KARL KEIRSTEAD: Okay, everybody. Let's get started for the luncheon keynote. Thank you
for joining. I'm Karl Keirstead, I cover software and I cover Microsoft. We are very excited
to have Scott Guthrie, the Executive Vice President of Cloud and Enterprise with us today. Scott
doesn't keynote that many Wall Street events, so we're super-honored to have you come to ours.
The only catch, Scott, is that I attend a lot of Microsoft events, software events, and I only see you in
your red shirt. So I'm not totally convinced you're the right guy here, but I think you are. Thanks for
dressing up for us.
Before we begin, Scott's colleague Zack thought it might be a nice idea for me to get you all jazzed up to
read out an inspirational quote. So here we go: Before we begin Microsoft may make some forward-looking
statements during this presentation, and you should refer to their SEC filings for the risk factors relating
to their business. And that's true whether you're here in person or listening on the web.
So with that quote behind me, I'm going to let Scott outline himself the role he plays at Microsoft, the
businesses that are under his umbrella. Scott is then going to take us through a 10-minute or so presentation,
and then he'll sit down and we'll chat.
So thank you, Scott.
SCOTT GUTHRIE: Thanks for having me. People hearing me okay?
Great. Well, it's a real pleasure to be here, and thank you very much for hosting me. And as Karl mentioned,
I was going to kick it off a little bit and just provide a little bit of context in terms of my role and
in particular the role that we kind of see the cloud playing at Microsoft more broadly going forward, and
then open it up to questions and we'll have more of an interactive dialogue.
I think one of the things that we see in the industry that's happening right now, and I think pretty much
everyone is seeing it is what we call the journey to the cloud, which is really a generational shift in
computing that's happening right now and really is impacting every organization and every company out there
in pretty meaningful ways. And I think every enterprise out there in particular right now is trying to
figure out a path from how they go from where they are now to take advantage of what the cloud has to offer.
And when we think about the cloud at Microsoft, we often think about it not just in terms of infrastructure
or not just in terms of SaaS apps, but really across a wider spectrum of different capabilities that we
think fundamentally every organization out there is looking to have. We think every organization needs
productivity software that enables their employees to be able to collaborate in richer ways and be able
to be even more competitive and be able to get more done.
We think every organization out there is looking for business applications that are increasingly delivered
in a SaaS-based way that enables them to reinvent business processes, to reinvent business models, and
become even more competitive. We see this huge rise that's happening in the space of infrastructure in
the cloud right now, and fundamentally believe that infrastructure is around enabling organizations to
really unleash application innovation that's specific to their business. And I'll talk about some specific
examples a little bit later on in the presentation where organizations of all sizes and in all industries
are looking to take advantage of the cloud to be able to connect to their customers better, to be able
to drive revenue, to be able to improve their operations and achieve more.
And a lot of these applications are being driven by data, and data is increasingly at the heart of pretty
much very business model going forward. And when you think about IoT, when you think about the power of
machine learning and advanced analytics, it's a very exciting time really for the industry.
And last but not least, all these different scenarios need to be delivered in a secure way and in a way that
an organization can really bet their business on it and manage it holistically with all the different compliance,
trust, and security capabilities that are involved.
And it's really the combination of all these different capabilities that is what companies are looking for
and what we at Microsoft are looking to deliver as part of the Microsoft Cloud.
You know, we sell each of these things as individual products and services, but it's often -- we see increasingly
organizations are looking to figure out how I can pose all these things together. And a big part of our
differentiation in the market is that we deliver these capabilities with a common what we call global trusted
and hybrid promise. I'll go into a little bit more detail about what each of those means.
On the global side, you know, it's probably the easiest to understand, which is the cloud needs to be something
that works all over the world, and in particular it can meet the unique compliance data sovereignty requirements
that organizations have around the word in order to run their business. And we've been hard at work at
Microsoft building out our cloud infrastructure over the last several years, and we now provide our services
in more than 34 what we call Azure regions around the world where customers can basically in a matter of
seconds deploy and run their own code and deliver their own set of applications and solutions to their
employees and their customers.
And we have more regions than AWS and Google combined. And in particular, we don't just have broad coverage
of regions, but also meet unique data residency promises that no other cloud vendor delivers, whether those
are in China, whether that’s in Germany, whether that's for the U.S. Government and Department of Defense,
we can make guarantees around who has access to the data in, for example, Germany and China, we make promises
which is no American and no Microsoft employee has any operational control over those data centers or that
data to be able to meet those specific markets. And, again, this gives a sort of a truly global scale at
which companies can operate and deploy their solutions.
