Morgan Stanley Technology, Media & Telecom Conference - Satya Nadella
Who:Satya Nadella, Chief Executive Officer
What:Morgan Stanley Technology, Media &
When:Monday, February 26, 2018
KEITH WEISS:So before we begin, Microsoft may make some
forward-looking statements during this presentation and you should refer to
their SEC filing for risk factors related to their business, and that’s true
whether you’re here in person or listening on the web.
Excellent.So Satya, thank you for coming.Welcome to the TMT Conference.
SATYA NADELLA:Thank you so much, Keith.Thanks for inviting me.
KEITH WEISS:So I was having dinner with a portfolio
manager last week, and we’re talking about Microsoft, and we noted that in your
tenure, when you joined Microsoft, took over the CEO role, Microsoft had a $304
billion market cap.Today that stands
over $725 billion.
what he said to me is, it’s hard to believe that one person, that one man has
kind of changed the course of the company.That a company that we were all thinking of as a legacy, tired
technology company is now a mobile, cloud innovator.Someone who is nimble in terms of their
you share with us a little bit about how that happened?Because I know it wasn’t just you.I mean, I read your book, you talk a lot
about the senior leadership team.But
you aligned everybody in the right direction.You pointed the ship and got it moving in a much more forward direction
than Microsoft had been aimed.
SATYA NADELLA:Yeah, I mean, a couple of things, Keith.The way I think about my life at Microsoft is
not from the day I became CEO.I’ve been
at Microsoft for 25 years.And clearly
the responsibility that I have and the accountability that I have is
unquestionably more today as CEO than it was before.
so therefore, even trying to take credit for what has happened in the last four
years without realizing that the franchises and the bets that Bill and Steve
placed, you all know, is just wrong.Businesses don’t get built that way.Things that last long take long to build.Even every startup that’s successful has had
10 years, 15 years before they even can IPO.So that’s the timeframes with which I think about.
the core, one of the things that I’ve come to realize is that when everything
is going great, when businesses are growing, and the core is growing at 20
percent and more, and all of you are celebrating that growth, that’s when you
really need to watch out, because the question is what happens after, because
there’s no such thing as a perpetual motion machine.That original concept idea hit is eventually
going to run out of gas.
means you need to have built capability that allows you to get to a new concept
long before it’s conventional wisdom, in fact, long before many of you will
give us permission to even invest.So
that means you’ve got to have a management team that knows how to bet on the
future long before, in some sense, it’s conventional wisdom.And what enables organizations to do that, I
believe it’s culture.
enables organizations is not just the insight, it’s the ability to have that
everyday courage to make bets, to learn from mistakes, knowing you’re going to
make your fair share of them.So it’s
that artform where or it’s just a science where every company you would talk to
would be long-term successful.But it’s
not.And it’s only because, I think,
there’s excessive celebration of short-term wins, and there is lack of
understanding of what is I think the real sustainable building of businesses.
KEITH WEISS:Right.In your book you talk a lot about the three Cs, the Concepts,
Capabilities and Culture as being the key to success.Can you dig into that a little bit for us on
sort of how you apply that, how do you apply that in terms of with your senior
leadership team to make sure people are focused in that way, and how should we
think about those three Cs enabling the next $100 billion coming from
SATYA NADELLA:Yeah, I mean, it’s similar to what I just
talked about, but here is how I would say -- somebody said to me, you’ve got to
be careful about talking about culture with investors because the only culture
they love is in their yogurt.And so you
can’t plug that into a spreadsheet and have it change something, but it is
probably the most important thing, because that’s what enables you to build
give you an example.Take silicon, at
this point it’s clear as day whether you’re doing things on the edge or you’re
doing things on the cloud, you need to have silicon capabilities.If I look at the sophistication with which
the margin structure of the cloud business or anything else is going to change,
it’s going to be around how smart are you with silicon.
course, we got started on some of that journey, quite frankly, with our work on
Xbox many moons ago.But we don’t have
like an Xbox silicon team and a cloud silicon team and a different silicon team,
we have one capability of people who are able to tape out new silicon which can
help us in our innovation.
culture that encourages great silicon engineers to come, join, work with the
silicon industry, too.So it’s not just
about us building our own, but to shape that ecosystem so that we can be on the
frontier of innovation.That to me is
the most important long-term indicator.
doesn’t mean -- you have to catch new trends.You’re not going to have a perfect batting average.In our case, if you look at our 43 years of
history, we’ve had our fair share of big wins.But we’ve also had some fair share of our losses.But it’s the ability to have capability and a
culture that allows you to keep going back every day and making judgment calls
and having a high percentage of winning.
