What: Bank of America Merrill Lynch Global Technology
When: Thursday, June 7th at 8:45 am PT
KASH RANGAN: I cannot tell you how delighted I am to
welcome Microsoft, a very special guest, Kirk.
We’ll let Kirk talk about his background and what he does at Microsoft
exactly and how long he’s been doing it.
I’m pretty sure it’s a spectacular career progress.
I also want, on a separate note, this is day three of the conference, and we
really wanted to extend our appreciation for sticking with us over the past
three days, attending all the sessions, and it’s really the best three days of
our professional life. The conference is
where companies, investors, and we all come together, and it’s really splendid,
splendid. I will be depressed
tomorrow. Seriously, I’m on a high right
now, and I’m going to be very depressed tomorrow.
with that out of the way, Kirk, thank you so much for attending our
conference. We appreciate it.
KIRK KOENIGSBAUER: You bet.
KASH RANGAN: Can you just give us a level set as to what
exactly your role at Microsoft is, what you’ve been doing, and what you intend
KIRK KOENIGSBAUER: I’m still figuring that out. So I run product management for our Microsoft
365 line of products, and so that is a new offering that we introduced in the
market, I’m sure we’ll talk a little bit about this morning, but it includes
Office, Windows Enterprise, our Enterprise Mobility and Security Suite, and a
whole bunch of products associated with that.
been at Microsoft since 1992. I’ve
worked in a bunch of jobs running engineering teams, running product management
KASH RANGAN: You celebrate your 25th year.
KIRK KOENIGSBAUER: Actually, I was at Amazon.com for about three
years, so I’m really around 23, but I’m close, getting close.
KASH RANGAN: I interrupted you as you were walking through
KIRK KOENIGSBAUER: Yeah, so we’re responsible essentially for
the portfolio of products around Office, Windows, again EMS, as we think about
introducing this new product called Microsoft 365 across our commercial
segments, and education segments as well.
And it’s been a tremendously interesting time the last couple of years
at Microsoft and the transformation we’re making to cloud, and certainly Office
and the Microsoft 365 offering over the last year are just a big part of
fueling that growth. So it’s been a
fantastic couple of years.
have gone over $100, which is pretty darned good. I haven’t seen $100 in a long time.
KASH RANGAN: It seemed unthinkable four or five years
KIRK KOENIGSBAUER: It’s been amazing.
KASH RANGAN: Yes. I
remember very smart clients, who will obviously be unnamed, telling me, very
smart men, the stock will never see $30, the company will never earn more than
$2, never. It was not like this
timeframe or something.
KIRK KOENIGSBAUER: Satya has done an amazing job. You think about, gosh, can one person really
have such an impact when the company is so big and there’s 100,000 employees,
and one person can have a tremendous impact.
KASH RANGAN: One client, again, who will be unnamed, comes
up with the best acronyms for stock symbols, and MSFT currently is Miraculous
Satya Software --
KIRK KOENIGSBAUER: I haven’t heard that.
KASH RANGAN: Thank you.
You know who it is, so thank you.
I know you guys made a very small acquisition a couple of days back.
KIRK KOENIGSBAUER: What was that?
KASH RANGAN: Yeah, hub -- something in front of it.
KIRK KOENIGSBAUER: Oh, GitHub, that’s right.
KASH RANGAN: Oh, yeah, that’s right. Can you tell us more -- sorry to put you on
the spot, but I’m sure you’ve been in the know, you’ve been able to digest this,
speak to people at Microsoft, what are your thoughts on this GitHub acquisition?
KIRK KOENIGSBAUER: Yeah.
So obviously it’s very fresh. It’s
very exciting. I think it’s been
reported, Satya was super-passionate about it personally, which was great. When you think about, at least when we think
about, in many ways, what’s fueling the growth at Microsoft and so forth, cloud
is certainly a big part of it. The
reinvigoration of the developer ecosystem is a big part of it, too, and
developers is something Satya is incredibly passionate about. The company in large part, because developers
are fueling innovation in so many parts of the industry, it’s really at the
center of everything, whether it’s financial services, healthcare, retail,
manufacturing, you name it, there are people building technology to help move
these businesses forward and reimagine them in incredible ways. And so at Microsoft we want to make sure that
we do everything we can to foster that developer ecosystem.
the opportunity with GitHub was a really incredible one, we thought, to bring
together at the company. We also
recognize, as big an opportunity as we see to help developers better
collaborate and share technology and bring forward, that we also have a huge
responsibility in this space to continue to maintain the open platform nature
of what Git does so that any developer, any tech, any framework that is going
to remain a core part of the value proposition of what GitHub does. The fostering and nourishing that community
of developers that’s there is incredibly important to us, and then running it,
in many ways, like we’ve run LinkedIn as an independent organization and that
will be a key piece as well.
we’re really enthusiastic about it. Obviously,
it’s early days, but we’re very, very bullish about what it can do.
