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JEFF RAIKES: Hi, I'm Jeff Raikes.

Well, I know we're running a little bit behind schedule here, so what I'm going to try and do is in a tight 40-minute session give you a quick overview of the Microsoft Business Division. What I'm going to do is I'm going to build on what we discussed last year in terms of the growth opportunity of the information worker business, and expand that to discuss the Microsoft Business Division more broadly so that you have a sense of how we're looking at this business, how we have scoped the overall opportunity. We'll show you a bit of the future where we are investing in order to build growth.

But before I get into that, I want to go into the numbers. I know that's a very important part of our dialogue with you today.

You know, we feel very, very good about our business in fiscal year '06. This is a pre-launch year for us, so we expected there could be some impact from that, but we had broad strength across our business in fiscal year '06.

We were particularly pleased with Office billings, especially in the fourth quarter. They were very strong, they were driven by renewal rates that were slightly higher than historical average, and we had a lot of new Enterprise Agreement growth, and you saw that in terms of the accumulation of revenue for future years.

We also had a great year in the Microsoft Business Solutions part of the business. We launched our Microsoft Dynamics brand, which encompasses both our ERP and our CRM product line. Our business performed very well; this was highlighted by the incredible growth that we had with Microsoft Dynamics CRM, and in our announcement last week we mentioned that we did over 50,000 seats in the fourth quarter.

MBS overall was greater than $900 million in revenue, with about 18 percent license growth, and achieved profitability, which is, of course, an important milestone for the big investments we've made there.

We're also investing more broadly in information work. We held a very significant event in San Francisco last month, our unified communication strategy event, but we're going to talk more about that, but in this context I wanted to tell you the fundamentals are very strong. Our real time communications products that are a foundation for unified communications had greater than 50 percent growth in this year, and Exchange, which is also an important foundation for this area, continues to grow. It's leading the share of enterprise e-mail and calendaring.

We also had some exciting announcements last month with PerformancePoint, our business intelligence offering, and Office Business Application Services. These form a

foundation for what we'll be able to do to get people connected to business information and business process. And just a few months ago we introduced the Office Live data, and we've already got over 100,000 customers, so we're doing well in that area.

Now, fiscal year '07 should be an exciting year as we launch major products across all of our businesses, we will accelerate our revenue growth, and we will use this foundation to continue to get into additional market segments and businesses.

Our approach to helping information workers be more productive in today's environment really positions us well, both for short-term and long-term growth. And, as I'm going to discuss today, it gives us a substantial expansion of the addressable market opportunity for the business division.

So what I want to do now is to talk about today's environment. And this is a particularly important thing for us to emphasize with you because the evolving workplace is an important part of what makes Office continue to be relevant; in particular the advances we make in Office continue to be relevant to our customers.

All of our customers, all their people, the information workers, are living through this transformation to a global information-based economy. And that means the workplace is changing dramatically. There are important trends, like one world of business, always on, always connected, the demand for transparent organizations where there's regulatory pressures and the need to protect information. These put a lot of pressures on information workers. And collectively we describe these trends as leading to the new world of work.

We would say that information workers, in particular people, are at the center of success in this economy. And you've heard about our investment in people-ready business, both from an R&D standpoint, the products that we're doing, as well as what we're doing in sales and marketing.

The key message: If you amplify the success of people, you amplify the success of your business. And, of course, we are big believers that software can help. It simplifies how people work together, how they can find, use and share information, and how they can secure content.

So when we formed the Microsoft Business Division, our goal was to deliver on this wide range of customer needs across business process needs and business productivity needs. That's something we should reflect upon, because that is something that makes us very unique in the marketplace. We are the one company that's really investing in both areas, the creation of content, the sharing of content through communications and collaboration tools, developing business insights in the context of business intelligence, automating information workflow and business processes, whether it be ERP, supply-chain management, human resources, customer relationship management, and more. And investing across these activities and processes to provide a seamless experience is a unique offering that we bring to our customers.

So these customer needs and an evolving workplace are really the foundation for the mission for the Microsoft Business Division. And we take a certain approach. If you look back over the history of information work and the tools to support it in our industry, typically these technologies and tools start in a niche. You know, people have to go to the experts for information work and support. Our goal has always been to democratize these tools, to push them out. If you go back to our original vision statement as a company, a computer on every desk was at the heart of that. When I joined Microsoft in 1981, we actually had a Wang word processor. And just think about that for a moment. You wrote out the documents in longhand. You took them back to somebody in the back room, and then they typed it up and provided the document to you.