KEITH WEISS:Got it.So let’s dig into some of the sort of technology trends and future
opportunities that Microsoft has been working on.The first one I want to talk about was
artificial intelligence and machine-learning.You mentioned that AI is the ultimate breakthrough in technology.Why?Why do you think of it as kind of that ultimate breakthrough is it one
of the biggest new ideas that Microsoft is facing today?
SATYA NADELLA:Yeah, I mean, in fact, picking up even from
your last question and then going to this AI piece, you asked even what is next
for Microsoft.I feel one of the key
things that we have done is position ourselves in the core mission of the
company, in the core business model of the company, so that it is really in
tune with the times.In 2018, if you
have a mission and a business model that is not about creating surplus around
you in every community, every country that you operate in, you are not going to
have a long-term business.
now having said that, we have plenty of opportunities, and we’ll sort of
explore those.AI is going to be one of
the trends that is going to be the next big shift in technology.It’s going to be AI at the edge, AI in the
cloud, AI as part of SaaS applications, AI as part of in fact even
infrastructure.And to me leading in it,
not just to sort of have AI capability that we can exercise, but the ability to
democratize it so that every business can truly benefit from it, that to me is
at least our identity around AI.
KEITH WEISS:Got it.And I think when we talk about AI and machine-learning, in my
perspective there’s two sorts of big sides to the equation.One is the capabilities and technology having
that but the other is being able to apply it to real business problems.I think we’ve talked too often just on one
side of the equation, but I want to start there.
in terms of Microsoft and your capabilities, how are you guiding Microsoft to
ensure that you’re in the running, that you’re the vendor that your customers
are looking toward when they’re thinking about machine-learning, when they
think about cognitive services, that they should be coming to your platform
versus other big competitors out there?
SATYA NADELLA:Yeah, two-fold.One is, of course, you have to have
technology.If you take even the recent
machine-learning comprehension test that Stanford did, we were number one, and
Alibaba was another number one.So if
you look at speech, we hold the WER record still.Computer vision, some of the first original
image net records were held by us.So in
some sense you’ve got to have, whether it’s speech, whether it’s reasoning,
whether it’s machine reading, or vision, you’ve got to have the capability, and
that’s something that we have and we’re applying that in our own
applications.If you look at Office 365
and what Cortana is capable of doing, even this morning Cortana woke up and
sort of talked about a couple of commitments I’d made in e-mail about following
up.That’s actual machine reading and
comprehension at work.
long-term, though, here is what I feel, let’s say there are two or three other
companies that have AI capability-wise.The question that every customer, whether it’s a financial services
company, whether it’s a retailer, whether it is a manufacturer is going to ask
is, who do I trust, especially in a world where there’s going to be transfer
of the largest transfers of wealth can happen if you pick your supply chain
wrong.If you do not have fundamental
trust with the partners you have, suppliers you have and entrusting them with
data which they are going to then help you reason on top of to create AI has to
be one of those very trusted partnerships.
I think that’s where having this purity of business model which we have which
is fundamentally consumption-based or subscription-based, not having all these
funky cross-subsidies and marketplace structures and multiple businesses that
on one side you compete and on the other side you partner.I just think most people are going to see
I talked to a bank CEO, one of the first questions he asked me, which was
pretty stunning to me, is what’s the state of your RL?And I said, wow, this is a bank CEO asking
about reinforcement learning.And that
means there is real awakening top where AI and the trajectory of AI is
going.So therefore, I fully expect them
to be asking the hard questions of which technology partners can they really
trust whose long-term interests are aligned with their long-term interests.
KEITH WEISS:Right.Even in the research department at Morgan Stanley, we talk to a lot of
vendors as vendors about machine-learning capabilities and artificial
intelligence, and over the past few years I feel like a lot of the
conversations are vendors coming to us and saying, we have these capabilities,
what should we do with them versus coming to us with real solutions.
are your customers talking to you guys about machine-learning, artificial
intelligence, how do you bridge that gap between a set of new innovative really
interesting capabilities, being able to automate parts of the work that no one
has ever done before with real business problems of getting it to solve a real
domain problem that your customers have?