KASH RANGAN: What Shankar and I were talking about in our
note, looking at the deal, was we said ultimately the developer base is a good
onramp to the Microsoft Cloud. When they
develop these applications, or when they’re ready to put it in production in
large scale deployments there is a path to the Microsoft Cloud. Is that a possible avenue that it could
synergize longer-term for Microsoft?
KIRK KOENIGSBAUER: There’s definitely opportunity there. But I think first and foremost we want to
really -- and similarly to how we’ve, I think, approached LinkedIn, we want
LinkedIn to grow in and of itself and some of the results that you see with
LinkedIn, as an example, not to sort of switch topics or anything. But the growth just that we saw in the last
quarter it’s something like 37 percent, when previous to the acquisition I
think the quarter before was like 17 percent.
Like we want to do everything we can do drive that business, leveraging
the strengths of Microsoft.
with GitHub, if there are assets at Microsoft that GitHub can use, that’s
fantastic. But I think first and
foremost it’s about the success of GitHub.
And then over time, of course, if there’s opportunities to help on the
Microsoft side, that’s fantastic, too. Nourishing that developer ecosystem, the
open platform and that community is the priority for sure.
KASH RANGAN: Got it.
Let’s shift to your business. It’s
a massive business, nearly $25 billion in annual revenue, larger than many of
the independent SaaS companies. So,
congratulations, you have a really big SaaS business. You have a big IaaS business separately they
in their own standalone merit the largest five, seven businesses in SaaS. So how important, just level set for us, how
strategically important -- we all talk about Azure, IaaS, because of the Amazon
halo effect. But talk to us about how
important, really, Office 365 is for the company, the strategic relevance.
KIRK KOENIGSBAUER: Yeah, well I think maybe there’s a couple of
different ways to look at it. I think if
you hear --
KASH RANGAN: Can it be a continued growth business? There’s a feeling that Office is going to be
tapped out and it’s all like GDP growth and whatnot.
KIRK KOENIGSBAUER: Yeah, I’ve heard that for 15 years. It’s one of those things where I think when
people look at the company at the highest level there are two substantive
growth drivers. Of course, there’s lots
of important businesses, but the two biggies are really around Azure and then
Microsoft 365, which is in many ways the evolution of Office 365. And so as I was talking about developers
being core to the mission and proposition of the company, we think that
productivity and collaboration is also core to the spirit and soul of what
Microsoft really is.
been in that business for a long time.
It’s evolved in many, many ways.
And Office is kind of at the center of that value proposition. So from our perspective it couldn’t be more
strategic, it couldn’t be more important.
And I think that it’s a very interesting time in the market right
now. We are seeing in business
environments this sort of new culture of work that’s been emerging over the
last couple of years and it’s driven by a whole number of shifts in terms of demographic
shifts, like the millennial population coming into the market, something like
by 2020 more than 50 percent of the population will be millennials. You’ve got big shifts in the market, in terms
of how physically work gets done.
KASH RANGAN: You mean the other 50 percent.
KIRK KOENIGSBAUER: GenX, the last generation, yeah, but it’s
actually changing really the way people work tighter, the notion of teamwork
and collaboration is super different than sort of when I was growing up in the
early ’90s, in the workplace. The notion
of sort of the individual hero isn’t as important as the success of the team
I think the meta point is that for the first time in a while when I go talk to
CIOs and information technology leaders in businesses, they are as interested
in serving the needs of the end user, of the people in the business, in getting
them engaged, giving them the tools that they want, the modern tools that they
sort of experienced in their personal lives in the workplace. And, you know, 10 years ago it was all about
security and compliance and locking things down and structured work and it’s
amazing the pressure that this next generation of workers is putting on to BDMs
and the business leaders to have great tooling in the workplace.
so that’s creating a huge opportunity for us with Office, because we feel like
we’ve got this sort of incredible balance of being able to solve and service
the needs of end users as they’re trying to create things, as they’re trying to
team and collaborate together, as they’re analyzing data, working on a project,
whatever it might be. But then also have
that on a platform that is secure, that is compliant, that’s got the control
that folks need. And so the interesting
part here is that when you think about the cloud transition it’s sort of
looping back to how you started the question or framed the question.
of these workloads have been workloads that have moved to cloud first, and that’s
in large part why Office 365 I think has been so successfully able to leverage
the broad install base that we have sort of in the legacy on-prem world and
bring that base to the cloud with a workload that’s very, very hot for
businesses right now.
as you’re suggesting, Office has done incredibly well the last couple of years,
with Office 365 as the forefront, with the next big step being Microsoft 365 evolution.
