KARL KEIRSTEAD: Okay, good morning, everybody. Thanks for attending DB's annual tech
conference. Great seeing a lot of people
that I know well here, so thanks for coming.
I hope you guys have a fantastic two days.
of the highlights for me is I think we've got a pretty amazing keynote
lineup. So, it starts now with Jason
Zander, the EVP of Microsoft who heads up Azure. But in addition to Jason, we've got the CEO
of VMware. We've got the head of Salesforce's
service cloud, just a fantastic lineup.
start it now with Microsoft, and maybe Jason, do you want to give a quick
minute on your history at Microsoft? I
think you've been at the firm for a couple years, right?
JASON ZANDER: Just a couple, yeah. Thank you for having me. I'm pleased to be here. Jason Zander, EVP for Azure. I run all of our product work that we've
got. Obviously, Azure, I think you're
very familiar with that, is our public cloud offering. We build it of course worldwide. We support our own products, Office 365, Xbox
Live, etcetera, and of course make it available to customers; great growth on
actually been with Microsoft since 1992.
When I joined, we were still selling DOS four, and Windows 3 was new, if
you remember that. So, it's been a
little while. With the team along the way,
I was one of the engineers that created the .NET framework. I ran the flagship Visual
Studio developer tool products, and stuff like that, and I moved over to the
Azure team in 2012 to go work for Satya Nadella, who was the EVP of the
division at the time.
at this point, my team does everything from datacenters to all the software
involved, plus silicon all the way out to crazy stuff like quantum
computing. So, it's kind of a dream job
for a systems engineer in the middle of a big inflection point, so lots of fun.
KARL KEIRSTEAD: I know you can't comment on the size of Azure,
but we've put it at about $13 billion, and you do disclose the growth rate, 68
percent in constant currency. So, that
is seriously almost unheard of to have a business at that scale growing at 68
percent. You must have the funnest job
JASON ZANDER: It's huge fun. So as you mentioned, 68 percent growth on
constant currency, and it's just really exciting. I mean, the fun thing for me, of course, is
we're working with a lot of companies on their digital transformation. We have industries that are shifting as we
speak. They're looking for trusted tech
providers, so just an awesome opportunity both to build that technology base
but be a trusted partner. So, the
innovation agenda, some of the really cool stuff in industry, it's a
significant amount of fun.
KARL KEIRSTEAD: Yeah, well, I'm having fun watching your
progress. So, I think everybody here in
the audience has been on the scene probably for about four years. We have.
It feels like that was about when Azure was starting to get its sea
legs. And in 2015 was when AWS first --
or Amazon first reported AWS numbers, and that was kind of a shock to the
street to start paying attention to this thing.
I think over the span of four years, everybody's been monitoring it pretty
carefully, but we don't have the degree of visibility you do to sort of some of
the underlying trends. So maybe I'll
start by asking if you were to look at the last, boy, six months or so, what
couple of shifts are occurring. What changes
are occurring in the cloud infrastructure market that are most significant to
you that you'd flag for the group here today?
JASON ZANDER: Yeah, I think we definitely continue to
benefit from IT spending. We're
definitely continuing to see that, as companies want to accomplish two things,
really. One of them is to become much
more agile in delivery to the business, and that's just important, especially
as entire industries start to shift and their expectations change. And of course, they're doing that on a
tighter budget, as well, so they do need to save money.
so, obviously the value that we have in the cloud is this kind of hyperscale
capabilities that we've got, allows you to run those workloads. I can run them at a far cheaper benefit. I
can actually start having the cloud do task that I'm otherwise paying my own
personnel to do. That actually frees them
up and that budget, and you can apply it towards the innovation agenda. So, we're definitely benefitting from that
continued growth that comes through with that.
think you're also seeing us land quite a number of very large kind of megadeals. You've seen us do the announcements, top
Fortune 50 companies that, again, are looking at Microsoft as their trusted
partner to be able to carry forward their innovation agenda, as well. And so, those things are driving obviously a
lot of that growth that you're seeing, and that's on a worldwide basis.
KARL KEIRSTEAD: Satya said, I think in response to a question
on a recent call, that after that big AT&T deal, just on the subject of
these chunky deals, that he's got sort of line of sight to more of them. So, I think the ones that Microsoft has
talked about is you're public with AT&T.
I think Chevron, Walmart, Walgreens are a couple of the other big
do you want to just address that, because it feels like that's a big change,
where in the last six to nine months, we're seeing not $50 $100 million deals
drop, but we're seeing like half a billion to a billion dollar multi-deals
drop? And you know, is there any unique
catalyst for those big deals starting to happen, because it's a clear shift in
the last quarter or two?
JASON ZANDER: Absolutely.