SATYA NADELLA:Yeah.I mean I think even there I would say in the last couple of years I’ve
seen marked difference in terms of -- it’s not just technology for technology’s
sake, and that’s why even technology and its evolution is very
past-dependent.If you take -- you asked
in the previous question, what’s differentiated about say our speech service or
our vision service, one of the most differentiated aspects of it is the ability
to customize it.It’s not just a generic
API that you call.
example, there are certain fast food restaurants using our speech service,
which is being trained for the ambient noise of drive throughs.That’s a customized application.So the order entry into the point of sale is
that much more accurate.
is computer vision customizations that is happening so that in a manufacturing
line, when somebody wants to really get highly accurate around detecting
defects, they can customize it.So then
ability to have a tool chain that makes it possible for businesses to then take
their business process and add machine learning and AI and make it that much
more productive and that much more efficient is what I think the real
innovation is.It’s not just having the
technology, but to be able to really deliver the deployed solution.
are two approaches to deployed solution.One is to have a very highly consultative sell.There’s a place for that.There are lots of partners of ours who are
going to do a good job of it.But our
job as traditionally Microsoft has always done is to bring world class tools.To me, when I think about what’s happening
with Visual Studio Tools for AI and the ability for developers who are not AI
experts, but yet are able to roll in AI into their solutions, that’s a place,
just like what happened in client-server and databases, that’s how I think about
what the world of AI is also going to be.
KEITH WEISS:Got it.The question that I get most often on machine learning and AI is, is it
having an impact yet, is it actually driving new business, is it accelerating
workloads out there in terms of what people are doing.From your perspective, do you think we’re
there yet, where these capabilities are now actually driving workload growth?
SATYA NADELLA:For sure it is, but it’s early days.But let’s take what most people describe as
IoT, it’s fascinating to see the workload path, if you will, of these IoT
projects, which is let’s take anything that’s on the edge, take even a
manufacturing context, you’re collecting lots of data, you take that data and
you rendezvous it both in the edge, as well as in the cloud.Then once you have a lot of data you reason
over that data so that you can do some predictions, because ultimately AI
translates into two things, whether it’s some predictive power or analytical
this case, let’s say you can predict failure.Then right after that you need to translate that prediction into some
action.So then we see growth in
something like field service, because you then have to get someone who is going
to go fix the thing before it’s broken.And so that ability to take something which is growth in our Edge, the
growth in data, to growth in AI tools that are being used for preventive
maintenance, to growth in field service, that’s happening at scale today.But is it just AI, is it just data, is it just
business applications and that’s one of the reasons why I like to think about
the broader platform effect, as opposed to just the narrow application.
KEITH WEISS:Shifting gears a little bit, I want to talk
about quantum.So Morgan Stanley Tech
Research Team, we put out a report on quantum computing last summer.And I would say the consensus feedback from
all our clients was you guys are crazy, what are you talking about quantum
for?Quantum is 5, 10 years out; this is
science fiction that you’re writing here.Later, it was I think two months later you were on stage at your
developer conference, the Build developer conference, and you’re talking about
quantum computing as a real capability that Microsoft is investing a lot in
that Microsoft is going to be bringing capability for the field, not in the 5,
10-year timeframe, but something much sooner.
you help us frame this topic for our audience?Can you help them?Can you help
me get them to read my report on quantum computing?Are we there yet?Where are we in terms of sort of getting that
technology production ready?