KASH RANGAN: So if we look at the old Office versus the
new Office 365, it’s not just that Office runs in the cloud. It’s a lot more than that. So help us understand somebody that’s
deployed Office 365, what is it they’re getting out of it that they could not
get from Office 2013 or 2010, or Office 2007.
I think we’re on Office 2010. We’re
still not on 365. I hope that we will
get on it one day. What is my life going
to look like when we upgrade to Office 365?
KIRK KOENIGSBAUER: For sure.
First, at the broadest level, Office 365 has a much more diverse value
proposition than many people, I think, think about. It’s not just Word, Excel, and PowerPoint; it’s
the secure mail backend that we have with Exchange. It’s sort of document sharing and
collaboration services with SharePoint and OneDrive. It is real time communications with Skype for
Business, which we have a new product that will essentially superset that, that
we can talk about, called Microsoft Teams.
There are also a variety of new and emerging workloads as a part of it,
whether it’s a product called Microsoft Stream, or Power BI, they’re also part
of Office 365 for Analytics and video-based content. It’s a really broad set of services to help
people be creative, to help people on analytics, to help people with teamwork
and collaboration. And that’s
essentially the broader value proposition.
addition that, though, we build security and compliance into the product itself
and that’s a very, very big driver, by the way, of the growth moving to cloud,
and so forth. And we can certainly talk
about that. But one of the key parts of
the value proposition, relative to sort of the old legacy world, one element of
it is it is cloud delivered, and that means a few different things. It means that customers will be up to date on
the latest capabilities and value and that’s important because the world is
moving quickly, and technology is changing, and end users want to have the most
up to date stuff, as opposed to if you were saying you guys were on 2010, or
whatever it is. I mean literally that
software was built in 2007 we started working on Office 2010. And now --
KASH RANGAN: We like to test things thoroughly.
KIRK KOENIGSBAUER: But now we’re literally delivering software
on a weekly basis on mobile devices for our corporate customers we give them
options whether they want to consume the software on a monthly basis or in
longer chunks. But, essentially, this
notion of being always up to date is very, very important, again, both for end
user value, but also just listening to the Cisco conversation a few moments ago,
the ability to be able to deliver a secure platform, particularly in this world
where there’s just such a vast array of different threats, the most secure
environment is in the cloud these days.
I mean the number of security professionals, we have thousands of people
working on security at scale and being able to deploy that in real time to our
customers. It’s a very powerful value
KASH RANGAN: Yeah, I was intrigued when you said some of
the functionality included collaboration, chat, and Teams.
KIRK KOENIGSBAUER: Microsoft Teams, yeah.
KASH RANGAN: We’ve been sharing a lot in the context of
the GitHub acquisition and its implication for Atlassian and what Atlassian
does, et cetera. I’ve had discussions
with investors, what do you make of this whole space that OneDrive is a part of,
which is content management, collaboration, folks like Slack and yourself,
unified communications, folks like LinkCentral, et cetera, and your tremendous initiatives
to get into the videoconferencing and audio conferencing market. That’s a big chunk of your SKU. How do you see those disparate
functionalities playing out, because we’ve followed the collaboration market
for about 20 years and it’s really failed to materialize in any significant
way? But what about it changes now that
maybe with Office 365 as the overarching umbrella, what are the chances that
all these things come together?
KIRK KOENIGSBAUER: Yeah, it has been a space that’s been around
for a while. It’s had many lives. And I think the one that’s quite interesting
now that’s really fueling it is around the notion of messaging-based
collaboration is obviously quite high.
We can talk a little bit about that.