I think you're starting to see us deployed for this type of technology,
increasingly in tier one workloads, the things that are the most core to a
business. We do do a significant amount
of work when it comes to the back office, you know, IT and other work like that,
as well. But if you look at these kind
of tier one workloads, they run the business itself. So generally, when you see those very large
deals, you're seeing us also integrate and supply technology and partner very
deeply with that. You mentioned a few
that are great -- AT&T, Walmart, Chevron -- great examples of that.
for those cases, what you can look at is the technology that we're bringing to
bear, like I said. It's more than just
what we would traditionally have done, which would have been an operating
system, like Windows Server, SQL Server, Exchange, things like that. Those are for, again, running your back
office. And of course, we have all of
that. That's actually an exciting growth
area, as well.
when you start seeing the much larger deals, you're seeing a more strategic
integration of our technology capabilities and skillsets going along with these
partners, which they're world-class in their space, as well. And you put those two things together, that's
I think if you look at the transition in a lot of industries, it is interesting
such that the hiring for software engineers has continued to grow rapidly, and
it's not just ISPs like us. It's
automotive companies, it's Fin sector, it's basically healthcare. All these folks are hiring more and more
engineers as the technology becomes more and more a core part of their
again, I think you need that kind of structural advantage of the cloud and the
edge. And then, frankly, in some cases,
you might actually wind up competing against the cloud vendor, in which case
having a hyperscale cloud vendor like us to partner with, it's a necessity.
KARL KEIRSTEAD: Yeah.
Jason, you talked a little bit about these big deals beginning a trend
where you're hosting tier one workloads.
Does this notion of workload type on Azure a hard one for us on the outside
to see? We can sit down with your
customers and ask them what kind of workloads you're running on Azure, but the
aggregate picture's tough to get at.
maybe I can ask you for a little bit of color from a few other ways, maybe sort
of traditional or raw computer storage-type of workload versus let's say
premium. What portion of Azure might be
a migration of existing or legacy workloads versus net new? Is there any other cut that you can give us
to help us figure out what kind of workloads are running in Azure today?
JASON ZANDER: Yes, and if you look at the customer journeys
around this, there are some interesting scenes.
We do have some born-in-the-cloud companies. I think one of the best ones early on that we
have is Jet.com, which of course was acquired by Walmart, who eventually also
became a partner with us. So, we have
some born-in-the-cloud startups that just go straight to that.
if you look at the bulk of our business, it is highly focused around a lot of the
work we do with enterprises. And those
circumstances, as you mention, they've got existing workloads. They've been running them in their own
datacenters or leased datacenters for a long time. They want to have a better position on their
capex, and again, they want the agility associated with that. So, it's very frequent that we'll start off
by doing some level of migration. How do
I take the existing workloads, get them into the cloud? But I get more efficiency. I can run it more cheaply. I can, again, get the agility in there.
then, we move into the innovation. I
actually think that Chevron, a top Fortune 50 company, fantastic partner, very
forward-leaning company, and we started the same way. We did essentially kind of your enterprise
control plane, the software agility so that their engineers could move quicker,
and to start off, just a few workloads.
And then, all of a sudden, few became hundreds, and the hockey stick
just kicked in.
then, once we got there, we started doing more innovation, to the point where
we're doing IoT for upstream oil and gas expiration, looking at seismic and
other things, as well; so again, moving beyond kind of like your SAP portfolio
and a bunch of those things, which were the first round, into this kind of
innovation cloud. So, that's an awesome
journey, and the cool thing is we actually did it together along the way. So, the teams and the companies both came along
for that ride.
KARL KEIRSTEAD: And Jason, I'm sure this happens, but when we
talked to some large Fortune 100 customers, we do pick up anecdotes of friction
as they're attempting to migrate the system workloads into Azure, or AWS, or
Google Cloud. So can you comment on that
migration case? Does it feel like it's
happening as fast as you expected, slower because of friction points? And what kind of things can Microsoft do to
the extent that customers are "stuck" to get them unstuck?
JASON ZANDER: And this is another one where, oftentimes, it
really depends upon where the company is.
And what I mean by that, for example, is if they are leveraging partner,
so I have, for example, and SI motion. I've
got a partner who's doing most of the work.
We've been training the partners for years. They really do know how to make the workloads
go. They can get the migration done
quickly. They know how to run it. So if that's your mode, you can actually move
what I am finding is that a lot of companies are using this move as an
inflection point. So in some cases, I
want to do a little bit of clean up.