SATYA NADELLA:Yeah, when I think about all of the
opportunities that we have in front of us, if I look at how people are using
our compute in Azure, and how compute by itself seems to be insatiable in terms
of the need for more of it, or our own feature development in applications such
as Office 365 or Dynamics or Xbox.When
I look at all of these it’s clear that we need more compute.
reaching the limits of current architectures, whether it’s the Moore’s Law, or
it’s the Von Neumann machine itself and its architectural limitations.So that’s where quantum comes in.We’ve taken the approach where instead of trying
to go and solve some narrow problem of quantum, to achieve let’s even say
quantum supremacy, the real challenge of a quantum computer is always going to
be are you going to have enough qubits that can be stabilized in ways that you
can do general purpose compute.So that
means the error correction challenge cannot be so enormous, because in the
quantum world you’re not just going to be able to have that many qubits to do
all of the error correction.So that’s
the uniqueness of at least our approach.
we’ve got a fundamental mathematical theory called topological theory.We have a Fields Medal winner who sort of has
done groundbreaking work.We have a
couple of world class physicists who are trying to instantiate that topological
matter in a physical way.And so that’s
these Majorana particles that we are trying to basically discover that exhibit
topological matter.And then guess
what?We’re going to need a complete new
computer science stack, because this is not what you programmed previously.
that’s very interesting, because I’m not -- when we sort of put the simulator
up on Azure it is where I started seeing that it’s not just our belief that the
world needs more compute, there are many, many people, we’re very, very excited
about it, from oil and gas to many other fields who are saying, wow, we need to
come up with new solutions for some of the big, long-standing computational
problems.And you see some of the early
adoption of the Azure simulator.
KEITH WEISS:There are two big differentiators that we saw
in the Microsoft approach.One was just
fundamentally the physics that you guys are looking to to approach it are
different from most of the other competitors out there, although in this forum
I don’t want to get too much into the topological qubits.
other which is also really interesting is the fact that you guys have the
entire stack, or you’re developing across the entire stack.It’s not just the hardware, but it’s the
software on top of it.Can you talk us
through sort of that three-layer approach of the hardware, the interface and
sort of the software algorithms on top that actually are going to enable this
to get real work done sooner?
SATYA NADELLA:Well, I mean, okay, I think the first phase
of this is for us to build all of these three layers and as I said, I think the
key is for us to have fundamental breakthroughs in physics that allow us to
stabilize these qubits at scale and then to be able to then build the
containers in which you can have a general purpose compute, which requires
breakthroughs even in cryocomputing to be able to achieve that.
the place where I think we are going to shine is beyond what is going to be
groundbreaking work on the physics side is going to be the software stack.In some sense this goes back to the very
first question.Most companies, in spite
of whatever new technologies and capabilities, have something innate in
them.If you look at Microsoft what we
started with was the basic interpreter of whatever, 43 years ago.And it’s back to basics in some sense.So we’re going to start again with the tool
chain for quantum.
the point of having a quantum computer that only two people somewhere can
program?You’ve got to be able to have
quantum computers that everybody can program against.And that’s at least how I think we are going
KEITH WEISS:What’s interesting is this time instead of an
open, underlying hardware, or a preexisting hardware infrastructure, you guys
also have to develop the hardware infrastructure that you’re creating that
interpreter and that software language on top of.
SATYA NADELLA:That’s right.And as a big capital spender today on the cloud side it’s actually
pretty logical for us to be on the forefront of not just quantum.There’s many, many, many pitstops between now
to quantum.And in fact, if you look at
even our roadmap behind, in terms of the investments to quantum, there are
going to be many dividends of that investment long before quantum.
KEITH WEISS:I want to shift gears a little bit to
something that you brought up earlier, the idea of trust.I get asked the question a lot.Why does Microsoft -- when Microsoft is
competing against an Amazon Web Services, when Microsoft is competing against a
Google Cloud Compute, why do they win?Is it their technology?Is it the
products and services?I think there’s
another aspect within it, part of it is trust and part of it is understanding
your customer’s business problems and bringing real solutions to them.
you talk to us about how as the technology industry do you think about trust,
maintaining that trust with your customers?How do you keep on the right side?Because there’s a lot of -- and you talk about that in your book a
lot.There’s a lot of different force
that are pushing in the wrong direction, that sort of make it difficult for you
guys to maintain that trust with your customers.