I like to joke, each of these little blue dots you can kind of see from space, and in many cases they're
now massive, massive facilities. This is one in our East U.S. Region, you can sort of see the scale of
that little thing on the bottom right is a very large truck. This is another angle of the build out that's
happening. This is ultimately this facility is now, I think actually built out. It's about two miles long.
And this one location will ultimately host about a million servers. And this kind of scale at that global
level is something we fundamentally believe really very few companies in the world are going to be able
to provide. And for the most part we see ourselves in sort of a two-horse race today with AWS as that provider.
Where we look to differentiate then is not just at the scale level, but really around the trust and some
of the unique enterprise requirements that we see businesses have. We have now more trust certifications
with our cloud than any other vendor, and meet, whether it's individual industries, whether it's individual
countries boundaries, the credentials necessary for companies to bet their business on top of us.
And then we deliver a unique hybrid cloud capability that none of the other hyperscale cloud vendors are
able to deliver, where we can basically tell a customer, "you can run your applications, you can run your
data, you can run your code, not just in our data centers, but in your own and be able to easily bridge
the existing investments that you already have to take advantage of the public cloud without having to
rip and replace every system to do so."
And that works not just at the infrastructure layer but all the way through that stack, at the data layer,
the security management layer, all the way up to the business application and productivity layer.
And with our management tools and our security tools, we enable IT to look at all this with a single pane
of glass, where they can manage this infrastructure and our set of solutions, again, in our data centers
at Microsoft, the customer's data centers, or even third party cloud data centers like AWS. And with our
Operations Management Suite, and our Enterprise Mobility Suite offerings, we kind of provide IT that secure
way that they can manage all this holistically and is one of our more differentiated aspects of our platform.
We deliver all these things to be enterprise grade. Gartner has their legendary magic quadrants where they
like to rate software vendors independently in terms of capabilities. We now have more leadership positions
in the Gartner Magic Quadrants for cloud than all the other cloud vendors combined. And we're seeing tremendous
uptake and adoption of our cloud with about 85 percent of the Fortune 500 companies now taking advantage
of the Microsoft Cloud, and more than 70 percent taking advantage of at least two elements of our cloud,
for example Azure and Office 365 or Azure and Dynamics 365 as an example.
I think the thing that we're also seeing in this industry is as people look to take advantage of the cloud
the real economic opportunity here is far beyond the traditional IT boundaries that we've thought of before,
because a lot of these use cases aren't about internal IT. It's not around payroll applications, it's not
around document stores for internal documents, it's really around enabling organizations to take digital
technology and really reinvent their business in fundamental new ways.
And so the examples of just kind of some these kind of customers on that logo wall of how they're really
becoming software companies themselves and using the cloud to power their businesses would be organizations
like BMW. How many people here have a BMW? (Show of hands.) There's only like two people that raised their
hand. I think there's a lot more of you, but it's okay. But if you buy BMW today it's connected, as an
example, to Azure. And so the telemetry off the vehicle is flowing into our cloud, and the entire user
experience from a digital perspective, both in the dashboard of the vehicle as well as in the mobile companion
application that they provide is all powered using Azure and cloud delivered.
And they're basically looking at how do they infuse that type of cloud capability to basically make the vehicle
smarter, to make the vehicle more directly emotional to an end user, and be able to transform how they're
We're seeing other industrial icons, like Rolls-Royce and Boeing and GE to name a few. They're also now getting
on Azure in big ways. So when you fly across when you go home there's a good chance there's Rolls-Royce
engines on your aircraft. Telemetry is being downloaded as soon as that airplane lands about that engine,
and Rolls-Royce is now able to provide services with that engine to an airline that not only help improve
flight safety and operations, but can even go so far now as to indicate individual pilots how well do they
fly in terms of fuel economy to be able to drive down costs in terms of aircraft.
In the retail space we've got lots of customers like Walmart that are increasingly using Azure for advanced
analytics and to be able to optimize their supplier chain, as well as their retail pricing. Jet.com, which
Walmart just bought for $3 billion a couple of weeks ago, is another great company using Azure as an example
startup unicorn that had a great exit and is yet another example in terms of the types of companies building
Then in the financial space we're seeing across my portfolio both on premises, as well as in the cloud, increasingly
large financial institutions starting to move to take advantage of the Microsoft Cloud and our technologies.