Maybe my portfolio is made up of a bunch of M&A activity. Maybe I've been waiting for a while to figure
out how to do some work, so I'm actually factoring that into the process, which
isn't really about migration, but it is around how do I actually get the right
kind of trajectory.
then, the other one that's actually interesting is, and this was the case with
Chevron, there's a lot of companies that also want to work on the skilling for
their own personnel. And so, like, you
could come in and have a partner or Microsoft help you move stuff very quickly,
but if the personnel that you have, have not yet come up to speed on how the
cloud operates, they can't take full advantage of it.
so, in some cases, you actually want to work with them along the way, such that
they become cloud-skilled and they know how to move fast. And now, I can actually move very quickly.
so, what I think I'm seeing is a lot of companies that are usually on one of
those kind of playbooks. And so, the
speed can vary but it's not always because of the technology or the friction,
or things around that, but it's around what are the goals for the firm; what am
I trying to do with my people; what am I trying to do with my overall
I can tell you, once you start opening the gates on this stuff, man, it's a
hockey stick. The floodgates just open. When the first few workloads go, and you've
got people that are trained and they know how to do it, all of a sudden, they're
kind of like, "Why isn't the rest of this stuff running here?" and we
see the usages start to spike.
KARL KEIRSTEAD: So maybe just a little bit further on this
migration case because everybody, and this was this was affecting talks
certainly yesterday and the last few weeks, they're worried about things like
slowing economic growth, or recession, etcetera. Azure's never been through a period of slow
economic growth because you really started to scale more recently, it wasn't a
material business back on '08, '09. So
it's hard for us from the outside to judge how recession-proof Azure will
the one hand, it's a source of cost savings and agility. You would think that if companies were
entering a tougher economic time, it could accelerate. On the other hand, to the extent that there
are costs associated with reengineering workloads that could hold companies back,
it's hard for you to pontificate if you don't have a case study of Azure going
maybe you can be helpful because maybe some industries or companies that Azure
serves have stumbled. And I'm curious
what the reaction has been in terms of the migration activity. Any stories to tell that might help us with
JASON ZANDER: Well, one of the things I would look at is,
of course, as you point out, every industry has cycles and they're not always
around the macroeconomic recession environment.
We can take oil and gas. We can
take all sorts of segments that have this.
Those industries, when they hit that, oftentimes, it really does come
back to that cost savings in what you're looking at, because oftentimes, now
you're starting to evaluate capex. You're
starting to figure out, gosh, do I really need to -- like, I have to I have to
go renew a lease that's coming up. Do I
really want to? And those are very, very
expensive. Do I want to do that, or do I
want to actually reposition us to go save money? And so, being able to change how your balance
sheet gets laid out when those things occur is actually important.
then, it really comes down to the partnership.
Like, what's our role? What's our
partner ecosystem's role on how to be able to help make sure that someone can
realize that? At the end of the day, if
you're going to be more agile, and if I'm going to save money on the run rate,
then what I've seen, by and large, is companies are actually quite interested
in still making those moves. You have to
be in a really bad spot otherwise. And
that actually helps.
course, we have also been doing services for over a decade. Office 365, the original back to the first
version of BPOS that we had way back. It's
like 15 years ago. And so, we have
actually run services in this kind of business model for actually quite a
KARL KEIRSTEAD: That's true.
Some of the other things that Microsoft can do, I guess, to
accelerate migration activity, you're
doing in terms of partnerships with vendors that other vendors that are
important parts of their stacks, such to the extent that firms are sort of
wedded to VMware technology. You've signed a partnership with VMware to make it
easier to support. You've introduced
Azure Stack to create a similar environment on-premise.
the kinds of things Microsoft can do like that to accelerate growth? I suppose what you're also doing is making it
easier and potentially cheaper to migrate existing SQL Server, Windows Server on-prem workloads into
Azure. That's probably an important
one. Do you want to highlight a couple
of those things that you're doing?
JASON ZANDER: Yeah, absolutely, and you mention a bunch of
good ones. And let me split two apart,
just to make sure I frame it correctly.
I think Pat might be your next guest, which we've been partnering with
very well. So, let's take VMware first, if that's okay, and we'll come back to
some of the others.
that particular case, our goal with VMware is more of a hybrid operating
environment with us and VMware also as a first class. So, it isn't about migration. So for example,
it's not like can we take VMware and just migrate instances off. That is not
goal instead is to partner with VMware and say, "Hey, your existing estate,
you've got all these people, personnel, assets that are trained up on VMware,
and let's go partner together," because the benefits to our mutual
customers are greater for both of us by the time we're there. So, it's a first-class VMware solution that's
there, a huge kind of response we got from that, which is amazing, which means
you can use the benefits of VMware and the access to the technology and the
relationship with VMware, as well as with Azure, and you get the better together
kind of solution there. Now, I can enable the hybrid solution.
are other cases where it really is people wanting to migrate workloads. SAP is
a fantastic one. We've got an amazing relationship with SAP and really great
momentum. I mean, we've done really, really well with that. When you logged onto SAPPHIRE and it's showing
off all the cool things over there, lots of case studies -- Coca-Cola, and a
bunch of others Fortune 50s that are out there.
that's an example where the software you may have been running it on-premises
and being able to run it, we've seen people get over 100 percent ROI on
it. They've been able to reduce their
cycle times by 40 percent. I mean, like,
the cloud just lends itself incredibly well to that. That's a case where migrating the workload
fully makes a ton of sense. And then, we'll
have the hybrid scenarios where they integrate together.