SATYA NADELLA:Yeah, I do believe, as we sit here in 2018,
this probably is the issue of our times and is not going to go away any time
soon, because -- and the reason for it is very straight forward, because there’s
not a walk of life, there is not a sector of our economy anywhere in the world
that’s not impacted fundamentally by digital technologies.
so if you start with that premise then one of the questions every head of state
I meet, or a local community leader I meet asks is, hey, what does all this
mean for us?Whatever you talk about in
terms of technology, how do I think about it creating surplus in my own region?And that’s where I feel Microsoft’s
fundamental grounding in our mission of empowering every person and every
organization on the planet to achieve more is super important to me.It’s not just a set of words, it guides the
choices we make about the businesses we are in, the business models and, as I
said, the surplus is great.So I can
sort of go to New York or Istanbul or anywhere and say here is Microsoft’s
contribution to your small business productivity, your public-sector efficiency,
your multinational competitiveness, your educational and health outcomes.
course we have an IP-based business and we needed a return.But it’s a factor of production to your own
creation of wealth and surplus.That I
believe is going to be what’s going to be important in the long-term, because
if all you do is collect rent and not create surplus there’s no way people are
just going to allow that.I mean that, I
start there and it’s not about companies being branded as one, or countries
being branded, it’s about every company being evaluated by their business model
and their ability to deliver, I think, long-term surplus that’s more evenly
KEITH WEISS:The other part of the equation on trust and
security is the ability to ensure your customers that their data is going to be
secure in your cloud and in your environment.When investors think about Microsoft should we think about Microsoft as
a company that secures data, secures users, as inherent in the platform, or is
Microsoft actually a security company?Are you bringing new capabilities that are -- new SKUs, if you will, new
products into the marketplace for providing security more broadly.
SATYA NADELLA:Security as a category, if you sort of look
at it across what’s happening with our offerings in Windows, our offerings in
Office 365, or on Azure, it’s probably the fastest growing, just because
cybersecurity is such a massive need across all segments, across all
markets.But we don’t think of security
just as a standalone.You even asked is
it securing users, is it securing data?It’s everything.It’s securing of
data, it’s securing of the user.It’s
ensuring not just security as technology that protects one time, but it’s the
operational security posture.
you asked me even with Spectre and Meltdown, one of the things that was just
marked difference was not only our ability to take that issue, which has
processor design issue, come up with a fix and a mitigation, get it deployed in
our cloud very rapidly so no customer had to even spend any money.
the operational security posture that allows us to see threats and mitigate the
threats is as important as the technology itself.So we’re investing very, very heavily.Security is always going to be an
intelligence game.It’s not just a
technology game.That’s why security and
operational security go together.
also going to have a very open ecosystem.So it’s not just about us and our technology, but now can we make sure
that the overall investment in security is leading to better customer outcomes,
because I think one of the things that can slow technology down is to have
security challenges that slow adoption.And so therefore there’s even responsibility beyond sort of the
monetization that we all have.
KEITH WEISS:Right.When I talk to customers and they’re talking about Office 365 from E1 to
E3 to E5, one of the top responses I get back of what people will test is
security, it’s the discrete security functionality that expands that.So there is a monetization angle, there is a
monetization of the security technology that you’re employing into the stack?
SATYA NADELLA:For sure.As I said, whether it is the migration up from the E1 to E5, whether it’s
with Windows or Office 365 or what we now describe as Microsoft 365, clearly
security is one of the value propositions.
to your broader point, one of the things that I think has been perhaps a
revelation is this move of Office from I used to run Exchange to now Office 365,
it’s not a one for one move.If I look
at the overall market opportunity for what is considered the Office franchise,
but more broadly I think of it as the Windows and Office franchise in today’s
world, think about it, in our hey days of client-server, we didn’t sell servers
to small businesses in India.We did not
have that opportunity to penetrate with Exchange or Lync or any of our servers,
but whereas now you can.You can sell
subscriptions to small businesses everywhere.
can also have value propositions, whether it is compliance, whether it is
security, whether it’s voice, some of the rich capability that is now just,
again, possible for us to have across all of these levels.Again, something we’ve never had previously.
firstline, one of the most interesting things in the last year I’ve seen is
companies really deploying technology with their field service people, with
their retail specialists.So that’s
another.It’s not just e-mail for the
knowledge worker or collaboration for the knowledge worker, but it’s even the
fact, HoloLens -- some of the highest volumes of HoloLens as it’s being deployed
is to the firstline.So when I think
about that, the growth opportunity for what is Office 365 is a lot bigger than
anything that we achieved, even with our high penetration in the client-server
KEITH WEISS:Okay.I want to shift gears and talk about some of the recent business
performance, and the first topic that I want to talk to you -- great segue,
thank you -- was Microsoft Cloud.It’s
been probably the biggest outperformance in terms of investor expectations over
the past two years, in particular what you guys have been able to do in Azure.I think last quarter you saw an acceleration
in growth at a $1-billion-plus scale for that business.