Now, if I had said then that 25 years later there'd be 500 million people in the world doing word processing, the response would have been, “Oh, where are you going to put all those back rooms? Who's going to train all those people? That's going to be really expensive.”

But that's not what happened. What happened is the tools made it possible to democratize the access to those capabilities. And if you look at core areas of information work today – business intelligence, where you have to go to the high priest of data to get the information you want; video conferencing, where you have to go to a specific room with expensive equipment and personnel to help you use it – those are just like the Wang word processors of 25 years ago.

So our approach is to provide the foundation for the new solutions, to democratize these capabilities – familiar, easy to pick up and use. We have almost 500 million people who are already familiar with Microsoft Office tools. Build on that expertise. Support it by a broad ecosystem of partners to tailor solutions. Make it easy to integrate and connect with what customers have. Provide a seamless experience. And, of course, in an evolving workplace, it's particularly important to be innovative, to understand these trends and to make sure that we are updating the tools, building new tools that will help our customers evolve as their needs evolve.

So our approach to Office and our new areas of investment is right in line with what we've described here. We strategically target areas where this is possible, where seamless computing is going to drive productivity and business results for our customers.

Now, what I want to do is I want to build a sense of the overall business opportunity, because I think that's one of the most important elements that's on your mind. I want to start to look at our core. This chart is about addressable market opportunities to these addressable market sites. In other words, we add up the revenue for all of the competitors in a given space.

But, of course, in this particular business segment, we've got a very healthy position in core IW productivity. But something that may surprise you is we have a strong opportunity to continue that growth.

Now, if you just look at the overall segment, all the players, we would expect compound annual growth of about 7 percent over the next three years, which will make this segment in total, for all the players, about $25 billion addressable market opportunity in fiscal year '09.

Now, one of the things I think is important, then, is for us to reflect on how is it that we make sure that we continue to grow our position in this overall segment? We have to focus in on the customer needs. We talked about that with the new world of work and the demand that that places on information workers.

Customers need to remember, people are the most important aspect. And our value proposition is we provide up-to-date tools for today's challenges in information work.

Now, of course, we have key competitive challenges. One of the most important is good enough. We have customers who are very satisfied with their old versions of Microsoft Office. But what we do is we help them understand that in an evolving workplace, we can help them focus in on getting their information workers, their people, to the up-to-date capabilities of modern office tools and realize the full potential of the Microsoft Office system. So that has to be a foundation of what we do in this business - make sure people understand how they can be up to date and benefit from that.

Similar to good enough, we have competitors in the open-source area that also attempt to clone really our old technological capabilities, whether that would be OpenOffice or StarOffice or even Workplace from IBM. Now, this is really just another form of good enough, or, in the case of IBM, an attempt to drive demand for their consulting services.

Our focus again is very similar. What we have to do is deliver the value and productivity in the new world of work and help people understand how they can take advantage of these new capabilities to help them be more effective. It's a very smart, very leveraged investment on a small amount of investment in up-to-date software tools.

We're also seeing competitive challenges, or at least the thought of competitive challenges in the areas of Web-based productivity. We've seen the dabbling in applications, and Google had an announcement with Sun last fall about some relationship on either StarOffice or OpenOffice. And we have yet to see anything substantive come from that. But again, we believe success is the same. We have been trained on how to compete with supposedly free software. And the way to do that is to make sure that we are providing the productivity value. And in this context, Web-based productivity, as Kevin Johnson emphasized, it's really about software plus service. You have all of the horsepower of the computers that are at your fingertips, plus the horsepower in the cloud, the Internet cloud. The obvious thing is not to choose one or the other but to optimize the experience across those two domains. And that's our strategy.

Now, I mentioned Google in the context of dabbling in Web-based productivity. But I'll also mention Google, which, of course, is a very strong competitor in ad-funded Internet search, but we have to think of them in the context of enterprise search as well. But when it comes to searching for information in the workplace, it's not just about the Internet. It's about the desktop. It's about the intranet. It's about the Internet and it's about connecting with other people in your organization, really searching for their expertise. And that's a set of capability we have as a part of Office SharePoint 2007. It's really about helping people find the information they need, use that information, and share that information.