KARL KEIRSTEAD: What about the version 2008 cycle? So, one interesting thing that everybody's
aware of is that those just went end-of-life or are about to go
end-of-life. So, if you're a large
enterprise and you're facing a decision about whether to upgrade your SQL
Server database or Windows Server instance, you can either keep it on-prem and
upgrade it to the latest version, or maybe -- and this is the spirit of the
question -- this is a catalyst, actually, to get you thinking about Azure instead
of a version upgrade.
can you talk a little bit about what you're seeing on those kinds of upgrade
decisions, and sort of, I don't know, you probably can't give us an exact
number, but what portion of them result in customers just saying, "Let's
go to Azure,"?
JASON ZANDER: Yeah.
There's a huge interest in this.
As you point out, so end of service, the 2008 R2, and the first thing I
would tell you, I actually own SQL Server.
I own Windows Server. They are
actually part of my team, part of the product portfolio that we've got. And guess what? I run the Azure cloud on top of that same
technology. We are the best place to run
that Microsoft IT. So, Azure's an
awesome place to go. So if you're going
to consider the cloud, it makes a lot of sense.
a decision making perspective from IT, it's a couple different things. One, I know I need to make the move because,
right, end of service, and it's been a while.
I need to upgrade my workload.
And the question that I often get is how do I get to a point where I'm
not having to do this every couple of years, because if I don't move too far
ahead, then I'm going to be once again coming back. And I'm having to do the upgrades and having
to apply my own personnel in order to actually do the work. How do I get to a better state?
so, the cool thing about the way we have set this up is with our hybrid
benefits. First of all, moving to Azure
is about five times cheaper than actually running these same two workloads,
Windows Server, SQL Server, on top of AWS.
It's much more financially viable for us to do that. The licensing is great. You don't have to repurchase your IT. I get
that kind of flexibility there. That's
what the hybrid use benefits are for.
the same time, I can also move to an evergreen state, which basically says,
"Hey, the difference in the cloud is that, with these managed instances,
we can actually keep you up to date on the latest version of the database. And
by the way, a lot of things that you're having to hire people to do, like your
backup and your maintenance, and stuff like that, the service in the cloud just
does that for you.
you're going to get cheaper economics for the cloud move. You're going to get a
more efficient system that keeps you there.
And this evergreen state, all of a sudden, I'm not having to worry about
this, and I can pick the savings that I get and I've never seen an IT
department that didn't have work that they had to punt and push out on the
backlog. You can apply those resources onto that. Now, I can actually move
those are the benefits and it's playing out very, very hard right now. And I
think Microsoft and the fact that it is our IP and we've built a cloud around
it and on top of it, it's an awesome place to go. It's financially viable, and
I think it's actually great from a run rate and the maintenance perspective for
the teams. I mean, that's what's most appealing.
KARL KEIRSTEAD: Can we talk a little bit about the
competitive environment, Jason?
JASON ZANDER: Certainly.
KARL KEIRSTEAD: Because I imagine that it's very rare that,
on these big Chevron, AT&T, Walmart deals, that many of them are sole-sourced. They probably have AWS or Google at the table,
if anything, keeping you honest. Can you
talk a little bit about what you're seeing around the competitive environment
versus Amazon and Google, and if it does seem to be swinging your way, why that
JASON ZANDER: Yeah.
And again, if I go back and look at our growth, 68 percent growth on constant
currency for Q4, and again, these big deals.
So, we're seeing that growth when we get into these competitive
different dimensions on this one: One,
there is the product work. We have
excellent differentiation. The hybrid
work that we've talked about, the work we've done at the edge. Azure IoT, awesome example; we're doing six
trillion message a day on IoT, over 70 industrial customers that are out
there. It's amazing. Data and analytics, we've got Spark. We are the only ones with a first party Azure
database solution. These guys invented
Spark. So all of that kind of tech,
those are things you can only get on Azure, which means we have this product
you then look again more broadly, we're able to do one other thing, which is we
have decades worth of DNA, especially for enterprises and how to go run all
these businesses. You're probably
already one of our customers, which means we can help you with that
journey. And by the way, you're quite
likely to be using Office 365, as well.
You probably have your identity systems in Active Directory, which means
you have all these just nice network effects of how the system lines up even
better. So even outside of Azure, there's
the broader Microsoft Cloud with O365, Dynamics 365. All these things help you propel.
last thing on the competitive environment: In a lot of these cases, we're also
seeing a lot more interest because I'm not in your business. To me, it's weird
that you would, on one hand, go pay a vendor to go help you with the cloud; and
on the other hand, they would turn around and compete with you. And that is generating a lot of questions.