driving that strong kind of return on investment that you guys made?What’s differentiating Microsoft,
particularly on the Azure level, versus some really big competitors out there
that had a head start in terms -- at least in terms of being out in the
marketplace with their infrastructure as a service and platform as a service
SATYA NADELLA:Yeah, I mean, you know, we’re very pleased
with the progress we’re making on Azure, and I think it starts with having a
fundamental differentiated point of view on where is computing going?So we describe this as the intelligent cloud
and the intelligent edge, because distributed computing -- I never believed
even, you know, multiple years ago that it’s somehow going to become one
centralized service, but it’s going to remain distributed.
you looked at -- we talked about AI previously, you need not only inference
capability at the edge, but for the new workloads, we need even training
capability in the edge, because the amount of data that’s going to get
generated that needs to be reasoned over in real time to take action will
require compute to be where storage is.
when I think about what we’re building, when we describe our hybrid computing
architecture or this intelligent cloud, intelligent edge, I feel we’re, in fact,
leading that change today.
beyond that, I think what you see is the secular market demand for this type of
computing.As every industry in every
country is being digitized, the one thing that they need more is that core
infrastructure.And we participate at
the core infrastructure both on the edge and in the cloud, we participate in
the data layer, we participate in a lot of the higher-level PaaS services,
whether they be AI or others.And so,
therefore, we feel we not only have a differentiated point of view, we have
execution that is differentiated in the marketplace today.And in the long term, we will, again, just
like I talked about Office 365, we had a good business in our server business,
but this business is orders of magnitude bigger than what used to be a
successful server business.
KEITH WEISS:Right.I’m going to ask one more question, and then open it up for the audience
to take some of their questions.
to Office 365, I want to ask you about where you think we are in terms of sort
of the progression of that market opportunity.
my view, there’s two dimensions -- three dimensions:There’s the penetration into the traditional
Office space, of getting people to convert over.There’s the expansion of the capability of
what you’re selling to those guys, but there’s a third one that you guys have
kind of brought into the equation more recently that I don’t think a lot of
investors are thinking about is Microsoft 365.It’s not just Office, it’s going into the Windows space as well and sort
of pushing out in that direction.
from your perspective, kind of what inning are we in?Where are we in terms of sort of building out
that Office 365 and Microsoft 365 today?
SATYA NADELLA:Yes.It’s the real question to be asked because we are not trying to just
build these as a single SaaS service, or even a single operating system.It is about being able to build a rich
information model that enables users and groups of users and organizations to
be productive, to be able to collaborate, to help, in fact, impact the cultural
outcomes of organizations at scale.
when I think about Microsoft 365, it’s that ability to have a rich information
model about people, their relationships with other people, their schedules,
their projects, how are they collaborating?You know, if you think about it, I would encourage you to use Outlook
even on your iOS devices and go and look up a person’s contact.
you look up the person’s contact, not only are you going to see, first of all,
all the contact information, you’re also going to be able to see their LinkedIn
connection.But not just that, there’s
this beautiful thing called organizations, people you work with.You look at that, and you say, "Oh, yeah,
that must be just an org chart view."It’s not an org chart view, it’s a dynamic view of the colleagues you
are, in fact, working on projects.
that creates -- one of the dreams in all organizations has been, "How do I
create a boundaryless organization?How
do I create collaboration?What
that’s the way we think about it.So we’re
not building an operating system for a device, we’re not building a single app,
we’re thinking of the users and groups of users and building an operating
system for them.
is part of it, Office is part of it, so is Android, so is iOS devices, we don’t
care.We want to be able to really help
users with their productivity and collaboration and organizations with what
they want.So that’s the expansive
by the way, security is going to be part of that.So not only is it about productivity, but it’s
about trust and security as well.
KEITH WEISS:So it’s not about the user interface, it’s
really about the information underneath it that’s tying it all together.
SATYA NADELLA:And the user interface is a very important
element.After all, I gave the
experience example with Outlook.But
experiences are being powered by this rich information model, and the
experiences then reinforce the information model to allow us to create more
rich experiences.So that feedback cycle
is what’s most important.
