but start off with that?

Chris Capossela – EVP and Chief Marketing Officer
Yes, I think first of all you just have a new, you have a totally different CEO and he is only the third CEO in the history of the Company, so a lot of it is cultural things, a lot of change that he wants to bring about with the way Microsoft employees come to work every day, the attitude that they bring, the mindset that they bring. And so, I think the first thing is this, this cultural change around encouraging everyone to have kind of a growth mindset to be curious, to always be learning, to not think you know the answer, not try to be the smartest person in the room and in a culture that has historically been quite strong in that dimension. That’s a huge shift for us to go through. So that’s sort of shift number one and I would say and it is the most fundamental one.

The second area is really around reinventing all of our businesses, making sure we love the businesses that we’re in, making sure the businesses that we’re in actually accrue to a single company not wanting to be a conglomerate or a set of eight different businesses that really have nothing to do with each other. And so we spent a lot of time coming up with kind of the three bold ambitions that we have for the company that we think of multiyear, multiproduct release ambitions, but that we think really hang together for the company itself. And I think reinventing the way we do business, the businesses we’re in and obviously how we make money, moving to the cloud et cetera. So those will be the ones that are at the forefront of our thoughts every day.

Walter Pritchard – Citi
Okay so I want to talk through each of those and the three points of the bold ambition. I think a lot of us that have looked at Microsoft for a long time have almost thought about Microsoft as ultimately the Windows Company. For a long period of time it was everything that happened at Microsoft accrued back to Windows. Can you talk about we were seeing some very deliberate moves to for example, put Office on other platforms which would probably not have been done 10 years ago or run Linux in Azure which probably Linux was like a third rail 10 years ago at Microsoft. Can you just talk about what is the role of Windows as we move forward? Is it still the focus that it was before or how do you guys think about it?

Chris Capossela – EVP and Chief Marketing Officer
Well, I’d say a couple of things. The notion of Microsoft to understand us is, and what we’re doing from a business perspective, it is really pretty simple. We are a platform company and we are a productivity company. So everything that we do in the realm of Office and Skype and one node and Word and Excel and Outlook and all of those things fits squarely in the notion of productivity.

When it comes to platforms there are really two very simple ones. We have the cloud platform which is fueled by Azure and then we have the devices platform which is fueled by Windows and there will be many times where Windows our device platform, our productivity stack and our cloud platform can be better together and just be phenomenal, stupendous [ph]. But there will be plenty of times where our cloud platform is going to do things that are independent of Windows.

So the fact that we have a lot of Azure workloads running on Linux or we support Docker, we support Hadoop, we support any development language you want to write in, actually has nothing to do with Windows at all and it all has to do with the cloud platform itself. So I think if we think about it in those three tiers; our cloud platform, the productivity stack and then the devices platform you can see that those are the three kind of foundations for the company.

Many times they stack up perfectly and you get the best of all three worlds combining, but many times are going to be things that we do on one that don’t really apply to another, then that’s okay, we’re comfortable with that.

Walter Pritchard – Citi
Okay, got it. So let’s talk a little bit about I think one of the tenets of the bolder ambitions created more personal computing. I think we’ve thought of that as kind of PC. The company has outlined a goal of I think 1 billion Windows 10 devices by 2018 and we’ve gotten used to I think measuring your PC business on the basis of when those licenses fold and so forth. So as we think about how you are measuring that business what would be success in that business over the next say three or four years? Is it traditional kind of revenue PC related revenue or is there something else?

Chris Capossela – EVP and Chief Marketing Officer
Yes I mean, first of all the bolder ambition is this notion of much more personal computing than we have today. And when we say personal computing, we’re not talking about the personal computer. We’re actually talking about the human being. And if you think about for our definition, mobility is not about a single device, it is not about a laptop, or a tablet, or a phone. It is literally about you creating computing that’s incredibly personal to you.

So no matter where you go, no matter what device you are using, whether it is a band that you wear on your wrist, whether it is a phone, a tablet, something you wear on your head from a glasses perspective, those devices need to be tailored to you that needs to understand who you are, you need to be able to have all of that information at your fingertips regardless of the device. So it is not personal computing as in PC, it is personal computing as human focused, human based computing. There are going to be lots and lots of different devices.