You talk about multiple people at the table. In some cases, it's like we might
be talking to multiple people, but there's one that's not going to be here,
it's going to have to be that case because why would I go pump my money -- and
it's a weird boardroom conversation. "Yeah, I spent hundreds of millions
of dollars on this vendor, and yeah, they are number one competitor, going
forward." But you're just not going
to do that, in which case there is this kind of opportunity for us to come in,
again, as a trusted vendor that you probably have been working with for, again,
probably 20 years or more, with all the technology, with all the investments.
We spent all the capex, and if you want at some point to be able to compete
with another stack that has all the same investments, and more, you're going to
need to have those same assets, which means we can partner very deeply.
KARL KEIRSTEAD: So that vertical focus, you think, is net
favorable to Microsoft? In other words,
you're probably going to do relatively well on the retail environment?
JASON ZANDER: Very well in the retail environment.
KARL KEIRSTEAD: For obvious reasons, but on the other hand --
JASON ZANDER: I'll give you an example.
KARL KEIRSTEAD: A lot of tech companies that are rivals to
Microsoft might favor AWS. So, you think
the net of those is favorable to Microsoft, by the sounds of it.
JASON ZANDER: I think, from a net perspective, yes, I mean,
especially as you start seeing the appetite for cloud companies start to expand
into other industries, right? And so,
you mention one, which is obvious, but there are others, and it's kind of like
at some point, you have to start doing the calculus and asking yourself,
"Where does this end, and who am I competing with?" maybe not this
year, but maybe in five years.
it's kind of amazing to see what that looks like. You need to have someone that
can actually help you with that. And I
think that's where we come in, and we're seeing that great momentum is one of
the examples for that.
KARL KEIRSTEAD: Okay.
I'm sure, on these chunky deals, the degree of price competition can be
severe. One thing that we've all worried
about for four years is that, when you get three vendors duking it out for
deals that, once they land on your infrastructure, might be there for a while,
the incentives to price discount is huge. What are your observations about the
degree of price discounting out there?
And maybe you can offer a comment as to whether you're seeing a little
bit more aggressive behavior from Amazon or Google.
JASON ZANDER: Yeah, and what I've seen in this case, of
course, some of the early conversations since I've been on Azure since 2012, a
lot of the earlier ones were, like, "I don't think you guys can run this
cloud that cheap," or, "I don't think you can --" whatever,
whatever, whatever. And it's really
shifted significantly. As you point out,
over the last four years as we've seen the growth, it's generally not a
question of, "If," cloud; it's really, "When?" and,
"How should I approach it?"
That's been more the way that it's worked.
I mention that because, in a lot of ways, that cost conversation went away
reasonably early on because, A, when you're making these decisions, you're
actually landing in the cloud where it's already a lot cheaper to go run in your
environment. And so, the first
comparison to start off with is not even how are the cloud vendors duking it
out, but also, like, well what's the cost between what I'm already doing and
what I need to be doing. I'm already going to wind up saving money.
then, in your particular case, as you look at this, as you mentioned, you've
got now big, hyperscale vendors, really competing and going at it. Well, one of
the things we're also betting on is that we're investing really heavily in our
innovation around how do I continue to work on margin; how do I continue to
work on my costs; how do I get more and more efficiency. We're very relentless
at doing that work.
so, in this space, I also think in infrastructure, but there's absolutely
opportunity in the strong business that's there. And so, when you buy millions
of things at a time, you can afford to make that in a good kind of positive
business structured-way. And then, over time, there's also the move with mix
shift. You're going to see a little bit more of the premium services. So we're
just, right now, a platform above the people now working in storage, which are
the basic intrinsic.
if you start thinking about it, our data and analytics stack, also very
differentiated; the AI and machine learning pieces that come along on top of
that. Then, you start getting up into, like, the Power application, Power Platform,
etcetera, where I start doing business automation, etcetera. Those are cases where you're going to see
some of that premium mix shift continue to kick in, and that also contributes
to the overall numbers that we've got.
if you look at, broadly, our business, we had 24 percent growth on constant
currency for the overall commercial cloud of business, which is a more broad,
beyond just the Azure growth, the 68 percent.
That just demonstrates the overall business is there, and again, keep in
mind, from a hybrid perspective on both cloud and I'm on-premises. We've got both products. We allow you to handle both. It's a little bit of why we report the way we
KARL KEIRSTEAD: Got it.
But it does feel like a three-horse race, and there were some vendors --
IBM, Cisco, HP -- who tried, and IBM's still there, obviously, but some have
backed off. But there is a fourth. Oracle's knocking on the door and wants to
be part of the party. When you're bidding for these large deals, Jason, how
often are you seeing Oracle at the table considered as an alternative?