KEITH WEISS:So I want to take the opportunity to take
some questions from the audience.
QUESTION:Thank you for coming to the conference.Can you talk about how you think about use of
cash with respect to shareholder returns versus M&A?You’ve got $100 billion to repatriate, it’s
been a year and a half since the LinkedIn acquisition, how are you thinking
about those priorities?Thank you.
SATYA NADELLA:I mean, look, I mean, whether -- you know, we’re
always going to have a balanced approach to our capital allocation.When I look at what we have done even in the
last multiple years, whether it is the dividends, the buybacks, the M&A we
have done, you know, so for example take the LinkedIn.I mean, the fact that we are ahead of the
plans we stated at the acquisition is super important to us because it’s one
thing to do M&A, it’s a completely different thing to do M&A and then
follow through on the plans you stated because that’s the true measure of our
ability to realize the benefits of spending shareholder money.
I feel good about the way we’ve had a balanced approach to it, but
fundamentally, when I look at the opportunities ahead, I think about -- you
know, across our three segments, there are four big, big opportunities.We talked a lot about Azure and the Azure
edge opportunity.It’s massive.And we’re in the very early innings of what
the world needs in terms of core infrastructure.
opportunity in business applications, which we didn’t even talk much yet
about.We are a small player in a big
market that’s growing.And we think of
that as another huge place.In fact, one
of the big breakthroughs for us beyond the growth of whatever, Dynamics 365,
which even last quarter grew 70 percent, has been Power BI.We went from nowhere to being now the leader
in BI in the cloud.We grew by 3X last
year, I think we’re going to end the year with half a billion billings
annualized run rate, which is tremendous.I mean, so that took investment multiple years, but here we are with
some real numbers.
say, that was in business applications.Now let’s go to Office 365.That,
I think is very clear.On Microsoft 365
in terms of whether it’s small business growth, whether it’s firstline growth,
the richness of applications, the security, and gaming.Gaming is another place where, fundamentally,
we’re going and trying to build out a gaming service which says the console is
going to be important to us, continue to be the place where the heaviest gamers
are.PC as a gaming device is, in fact,
increasing in popularity and our ability to build Xbox Live as a network with
subscription services.That’s another
to your core question, I think that we can do the best for our shareholders by
looking at these expansive opportunities and investing wisely on them, and then
having a balance with all the other dimensions, whether it’s dividends or
buybacks or M&A as it fits with our core strategy.
KEITH WEISS:One last one?
QUESTION:Great.Thanks.Satya, my question really
is around gaming, if you can just spend a little bit more time talking about
the gaming opportunity.I know you just
touched on it a little bit, the role Microsoft plans to play not quarter to
quarter, longer term -- your outlook for e-gaming, Xbox, the technology, what
are the core competencies longer term?
SATYA NADELLA:Yeah, I mean, to us, we’re very happy about
the core gaming asset that we have, and that asset got built with the loved
brand of Xbox, as well as PC gaming.One
of the things that most people had not recognized is that we are the owners of
both of those.And so, therefore, now
that we even have Xbox and Xbox Live in particular across these two has really
helped us grow engagement on Xbox Live and we’ll continue to do so.
now have a play-anywhere game subscription, which I think is the beginning of
what is going to be a transition, much like what I described with Microsoft 365,
is a transition in gaming where the console is going to be super important, the
PC is going to be super important, but ultimately, it’s about people and their
ability to game anywhere.And that’s
where we’re going.Whether it is with
our subscription offerings with Game Pass, whether it’s with Mixer, which again,
is growing very rapidly in terms of just streaming, or e-sports franchises
around our first-party games.
I think we have many, many levers there.But, fundamentally, it comes from that heritage of having been in the
gaming business for multiple decades at this point, and built up that
capability in a world where now we have the ability to take that and have it
serve as a much broader marketplace than ever before.
KEITH WEISS:Excellent.Unfortunately, that takes us to the end of our allotted time, but thank
you very much for joining us, Satya.
SATYA NADELLA:Thank you so much.Thank you very, very much.
July 19, 2018 2:30 PM - PT
Microsoft Fiscal Year 2018 Fourth Quarter Earnings Conference Call