So how are we going to be able to grow in this space? Deliver innovative products that have an intuitive, results-oriented user experience. You saw that earlier in the demo that Jared Andersen provided you. And we have to make the right investments, investments that ensure that we have the sales readiness and great marketing.

Over the last few years we've built quite a substantive sales organization in order to be able to have the focus on information work. In fiscal year '07 we've got a lot of marketing support for a big launch here; very important. We've been building out our partner ecosystem. A few years ago we had no focus there, basically zero partners in the information work solutions area. We now have greater than 5,000 partners by the end of this year to deliver solutions.

SharePoint momentum, continuing to invest in that area; collaboration and communication, expanding to also encompass connection to business information and business process with great Office application interoperability.

Premium offerings; we've invested in technologies like Groove and OneNote. And now we're making that a part of Office Enterprise 2007. And, in collaboration with colleagues like Bob Muglia and Kevin Johnson and their teams, we have an Enterprise client license suite that can really help our customers more easily put in the broad business productivity infrastructure that they need. And that provides upside revenue opportunity for us.

Kevin Johnson mentioned emerging markets, opportunity for Windows, opportunity for our information worker tools, in particular Office.

So finally, then, how do we measure our success? Very simple: Core office productivity revenue, but also continuing to make sure that we have the market position, the market leadership in this segment.

Now, what I want to do next is I want to go beyond our position in core productivity and I want to address some of the additional opportunities so you can frame that in terms of our overall addressable market.

I want to begin with business applications. Dynamic GRP and CRM products compete in the business applications space. This is a segment that is growing about 10 percent over the next three years, 10 percent CAGR and about $25 billion addressable market opportunity.

Unified communications is a huge addressable space, and we're going to talk about that more in a minute. And the reason there's such a jump here is that I only add the addressable market opportunity for that space when we have products that allow us to enter. So that's why you see that big jump there. But as you can tell, by doing the right product, big opportunity for us.

So let's first focus in on business applications. This is a segment that has a lot of customer pain, a lot of customer needs. Customers lack integration across key apps and processes, and that tends to create silos, silos of information. They have a high degree of customer dissatisfaction with the current ERP vendors because of both high cost and low return on investment. And it's a market where there's a lot of vendor consolidation, which is raising customer questions. Who should they bet their business on when it comes to business process?

We have a great value proposition. We are the company that can help connect people and processes in a flexible way. And we're targeting on the largest growth opportunity, which is small and midmarket businesses and the divisions of larger companies.

Now, there are certainly competitive challenges. There's diverse established players who are trying to expand their position. But if you look across those players, you typically see a lot of weaknesses. They have a weak channel or they may have very high-price, high-service requirements. They're hard to deploy and use, and/or they may have a confusing product road map. How are they going to be able to help their customers get to the future of information work?

It's also a market where there are competitive challenges in the area of software as service. Some of those players have raised the question of reliability. And it's, we believe, very important to recognize that customers want choice. They want that benefit of software plus service.

So, what we can do to grow is to deliver on what we announced a year ago, Microsoft Dynamics Wave 1 and Wave 2, investments that include role-based productivity, very easy-to-use experience, consistent with what you see in Microsoft Office, using SharePoint for interoperability, supporting business intelligence, business insight, and allowing for Web service integration. And this platform convergence allows the buildout of partner capacity for both geographic and vertical market coverage. And our measure of success in this business is Microsoft Dynamics revenue driven by customer additions because this is a market where we think we'll bring a lot of customers to the table.

I want to highlight the strength of Microsoft Dynamics CRM solutions, and the great interoperability with the 2007 Microsoft Office System. To help me do that, please welcome Brad Wilson.

BRAD WILSON: Jeff, thank you.

JEFF RAIKES: Thanks, Brad.

BRAD WILSON: Thank you.

So, Jeff mentioned we're growing very fast as a business, and it's really about this power of choice message that we bring to the marketplace, making it easier for people to go ahead and decide how they want to buy CRM, how they want to consume it, and how they want to use it. I'll go ahead and briefly showcase for you Microsoft Dynamics CRM Live, which will be available—it's planned for availability in Q2 calendar 2007. So, I'll go ahead and walk you through a brief demonstration of this. It's a great example of how we're tying together different parts of the Microsoft platform to deliver a very easy and natural experience for people.