But essentially our value proposition to companies is, look, you need
the right tool for the right task and so many CIOs I’ll go and talk to will say,
gosh, I just want one thing, can’t one thing solve all my collaboration needs,
and the reality is that would be nice, but it’s just not really realistic. The nature of project work is so
different. You can I could be working on
a project together, maybe it’s just a document we’re working on, or it could be
a team of 50 or 100 people working on a project. Projects can last a couple of days. They can last six weeks. They can last years. Projects have different centers of
gravity. Some are very task-based, some
are document output, some are about innovation and creating new products. So it’s a very broad space. And people like to work differently, it turns
our approach has been to deliver with Office 365 this notion of the universal
toolkit. So what we mean by that is we
have a variety of different tools for the right type of collaboration project,
or the culture of the team in terms of how they want to adopt a particular
for example, you referenced SharePoint and OneDrive, when people want to work
on documents with Office, SharePoint, OneDrive, the Office applications, making
those work incredibly well together to do things like real time collaboration,
to have sort of seamless workflow, to make it easy for you and I to share
documents together, to be able to track changes and see what’s happening, that’s
a very important collaboration experience.
other important parts you mentioned, unified communications is really key. We see a tremendous amount of growth of our
Skype for Business online service today, whether it’s using the instant
messaging workload, meetings and collaboration, voice, you talk about the total
addressable market or the TAM or some of these spaces, voice services is a very,
very large one, particularly when you think about add-on services like PSTN
services and so forth. And so we’ve been
investing deeply in that area for a long time.
And that is really coming together quite nicely.
then in this notion of sort of chat-based experiences, we built this product
called Microsoft Teams. We think of
Teams as essentially a hub for teamwork, which in many ways has the value
proposition you’re talking about of bringing it together all-in-one, very
unified approach. And Teams absolutely
has messaging capabilities, it’s threaded, persistent chat like a lot of the
different services that are out there.
But what we’ve done and sort of the magic of that product is the fact
that we’re integrating these Office services directly into it.
so if you pop open the Teams environment, if you see it, you’ll see that Word,
Excel, and PowerPoint are integrated beautifully into it. Microsoft OneNote is integrated into it. Power BI is integrated into it, as well as
now we are adding our unified communications services, so things like --
KASH RANGAN: Videoconferencing.
KIRK KOENIGSBAUER: Videoconferencing is a part of it now. You can make a phone call from Teams. You can set up structured meetings, or
scheduled meetings, as well as ad hoc meetings.
And that canvas, or that scaffolding, that we have with Teams is one of
the reasons why --
KASH RANGAN: Integrates with Calendar.
KIRK KOENIGSBAUER: Integrates with your calendar, you can have a
team calendar associated with it.
KASH RANGAN: And it’s got AI built-in.
KIRK KOENIGSBAUER: And there’s a lot of opportunity for AI
across all of Office 365, but communications is one of them. We talk about a value proposition of
intelligent communications. For example,
one scenario we just talked about at the Enterprise Connect Conference a couple
of months ago I guess now is setting up a three or four-way phone call, for
most humans that’s actually tricky to do, like how do you -- which buttons do
you press on your phone. Now you
literally with Teams can speak into the Teams UI, whether it’s on your phone or
in the shell, and you can say, hey, let’s set up a call between Kash, Kirk,
Victoria, and Jonathan, and the AI, the agent behind that will do that for
you. It’s just a very simple example of
something that just saves people a whole bunch of time. But the idea of having bots integrated into
the experience, there’s a ton of room for AI.
KASH RANGAN: I can do that from my smart phone. I don’t need a desktop, right?
KIRK KOENIGSBAUER: No.
Yeah, Teams both has PC-based experiences and also has mobile
experiences, as well.
KASH RANGAN: Yeah, I’ve been telling a lot of people
during this presentation that I’ve not set up my voicemail on my desk phone
form eight years back, because the instructions came in a manual. I said no way. So I still don’t know why the whole world of
communications has not moved to the cell phone running your capabilities on it.
KIRK KOENIGSBAUER: There’s definitely a big transition. You see a few -- I go to businesses, I see
fewer and fewer desk phones.
KASH RANGAN: Come to Bank of America.
KIRK KOENIGSBAUER: I’ve still got to get you off of Office 2010
it sounds like.
KASH RANGAN: I know that one of the salient aspects of the
Office business has been that revenue growth has been outstripping unit
growth. So presumably there’s a lot of
up-sell that’s going on. Can you help us
to understand where are we in this whole E3 cycle? And from the E3 to E5 upgrade cycle, what are
the things that we should be looking for?
And what does an enterprise that has deployed E5, what are the business
benefits and what does their life look like, particularly maybe Microsoft has
already deployed E5 internally?
KIRK KOENIGSBAUER: Yeah, for sure. Gosh, there’s a lot in that question. Let me sort of unpack it a little bit. So at the broadest level it’s obviously a big
business, as you referenced. It’s
complex. There’s a bunch of different
workloads. But the business model is relatively
simple. It’s basically a P times Q
business model. We want to get as many
sockets as we possibly can. That for us
KASH RANGAN: I’m glad you said that because I thought I
was missing something, P times Q, that totally resonates.