MasterCard would be one example of a company that's using primarily on premises today, but using a lot
of our new data technology that runs both in Azure and on premises, to be able to streamline things like
fraud detection and their overall retail operations. I know you heard from Keith this morning form DocuSign,
they're another great customer of ours, taking advantage, again, both of our data products on prem, as
well as some of our Azure services in terms of running their SaaS service.
Collectively all these customers are driving huge amounts of adoption, we've got more than 120,000 new customer
subscriptions being created every month, about 1.6 million production databases now being hosted in Azure
alone, more than 2 trillion IoT messages each week, more than 5 million organizations that have sunk their
identity server and integrated their user employee security as part of our cloud, 4 million developers.
And the thing we always looked at, as much as we were focused on enterprises, having a cloud that is great
for enterprises also makes it a lot easier for software vendors to build their solutions hosted on our
cloud and reach those enterprises, as well. About 40 percent of our overall revenue, for example, with
Azure comes from startups and software vendors building solutions on top of us.
That's a little bit of context in terms of all the different pieces. The parts I run, basically Dynamics
365, Azure, SQL Server, our overall data platform at Microsoft, including what we call Cortana Intelligence,
our overall management security offerings, as well as our development tool offerings with the Visual Studio
family, and looking forward to chatting more interactively to answer questions about it.
KARL KEIRSTEAD: Thank you so much, Scott. One of the points you made up there that
intrigues me is the idea that Azure is doing a lot of net new stuff. It's not just displacing what's being
done on-prem. And I think that's interesting, because I think a lot of people might look at the total addressable
market for Azure as basically what's the spend on-prem, what percentage of that might go to the cloud,
use some price deflator for the ASP difference, and book you get your TAM. But maybe that's too narrow
a view of the world. And so I wanted to get your perspective on that and how much of what is being done
in Azure is, in fact, net new these days, rather than displacing what was done on-prem.
SCOTT GUTHRIE: I think for the most part I think what is true for Azure is also probably
true for the AWS and other cloud vendors, is especially in the early phases of cloud the vast majority
of the usage has been net new scenarios. The number of customers that are looking to lift and shift the
SharePoint server farm from their data center to Azure, I'm sure we have some, but I can't off the top
of my head even name one that's doing it, just because it's interesting but it's often been the individual
business units or product units within organizations that have actually accelerated the cloud fastest.
And the exciting thing about that is the TAM suddenly explodes far beyond what was traditionally possible
with enterprise software, to kind of include literally every type of physical device and/or digital transaction
scenario out there. I mentioned BMW is one. Rolls-Royce or GE or Schneider Electric or others, are just
a few other examples. Ultimately I think that blows open the market in a big way.
We are starting to see, I'd say in particular the last 12 to 18 months, more of traditional IT organizations
starting to move and plan. So we are starting to see that now, which I think is new in the last two to
three years versus where we were earlier. But I'd say still the majority of the usage, in particular the
biggest growth, is often around some of those net new scenarios.
KARL KEIRSTEAD: Got it. And if we talked for a second about the displacement of existing
if we sum up the revenues of AWS, Azure and GTP today we're probably talking in the order of $15 billion.
I don't know how you guys at Microsoft calculate the total IT spend, but let's say for the sake of argument
it's a trillion. I would suggest that public cloud infrastructure today is in the low, low single digits
of total IT spend. So if you had to put on your 10-year forecast hat where do you think that could go,
SCOTT GUTHRIE: Well, I think in terms of the opportunity I do think it's in theory
limitless, in terms of what the total TAM is. I mean obviously there's some limit, but there's a lot of
zeros there in terms of the total opportunity. And I think a lot of it is going to be bounded less by market
size and more just our own creativity. Some of the scenarios that we see use on Azure today, if you had
asked me, say, three years ago would have sounded like science fiction, whether it's fraud detection, whether
it's hedge funds doing quant analysis in terms of portfolio, bursting, whether it's around manufacturing
scenarios, again, predictive maintenance for equipment, a lot of these things you never think of as "IT,"
or at least I wouldn't have thought of, and I think that's the exciting part. And the trick is obviously
we're just going to keep growing and maturing that. But I think the exciting part is we are at the very
beginning of a very long journey and it's going to be an exciting journey in terms of the net new use cases
that we can enable.