So, this case, I'm clicking on my browser, I'm popping over and signing in to CRM Live through my Windows Live login ID. So, we're sharing this across the two properties, make sure we have one single sign-on for this. As you look at the screen here, we've really got, through a browser, full-featured CRM. It's got sales, marketing, customer service. I've got my own personalized workspace with my activities I can work on. This is the kind of thing you'd expect from a typical on-demand CRM product today.

Let me go ahead and show you how through Office and Outlook, you can do even more interesting and more productive things for people. Here's my Outlook desktop. Again, I've got all of marketing, sales, and service, and by the way I can have this in a roles-based fashion with as little or as much CRM as I need for my specific job. In this case, I can do any of these things in through here.

I'm going to click on my dashboard here and bring up my personalized dashboard. In this scenario, I'm the head of sales for a firm that builds and sells homes. So, my dashboard here, you see some Web parts being rendered up here. This could be raw underlying CRM data. This could be analytics, so propensities to buy, sales stage, all kinds of things like that. This shows sales by model, and also shows by construction phase. If I scroll down here, you'll see this is a mashup between Microsoft CRM and Windows Live Local. So, we're mashing this up together. This could be a Microsoft property like Windows Live Local, or it could be a third party like, say, Factiva or Zillow, or various mashed-up kind of applications. In this case, we want to overlay this mapping facility with some business information. When I click on this, I'm going to take GeoRSS information out of the CRM system and overlay this on top of the map. So, now I've got an aerial view not just of the site, but the site as I'm trying to sell it.

If you notice, the red means it's sold, green means it's available. With yellow, it means I've got an issue I need to resolve. If I hover over this, this will cull through the information; CRM that says what's missing here is a final price for this property. If I drill into this, I'll come down here and say, I need more information; it takes me into the purchase agreement part of CRM, which shows I've got a buyer, I've got an agent, I've got a lot and a plan, I don't have a current price for this. Okay, so I'm tying these things together.

If I click on this to go get some price comparisons, I can then look at a variety of RSS feeds, and these could be from any third party that publishes housing prices. How many people here have bought a house in the past? I mean, pretty much it's a no-brainer, right. We all need comps. I'm going to grab the first three RSS feeds here and click okay. When I do that, this will populate my map with housing comps in my area. In fact, it's a bit too big; I'm going to go ahead and narrow this down a bit, and get down to a smaller area. And it says in the area around my subdivision here, the average price is around $347,000. I'm going to go ahead and say that my property is a bit nicer, because the floor plan is a bit bigger. I'm going to go ahead and make mine $360,000, and I'll go ahead and save that. When I save that, we're going to update automatically the view that I get through this mashup in my personal dashboard of the property, and show this thing has now moved from “there's an issue” to “it's pending disposition.” So, very quickly, you can see how you can create a very innovative composite application, a composite roles-based application directly through Office and Outlook using Microsoft Dynamics CRM.

Everything I showed you today is actually possible today with our version 3.0. So, with the next release we're going to have Titan in Q2 of next year, we'll offer it both on premises through partner hosting, and through our own direct CRM Live service.

Let me go ahead and show you another example as we tie things together across the technologies to make things very valuable. On my Windows Vista desktop, I can have Windows Vista gadgets here like number of sold lots, number of leads to help me sell these properties, or alerts that I have in Microsoft Dynamics CRM Live. In this case, I'll click on this, this will pop up CRM automatically. It will show me that this customer wants an independent property inspection. This is a normal course of business for me. In fact, it's so normal that my workflow in the system has already preapproved this, it's already computed all the dates to break ground, do framing, finish the construction. So, I click on this, and all my dates were already set for me from the workflow engine. What I want to go ahead and do now, though, is—I know what's going on; I would like to go ahead and tell my client what's going on—so the home buyer, help them know what's going on. I can go ahead, and directly from here I can create an Office Live workspace that I can share with the end buyer of the property. In this case, it creates the workspace. I click okay, I would like to go ahead and minimize this, then switch over to my customer's perspective, my home buyer's perspective. At this point, when they open up their Outlook instance, they'll have an e-mail from me that says, your home will be built for you soon, here is an Office Live workspace where we can share information with you. If they click on the link, what you'll find is, they'll get a customized Office Live workspace that shows important dates, documents, what their house will look like over time. This is syndicating information out of the CRM system directly into Office Live.

