Goldman Sachs Technology and Internet Conference

Tuesday, February 14, 2017, 1:20 pm EST

Julia White, CVP, Cloud Marketing

video

Transcript

29:20

Goldman Sachs Technology and Internet Conference

Goldman Sachs Technology and Internet Conference Julia White

Who: Julia White, CVP, Cloud Marketing

When: Tuesday, February 14, 2017

Where: Goldman Sachs Technology and Internet Conference- San Francisco, CA

HEATHER BELLINI: We were just saying it's very rare to have two women on stage at the same time. So thank you. We're very pleased to have Julia White with us today from Microsoft. Her bio is very long and distinguished, and some of you might have seen her do the big, I think it was Satya's first public appearance where he demoed Office for iPad. And you were the one in control of that session. I remember it well.

But, anyhow, like I mentioned, she has a very long and distinguished career. She's corporate vice president at Microsoft. She heads up marketing and product management for Azure and the security portfolio. She's doing double time between here and RSA. So if you've got security questions, she can probably field some of those as well.

But before we get started, also, I'm going to read a disclosure statement. So I'm going to make Zach happy.

Before we begin, Microsoft may make some forward-looking comments during this presentation, and you should refer to their SEC filings for the risk factors relating to their business, and this is whether you're here in person or listening on the web.

JULIA WHITE: We're all covered. Perfect.

HEATHER BELLINI: We're all set. We're all set.

So thank you, it's great to see so many familiar faces in the audience. Again, we're happy to have Julia with us today, we're going to try and make this as interactive as possible, so feel free to raise your hand if you have a question. But to start out, just to level set people in the room, how do you define cloud for the audience?

JULIA WHITE: Cloud is a big thing. For Microsoft specifically, we have a very broad definition of cloud and cloud assets, frankly. So just to kind of give you a purview of that, starting with our productivity cloud with Office 365, everything from the actual Office applications being delivered as a live service as well as e-mail, collaboration, Skype, Teams, anything to do with communication, collaboration, productivity in our Office 365 cloud. Then to our business applications with Dynamics 365, so line of business, CRM, field service, those type of technologies. And then, of course, our core platform and infrastructure with Azure, able to do app innovation, other things like that. And then our data, we have Cortana Intelligence as well as our deep data, artificial intelligence capabilities. And then, last but not least, of course, is RSA. We actually have a whole cloud security and management portfolio as well.

So for us cloud is comprehensive from productivity, line of business, infrastructure, security and data all the way across.

HEATHER BELLINI: Okay. Helpful, thank you.

If you look back over, you guys have a different fiscal than calendar, but however you want to think about it, over the last 12 months what have been the biggest surprise? What surprised you about your cloud business?

JULIA WHITE: You know, overall, the cloud, our technology advancements as well as the market, honestly has been developing about as expected, from a tech and a disruption, I can't think of a big surprise there. The interesting thing, the biggest maybe surprise for all of us is the political situations going on across the globe, and whether it be in the UK or the U.S. or pending in Italy and Germany, which has actually had very material impact on the cloud conversations we're having with customers in terms of where is data residing, where are your data centers, how do we think about that? Who has access, privacy, data handling, those conversations are coming up more and more based on, I think some of it consider it a somewhat surprising political situation.

HEATHER BELLINI: So is that a sign, if you take away, take a step back from the political situation, is that a sign, do you think that people -- that cloud has become more mainstream is that you're starting to get these questions from more of your customers that might be we're moving beyond say test and dev and that we're actually starting to hear people think about and plan for these bigger migrations? Is that also potentially behind those sets of questions?

JULIA WHITE: For sure. I think we're in the early cycles of DevTest and kind of trying new mobile apps in the cloud to now really thinking about that holistic data center migration to the cloud where you're looking at mission critical applications, very sensitive line of business data, and those core things where this topic has become more and more central.

And you know what's interesting, Office 365 is our most mature commercial cloud offering, and in the early days people were like, I'll just use it for archiving, and do different things. And now they've started saying, I'm going to run my entire productivity stack in the cloud. Those questions matured as well. So I think we're seeing a similar cycle from the infrastructure and the holistic data center side of it at this point.