KARL KEIRSTEAD: And I think the other exciting thing for a lot of the people in the
audience is that it feels like the spoils are going to go to a smaller group of vendors that in a lot of
other big technology shifts that have opened up large TAMs, as you describe, the investments, the CAPEX
required to make this business succeed are incredible. There's only a handful of companies that are even
capable of doing that. Perhaps gone are the days when two guys named Bill and Paul could start a company
in their garage and turn it into a behemoth. It's going to take a lot of investment.
So you suggested it's down to sort of a two-horse race. Maybe you could talk a little bit about that and
whether you think there's prospects for an IBM, a Google, who are the other players that could do this?
SCOTT GUTHRIE: I think to be a hyperscale cloud vendor, which I think increasingly
is going to be the thing that any enterprise is going to want to adopt, I think you ultimately need to
have three things, which create kind of a moat, if you will, around the market. One is you need to be able
to spend vast amounts of money in terms of CAPEX, billions and billions of dollars a year building out
data centers, buying private fiber, building servers. And that immediately creates a pretty big barrier
to the market.
The second thing you need to have is thousands of engineers that can write distributed systems code. You
can't just buy into this market, because none of the servers that we use now are off the shelf servers.
We're building our own server designs. We're manufacturing our own capabilities both at the server level,
the network level, the storage level. This is not managed hosting where you buy off of traditional vendors
to get in. You need to have engineers that are able to do that and be able to manage millions of servers
in a very large environment. And that, again, is a big, big barrier to entry. You need to do not just the
infrastructure layer, but then at the data analytics layer, the security layers up and down the stack,
to even be able to be credible with a V1.
And then the third thing you need to have is, frankly, time. A lot of these things that you learn in the
cloud in terms of operating at the scale, there's no book you can go to Barnes and Noble, how do I manage
a million servers.
KARL KEIRSTEAD: It's all pretty new, right.
SCOTT GUTHRIE: It's all pretty new and it is very existential, you kind of learn it
as you do it. You kind of can't really figure it out any other way. And so you do need a couple of years
of experience to be able to operate with the SLAs and the security trust compliance boundaries that we
provide. So the combination of those three things creates a pretty big moat. And when I look at other vendors
in the market I think that's going to be very difficult for folks to break in.
So right now we certainly see pretty much every engagement we're in Amazon and us are in those engagements.
I think in China you've got Ali, which is very strong in China. I think they're going to struggle to succeed
outside China. But I think they will be a very large hyperscale cloud in China.
KARL KEIRSTEAD: Is there a place for a Google do you think, Scott? They've got the
engineering chops, they've got a few dollars in the bank, could they pull it off?
SCOTT GUTHRIE: Yeah, I think that would be the outside China the place the only kind
of I think other credible vendor could be Google.
KARL KEIRSTEAD: Okay.
SCOTT GUTHRIE: The challenge I think they're going to have is the lack of enterprise
capability and then even the way they've built their infrastructure historically. It's really been optimized
for search and so if you look at, for example, the number of regions around the world they operate in,
they currently I think have four versus our 34. And again, if you want to compete in the UK and you want
to go to a bank in the UK and say, hey, you should consider using us for cloud, you can't say, well, we
can't guarantee your data is going to stay in the country, we can't actually meet your regulator needs
and I'm not sure when we do support whether we're going to be able to have a human on the end of the line
when we pick up the phone, that ends up being kind of a nonstarter for that conversation.
So I do think they're going to struggle a little bit, certainly over the next couple of years, in terms of
building up an enterprise credibility and being able to get to that point.
KARL KEIRSTEAD: Makes sense, so if there are two vendors on the right side of that
moat, yourself and the other little company in Seattle, it's maybe an unfair question, because as we just
described earlier, the TAM is so enormous that there's going to be room for two to have a fun time for
the next 10 years. But I think a lot of people in the audience would love, given that you're here, to outline
a little bit what some of the key differentiations are. When you're pitching against AWS in that Fortune
500 what are the two or three things that you hone in on and that your customers seem to appreciate, if
you could distill it. You touched a little bit in your slide deck, but I'd love to ask you again.
SCOTT GUTHRIE: I think we're definitely in an arms race. And the funny thing is we
can kind of like almost see each other across the lake. And we have lots of respect I think on both sides
between each other and with other vendors in the industry. So I think the thing that's most important is
you can't ever be complacent, you can't ever think I've got the killer thing that's going to make me invulnerable
for many years. The technology industry is exciting, because every six months or three months somebody
is going to come along.