So, what you're really kind of seeing in a very brief snapshot here is how CRM Live, Windows Live, Office Live all play together, and they're all leveraging a range of technologies across Microsoft and database and Office desktops to really give a very powerful, very productive, and very easy-to-use application experience to CRM users around the world.

Thank you.

JEFF RAIKES: Great. Thanks, Brad.

Super. Well, Brad did a great job of highlighting the power of Microsoft Dynamics and what we're doing with the Microsoft Office system. I want to move on now and talk a little bit about this area of unified communications. Customers are seeing a lot of pain here. This is an era of communications chaos: people play phone tag, they're in voice mail jail where you have voice mail left on multiple devices, e-mail overload. There are basically too many devices, and too little time. Our value proposition is using the power of software to drive the next wave of innovation in the way people communicate in the context of their information work. Now, there are clearly lots of challenges. There's a convergence of the network and audio, video, and telephony. And that implies some conflict amongst players in the marketplace.

Of course, Microsoft, we have to establish our credibility in being able to be a key provider in unified communications. But, we are making the right investments and that gives us the opportunity to grow. We have already deep investments in Exchange, Outlook, Office Communicator, Communications Server, and Live Meeting, and we are uniquely positioned to deliver software innovation for business communications. We're making the investments to provide a people-centric view. So you have a seamless experience combining multiple devices, with a single identity.

We're working with Office, the interoperability there, to provide a rich, contextual user experience, and the ease of integration, and all of this is based on industry standards, which is what the customer wants. We're investing in the reliability, security and lower total cost of ownership by providing a very flexible and trustworthy infrastructure for IT, single directory, common management tools, and the opportunity of using both server and services as a way to deploy these capabilities.

Finally, which will also help build our credibility, a great partner ecosystem rallying around this vision. We had a major announcement with Nortel just a week ago, betting with us on this opportunity of unified communications. We'll have deep collaboration on R&D. We have strong partnerships with a number of the key players, examples like HP, Siemens, Motorola, Polycom, Thomson, the LG-Nortel joint venture with Samsung. Our measure for success here is unified communications revenue.

In order really to get a sense of this unified communications vision, the best way is for us to give you a glimpse. So please welcome Paul Duffy, senior product manager for Unified Communications.

PAUL DUFFY: Thank you, good morning. (Applause.)

I'd like to spend the next few moments just showing you some examples of how our unified communications editions can make a difference to the productivity and the working life of information workers. In this example today I'm going to be the information worker. So come on a little journey with me.

I'm using—I'm starting off my workday here with a Windows Mobile device; I'm projecting it with some software, it's on the table with me at the front, so that you can see it a little better.

On it I'm running Microsoft Office Communicator Mobile, which is the Windows Mobile version of our Office Communicator client, making sure that these kinds of unified communications capabilities are also available on other devices. So I can do things here; in this very identity-centric system I can search for different people inside my organization, like Rebecca here, and from there I have multiple different ways of being able to communicate with her. If she were online I could see details about whether she was in a meeting, whether she was available or not. I could IM with her. I could have a voice over IP call with her, or maybe phone her, or send an e-mail using the underlying technology in the phone, the e-mail client or the cellular capability. All I had to know was her identity, I didn't have to go to different systems, or think about knowing those different numbers.

So here I've got the same contact list on my mobile device as I would have on my desktop. I can set my availability to show that I'm online, so that people know that they can contact me. And being the responsive person I am, the first thing I can do is send an instant message to one of my colleagues. There's a message coming in. It's my boss. Not good. Oh dear, so it looks like I need to clear my calendar.

So I'll rush now to get in my car and go to work. If I was sticking with using this device, I would very easily be able to do something like clear my calendar, delete my appointments, and send e-mails to those people I need to, as well. Of course, I'd find it very easy to clear my calendar and get rid of those appointments. But, I'm in my car, I'm not going to use my mobile device while I'm driving.

So I’m going to do something a little bit different. I'm projecting my calendar here, so you can see I've got quite a lot of stuff to do today, but I'm going to use one of the capabilities in Exchange Server 2007's unified messaging functionality to access my calendar using my voice. So I'm going to mute my microphone while I do this part of the demo, just to avoid any issues with feedback, and then after I've done it, I'll just talk you through what I've done.