HEATHER BELLINI: So would you say that, and this is going to sound because this is a technology that's been around, cloud has been around, AWS started a little over a decade ago. Are we beyond, I mean most people, technology companies have moved there, startups have started in the cloud, but again still mainstream corporations, when we talk to them, are still people that have a very limited cloud strategy. Are we at the point now where this is mainstream for everyone, not just on a SaaS basis, but thinking of those production workloads that might be custom built starting to move?

JULIA WHITE: I would say mainstream in the conversation and in the planning, and more and more kind of average or even to the laggard of technology organizations are now having a cloud-first IT strategy. But I don't think we've hit mainstream of actual cloud adoption from an infrastructure and platform perspective.

HEATHER BELLINI: Do you have a sense of how long it takes to move from this being a conversation, a mainstream conversation, a mainstream deployment?

JULIA WHITE: Yeah, you know, as a technologist I would want it to go a lot faster, and I live in my own little bubble where everything moves quickly in technology. Having done commercial enterprise technology for 20 years, it always goes slower than the technologists want. And so I think we're in the, I think we're in about this year was the year, actually the end of 2016 was the year that 50 percent of mainstream organizations felt that cloud security was superior to what they could do on premise, and 50 thought it was inferior. So we've hit that conversation.

So I think if we think five years forward, then I think you'll start seeing fairly mainstream core line of business applications in the kind of broad adoption I think done in a real way. But I always try and temper it, too. People used to tell me EDI was going away, and we know mainframe is still a $2 billion business. So we have to be practical about this, too, in terms of how it's going to go, how the curve is going to shape.

HEATHER BELLINI: What's on your customers' wish list? Is security the top priority on your customers' wish list, and what else would be on there since that's not --

JULIA WHITE: Security is always, when you look at things that people care about in the cloud, security is still number one. It's become less so. We've seen privacy rising on that one. But I think the thing that I talk to customers most about is, again, mainstream companies who don't do technology for a living are finding how to use the cloud, digital transformation, it's how do you make the cloud easier? I mean, we've been innovating so quickly, all of us are, not just Microsoft, a thousand new capabilities coming out. And so if you're GE or if you're a manufacturing company, or you're an auto manufacturer, trying to keep up with that is hard. And knowing how to take advantage of that.

So things like make my transition from data center to cloud much smoother. Don't just assume everything is going to go to the cloud overnight. There are deep investments in hybrid, and the way we view hybrid very uniquely and having that continuity between the two, because we deeply understand the data center as well as the cloud, and so uniquely able to make that something that customers can do in a way that makes sense to them.

So I think that migration is certainly top of mind. And then, again, I think you go back to, it was already a conversation, but even more so in the political domain, of really focusing on what we call trust and under trust we have the principle of the privacy, security, compliance and transparency. And we're making sure we're kind of on the cutting edge of those areas, so they know that even if business policy or political situations change, they can trust that their cloud is ready for the full-time business use.

HEATHER BELLINI: So it's a good segue, given what you said about helping them make the transition smoother, but how do you think about the competitive environment for cloud today and how you've differentiated yourself, if you could go a little bit deeper?

JULIA WHITE: I think the past couple of years have been a bit of a feature war, if I look at the cloud, this feature, that feature, closing the gap on features. And I think now we're at a point where we have a feature, whatever, now it's about how do people actually get business outcomes from the cloud.

And I think that's the real pivot. And our massive sales force out every day talking about digital transformation. That's the conversation our customers want to have with us is that digital transformation, not just how do I use tech, but how do I get new business outcomes.

So I think about holistically, to the differentiation question, one of having a holistic cloud. You know, we have an all-up Microsoft Cloud, it's not just Azure, it's not just Office 365, it's not just our Dynamics 365, it's all of those things. And so you get coherence of them, a lot of Office 365 customers running e-mail, running their collaboration stack. We've already done the identity system, it's super easy to use Azure because you've already set that up. We've already gone through all the security audits and that type of thing.