Success for us we’ve said with Windows 10 in two years we want to have 1 billion Windows 10 active devices connected to Windows 10, using Windows 10 on a regular basis. That gives you a little bit of a sense that for us of course we care about revenue, profit, share, but we also care about usage. Fundamentally we have to be more focused on how many people are using our stuff everyday and how happy they are using our stuff. And if we get a lot of very happy people, then the revenue, the profit, the share we think that will fall off, we think lots of good things will happen.

So a core power metric for us is Windows 10 devices. That’s not PC statement. That will be phones, that will be tablets, that will be laptops, that will be desktops, that will be big surface hubs that will be Xboxes. Xboxes today run Windows and so every time we sell an Xbox we’re actually creating a Windows active device that hopefully people love it, it’s a gaming device in their living room. It is not a separate animal. It is literately a Windows device.

So the device shape and size is going to change in the next four years. What’s not going to change is our desire to have lots and lots of very happy and very actively using Windows customers. Now once you use Windows, if you are a Windows 10 user where there are other things we care about. It is not just selling you a device that has a Windows to license embedded in it because we were actively using the product.

We care about things like your – what kind of browser are you using, what is our share of our browser versus Google’s browser versus Firefox. So we put a lot of work into Microsoft Edge this new browser that comes with Windows 10 and we’re seeing that the Edge usage is higher on Windows 10 and IE usage was on Windows 8 and Windows 7.

That’s net positive for Microsoft. That’s more queries being executed through Bing. That’s more ad revenues flowing through Edge and that’s obviously revenue source for us independent of the Windows device. I should not say independent, I should say post fail of the Windows device, clearly shows another big one.

So we’ve invested heavily in Cortana who is a personal digital assistant that’s built into Windows 10 and she can help you do all sorts of different things, look up information, remind you of things, finds things for you. And as you use Cortana, you are not using the Bing or the Google query engine you were probably using 15 minutes ago.

And the more people fall in love with Cortana and use Cortana, the more we’re able to essentially capture that query share from Google. It is not just about the Windows license or the Windows device. It’s all of the things that people do on that device that we’re able to do a better job with a newer version of Windows and with new devices that we’ll introduce with our partners.

Walter Pritchard – Citi
Got it. And I think we had Intel on, early in the morning showing off some new form factors. And I think most investors pretty clearly understand where you are going with the traditional PC form factors, even the tablet where they showed off, some sort of two in ones, some surface, almost third-party surface type devices which look great. I think there is still an investor question out there on the phone form factor?

Yes, were you – to some degree you transformed the market, to some degree left the door open to go back into that market. And I’m wondering if you were to fast-forward three to five years from now we have you back on stage, what is your – what is Microsoft’s footprint look like in the phone market? Again some of, let’s call them the standard phone, not a hybrid, not a – just a plain old 4 to 7-inch touch screen phone, what is the Microsoft role in that market five years from now?

Chris Capossela – EVP and Chief Marketing Officer
Yes we’ve definitely retrenched. I wouldn’t say we’ve modestly researched. We’ve massively retrenched and I think that’s appropriate for where we are. For us in the next couple of years we’re really going to focus on building phones that obviously showcase Windows 10. But we’re going to try to build phones for two audiences. We’re going to build phones for our Windows fans.

If you love Windows 10, and you love your Windows 10 tablet or surface or laptop, we want to have a beautiful phone for you, something you’d be incredibly proud of that’s going to have the same experience across your devices, the same apps are run on the phone as run on your Windows 10 laptop or tablet. And it is going to feel incredibly natural and we think the Windows fans really want a wonderful Windows phone that will be a premium flagship phone.

We’re also going to build phones for businesses. We know business customers want a very, very secure phone that’s incredibly good at calendar management, at e-mail, at productivity, at Skype for business etc. and so we think those two segments are segments we can focus on and build a much, much better solution and much better business than we have today.

Four years from now too hard to predict. I think we have too much to do in front of us right now to get back in the game with the two audiences that we think we can serve incredibly well and then we’ll see how things evolve and we’ll take it kind of one step at a time, but obviously we want to be in the phone space. We are excited about the phones we are delivering this holiday for those customer segments, but we’re just going to have to work and make them huge fans and see what comes next.