VOICE: Welcome, you are connected to Microsoft Exchange. To access your mailbox enter your extension to contact—please enter your—you have no new voice messages and one new e-mail message. You currently have a meeting in progress in cafeteria. Please say voice mail, e-mail, calendar, personal contacts, directory, or personal options.

PAUL DUFFY: Calendar for today.

VOICE: Opening today's calendar, you have a meeting that you organized from 10:30 to 12:00 in cafeteria, entitled Customer Review Board. You can say, next, cancel meeting, clear my calendar, or more options.

PAUL DUFFY: Clear my calendar.

VOICE: Okay. I can use cancel and decline to clear your appointments starting with the current one. Just say a time of day to clear to like 3:30 P.M., or a number of days like two days. You can also say cancel to return to your calendar.

PAUL DUFFY: Ten P.M.

VOICE: Ten P.M., is that right?

PAUL DUFFY: Yes.

VOICE: All right. I'm about to send cancellation or decline messages for the meetings. Would you like to add a voice message to those?

PAUL DUFFY: No.

VOICE: Your calendar has been cleared. You have no appointments remaining today.

PAUL DUFFY: So we saw there, I've dialed into my calendar, a very, very polite calendar, as you might notice as well. I was able to find out information about my calendar, and ultimately to clear it. If I had been running late for my meeting I could have said, I'll be late. It would have sent an e-mail to all the participants telling them that. I could also have had my e-mail read to me, interface with the directory and called other people, for example.

So now I've got to the office, and it's time to look at my e-mail and find out what's been going on. So I can see I have a mail from my boss from yesterday. I should have looked at that before I went home, with the sunny weather. I also seem to have a voice mail, which is using the Exchange Server's unified messaging capability. Good employee I am, I'll look at the mail from my boss first. He needs customer evidence data, okay. So let's just have a quick look at that voice mail from Julie. I can see here I have a media player embedded in my mail, I have some options to do things like make notes about the voice mail to better track it. If I was in an environment where I wanted privacy I could have it played to me on the phone, I could have the server call me. In this case here I'm going to play it.

Julie (from voice mail): Hey, Paul, it's Julie, and I'm visiting a customer today and I'm going to have some great evidence for you on the 2007 Office system. Bye.

PAUL DUFFY: Comets are aligning.

So we'll go back to this mail from my boss. I can see now, contextually in the mail, I see information about his presence. It looks like he's busy—he's working hard, as we all are. He needs customer data. And I can also see information about Julie, one of my colleagues, as well.

Now, if I want to start a communication with Ilya that's not mail, I don't have to switch applications. I can just start an IM straight from here. I see some context, the subject line of the IM, to give Ilya some more information about what I want to talk about. Let's see if he responds to me.

Now, IM is a perfectly good form of communications—not necessarily as human as people would always like. Ilya suggests face-to-face. So, with one click here, I'm seamlessly going to move to a video conversation, and hopefully we'll see Ilya's face in a few moments.

Good morning, boss.

ILYA BUKSHTEYN: Hey, Paul, how are you?

PAUL DUFFY: Good. What's up?

ILYA BUKSHTEYN: Well, I'm hoping you can help me. I've got a business review later today, and we've got a lot of data on customers using Office 2007. It all looks good, but what I really need is some testimonials, some real feel for what customers are saying, especially around the presence integration and communications integration in Office 2007.

PAUL DUFFY: Okay. So Julie has some information. Maybe we should loop her into the call?

ILYA BUKSHTEYN: Yeah, that would be great. If she can help, I'd really, really appreciate it.

PAUL DUFFY: Okay. So one-to-one video conversation is not necessarily a new thing. But what we can also—we can do now in the next release of our communication server product, Communication Server 2007, you seamlessly add in someone else. I can just drag Julie, who is on my contact list, into the conversation. In the background, lots of complex server stuff is going on, but it's easy for the end user. They don't have to do anything complex. So take a moment for Julie to join. And, Julie are you there?

Julie: Hi. Yes, I am. Hi, how are you? What's going on, and how can I help you guys today?

PAUL DUFFY: You got some customer data, you said?

Julie: Yes. I visited with a customer, and I'm very excited to share the information with you when you need it.

PAUL DUFFY: Is that going to work for you, Ilya?

ILYA BUKSHTEYN: Well, it sounds like it. Julie do you think the customers are really going to be able to have a lot of experience with presence in Office 2007, and going to be able to give us some really good feedback?