Hybrid, definitely a major conversation, and a huge differentiator Microsoft has. Again, we understand the data center and we understand the cloud. And hybrid today people use it in different ways, but this thing that I have, some of the infrastructure in my data center and some of my infrastructure in the cloud, basically the IT organization you're running two infrastructures if it's not consistent. And that's expensive. There's security that comes into play in trying to manage two things. It's complex.

But the reality is it's not just like everything goes to cloud overnight. And so what we have done very uniquely is have a consistent hybrid approach. So we have one directory system, one identity system, whether things sit on-premises or in the cloud. We have one management security platform, whether things sit on a data center or in the cloud.

We're now in the final stages of launching our consistent platform with Azure Stack, which is actually taking the technology of our public cloud Azure and putting it in a small enough instantiation that a customer can put it in their data center. It's at home, it stays up to date with Azure, but it gives them data center control. So developers can build their application using the same APIs, write an application and they can decide to run it on Azure Stack in the data center or in Azure in our cloud and have that consistent experience.

HEATHER BELLINI: Now if they were going to run a SQL Server workload on AWS they would not that feature wouldn't be available for them, that product wouldn't be available for them?

JULIA WHITE: Azure Stack.

HEATHER BELLINI: Azure Stack.

JULIA WHITE: Correct. I mean Azure Stack is well, I guess you could use AWS and Azure Stack, that would be a little silly to be honest, because you're not getting the benefits of having that shared developer experience. But it is a technology that any customer has access to.

HEATHER BELLINI: How much of that how much are innovations like that selling point when you're going in and talking to these customers who, like you said, are just starting their 10-year journey, where you could say, look, work with us and our selling process could be one person encapsulating your on-premise spend? I mean like how do we think about the selling motion and how these types of new products might help ease someone's concerns about making the investment to move to the cloud.

JULIA WHITE: Yeah, absolutely. Acknowledging that this is not just a technology thing, it's actually a major change initiative for organizations. I was recently meeting with all of the CIOs across different government agencies and they asked what's the single reason that cloud adoption is not faster. And I said you, all of you in your organizations. It's just humans. The technology is quite mature at some levels. But the change in the understanding of how to use the cloud versus just do the exact same thing you've been doing in your data center in the cloud that's not really taking advantage of the cloud.

And there's deep, deep fear in these organizations that if I go to the cloud what does that mean for my job. These are human jobs coming into play. So when we can go in and have a conversation that fully recognizes that this is a change initiative and say, you know what, you can change in the way you need or you can go at whatever pace you want, hence that investment in hybrid.

So leverage, utilize, get the best out of those massive existing data center infrastructure investments, don't just walk away from them, don't pull up a truck and chuck stuff out, use them and that's an advantage you have. And then as you use the cloud intelligently in how you innovate there, how you connect them. And if you do it in the way that we do it, it doesn't mean you're running two different environments, that's expensive and creates new security issues. It's a very comfortable process for people in that way.

HEATHER BELLINI: When we think of the sales force going in and talking to your large customers are they incented one way or another to are they incented differently to drive cloud or on-premise business, or is it a holistic approach and it doesn't matter kind of which bucket it's falling into?

JULIA WHITE: A couple of things, as we have shifted to be a cloud business we have adjusted the way we incentivize our sales force, as part of our overall company change. And so in the old days we only had on-premises technology all those sales people were paid on licenses. And so licenses you got paid. Whether the customer used it was their problem and they decided to or not. But our sales people got paid on that.

Now in a cloud world we have increasingly shifted our sales people, both the roles we have dedicated to consumption and the amount they're paid on consumption versus just the transaction we're moving up and up and up. So we now have a very, very significant sales force that focuses only on getting paid when the customer actually consumes the cloud service, getting value out of it. And you need to, that's the reality of a cloud service, if customers aren't using it they can vote to leave every day and we recognize that.

HEATHER BELLINI: When we think about the incremental revenue opportunity, so then if someone could take all these apps, if we were running a trading application on SQL Server, we decided to migrate that over to Azure, how do people think about the incremental revenue opportunity that could go to Microsoft from migrating over? Is there a way to think about it?