We focused on a couple of things with Azure to try to differentiate. And we're obviously we're number two
and aspire to be number one. Sometimes it is features and so, for example, we invested very heavily in
IoT early. And so I mentioned like BMW, or Rolls-Royce, or GE, or some of the other IoT wins up there,
sometimes when we're first to market in a particular category, whether it's IoT, our new Data Lake service
that's coming out this fall, we think will also be quite differentiated, BI is another area where I think
we're quite differentiated. And in the security management space, those things we definitely are looking
for higher level services beyond infrastructure that we can sort of get to market and have something that's
really differentiated from an IP perspective. So we definitely focus on those.
And then I think the other area that we've really from an enduring perspective really spent a lot of time
focused on is that global trusted hybrid, where the hybrid in particular is probably our biggest single
cross-cutting differentiator versus them. The ability to go to an organization and say you can build apps
and run it not just in our cloud, but also in your data center, or even across the street in AWS' data
center, and have that hybrid flexibility, tends to really, really resonate, plus the startups that are
trying to just move very quickly, but in particular with that enterprise audience and I think that's something
that if you use any of the AWS services you can use them only in AWS. You can't use them in Azure. You
can't use them on premises. And we're very different in that category. And that, again, appeals I think
to the crowd and the customer target, which is enterprises and the ISVs targeting enterprises that is sort
of maybe at the center of our bull's eye.
KARL KEIRSTEAD: That makes sense. And, Scott, I think another question a lot of investors
have is when they hear about a market emerging where there's massive CAPEX. There's only two or three viable
vendors. One could be led to a conclusion that we're into a sort of race to the bottom on price, that it
will become extraordinarily scrappy and one out-dueling the other. I've noticed from my own checks in the
Azure and AWS community that that's, frankly, sometimes not the main differentiator. It comes down to other
stuff. So on the pricing front what's your comment on how tough it is out there?
SCOTT GUTHRIE: I would put it in terms of for the most part we're not competing on
price. I don't think either one of us versus each other. It's typically we're competing more on value I'd
say at this point, which is a difference versus, say, two or three years ago where I think it was actually
more about cost per VM or cost per storage.
KARL KEIRSTEAD: And value you mean the features and performance of the infrastructure?
SCOTT GUTHRIE: Yeah, the higher level services, the features, the performance, and
really the ability to differentiate or really deliver true innovation in a way that isn't possible on prem.
And the thing that's interesting also I'd say about hyperscale cloud vendors is because we now have a large
enough footprint one of the ways that we can take cost out of the system is not actually by dropping the
price on individual VMs, it's really around giving the flexibility to that particular customer to scale
up and scale down when they need it. And that's the place where from a taking cost out of the system for
traditional IT we often have the biggest bang and the biggest impact.
KARL KEIRSTEAD: Right.
SCOTT GUTHRIE: And it has the other benefit, which is as more capacity is needed by
those organizations they can spin up at a moment's notice. And take, for example, just in the financial
industry where we're starting to see a lot of customers starting to move to the cloud really in the last
year in a substantial way, we like to joke we can kind of tell what the bond prices look like, because
all of our financial customers doing quant analysis, whenever the bond market gets really frothy they like
massively do burst jobs inside our cloud, to kind of hedge and do Monte Carlo simulations. And so they're
suddenly spinning up lots. And then when it's quiet they spin it down.
Again, that's not a cost thing, because for them it's actually value that they're getting out. They want
a good price for it. But that ability to kind of match what they need and scale up and scale down gives
them a huge discount over what they would otherwise have to pay with their existing on-prem infrastructure
and, again, turn it into kind of value as part of it.
KARL KEIRSTEAD: And I guess one thing that Microsoft can do, and I'm sure your rivals
are doing it, too, to stay competitive on that unit price decline is yourself to be lowering your internal
unit costs, so you can pass on those savings to your clients. You touched on it a little bit with respect
to your comment that Microsoft is leaning a little bit more to custom and ODM versus off the shelf. But
can you elaborate on the other things that Microsoft is doing in its cloud infrastructures to get leaner,
meaner, cheaper, so you can pass those savings onto your clients?
SCOTT GUTHRIE: Yeah, you'll see even some announcements later this month at our Ignite
conference, both in my keynote and then Satya's keynote about some of the cool things that are possible
with technology, that he's going to kill me if I tell any of them right now. So I'm going to be careful
not to give away too much, but you'll kind of see, again, where it's not just about cost or about doing
it in the cloud versus not, but how do you use that combination of software and hardware together to kind
of unlock new things that you just couldn't do.