JASON ZANDER: Generally, what I've seen is when you go to
the hyperscale cloud, there's a significant amount of infrastructure work that
you need. And so, typically our
competition is often a Seattle competition for cloud. It's a northwest cloudy city kind of competition,
an Oracle perspective, we did announce our partnership with Oracle, which we're
happy with. We've got additional things coming up, so you see that great
combination. Obviously, a lot of Fortune 100 firms heavily bet on Oracle. They've
got great solutions there that they're trying to go run on top of, and of
course, that's why we want that partnership with Oracle to make that go.
I think of the worldwide footprint, and a lot of the companies we deal with,
they want to be everywhere. I just
announced another region in Switzerland last week. We did a new region in
Germany. That brings us to 56 regions worldwide, so that kind of global
coverage, that kind of completeness of that portfolio, that's where I see
people most interested in what that future looks like. And then, again, we have
our agreement with Oracle and I think we've got a lot of interest in the
partnership there, as well.
KARL KEIRSTEAD: Jason, the response to my question around the
pricing environment, one thing you mentioned is the Microsoft confined internal
datacenter efficiencies that could upset any unit pricing decline. So can we
hit on that a little bit, because that's a hot subject for this group, many of
which are invested in some of your suppliers.
so, Microsoft is in a very unique position these days that you weren't in five
years ago where a lot of the buying activity for the whole datacenter supply
chain is now aggregated, and a couple of companies in cloudy Northwest parts of
the country. So, you've got amazing purchasing power. And so, everybody watches
your capex now, like they weren't five years ago.
can we talk a little bit about that, because it was just recently a quarter or
two ago when several or your suppliers, Intel being one, but there were many,
where seeing some demand pressure and they were claiming that the
"Hyperscaler" buyers were holding back on investments, and that led
to some consternation where we had to figure out, if that's true, is that
because you're anticipating slower Azure growth, or is it because you're
finding replacement technology? Are you finding efficiency improvements?
that I've got you onstage and I can ask you, can you explain why some of your
suppliers were pointing at the big cloud vendors, suggesting that you were
slowing purchasing? Why would that have
JASON ZANDER: Yeah. And I would start off, again, just by
framing growth. I mean, so I think the growth speaks for itself.
JASON ZANDER: So from my perspective, yeah, I'm still
spending capex. And it's like we've
guided that we're going to continue to spend cash.
KARL KEIRSTEAD: Over $5 billion this coming quarter.
JASON ZANDER: Exactly. So, I mean, and Amy's kind of
discussed and disclosed all that. So,
that money's out there. We're doing
things like the datacenter expansions. I mention too that we're there, as
well. And so, a lot of the capex is
going towards that additional expansion so we can get off into more markets and
continue doing things like that.
Obviously, the components that we buy and the server and the fleet that
we continue to expand is a core part of that.
you mentioned, one of the things that we do is we are pushing relentlessly for
efficiencies because this is a high scale game, which means I have to be doing
a really excellent job on every dollar that I spend. And I do product planning
on a six-month semester boundary. Every time we do that, it's a combination of
what innovation are we bringing to market, the new things, and where is the
future going. But there are always commitments that I have from my teams on
so, a few things that we've done in particular, we've tuned our supply chain.
Our lead times are starting to shrink so we can get more into kind of adjusting
time, or when I need it, when can I deliver it, making sure that we're meeting
all the demands that we have while not having to carry a lot of excess
capacity. So, there's a lot of improvements we continue to make there.
KARL KEIRSTEAD: So, it's not like you're buying supplies,
storing them on the top shelf for six or nine months, and then bleeding them
JASON ZANDER: That's correct.
KARL KEIRSTEAD: It's way more just in time now.
JASON ZANDER: Yeah, and I talk to Amy once a month when I
ask for money, and she will always remind me, I'm not there yet, just to be
clear. Maybe you've met Amy; she's going to keep me honest on that one, but we
are improving, and we're just constantly working on that. And so, if you think
about that, the efficiencies we get out for the money that we spend, we're
continuing to make that better and better every single quarter.
addition to that, we've made a lot of software improvements that we've
done. And so, we can do better jobs on
densities. I can host more workloads on the existing kit that I've already
bought because there's even more efficiencies there, as well. And we can
essentially do that. Plus, we do a lot
of innovation across a lot of different parts of the work.
so, I think you've seen we are spending capex and continue to chase the TAM.
The TAM is huge. So, we're continuing to grow. You've seen our growth come
through. And then, we're working very
hard on the efficiencies part of the house, and I feel pretty good about it.
Okay. Not to press you too much, I don't want you to give away your Azure
trade secrets in a public forum, but the group on IM are very curious as to
exactly what these efficiency gains are. Like when I do field checks with
folks, engineers in Silicon Valley, they tell me anecdotes about how Azure has
been able to squeeze like 3x more out of a server rack today versus 18 months
ago. And I asked them how on earth Azure's been able to do that, and I get
Can you give us any -- (Laughter.)