JULIA WHITE: A way to think about it is as an overall shape of IT investment. You're paying for the physical data center; you're paying for the air conditioning, the energy, very expensive aspects, actually, of all of that. When we have our global scale, 38 data center regions, more than anyone else on the planet, we have incredible economies of scale that we can pass onto the customer, so they can say, well, we actually get a bigger share of the wallet in terms of running that end-to-end.

HEATHER BELLINI: Is there more beyond the heating, cooling, and space that's an incremental up-sell as people move to the cloud?

JULIA WHITE: First off, I mean the technologies that frankly weren't possible or just frankly weren't pragmatically possible on an on-premise instantiation. Machine learning or artificial intelligence as one example of things that you, of course, could do on premises, but the amount of infrastructure it took you couldn't just dabble, you couldn't try out and app and experiment with a massive you'd be putting out huge upfront costs to be able to do that. Now you can do what Uber did, they in three months wrote a new app for their drivers that does facial recognition to make sure that's actually the driver that is. It took them very they didn't have any upfront costs. They wrote to our Cognitive Services that does facial recognition and that was now part of their app and rolled out globally in three months. So that type of thing fundamentally I mean you could try to do it in on-premises, but it would be herculean.

HEATHER BELLINI: How does cloud adoption for your customers typically evolve from their initial use case? You mentioned Office 365 is the biggest of your enterprise cloud offerings, is that the spot where customers typically get their first taste of using Microsoft in the cloud and then how does it evolve from there?

JULIA WHITE: Well, Office 365, I mean it's in the SaaS market and more mature and a little bit more understood. People kind of actually understood hosted e-mail, because they have that in their personal life. No one ever had their own personal e-mail server for themselves. So that model was very understandable for companies to go to. And e-mail, while mission critical at some level, was something they could feel like they could go to.

So from a market reason, as well as the fact that Office 365 we started it many, many years ago, that confluence, that is a place where most customers tend to begin their cloud journey. I think as I look and then once you've done that and you set up your directory system and then you're like, gosh, I've done that why don't I just use Azure. So there's definitely that flow, very common. But increasingly now, too, with the maturity of the cloud and where we are I think both Office 365 and Azure rival in terms of kind of the on-road into using cloud in a pretty mainstream way.

HEATHER BELLINI: And how is PaaS adoption evolving? When people start with IaaS, how would you say your momentum in PaaS adoption is?

JULIA WHITE: I think that's true, a lot more people start with IaaS, because it's what they're familiar with, right. Our advanced services in Azure, our PaaS services, we're seeing very strong growth of that and I do think that will continue. I mean they are more of a smaller base, so growth is faster, but I think that when people see experiences like I described with Uber of having that facial recognition instantly added to an app, those are the higher level services, those advanced services that create the things you couldn't do in your own data center, you start to recognize those.

HEATHER BELLINI: Let me pause for a second and see I've got a whole host of questions, but I want to see if there's any from the audience.

JULIA WHITE: I'll get a new mic while we're at it.

HEATHER BELLINI: I think our mics are good. All right, I'm going to keep going with these. And if anyone has a question just feel free to jump in.

If you look out five years from now, 10 years from now, and you said you're a technologist and you want this to happen faster than maybe it could, what percentage of workloads would you guess would you guess would be in the cloud? Not at Microsoft, just your view as a technologist?

JULIA WHITE: In five years?

HEATHER BELLINI: Out 5 years or 10 years, you can fix the timeframe.

JULIA WHITE: Those would be different.

HEATHER BELLINI: I hope so.

JULIA WHITE: Yeah, no kidding, they better. Gosh, let's see. I mean we're still in kind of I think depending on which research report you look at in the low single digits, getting into double digits today. And I think five years we're eclipsing 30 percent and then I think we'll double that in 10. But I think it will be actually more of a linear curve versus a steeper I mean I think part of it is the TAM we're in is so big, of 1.6 trillion if we think about everything that has COGS in it. So we have to be a little thoughtful in terms of how big that TAM is. But I think it's going to be there will be jumps up, but I think it's going to be a there's a massive amount to move on that front.