KIRK KOENIGSBAUER: Super-simple, Econ 101, and so we want to
drive as many subscribers as we possibly can.
We see a tremendous amount of opportunity to continue to have overall
install base expansion of, broadly speaking, the Office set of workloads. We still see growth in the sort of
mid-to-high single digits, which is fantastic for a business that has as many
sockets as it already has and I’m talking commercial at this point.
we see opportunities in places like SMB, which is tremendously underpenetrated,
in terms of what the opportunity looks like ahead. We see opportunity in this category of
workers called first line workers.
Office has traditionally gone after the knowledge worker, information
worker market, the people in this room, essentially the people that work on PCs
that have particular focus for higher end needs. But then there’s a whole class of workers
that we feel like the cloud economics can allow us to target.
for example, whether it’s hospitality workers, retail professionals, whether it’s
flight attendants, healthcare professionals that don’t necessarily sit in front
of a PC all day but absolutely have the needs for scheduling, for collaboration,
for task management and so forth. And
that we see as a big socket opportunity for us as well.
would also say emerging markets for us is an interesting opportunity,
particularly as we think about mobile-first, mobile-only markets. We’ve traditionally targeted PC-centric parts
of the business, but we think emerging markets has a tremendous potential as
then the second part of that is, of course, not just getting the sockets but
then driving as much RPU as we possibly can, balancing the share needs. Obviously you don’t want to go too far on RPU
because you know that can impact your share.
And so we spend a lot of time thinking about those models.
your question on where are we on the RPU side, we feel we continue to see RPU
growth, which has been fantastic to see.
A big part of that is the transition from on-prem to cloud. We view that as a part of the P equation in
the sense that we have higher LTV from our customers. We’re able to deliver more services to
them. Of course, there’s margin on top
of the services that we’re delivering as well.
And that’s fantastic.
still have -- and then there’s customers that have sort of purchased our online
services that we’re moving up to higher tiers.
We have roughly 40 percent of our base still not on E3 and above, and so
there’s still a tremendous opportunity to move from the sort of E1 and
standalone workloads of say a SharePoint or Exchange to move to E3, that’s a
bit part of the RPU mix. In fact, that’s
frankly the biggest part right now of the mix, because there’s just such
tremendous opportunity there.
then as you reference, there’s this thing called E5. E5 is the highest tier of our service for
folks that aren’t sort of steeped on it.
And E5 has a value proposition around some of the voice services that we
talked about, around communications, analytic services, things like Power BI
and some --
KASH RANGAN: Is it Teams, Microsoft Teams?
KIRK KOENIGSBAUER: And Microsoft Teams is in the E3 services
today, or some of the services, actually E1 and E3 depending on what it looks
like. Some of those services, though,
for calling will be in the E5 tier for sure.
And then security and compliance are both big drivers of the E5 value
proposition, whether it’s sort of threat intelligence, ATP type services, but
also compliance with GDPR has been a really big push. I would say that the world was sort of slow
in realizing that this isn’t just something that’s going to affect European
companies, and so particularly in the last six to nine months we’ve seen big
markets like the U.S. wake up to GDPR.
E5, we’re about three years into the journey on E5, and it’s a big factor of
RPU shift as well. But we see a
tremendous amount of opportunity going forward.
KASH RANGAN: Does it meet resistance for companies to
upgrade to E5? What do you usually hear,
it’s pricey, or I don’t need the functionality, or I’m not ready for it, or
maybe there’s no resistance at all, it’s just an issue of educating the
KIRK KOENIGSBAUER: Well, I can’t say there’s no resistance at
KASH RANGAN: I’m pretty sure that when we first --
KIRK KOENIGSBAUER: No, I think we’ve been -- as someone who is a
bit of an old dog who has been on this journey a while, when you introduce
these next tiers of service, whether it’s the Office client going from standard
to enterprise, or Office 365 introducing E3, E4, the E5 shift, or this
Microsoft 365 shift, which has E3 and E5 components as well, there’s always an
inflection point where you really begin to see the hockey stick part of that
growth. And I think we’re still sort of
moving up the curve on the E5 side for sure.
the value proposition around, I would say security -- it depends on the
customer, because we serve so many different customers, security and compliance
for sure are the top workloads that are really driving that E5 value
proposition right now. It’s very
difficult for me to go visit a customer and not talk about security, not talk
about compliance, and there’s a lot of fragmentation in that market. We build our security and compliance
capabilities right into the product, so that’s a bit of a unique value
talked a little bit about AI earlier, that’s a key piece of it as well. And that’s something that customers are
looking to employ right away, right now, and the sales cycles on those are faster
than, say, the sales cycles on something like voice, where ripping out a PBX
and putting in new cloud-based software, that’s a long sales cycle.