Walter Pritchard – Citi
Got it, and then on the – related to the Intel presentation I think one thing they mentioned is much more of a collaborative effort between Microsoft and Intel with Win 10 that we’ve seen in a while here. In terms of tangible benefit of, I mean I think we heard this from other partners of Microsoft is you have the Win 8 generation where it was all a bit confusing as to what Microsoft was looking to do and now you’ve clarified that to some degree. What does that enable Microsoft to do or to do with partners that you weren’t able to do in the Win 8 generation with devices and the consumer experience?

Chris Capossela – EVP and Chief Marketing Officer
Yes, when I think the partnership with Intel as well as DELL and HP and Lenovo and Acer and Asus and the whole Windows ecosystem has been far more collaborative. It has been far more building the work, the products together much earlier, so working with Intel on Skylake, working with I think [indiscernible] maybe at Lenovo over the next Lenovo device earlier today or whoever it was, we’ve just been partnering earlier in the design process and the engineering process than we did with Windows 8 and even Windows 7 frankly.

And so I think that builds an element of confidence with the partners that we sure we’ll compete in some spaces, some of our OEM partners build android devices or chrome books, but by and large there is a lot of vested interest that we both have or all of us have in tremendous success on Windows 10 itself.

I also think it sends a broader message to other technology partners that Microsoft is very serious about being a great partner, at the same time that we have been competing in certain spaces that we might compete with, with some of these partners. And so whether it is box or sales force, there has been a lot of examples that Satya has really done a wonderful job showing that there is more upside to partnering in areas A, B and C where we work together and just let’s compete in the – that’s okay, we’re not going to worry about it, we’re just going to compete. But in the meantime, let’s do the best we can with A, B and C. And that mentality has really I think resonated with Silicon Valley, it has resonated certainly with the press and hopefully it is going to show in the partnerships that we do.

Walter Pritchard – Citi
Got it, so is the bridge to the next topic which I want to talk about which is productivity, I did want to talk about sales force in the CRM area. You know, Satya has highlighted that area more and we’ve also seen the partnership activities. You know, I think ultimately, if you look at Office 365 and Outlook as where a lot of information workers spend their day, is the CRM market, one that is a must win for Microsoft or is it historically been more of a business off to the side that the dynamics business is a nice business, but not a core market for the company. How should we think about that CRM market and the kind of customer front end apps markets today versus where it was say three or five years ago under different leadership?

Chris Capossela – EVP and Chief Marketing Officer
Yes, no, I think recently we have opportunities to really make it far more mainstream than it has been in the past. I definitely think that if you look at the Azure business. The Azure business today is a platform that is not, yes but more and more you are going to see us creating finished apps that utilize all that Azure has to offer. So in many ways I think of ERP and CRM as nearly finished line of business and take advantage of all that Azure can bring to the table.

So in that sense it is not just about sales force automation or it is not just about the supply chain. It is actually bringing the power of many of the Azure services like our Cortana Analytic Suite to the data that a CRM system or an ERP system creates. And from that perspective we can differentiate our CMR solution because of how it takes advantage of our analytic solution in a way that nobody else does and that I think makes it more than just, it’s that if business over there. And that theme over there manages that, not any more.

We really, we are mainstreaming it. It is actually part of the way we think about how Azure is going to change. It is not just going to be a set of building blocks it is going to be a set of building blocks with a bunch of great near finished or finished line of business apps that take advantage of it. And that scenario for us to give that a fairly existing is not just CRM, but the dynamic ERP portfolio.

Walter Pritchard – Citi
Absolutely, both of them, and perhaps both of them in that category for sure. And then talking just kind of right at the heart of the productivity franchise, you guys have done a great job on getting Windows or Office 365 into the core selling notion of the company I think talked about roughly a third of the installed base or 25% and 35% of the installed base. This is now on that product.

And I think investors spend a lot of time trying to understand the financial implications of that, and I’m not going to go into that with you because that’s not any good, but I guess the presumption would be that if you create value and if there are scenarios that are valuation good financial implications will follow. So can you help us understand with Office 365 how that’s changing how your very large installed base of productivity users are using your capabilities?

Chris Capossela – EVP and Chief Marketing Officer
Yes, I mean I think there are two ways to think about it, one is the – just the notion of getting people to be current on all our latest software is incredibly valuable for us and for them, getting them out of the drudgery of having to roll out updates and figure out how to keep machines refreshed and up-to-date and safe and secure. There is a real benefit for the cloud in just making sure people have the latest and greatest of everything we have to offer.