HEATHER BELLINI: So you mentioned you have more availability zones, or data center space, maybe not space but regions that you're covering than anybody else. How do we think about given these data centers also serve Office 365, right, where you're serving the globe with this product, how do you think about utilization versus your competitors or would your utilization then, given all the regions that you have to cover, just given the breadth of the products that you're offering, are you is it taking you longer to get to the utilization levels that you would like to see inside those data centers, or how should we think about it?

JULIA WHITE: We do have more regions than anyone else and have done that, we put data centers in countries so people who have unique data handling and things that matter. From a supply chain perspective, we've got incredibly tight on from where we get signal to the point where we're actually in production on a data center or expansion of one. And one of the things Microsoft has, we have one of the largest sales forces on the planet. And so we have a vast number of last mile signal knowing exactly what the pipeline looks like, what kind of capacity we need to build, from a pretty early part of the pipeline. So we can get a pretty good sense of that.

And we've done a massive amount of work, we've been at this for a decade, but with our consumer service and other things, but the number of weeks between signal and production is pretty tight. So I don't think that there's any issue on that one.

HEATHER BELLINI: So that brings up another question that Zack probably gets asked a lot, and I know Chris gets asked a lot, it's just there are people that believe that Microsoft can't operate at the scale of AWS, because of the way your IaaS and PaaS were designed. So I don't know whether that's myth or whether it's reality, but that's certainly something that gets discussed in the investment community. I was just wondering if you could share any high-level thoughts with that belief.

JULIA WHITE: The idea that Microsoft Cloud can't scale to AWS is absolute myth, 100 percent. In terms of I think about Skype, Office 365, our consumer services and the scale that we have there from a global but also just from an overall capacity perspective, you know, and Azure powering a vast majority of that underneath and the scale we have with that, I know nothing from a technology perspective that would suggest that we couldn't scale. And I've seen many places that believe across the Microsoft Cloud is much more scalable than AWS, in fact.

HEATHER BELLINI: Okay. Any questions before I keep going on? A quiet, shy group today, which is unusual. That's because you're doing a great job.

It used to be that CIOs thought of AWS as their place to take existing Windows deployments and run them. Have you seen that, given the tremendous growth you've seen in Azure, have you seen that shift where what used to be, hey, I'm going to take Windows and run it on AWS, has that started to shift where you would always start with your cloud if it was an existing Windows workload versus maybe three or four years ago?

JULIA WHITE: Yeah, I think if I look at our run rate, we get a disproportionate share of the Windows-based technologies, which shouldn't be a surprise.

HEATHER BELLINI: No, but has that share been increasing over the last few years?

JULIA WHITE: It has been strong and consistently strong, I would say. And exact math on whether it's gotten better, I don't know, but it's definitely strong and continuing. But at the same time, too, I want to be clear, I think there's a myth around Azure doesn't draw Linux workloads and open source workloads. Right now, a third of our VMs are Linux-based and that is growing.

And so I think people have really started to hear and take heed and really believe our investments in open source, and both that's a technology truth in terms of how well we run open source, the partnerships we struck with Red Hat as an example, we uniquely have a partnership with Red Hat to do Tier One support for our joint customers. No one else has that. Different things like our investments in containers which is kind of the next generation application model with many open source leaders in that world. And actually Microsoft is now, recent reports on GitHub, the number one contributor to open source projects, ahead of Google, ahead of Facebook. And so not just in Azure support around open source, but also Microsoft's overall commitment and contribution to open source is helping shift people's minds around a place of open source support as well.

HEATHER BELLINI: How about, so the startup community has typically been thought of as building first on AWS. The last few years, even the last 12 months, have you seen that change where you see companies building their business on Azure? Do you think that's an area where it needs to be a bigger focus for the company? Is there anything you can share with us there?

JULIA WHITE: Yeah, I mean from Microsoft's investment, we have done a lot around working with incubators, like Y Combinator, and across the globe. And we're seeing, coming out of Y Combinator in the last cohort, we're seeing half of the startups using Azure and half of the startups using AWS, which is an increase from the past before we were understanding those programs. And Desk.com is a great example. They just got bought by Walmart, a startup, pure cloud, 100 percent based on Azure.