KASH RANGAN: What’s wrong with that?
KIRK KOENIGSBAUER: Yeah, well, it comes to like when companies
are building new buildings, that’s a really natural time, or when their
contract comes up in some of these contracts are six, seven-year contracts,
when those come up, that’s a great time to go in. So the sales dynamics are a little bit
different across the workloads. But you
know, if you’ve studied the math on it, we offer relatively sizeable discounts
on E5 over buying the components standalone.
So there’s absolutely an economic value proposition. Even if customers aren’t interested in
deploying right now a particular workload or even a couple of workloads, there’s
a tipping point where they’ll say, okay, shoot, maybe I’m not ready to do voice,
but I want your analytics capabilities, I want your compliance capabilities,
and your security stuff. Let’s just go
with E5. And we’re seeing a lot of that.
KASH RANGAN: Yammer, several years back, has that made its
way onto a team. or has there been a big rewrite of what exists of Yammer?
KIRK KOENIGSBAUER: No, Yammer has been a great acquisition for
us. You know, it’s a prat of that
universal toolkit that I referenced in terms of the right tool for the right
task. If we think about something like,
well, the scenarios we walked through, we talked about document collaboration,
we talked about teams, and teams of people working together. Yammer is another interesting part of the
value proposition, and one that I would say has gotten new life breathed into
it over the last couple of years as CEOs and leaders of big parts of companies
want to be able to get more in touch with employees in the organization. And so they want to be able to have a
broad-based communication and a discussion, essentially, in an organization.
so we think about Yammer as that sort of outer loop of communication that,
again, would be used for more community-oriented purposes. So for example, Microsoft, Satya reads a
Yammer community, I think he looks at it every day, any employee can post any
question on it and he responds directly.
Or he’ll delegate it to one of his directs, maybe if it’s a legal
question he’ll have Brad.
KASH RANGAN: Or bot.
KIRK KOENIGSBAUER: There’s no bots on it right now, but you
could have a bot on it, I guess. The
idea is to foster that employee connection.
But, Yammer has done quite well, because businesses are really
interested in having that vehicle to be able to talk broadly to the
organization and have that dialogue, which is really, really different if there’s
just a small group of us working together on a project. And so we’ve been quite pleased.
have done a bunch of work on Yammer over the last couple of years. Some of that work is showing up as end user
value, some of it is infrastructure work in terms of integrating some of the
core capabilities around, oh gosh, group technology to make it integrate easily
into, whether it’s Outlook or Teams, whether it’s doing things like compliance
capabilities, security capability, all that, single sign-on with the rest of
the Office 365 services, a bunch of integration work that we’ve done, too. But a lot of great end user, a lot of great
value on mobile devices, of course, very, very key. So we’re pleased with it.
KASH RANGAN: Yeah, it’s a very different looking product
and value proposition, a lot of innovation that has been infused in the
this juncture, if anybody has a question, just raise your hand, we’ll get the
mic over to you. Just checking to
see. Shankar on my team definitely has a
question or two.
have a question, right? Paraphrase your
question, you can ask. Don’t be
shy. I’m putting him on the spot, I do
QUESTION: (Off mike) -- you see for next year, kind of
the puts and takes around that.
KIRK KOENIGSBAUER: Yes.
So for the room, just because I don’t know if everybody heard the question,
around Enterprise Mobility and Security, it is a big part of Microsoft
365. It’s a big part of our business
all-up. It’s seen tremendous growth, an
install base you referenced, we publicly quote at about 65 million, which is
great. It grew 55 percent year over
year. So the growth is incredibly strong
has a bunch of different workloads. It’s
almost a suite of products similar to, say, Office 365.
KASH RANGAN: Can you tell us what exactly?
KIRK KOENIGSBAUER: Yeah, I figured it would be a good idea to do
that. It’s got an identity component, so
folks have thought about Active Directory or Azure Active Directory, that’s a
key part of it. Identity is very, very
core to not just workloads like Office and Microsoft 365, but they’re applicable
to many businesses that need to set up an identity system. Security has moved to identity. It’s no longer the sort of perimeter-based or
even for that matter hardware-oriented.