So, for example, we've talked about our ability to do programmable hardware inside Azure and the fact that
we use what's called FPGA processors inside our fleet now and that starts to enable us to do algorithms
for whether it's healthcare, whether it's for financials, whether it's for other spaces where we can dramatically
by like orders of magnitude shrink down the time or cost it takes to solve something. That would be an
example of where just cost effectively there's no way you could do that with 10,000 servers. You really
need to be able to have a fleet of millions in order to justify that level of investment.
Similarly, in terms of as we build data centers, or as we build out our data center portfolio, when you're
adding hundreds of megawatts of capacity per year the rates you get are a lot better than what you get
in the traditional enterprise data center, where you're in the single digit kilowatts, in terms of power
consumption. So there's lots of efficiencies and scale that we're able to take advantage of, not just to
drive lower costs from a procurement perspective, but really around investing in that IP technology layer,
as well, to differentiate.
KARL KEIRSTEAD: And one thing I hear when I talk to prospective customers considering
the public cloud, Scott, is lingering security fears, data privacy fears. You mentioned when you were describing
the purview of responsibility that security was one of them. So maybe it's an opportune time to ask you
about that, and specifically what you and your team are doing to get those security conscious enterprises
over the hump and feel good about putting their sensitive customer data in Azure?
SCOTT GUTHRIE: I think in general the threat environment that we all live in now is
significantly scarier than it was a decade ago versus two decades ago. And I think the adversaries out
there are getting more sophisticated. The types of attacks that are happening are happening more frequently.
And that's just going to be the new normal for us going forward. The important thing when you think about
security is you've got to be paranoid and you can't take anything for granted. And any vendor who says,
hey, use my stuff and you'll be perfectly secure run away from, because they either don't give security
or they're lying.
And we often when we talk to our customers say, there's multiple layers of security that we need to worry
about. There's our responsibility which is how do we run the infrastructure and how do we provide a cloud
environment where we do everything we possibly can to make sure it's secure and that the core capabilities
there are secure. And then also there's responsibility for the customer, which is at their code level,
as they're building their application, how do they do their responsibility to make sure that they also
invest in the security of their app, and how can we provide for them features and services that can help
them as part of that journey.
And so as an example for, say, Azure, we can detect if you turn it on any time it looks like someone is trying
to access your database and what's called exfiltrate information from it. So if we see what's called typically
a SQL injection attack where you've got a web app and you've inadvertently encoded input incorrectly and
allowed someone to execute a SQL statement against your database. That's a very common security hole inside
the app layer. We can now automatically warn. On a given daily basis, we'll typically warn several customers,
hey, we see something suspicious, we should go follow-up. And that ability to automatically warn and identify
when we see attacks happening is one of the feature differentiators that we provide that, again, helps
at the app layer and helps keep their customers secure.
And then we're investing very heavily at the infrastructure level on how do we, again, make sure that we
provide and do everything we can in terms of best practices in terms of defense in-depth around security
guidelines as well. Sort of examples would also be --
I think one of the things that does help cloud vendors, especially hyperscale cloud vendors at that base
level is the fact that we do have so many servers and so much stuff we're managing, it does force you into
a much more homogeneous environment inside your data center, and when you're managing millions of servers,
you can't have a human in the loop. And so I do think one of the things that sometimes security experts
do say is beneficial about a public cloud environment is you avoid a lot of the seams that you have in
the more traditional data centers where you've got a little bit of every technology and there's an awful
lot of people that run this script or do this action.
When you're managing millions of servers, you kind of have to automate it, and it has to be homogeneous enough
that it does kind of prevent some of the more obvious seams that we see in other environments from opening
up. But, again, you really can't take any of this for granted, and it's a constant how do we get more secure
even on a quarterly basis in terms of the defenses we put in place, and in particular the defense in-depth
approach that we adopt, so that even if someone gets through something they don't actually get through
the environment because there's four or five doors beyond that that will catch them.
KARL KEIRSTEAD: I'll be at your Ignite event in Atlanta. I'm sure you'll be talking
a little bit about the security angle there, too.
We could probably talk all day long about Azure, but you run a little bit more at Microsoft than just Azure.
You've got this $19-ish billion on prem server business, too. So I would love to ask you about that if
we can flip.
SCOTT GUTHRIE: Sure.