And so we are seeing some nice startup wins on that front. I think that's always been the place where AWS started. AWS was very technology-oriented, and startups love the technology-oriented thing. So it made sense that early on that was where they got their strong base from. But I think we're seeing a -- we're making a good dent on that.

HEATHER BELLINI: The VAR community, what are you -- this is kind of the whole cloud thing has kind of changed their business model. What are you doing to help them continue to have, they have a lot of influence with customers, what do you do to help them continue to have that same level of influence? What type of investments or changes have you made in terms of how you support them?

JULIA WHITE: The change conversation with our partner ecosystem has been no less and sometimes more than our customers in terms of what it means for them. So eight years ago, we started workshops with our partners of what does it mean to become a service provider versus a service implementer, and what does that mean from a P&L perspective, and how do you make money?

The thing that our partners, we've always been a partner-led company, 95 percent of our commercial revenue goes through partners. That's not changing in terms of, we went with a very partner front model with our cloud, so we have what we call our cloud providers, Cloud Service Provider Program. So essentially if you were a reseller of licenses and then maybe did some implementation afterwards, you now can do that equivalent thing in the cloud. We do ask them, they have to add value-add services on top of it versus just be a transactor. This is the cloud services world. And so the expectations we're having of our ecosystem are different. But we're giving them a very understandable, clear way to make ongoing revenue from our cloud services, and then build new businesses on top of that.

That's a place we'll continue to invest in, in making sure that that ecosystem grows with Microsoft. It's kind of our DNA, and we've always believed that. And, actually, going back to your differentiation question, I think an important one of, I've had in the past, gosh, even like six months, a number of conversations with partners who are like, I was an AWS partner, I think they're going to stab me in the back. And I'm going to do more with you. Because it's just not in their DNA, where as it's so core to what Microsoft does and believes.

HEATHER BELLINI: So Satya talks a lot about AI. How does the company build sustainable competitive advantage here?

JULIA WHITE: A couple of things, one, we did what was a moonshot at the time and has really paid off, which is we laid a new technology fabric called FPGA, field programmable gate array, don't worry about it, but it's basically a way to get processing speed at the speed of silicon, essentially. And many years ago we started this project and we've now fully lined our entire Azure Cloud with this new technology that lets us do incredible new ultra-fast processing capabilities. And that's a very unique differentiator that will take anyone years, even if they started the journey, which other vendors have talked about, the way we've done it is incredibly unique and differentiated. And so in terms of thinking about massive compute power, on the wire video analysis, those types of things, we now have this very unique infrastructure for it, and we're already put in market.

But it's not just that, it's also intelligence graphs we have. We have the Microsoft Graph looking at all the different activities and correlations going on in all things Office 365. We have our Intelligent Security Graph looking at all the different security signals from all of our different clouds that let us view new and different things from that perspective.

So we have a pretty unique position in terms of the insights that we can put and utilize in an artificial intelligence way with the different graphs as well as this fundamental cloud infrastructure that we've put in place. That puts us in a very strong position, frankly.

HEATHER BELLINI: Okay. Last question, we're sitting here 12 months from now, what goals would you expect the cloud business to have achieved?

JULIA WHITE: A year from now I think we'll be well on our way to hitting our $20 billion cloud metric that the company has laid out for us. So on path for that for sure. I think to your AI area, we would be a clear leader in artificial intelligence capabilities and what customers are actually realizing in production with AI versus just dreaming about.

HEATHER BELLINI: So you think we'll see production AI workloads next year?

JULIA WHITE: I do think so, yeah, in real practical ways. And then I think we'll see a really good closure of the gap between an IaaS base between Azure and AWS in terms of closing that up.

HEATHER BELLINI: What do you mean by closing up?

JULIA WHITE: In terms of the overall market share.

HEATHER BELLINI: Okay. Great. With that, thank you, Julia. Thank you very much. Thanks everybody for coming.

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