It’s literally the notion of identity is so core and so essential to
security. So that workload is a huge
driver of the growth in and of itself, which is great.
are also security and compliance components that are part of EMS, too. There is, for example, Azure, we just
launched with Azure Active Directory an advanced protection set of capabilities
is one example, just went to GA in the March timeframe. There are compliance capabilities as well,
Azure Information Protection. So in
other words, providing services to help things like data loss, data leakage
protection of documents or whatever it might be.
then the other important component of it is managing devices. And so we talk about modern management with
EMS with a service that we have called Intune, which can manage devices of all
varieties and flavors including on iOS and on Android. That has capabilities around things like
conditional access and so forth.
it really is a suite that’s around identity, that’s around device management,
that’s around security and compliance.
And its business model is one, again, that the product is sold
separately, but also has a very, very natural attach motion to Office 365 and
it’s one of the reasons why we decided, as we launched Microsoft 365, to bake
not only Office plus Windows Enterprise, but also the EMS Suite into it. And so you’re seeing us do a lot of
integration work to make that a really sort of seamless experience for
customers, and it’s a big growth driver for us, for sure.
KASH RANGAN: So by calling it 365, we are denied our vacation? (Laughter.)
Just trying to make fun.
KIRK KOENIGSBAUER: This is your 28th one of these?
KASH RANGAN: Okay.
We can dream, if it’s Europe you’ve got Microsoft 340.
KIRK KOENIGSBAUER: That’s right.
KASH RANGAN: In the U.S. Microsoft 375, we’re overworked.
curious to get your thoughts on, there was a reorg done at the end of March,
what was the rationale for it and how do things look now post the reorg?
KIRK KOENIGSBAUER: We did do -- it was a pretty substantive
reorg internally. I don’t know if people
really care in the outside world, but it was a big deal internally in the sense
of we moved --
KASH RANGAN: If it’s a big deal internally, it is a big
KIRK KOENIGSBAUER: All right.
Got it. I see. Essentially, when we think about sort of
advancing our cloud and platform aspirations broadly, whether it’s on the
platform and IaaS side or if it’s on the SaaS side more, as I mentioned earlier,
Azure and Microsoft 365 are sort of the hero products for the company right
now. Obviously, there are many other
products, but those are key drivers for us.
we created essentially two centers of gravity for core engineering at the
company. And one is led by Rajesh Jha
and he runs what’s called the Experiences and Devices Group, which I’m a big
part of. And that’s all about sort of
bringing the product and product ethos and the experiences of this sort of end
user value proposition that we’ve been talking a little bit about this morning
together. And so it’s the Office components,
it’s the Windows shell and the Windows experiences components. There are components of EMS, as we talked
about. There are also device experiences,
so our Surface line of products, whether it’s the big hub devices or the new
Surface laptop. or Surface Book, or whatever it might be. And it’s really bringing that whole notion of
the experiences together with the devices in one organization. So that’s one big part of it.
other part of it is, of course, the Cloud and AI part of the company. Think about that as bringing together all the
assets on the platform side and pushing that forward. Again the GitHub acquisition is sort of
important from that perspective as well.
It is sort of the center of gravity about how we think about developers and
KASH RANGAN: You guys like San Francisco, that’s two
acquisitions the most valuable ones, have been in San Francisco.
KIRK KOENIGSBAUER: That’s interesting to say, yeah. And so that creates a nice center of gravity
there. Those two big engineering orgs
absolutely work very closely together.
You know, for example, we’re talking about EMS. Parts of EMS are built in the Cloud and AI
Group, parts of it are built in the E&D Group. And so we have a lot of those kinds of
experiences. And that’s important. So it’s not like we’re going back to the old
days of divisions or anything along those lines. It’s still a functionally aligned
company. But these two centers of
gravity will really help us accelerate the ambitions on the cloud side. And I think that’s the genesis really.
KASH RANGAN: I think you mentioned, there is the question
-- if you can get the mic over.
KIRK KOENIGSBAUER: In the center.
KASH RANGAN: The center table.
QUESTION: Hi, thanks.
Just going back for a moment to the discussion about Office, P times
Q. When you think about the three-year
time horizon, I guess two questions. One,
do you think that mid to high-single growth in units is sustainable over that
time horizon; and then, secondly, if you had to force rank the growth that you
think you’ll get from units versus pricing, which one is sort of a bigger
driver over that?
KIRK KOENIGSBAUER: Interesting.
Soon the first question, we do anticipate that we’ll be able to continue
to grow our install base in this sort of range that we’ve been in, and that’s
-- I think that’s a huge opportunity for us.