KARL KEIRSTEAD: One of the I think great things about the Microsoft story is that,
well, Azure and 365 have been scaling, your on-prem server product business has actually been hanging in
there like a champ. That's not the case for a lot of other large technology firms that have seen great
cloud growth, but their on-prem business is actually in steady decel, yours is still growing. So can you
talk a little bit about that, and how long that can last?
SCOTT GUTHRIE: Yeah, I mean, we've seen our on-prem business stay pretty healthy despite
a lot of the cloud shifts that are happening. And I think there's probably fundamentally a couple of reasons
From a technology perspective, the hybrid story really resonates with customers. And often when you see kind
of a disruptive change happening in the market like cloud is, what ends up happening is people put purchasing
decisions on hold, because hey I'm not sure I'm going to need that thing if I go to this other thing.
KARL KEIRSTEAD: Or they'll plan to buy less, or they whiteboard what their world is
going to look like in three years.
SCOTT GUTHRIE: It's our ability to tell a customer, you can buy that database and
you can use it in your own data center. You can lift it up and move it into our data center and not pay
anything extra to do that. And you can use it in our data center as a service and have the same data API,
the same data capabilities in all three of those locations, is something that, say, an Oracle or other
database vendors have not been able to articulate or be able to promise. And that's helped us quite a bit,
I think, in terms of unlocking that.
I think the other thing that we've kind of focused on and have had a good set of products that come out is
with say SQL 2016 that went GA earlier this summer, it's our best database product ever. The Gartner Magic
Leader Quadrant for Operational Database Systems, Oracle has been the leader probably since they started
it, I don't even know, for 15-20 years. This past year was the very first year we passed Oracle both on
execution and vision in the database category with SQL 2016. And it's a testament to just sort of the amount
of innovation that's in that product on-prem, and the beauty about it, not just form a value and capability
perspective, is the fact that from a TCO perspective customers can run at about 11.7 times cheaper than
the equivalent Oracle solution.
And so that's put us in a very nice place where we can go to pretty much every organization out there right
not that's feeling, frankly, some angst about Oracle price increases, and be able to say, "we can give
you more value, we can give you a lot more capability, and we can do it at one-tenth the price." That is
hunted and resonates. And those tier one database takeouts, they take long. So they're not like a quick
one week conversation, but when they do happen they're really, really big wins. And I think we've got a
good motion and we're seeing some good traction in the market versus Oracle, in particular in the database
space. Similarly in the management security space, we've been able to keep growing at a nice clip.
And even our developer space, which I think has been great from a revenue, but from a usage perspective has
kind of been kind of roughly flat for a couple of years, going back a couple of years, we've seen now our
actual number of developers using the Visual Studio family of products more than double in the last 18
months. And we're reaching now new developers doing Mac development, doing iOS development, doing Android
development that we previously didn't have any tools to even sell to and starting to reach those new markets.
So we still think there's a great role for on-prem. And, again, that combination of on-prem with cloud
is where we think there's a real special sauce that we kind of enable as part of it.
KARL KEIRSTEAD: And on SQL Server, as I think Zack knows, I've been a bull on that
part of your business, it's been growing at a very heady clip. When you talk to Oracle they always characterize
Microsoft on the SQL Server database side as being down market, not at functional parity. And yet when
I talk to database heads at large firms, they refute that and say, in fact, it's at functional parity and
there are some displacements that even I hear about. So I trust you would agree with that assessment?
SCOTT GUTHRIE: We like to think so. I do think even that Gartner study, the Gartner
Magic Quadrant, that one was in the database business a little bit of an earthquake, because Oracle had
been able to say, yeah, they're more cost-effective, they're easier to use, but we're still the leaders.
KARL KEIRSTEAD: Remind us what that was, that was the recent magic quadrant where
I think no the database side you guys were neck and neck with Oracle.
SCOTT GUTHRIE: For a long time neck-to-neck, and then this year is one where we passed
them. We're the top right, the absolute leader in that space. And the combination of that plus the TCO
savings we're able to deliver, plus hybrid ends up being a conversation starter with pretty much everyone.
And we've got a good partnership, for example, with Hewlett-Packard Enterprises where we now can even do
kind of exodata style hardware takeouts, and we can basically deliver the hardware and the software at
a faction of the cost of Oracle. It's a, let's do a POC for three months, and price performance and value
perspective, we pretty much win those every time. And we're seeing some good success right now in the market
as part of it.