From our mainstream Office 365 customers, there are new areas that we’re going into that will allow them to see a lot more value from the solution than they do today and new licensing opportunities for us to expand how much of our share of wallet we get that today their pains may be five, six, seven different vendors that we can essentially consolidate.

Our security is a big area for us with Office 365, enterprise data protection is coming for Office 365 and we think that will be very critical thing. Nobody wants to have what happened to Sony happen to them and so doing a great job, securing your data, securing your emails, securing your documents with a level of sophistication that nobody has really done yet I think is one expansion opportunity of Office 365.

Another one would be data visualization, data analytics, our Power BI solution we’re bringing to Office 365 as a new tier that people can step up to and there is a huge amount of interest around these types of solutions to get more insights from the huge amounts of data that people and then real time collaboration with Skype for business would be the third. There is a lot of frustration with the way meetings happen today. There is a lot of wasted of time, there is a lot of wasted money in doing these solution from multiple vendors so that you could have people remotely working together on matter where are they’re in the world.

When I think of Office 365 in the commercial space, I think you can see us expanding in security, you can see expanding into data visualization and analytics and you’ll see us expanding into real-time collaboration. All of those form a new step up for our Office 365 customers that they don’t have today, but they have the opportunity to buy into and implement premium to use.

And then the last thing I’d say is, there is a whole bunch of workers who are not office workers today that we haven’t really done a great job penetrating. You’d think that somebody who drives a delivery truck and has a tablet that they are carrying around on their route. We haven’t really licensed Office 365 to those people. And you think of contract workers who might work seasonally for it may be taxies and in the Finance Department.

We haven’t really done a good job. So I’d say there is a whole set of workers that don’t have the same needs as a full time employee who comes to the office everyday and we think there is opportunities for us to reach those broader set of workers that we haven’t done today. Probably a much, much lower price offering doesn’t have nearly the full functionality of what you and I might use on a daily basis. But there is some new, I think there is some addressable types of users that we haven’t gotten to yet.

Walter Pritchard – Citi
Got it okay, and then one thing we are out of here, well actually our home town in San Francisco the Bill [ph] Conference and one thing that was talked about with Office that really hasn’t been articulated I think as much in the past was Office is a platform. I could start a company with a few of my friends and we could write an app that would sort of run on the Office platform. So, I think I understand conceptually how that works, but how do you monetize that?

Chris Capossela – EVP and Chief Marketing Officer
Oh yes, we would likely monitor – it depends on the solution, you could us monetizing that through the cloud services that you used to built that up.

Walter Pritchard – Citi
Okay. So I build it on Azure okay, is that like that, you mean that’s one model.

Chris Capossela – EVP and Chief Marketing Officer
We can say hey, builds an office application he uses Azure in the following ways, here is the set of services that you use and they are metered services like most of the Azure services and you wouldn’t be paying per user of course. It wouldn’t be part of the office sales motion. It would just be an additional [indiscernible] compute or a total like, yes, compute.

That’s exactly right or buying analytic services if you had that kind of a solution and I think there is a tremendous amount of data that people have in their Office 365 implementations and there is a lot of unstructured data that’s really, really valuable and there is an opportunity to write applications that harness that and that is what we typically refer to when we talk about the Office graph or building Office apps.

Walter Pritchard – Citi
Got it. Okay. As a transition topic before we talk about Azure and that business, I wanted to talk about just developers and Microsoft and I think, yes there is the famous video of Steve getting all sweaty up on stage yelling developers, developers, developers and there is no doubt that the developer has been a core sort of constituent that the Company has been built on the back over the last couple decades.

Yes, when you look at where we are today with software development, it seems like we’ve started this process of kind of re-fragmentation of software development from five years ago with kind of Dot net and Java, it was at least in the corporate markets and you have lots of new ways of writing software, lots of different options as a developer. How do you sort of get your slice of that market or get to kind of – do you have to get the kind of slide of that market that you had in the past or is that market now so much bigger that Amazon – people write for Amazon, they write for all these other platforms and the market is so much bigger that now your piece of that pie is still a good market?

Chris Capossela – EVP and Chief Marketing Officer
Yes, no I think we definitely like to make that piece of the pie much bigger for us for sure. You do – obviously it is a totally different world and then you’ve got as we look at the world, you’ve got a device platform, very competing device platforms and a developer writing something specifically for a device an iOS device, an Android device, or Windows device and they are clearly Windows 10. These are big bet, getting a huge installed base of Windows 10 to attract developers to it, is the reason we made the upgrade for free for Windows 7 and Windows 8 users. So you’ve got your developers that target a device and you’ve got your three really three big guys ecosystems and then you’ve got the cloud platforms and really there are sort of two, it is a two-horse race between AWS and Azure at least in our mind.