And I talked about some of the drivers of where we think some of that
growth will come from. Obviously, there’s
still some room in the large commercial space and public-sector space, but a
lot of it will come from these new categories or opportunities that we have
around these first line workers, SMB, and we think emerging markets, and so
then on the RPU side, again, we continue to have, we feel, a lot of opportunity
in that on-prem to cloud shift and shift from E1 standalone workloads to E3
will probably be the big driver for us.
And then we continue to be quite bullish about the E5 potential and this
year in particular, beginning to see real strength in compliance and security. We talked a little bit about Teams. We talked a little bit about Skype for
Business. The voice and communications
space, we also see quite a bit of opportunity going forward.
terms of dividing how what percentage will come from where, we’re not sharing
that level of detail here. But I think
we have opportunity in both P and in Q to continue to drive the business. With these per-user businesses there is, of
course, as you drive further sockets out you do get to some big numbers. And so will the growth rates be exactly what
they are now three to five years from now, of course, that’s going to look a
little bit different. But, again, the
RPU growth opportunity that we have is we think quite substantive.
KASH RANGAN: Any other questions?
just had one final question/observation.
I think you mentioned the word Windows once in this whole talk. So what’s happening with Windows?
KIRK KOENIGSBAUER: Yeah.
KASH RANGAN: Tell us what Windows -- I mean we hear a lot
about Office 365, Azure, but anything to say?
KIRK KOENIGSBAUER: Yeah, for sure. Well, we started talking a little bit about
Microsoft 365 and I think that’s -- we really, in fact, it’s interesting to
take a step back. The hero that we’re
really driving right now when we think about our productivity and collaboration
experiences is Microsoft 365, and Microsoft 365 is Office. You’ve asked me a bunch of Office questions,
which is great, love it, take it any day.
But Windows is a core part of that and moving people to the Windows
enterprise SKUs, as well as EMS.
Windows remains as important as ever in terms of delivering a rich endpoint
experience on PC devices and increasingly on different types of devices like
Surface Hub and so forth. We’re doing
quite a bit of work between the Office and the Windows engineering teams to
make sure that we have a much more I guess I would call it coherent,
well-integrated, symmetrical set of experiences. It’s people who are using the Windows Shell
and are using Office-oriented experiences on those devices.
know, Rajesh now in his leadership team there’s Windows leaders and Office
leaders sitting together and working on the same problems and stuff. So this reorganization I think is actually so
important for the Windows business and the Office business in that it brings
these teams together in a way that Satya has really been pushing on for years
now, but kind of really hardens it in the sense of, hey, there is no Windows
business, there is no Office business.
There’s Microsoft 365 and that is the -- that’s the sort of push that he’s
really driving for. It’s not just this
marketing bundle that we ginned up. We’ve
reorganized the sales force. We’ve
reorganized our engineering teams. We
are leading with Microsoft 365 as our hero experience. You know, we didn’t talk much about it. It’s growing triple digits in terms of
seats. It is the direction that we’re
moving in. And Windows is absolutely
fundamental to the value proposition of Microsoft 365.
KASH RANGAN: The best part of the company.
KIRK KOENIGSBAUER: Good.
KASH RANGAN: On this note, I want to thank you all for
sticking with us for three days. This is going to be the third day and we’re
going to be wrapping it up in a few hours from now. A special call out to folks that made the
trip from Australia, Singapore, Japan, I had one gentleman that took a direct
flight from Zurich, a 12-hour nonstop and another person that made a 16-hour
trip from Singapore. So we really
appreciate your support of the conference and we heard the feedback last year
that if it’s just two days it’s not really worth it to fly all the way over.
we added more companies, extended the format, made it three days. Hopefully next time it will be a four-day
conference at some point in the future.
There are so many companies that we’re creating in tech, creating in
software. Look at the pipeline. Kirk, we had yesterday four companies,
private companies, in DevOps/whatever you want to call it, infrastructure. They’re all $100-plus million in revenue
growing 100 percent.
KIRK KOENIGSBAUER: It’s crazy.
KASH RANGAN: So two or three years from now, they’re all
going to be public. And you guys are
going to be spending, hopefully, three or four days with us. A lot of those companies will be
software. So really appreciate your
support. Again, I’m going to be very
depressed tomorrow after this high getting from this conference.
thank you very much for taking the time to present. We really appreciate your time.
KIRK KOENIGSBAUER: Thank you.
Thanks a lot.
July 19, 2018 2:30 PM - PT
Microsoft Fiscal Year 2018 Fourth Quarter Earnings Conference Call