KEIRSTEAD: Can you give us anything more specific as to
how you're driving these efficiency gains?
think everybody would be super curious.
JASON ZANDER: Yeah.
So, I can tell you the elements that we're working on, right? It is a combination of silicon design work
that we do. And we work very closely with our component partners and things
like that. If you think about storage, if you think about the work we've done
with the chip manufacturers, all the components that go into it as part of the
cost, we have -- you know, I have a whole silicon team. Like I mentioned, we do
everything from Azure Sphere to the optics for HoloLens, all the way up to
so, we partner with a lot of the OEMs that you're talking about, the component
manufacturers. We also do a lot of specialization that's designed for the cloud
in partnership with them, and that actually helps us do a good job getting even
addition to that, a lot of the additional work that we do, it's things like SKU
mix, and that's also, you know, like how much RAM should I have, how much Flash
drive should I have. Well, it turns out that running in SAP, that server looks
like something. Running a gaming server, that's actually more CPU, less disk.
so, we've been able to over time look at the workloads that people are running,
how to get the right mix between them -- this is a little bit of the secret
sauce -- so that I can start actually tuning the fleet. So, the fleet isn't 100
percent uniform SKUs where every single node that you pull out looks exactly
the same. We wind up with the right kind of balance, and at the end of the day,
our job is to really improve the silicon and then the utilization and then
figure out how to get great adjacencies across workloads so that we can
actually share those resources in a very efficient manner.
mean, this is part of what it means to be hyper-scale and it's one of the
things that's a big difference between, well, I've got a collo someplace that I
lease and, you know, that server over there, that's my server. I called it Fred, it runs SAP. Well, in the
cloud you don't do that, right? I mean,
there's literally millions of servers out there and you have to be able to
manage this at massive scale. So, that's
a little bit of the trade secret side of the house but you get the idea.
KARL KEIRSTEAD: Got it.
Okay, thank you.
we talk security for a quick sec?
JASON ZANDER: Yes.
KARL KEIRSTEAD: So, maybe two parts. One is the Cap One AWS breach was very high
profile. And I'm just wondering, as you've
interacted with customers since that, have you noticed any change in
behavior? Are they sort of pulling back
and wanting to double click on Azure security infrastructure in a way that
could in any way elongate sales cycles?
So, that's the first question.
actually, why don't I stop there and let you go on that and then I'll ask a
JASON ZANDER: Yeah, and I would say that especially the
large even fin sector and other folks, you know, healthcare, places where the
compliance has been high, I would say that they've always been very, very deep
into the security vetting and validation and then the work that's there. I see
of course, have had questions around specific things that they've seen and how
are we doing that. In some cases we're doing things slightly differently and
stuff like that and they can see that.
what I would tell you is the big thing that we've done with security, because
again we've been running cloud services for 15 years -- if you go back to
Office 365, even Xbox Live, it turns out the biggest hacking period that I get
every single year is December 24th in the evening. And it's basically as people are unwrapping a
new Xbox and you get these guys that are like, I want to claim the fame that I
actually took down the network, and people, for whatever reason, your kid
couldn't play your Xbox, your 35-year old couldn't play his Xbox, whatever it
happens to look like, that's when the hacks come in.
we've been doing this for a long time, and we spend a billion dollars on op-ex
every single years just on security. There's over 3,500 people that work on
that. We've done a significant amount of work to protect Office, protect the
documents that are in there. And we take all of this thing, like a trillion
signals go through the system, and we apply it not only to that but to Windows,
we apply it into the Office ecosystem, and then we actually make it available
for our third parties as well.
KARL KEIRSTEAD: Okay.
JASON ZANDER: And so, there's always a lot of scrutiny, and
there should be on security. It's
especially true as more and more of the tier one workloads start to shift into
the cloud, and so we get that extra scrutiny that is there and welcome it and we've
got the broadest compliance portfolio out there for hyper-scale clouds, it
KARL KEIRSTEAD: My follow-up on security, and I don't mean to
be unfair to Amazon, they're an amazing organization and they're larger than
Azure is, so by nature they're going to have more breaches in the newspaper,
but when we do a search of all the breaches, it feels like there's a lot of AWS
sort of open S3 bucket problems, like there might have been with Cap One.
we search for high-profile Azure breaches, there aren't that many. And again maybe it's just workload mix, I'm
not sure, market share, but it feels like there's a disproportionately low
number of at least high-profile hacks on Azure.
I just wanted to ask you why that might be and if Azure in your judgement is
doing anything different than AWS is to secure data and customer applications.