Certainly there are other players, but I think if I were a betting man, I would certainly be betting on those two to really be the two fundamental leaders. And there it is a more complicated scenario because you’ve got workloads that you’re able to move through the cloud without touching it with a single line of code. Your line of business apps today run on a Linux server, you could move that Linux server to Azure, we will run it for you, the run is unchanged. We are not to touch it.

But if you are building something from scratch, if you’re building e-commerce platform through your company, your website, if you are the next Facebook you are not just supporting workloads, you are literally starting from scratch and that is where I think people start with a Cloud first mentality and you’re looking to build on Azure, AWS and the device becomes quite secondary.

They you are going to have a bunch of different front ends based on what they want to target, but it is really the backend, the cloud platform that becomes critical. So for us getting line of business apps on Azure, getting big ISVs, targeting Azure, making sure that stuff works phenomenally on Azure that is really important to us and that is our major, major focus with the company. I think most people think developers and they think Windows, sure we actually think cloud, when we think it.

Walter Pritchard – Citi
I think that’s fair. So I guess as I observe it we don’t have all these numbers that I guess including comparisons, but we have a pretty good sense of how large AWS is, but decent sense as to how large Azure is and I think we are talking about AWS business is probably four or five times larger today and growing at a pretty healthy pace and releasing services at a forward pace. At the same time Microsoft has a very healthy set of enterprise relationships that Amazon doesn’t have.

And so as we think about how that market especially in the enterprise space plays out, how do you sort of go to battle in that space with, again a competitor is very much in the lead play, but you very much having the relationships with your customers that they want to have?

Chris Capossela – EVP and Chief Marketing Officer
Well, I mean, I think you have to leverage the assets you have, but you can also learn from the other players in the market and so for us having the Azure tool set it makes on a really rapid rate is something that Scott Guthrie and the team have just done a phenomenal job at in the past six to nine months.

The rapid rate of innovation that we’ve had with new services coming to Azure at a rate that our own sales people have a hard time keeping up, it has just been amazing to see and I think if you do follow this space, people have been blown away by how fast the team has executed. Great new services, the Enterprise Mobility Suite, the Operations Management Suite, the Cortana Analytic Suite, the IoT Suite, these are heavy hitting cloud services built on Azure in relatively short order.

We need to do a great job leveraging our enterprise sales force to make sure we’re uncovering big Azure opportunities in our top 2000 accounts. We also have a massive partner ecosystem that Amazon doesn’t have either.

We’ve built our business with a huge partner ecosystem, our breadth ecosystem and so activating that ecosystem to build their solutions on Azure and to bring Azure to their customers, that is equally impactful as our enterprise sales force, which is great, but I think both of them are as such that Amazon probably wishes they had.

In the meantime, we are also showing up our marketing automation. We’re showing up how easy it is to get started just like coming to our website. We are doing a much better job passing, having the customer come to us, understand what they need, pass them on to tell our sales at the right time and frankly emulate what some of the companies who have no sales forces at all do incredibly well, which is a much more of a direct acquisition mechanism with great marketing automation.

I think there are three tiers to it, there is the marketing automation, there is the partner ecosystem and there is a high end enterprise sales force. We have to do all three of them world-class to move some number to starting to close that gap with Amazon, but actually I am super bullish. I think the team has done an amazing job at this part of the company in the last year.

Walter Pritchard – Citi
Yes, so I’m going to follow up with one more and then we’ll pass it around in the audience if there are any questions, so get thinking. So on that, I think last year you were – there was a sales motion that starting integrating Azure into some of the enterprise agreements and there were Cloud credits and so forth to get sort of the appetite of customers wet. Can you talk about, you’ve entered a new fiscal year here, what more are you doing this year to try to further drive Azure adoption in the enterprise space.

Chris Capossela – EVP and Chief Marketing Officer
Well, the biggest thing is bringing great ISV solutions on to Azure. If you want to run sales force you should be able to do it on Azure. If you have been on Oracle, you should be able to have your Oracle databases all running on Azure. If you’re a huge Linux shop, you should know that our Linux, our support to Linux is unparalleled. If you have continuous strategy with Docker [ph] you should know that we support that. If Hadoop is your database of choice we support that as well.