Julie: They're very excited about all this. And, yes, I think it would be really great for you guys to get in touch with them. And I can also help with that in any kind of way that you need.

PAUL DUFFY: Marvelous. I think we're in good shape. Bye for now, guys.

So it's goodbye from them.

What you saw there was what we call active speaker selection—the ability to see, as individuals were talking, the focus would switch to them. So in a very human way you see the face of the person you're talking to.

Now, to complete my demo there's one other thing I want to show. One of the capabilities we've added into Communicator 2007 and Communications Server 2007 is around call management: the ability to do more scenarios where you use your PC as a voice endpoint. So I'm going to make a little phone call of my own. Let's see who it is? I'll probably get voice mail—you know how it is today.

JEFF RAIKES: Hello?

PAUL DUFFY: It sounds like it's Jeff. Jeff, it might be time for you to come back on stage now. I'm getting a bit lonely.

JEFF RAIKES: Okay, Paul.

PAUL DUFFY: Thank you. So, to recap, what we saw there, the unified communication capabilities delivered on a mobile device; unified messaging capabilities delivered in the next release of Exchange Server, Exchange Server 2007; then seamless contextual escalations from different types of communication—from IM to video to multiparty conference—all in context for the use and seamless. Thank you.

JEFF RAIKES: Great. Paul, thanks very much. (Applause.)

So Paul really helped you see that the key here is software. Our specific advantage in unified communications is that we're harnessing the power of software to put people at the center. We will then offer the innovative communications that will also have revolutionary economic impact on this segment of the industry.

I want to spend the last few minutes of my talk discussing another couple of very important areas of investment that expand our portfolio.

The first one is business intelligence and office business applications. We see this as a $20 billion addressable market opportunity by fiscal year '09, and it's all about connecting people and information, which of course is at the heart of what Office can help do. That allows for improved insight, and of course it enhances productivity and results from people's investment in business applications. A great example of this has been our relationship with SAP on Duet, and we've also had recent announcements with PerformancePoint, our business intelligence product line offering, as well as office business application services.

Another key segment is software as a service. Now, of course, software as a service is a major initiative for the company. Steve Ballmer has emphasized that. Ray Ozzie will emphasize that. And it really affects all of these addressable market segments. But in this particular segment what I want to do is focus in on software as a service for small business. That alone we see as a $10 billion addressable market segment, both ad-funded opportunity as well as subscription opportunity—and a very strong compound annual growth rate approaching 20 percent. Our bet is that software plus service is what customers really want. We must provide the right tools given the situation, and build the platform and ecosystem of partners that will give customers the right choices. And we're off to a great start here with Office Live.

Now, if you step back and look at this overall addressable market opportunity, we're talking about a $125 billion opportunity by fiscal year '09 in aggregate. And this is all centered around the productivity of information work. It is this large opportunity that provides of the growth Microsoft Business Division and what drives our investment. It really helps to explain why we believe we can jump from 7 percent growth in fiscal year '06 to 9 to 10 percent growth in fiscal year '07. And of course it's going to be our goal to accelerate revenue and profit growth.

So, to summarize, we see our investments as providing us the opportunity to achieve this growth and our MBD, our Microsoft Business Division financial and business objectives. Fiscal year '07 marks an incredible wave of new product launches: Windows Vista, 2007 Microsoft Office system, SharePoint, Office SharePoint Server, Exchange 2007, Microsoft Dynamics Wave One. And we're making the sales and marketing investments to stoke demand and drive adoption and deployment of our newest products.

We're also going to continue our investments in areas like our Microsoft Dynamics portfolio and unified communications to establish traction in these businesses. And we'll invest to expand our overall product portfolio in segments like services, business intelligence, office business applications, and that will further enhance our growth.

Our opportunity has never been greater. And if we execute, we will drive significant shareholder value.

So, with that, I want to say thank you very much, and I want to welcome Colleen Healy back to the stage. Colleen? (Applause.)

COLLEEN HEALY: Thank you. Thank you. Great. Hope you're getting what you need out of today.

We are running a little bit behind. So what we're going to do is we're going to take a short 15-minute break. It's not a lot of time, so feel free to bring drinks and food back into the room. We'll start promptly in 15 minutes at 11:30 with Robbie Bach. See you back in a bit.

END

Due to the varying sound quality and subject matter of tapes, the information in this transcript may contain inaccuracies.