JASON ZANDER: Yeah, and again here what I would say is from
a shared security perspective I actually think as cloud vendors, we're all
vested in making sure everyone is safe and secure on the cloud. And to be honest, if you get to the point
where people worry that the cloud in general is not a good place to go, then
whether it's one vendor or another, that could be problematic for the overall
business, and I think we're all dedicated to that. Even when we've had major attacks that have
occurred, that impacts all of us. And we
actually have a hotline to Google, we have a hotline to Amazon. Our security folks will talk to each other
and figure it out. So, we think that's
kind of the greater good. That should really trump some of the
competition around things like that.
when it comes to the specifics around Azure, though, I will tell you just what
we're doing, not to try and compare and contrast per se but to basically say,
as I mentioned, all the security work that we've done to run Office 365 for 15
years is built into Azure. And we get to leverage the same tech and we've built
even more on top of it. We have put in the best practice analyzers and the
sorts of things that frankly we've had for Windows Server and SQL Server for 20
just to be objective, I mean, Microsoft, we have faced our own security crises
in the past, a long time ago. That was kind of a trial by fire and we had to
change a lot of the practices in the work that we did in order to be able to
protect our ecosystem. And I think we've learned a lot from that and we have
accrued all of it forward into our cloud and our cloud properties and our
technology. That's more the approach that we're taking on this side.
then from that point, then it also has to be a partnership with the customer
who's running the workload. Because I can secure the environments and I can
help them with tools and make it much, much easier, but at the end of the day,
they also have to apply those security best practices to their workload to make
sure that they remain secure.
also, what we're trying to do is we call it the pit of success, like I'm trying
to design the products, you fall into the pit of success, you don't make the
inadvertent non-malicious but accidental sort of problems. That's kind of part
of the product design ethos that's there as well, but it's got to be a good
KARL KEIRSTEAD: Got it.
might have time for me to sneak in two more, so we'll go quick. On gaming, how
excited are you about gaming being a new Azure workload and is there anything about
the Azure infrastructure that looks/feels different than Google or Amazon that
might make Microsoft have a slightly better chance on the game streaming front?
JASON ZANDER: Well, and the cool thing is gaming is
actually an old/new cloud workload.
Because we've actually been running Xbox Live on top of Azure for a long
KARL KEIRSTEAD: Fair point.
JASON ZANDER: One of the first gaming services that are out
there. It's a massive gaming service.
if you look at the going forward part, which I think is really the crux of what
you're asking, game streaming is an awesome opportunity for us. I think
especially when you start to immerse this in with 5G and edge compute starting
to become more prevalent, I mean, there's an awesome opportunity. Because we've
already been doing multiplayer games that run online, that run in our Azure
data centers. They go out through our pops in our network to get out to the
homes. Imagine what happens when we get more and more edge compute and
protocols and devices that can go handle that.
seen the lineup that we announced at E3, all the cool streaming that's coming
even on your phone but mounted on controllers. That one's pretty freaking
I look at things we're doing with all of the online streaming, the gaming
community, I think you're seeing more of that as well. So, there's a lot of
content, a lot of video, a lot of sharing and social. So, it's all starting to
evolve. But it's actually built on top of this awesome base, it's actually a
decade's worth of awesome innovation.
the cool thing about Microsoft, because remember, not only do we have the cloud
and the streaming, but we've been doing the consoles for a long time, we've
been doing PC gaming back to I think the first one that I played was Flight
Sim. Anybody used Flight Sim? Remember
Microsoft Golf, anybody play that? These are back in the DOS years. I'm too damn old. But that goes all the way
back and then up into the modern stuff.
And so, it's actually really cool.
KARL KEIRSTEAD: Last one. You've got to put your forecasting
hat on. IR's cringing right now, I know, but Jason, if today hypothetically the
on-prem public cloud mix looks something like 95/5 or 90/10, I don't know what
numbers you guys use internally, if you were to look out ten years, what's that
on-prem cloud mix going to look like?
JASON ZANDER: I think we're going to continue to see the
growth in the hyper-scale, we see people doing that move as well, and it's
actually a lot of net accretive new workloads.
will tell you one really cool thing, though. We have been doing hybrid since
day one. And so, even in this mode where there's a mixture between the two, we
made hybrid a standard solution when our competitors were just paying it lip
service. It's been something we've been doing since day one. Azure Stack, our
Data Box Edge work that we've done, even again these new announcements we've
made, partnership with VMware and other work that we're doing, we think that's
a first-class state for companies to land in. You're going to see more and more
of some of these workloads running cloud native and running in the cloud where
I'm going to be able to leverage my existing systems. And honestly, the fact
that we've invested in that since the day one of Azure is amazing, because it
lines us up incredibly well.
we've been doing on-prem for two decades, which basically means that as your
usage and stuff kind of moves between the environments, we're actually in a
great structural shape to be able to handle those and take advantage of it.
KARL KEIRSTEAD: Thank you, Jason, for coming. We're honored that you were able to fly down
and join us and meet our clients and help them think through Azure and this
cloud business, and what a fun ride you've had.
Keep it up.