So I think getting broad support from multiple platforms and minor business apps means that Azure isn’t just the building blocks, but Azure is actually the engine that runs the applications you care about most and that for me is a really important sort of metric for us to measure and crank on and show up any gaps that we have.

Walter Pritchard – Citi
Got it, all right, if there are any questions in the audience we can have Chris address them. There is one right hard to describe it, right, you can see it there. Jalan [ph] Whey don’t you yell and we’ll repeat it? I don’t think it is working. Yes, just speak about it and we’ll make sure it gets on the record.

Unidentified Analyst

Its Kevin Shetler [ph], you just made a comment and your previous about how security is kind of a priority going forward, but if you sit back and you say why would we bet on the couple of thousand engineers that we’ve had in the last couple of years versus stepping up making an acquisition requires some talent that’s been doing extraordinarily great work in other companies. When you accelerate your move into security acquiring like a high rise, an example or that’s just one, I mean there are lots of public companies there have thousand of engineers that are may be may be moving them.

Chris Capossela – EVP and Chief Marketing Officer
Kevin, I think we think about whole security in a pretty holistic way from the device to the applications, for the files to the servers, to the data center and for us to a fantastic job on security we have to span all of those different aspects of security. We think we can provide one of the most comprehensive approaches to security that anybody can bring to the market place.

We’re not all against the right sized acquisition in any of our businesses and if you’ve looked over the past year, a year and a half. I think you’ve seen us do a lot of relatively modest, what we think high impactful or high impact acquisition and so I certainly wouldn’t rule any type of security acquisition out to get us moving faster, whether it’s a tech acquisition or tech talent acquisition does tend to be the two that speaks the loudest to us as opposed to acquiring a big customer install base.

We typically want to either get the great talent or great category technology. I certainly wouldn’t rule any of those out. I’m not going to announce any type of acquisitions needless to say, but we’re not against it.

Walter Pritchard – Citi
Any other questions out there? Oh down here in the front.

Unidentified Analyst

Hi, I’m not sure if I’ve questioned correctly, but as far as I understand it Azure customers are pretty sticky and mainly because of the fact that it is really hard to move from there iOS to another solution. So, based on that, how are you guys going to track this Amazon customers going forward? I’m sure the market is still large and it is still lots to cover, but going forward how are you going to track or maybe they gunning some juice created for this guy, I mean what kind of forward thinking you have on that?

Chris Capossela – EVP and Chief Marketing Officer
Yes, I mean I don’t think we’re on any sort of big campaigns to do on Amazon switcher [ph] type campaign. We find this audience is one of the most tech-savvy audiences you can possibly imagine. So the notion of them splitting their workloads across AWS and Azure is something that’s incredibly common. We see it all the time. We’ll see some of these big AWS customer start to kick the tires with Azure and if they like it, if they like what they see, the loss can actually go to start balancing how much money they spend with Amazon against how much money they spend with us.

And we’ve had customers literally tell us I want to move to from the state where I am today where it is almost all Amazon to a 50-50 mix because I want two suppliers that are battling it out. And if you can prove to me that you could do the things that you say you could do, we’re very happy to get to a steady-state of half our business with Amazon, half our business with you.

So, I don’t know that we need to do aggressive switcher tools. Customers are going to pick the workloads that they want to put in which Cloud. They’re going to pick the different approaches that each of us have. I think most of it is Greenfield today and there’s years of Greenfield opportunity ahead of us before I think you have to get to that level of trying to convert so to speak.

I think we’re going to end up on what there are two major, major cloud platform providers with finished line of business applications that run on those two clouds, for commercial customers and there is a lot of upside for both of us in that world I think.

Walter Pritchard – Citi
In the middle here, in the front?

Unidentified Analyst

Can you talk a little bit about your Skype business is the Skype for Business and compare the dynamics, what is your market opportunity there?

Chris Capossela – EVP and Chief Marketing Officer
Sure, so you know we have Skype, the consumer Skype business which essentially is a free model and then we monetize on the enterprise side with Skype for Business and there you’re essentially paying for all the IP value that consumers really don’t care about, but then enterprises care a lot about. So that might be quality of service, that might be audit ability, log ability, discovery, obviously security, those types of things. When you think about the Skype for Business category, you are really talking about corporate instant messaging, audio conferencing, video conferencing, remote meetings, real-time collaboration. It is all of those spaces sort of blended into one tool set.