KARL KEIRSTEAD: Scott, the other big chunk of your on-prem server product business
other than SQL Server database is your Windows Server OS side. That to me has been a tougher market. And
I'm wondering if you could comment around your outlook for Windows Server? I think there's some nervousness
about what a traditional server OS looks like in a cloud world. Does cloud end up going all Linux? Do you
need a stripped down lighter weight OS? Maybe you could offer some comments on the Windows Server part
of your business.
SCOTT GUTHRIE: Yeah. That is an important part of our portfolio today, and the thing
that we've been hard at work on and have a really great product coming out later this month is our Windows
Server 2016 release. And that has specifically gone after some of the points you mentioned, which is builds
in containers in a deep way and has Docker support natively right out of the operating system, has support
for what we call our Nano Server, which is a very lightweight version that's very minimalistic and we think
designed for new application workloads. And then the big part of Windows Server 2016 I think for existing
customers has been the focus around security that we've baked into it and in particular it really enables
IT to run their existing Windows Server applications in a much more secure environment, and have much more
So we think that combination resonates very well with what the market wants, and we're pretty excited to
see that grow and that up-tick over the next couple of months as it comes to market. And I think the trick
is, it's a mature market for sure, but the trick is I think there's still lots of innovations that we're
able to provide, and for our on-prem business all up, from a licensing perspective, the vast majority is
annuity based as opposed to kind of licensed transactional. And so as we're able to add and continue to
add additional value through that footprint, that also helps in terms of from a continuation perspective
making it easier for customers to adopt it, since they already own it, and then also I think makes the
value proposition even more valuable.
KARL KEIRSTEAD: Good. And maybe just in our last minute, the other business under
your responsibility is Dynamics, and I think everybody in the room, their eyes popped a little bit a couple
of days ago you announced a win at HP Inc. And that's significant in a number of respects, and perhaps
you're limited from giving us too much detail, but we all thought HP Inc. was a Salesforce client. So is
this a takeaway, and what does that say about Dynamics CRM because I think there's been a general perception
that that's more the mid-market product. And I wonder if this win with HP Inc. is perhaps a harbinger of
Microsoft having a little more success up market against Oracle and Salesforce?
SCOTT GUTHRIE: Yeah. I think the HP Inc. takeout yesterday -- Salesforce takeout.
KARL KEIRSTEAD: It was?
SCOTT GUTHRIE: Yeah. They were a very large Salesforce shop or were until yesterday.
And they're planning a massive migration and a big bet on Dynamics. And it's one of the more public ones
that we've had, but we're starting to see some really good success in the market at a broad level, in particular
around enterprise. And I would say for CRM in particular enterprise is our sweet spot. Other parts of the
Dynamics is maybe a little bit more mid-market in the ERP space, but in particular for customer engagement
solutions I think we've got a very strong enterprise product and we're growing very, very fast.
I think we've kind of talked about the cloud growth that we've had obviously with Azure and Office 365, Dynamics
has been on an absolute tear as well. And we see huge upside with that. And the exciting part, we've announced
plans to acquire LinkedIn. It's not complete yet, so kind of all the standard caveats there. But the interesting
thing, assuming regulatory approval and all the right caveats Zack wants me to say, the signal that you
get from a professional graph, say for example from LinkedIn, where you know who knows who, each other,
you know the relationships, you know their skill sets, you know who they worked with in the past.
The insight you get from a sales reps' or customer service reps' inbox with Exchange and what we have in
Office 365, the insight you get from someone's calendar, and even with Skype all of their phone and voice
communications and IM traffic, you take all that together and have a cloud that can do deep insight and
analytics and machine learning and AI on top of that. You create the ultimate selling tool, the ultimate
customer support tool in the industry because you have so much insight that can assist a sales rep or assist
a customer service rep that no one other vendor can provide.
And we're very excited in terms of over the next year or so to make that really come to market. And you'll
see a lot more announcements and demos of that type of technology even in the next couple of weeks.
KARL KEIRSTEAD: Well, congrats on that deal. Congrats on the great success with SQL
Server and most importantly the amazing growth trajectory of Azure. Well done. And thanks for attending
our event. I learned a lot. Hopefully everybody did. And thanks to the Microsoft IR team for bringing in
Thank you. (Applause.)
February 25, 2019 8:00 AM - PT
Morgan Stanley Technology, Media & Telecom Conference
Dave O'Hara, CVP, Cloud and Enterprise, Office, Dynamics, Artificial Intelligence and Research, CFO