And so for us, there is just a huge opportunity for an IP based solution that a company can use with their existing hardware. They are only to bring in new devices as literally laptops, tablets, phones that can run all of this tech and yet they can make their employees far, far more productive than they are today and frankly unplug a lot of the legacy infrastructure that they have.

So whether you start with a new office, you go to a new office and you don’t put the traditional telephony infrastructure in that office and you just go IP based 100% letting people use their desktops, their laptops et cetera and they are using Skype for Business for IM, for audio, for video for all of that stuff. That is one way to do it. There is obviously the rip and replace option which tends to be quite long and quite expensive.

We tend to see people running both in parallel for a while and then start to scale the old stuff down while they fully embrace the new stuff. But these are big, big businesses that we think could be far more efficient and the experience could be far better than it is. I mean I think we all still have that experience of starting a conference call and taking a long time for everybody to get going. We think it takes about 10 to 15 minutes to get one of these meetings sort of up and running which is just pathetic particularly when you add a third party and when it is not someone working just in your company and so it is just a lot of upside to making that experience reinventing that and making it far, far better and that’s how we think of it.

Unidentified Analyst

So how big could this business be and who do you compete with?

Chris Capossela – EVP and Chief Marketing Officer
It is many, many billions of dollars. I think if you look at all the traditional players in the telephony space you can make it as big as you want. You can include all of them. We tend to find up against the WebAccess, the GoToMeetings, those types of solutions. Google Hangouts would be probably in the mix obviously. If you wanted to you could include FaceTime there is not really an enterprise version of that though. But you are dealing with a big ecosystem of telephony providers, Polycom, Cisco, some of those are our partners. Polycom is great partner. Some of them we compete more with everyday.

Walter Pritchard – Citi
Any other questions out there?

Unidentified Analyst

So Chris I wanted to ask you again recognizing you’re not Amy Hood, but you do run the marketing budget, so you probably have a decent amount of discretion over spending there. And there has been very tight cost controls in the last 18 or so months at the company, a lot of – it seems like doing more with less and doing a pretty effective job there.

I’m wondering if you could help us understand within the marketing budget how you’ve held to a tighter budget? What choices you’ve had to make and how sustainable is it that you are sort of able at the company to kind of continue flattish plus or minus sort of spending in maybe your area specifically?

Chris Capossela – EVP and Chief Marketing Officer
Oh, it is definitely sustainable. This is not a one-time thing. I think there is always plenty of ways to do things far more efficiently. You don’t have to just sort of say, okay I had this budget last year, I’m launching new products therefore I need a bigger budget next year. It is not how it works. What you have to do is decide what you invested in that you did a really bad job on and don’t invest in that again or find the people who are going to do a better job investing in it and there are always trade-offs that can be made at a scale of our company size. We’re quite blest with tremendous resources and so I think you should think that this is a very sustainable approach that we’re taking far more tight control over where we are putting our money. I am spending far more heavily on the cloud this year than I spent last year and the same was true last year. The cloud continues to go up and up and up and I’m funding that by finding areas of inefficiency that I think we can do without. And that’s in general a very, very, good thing.

So as we move more of our marketing to digital, as more of our marketing gets automated, I think there are a lot of best practices that we can be adopting. It doesn’t mean we are not going to spend in a way that matters; it doesn’t mean you are not going to see us on TV or see us as you go on the web. We can still have big impact, but we have to be really disciplined. We’ve traded off consumer for commercial very clear, we’ve traded off devices phone in particular of course and we’ve dialed up Office 365 and Azure and that’s where few ones asked where did it go from and to, that’s really where it went from and to.

It won’t always be that late. We have a great ability to reallocate without having to wait for a budgeting process and that’s a good thing. That’s sort of Satya’s senior leadership team is now one team and so it is pretty easy to say, hey I think this is more important than that, let’s move it, move the money and that’s good, that’s healthy.

Walter Pritchard – Citi
Go it okay, well I’ll take one last question, if somebody has a good one to finish off the day, otherwise we can leave it there. All right, well Chris, thank you very much for coming.

Chris Capossela – EVP and Chief Marketing Officer
My pleasure, thank you, everybody.

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