Where: Deutsche Bank Technology Conference - Las Vegas, NV
KARL KEIRSTEAD: Good afternoon, everybody. Let's get started. I'm Karl Keirstead on the Deutsche
Bank software team. We are delighted to have Microsoft keynote for the second year in a row DB's Tech Conference,
and delighted to have Rajesh Jha, who heads up the entire Office business for Microsoft be our lunch keynote.
Thank you so much.
RAJESH JHA: It's great to be here, Karl.
KARL KEIRSTEAD: I've promised to read a little message before we start.
Before we begin Microsoft may make some forward-looking statements -- I wish you would -- during this presentation,
and you should refer to their SEC filings for the risk factors relating to their business. And that's true
whether you're here in person or listening on the web.
With that, we have a lot to talk about. I thought maybe I would start with a question that's actually not specific
to the Office business but Microsoft at large. As everybody here knows and knows acutely, if you've been holding
the shares from the 20s up to the mid-70s, it's been an amazing, amazing run for Microsoft in the last couple of
And sometimes it's hard for us on the outside to appreciate the change going on in Microsoft since Satya came aboard,
but I know your clients ask you about it, so maybe you could share as an insider -- I think you've been at Microsoft
for what, 27 years, something like that?
RAJESH JHA: That's right.
KARL KEIRSTEAD: -- what your observations are about the organization and the energy level since Satya came
aboard? It feels like a pronounced change, but we'd love to hear your views.
RAJESH JHA: Sure. Like you mentioned, Karl, I came to Microsoft straight out of school many, many years
ago. We won't count exactly how many. But the thing, of course, it always comes down to having a clear
strategy and executing to that strategy. But you just can't overstate the importance of culture. And
Satya has been very clear about the culture that he wants to see at Microsoft, and he's driven that by personal
example. You all have seen the work from Carol Dweck on Growth Mindset, and it may seem superficial, but he
really tries to live it. He tries to get his senior leadership team to live it. And the idea here is
that you're always learning. You don't start from a presumption of knowing what's right, and that has now
permeated, I would say, a large part of the organization.
The other thing that Satya has really driven is a strong sense of accountability on the engineering teams where just
holding us accountable where revenue is often a trailing indicator of the work you do, and having the engineering
team take more direct accountability for driving user satisfaction and usage growth. And as long as you're
working and executing clearly to that strategy, then the right business is also going to happen.
Also the way the execute of the senior leadership team, I probably don't see Satya one-on-one very often. I
mean, he's always available should I need to, but we get together as a senior leadership team every Friday, most
every Friday. And so all the hard conversations are done in the open, it's done as a team. And it's
done with a mindset that we are always trying to learn and try to get better. And it is, again, very easy
to underestimate the impact of something like that, but it's really borne great results. Our employees are
satisfied, people are focused on their work, and I feel that we are pulling as one leadership team.
KARL KEIRSTEAD: Yes. And it certainly feels to me on the outside that Microsoft is starting to attract
some fresh top tier talent, not that that process stopped, but when I checked with recruiters about where top tier
engineers, top tier data scientists are going, Microsoft is making that list again.
RAJESH JHA: It's great to see. I mean, we've always been able to attract talent. But now, if I
take a look at the diversity of talent that we're able to bring in, folks from different open source frameworks,
folks in productivity and data on AI, we feel great about the talent at Microsoft, and also the talent that already
exists and harnessing that in a more productive way.
KARL KEIRSTEAD: Good. So maybe let's turn to a couple of the big drivers going on in the tech space that
I know everybody in the audience is following, and too that certainly are popping up a lot over the last several
years, sort of cloud and more recently AI and machine learning.
RAJESH JHA: Sure.
KARL KEIRSTEAD: So the cloud journey is a key part of the unit you're running, because the transition of the
traditional Office business to a cloud-hosted Office 365 one might be the single biggest thing going on inside Microsoft
for a lot of observers. And maybe before diving into exactly that transition I would love to ask you broadly
about SaaS or cloud adoption. When we look at the results that a lot of your peers are putting up, whether
it's Salesforce or Workday or Service Now or frankly even the SaaS units inside Oracle and SAP it feels like everybody,
including Microsoft, is seeing a stronger adoption curve just in the last year or so.
So as you talk to clients, Rajesh, what do you think is the catalyst for it feels like SaaS adoption to have picked
up as acutely as it has in the last year? What's happening out there? It's even occurring inside Deutsche
Bank where we're publicly embracing Salesforce and Workday as well. What do you think is happening at large?
RAJESH JHA: You know, I would say of course in Microsoft we've been all in on the cloud. And not only
has it been good for us, it's been great for our customers because our customers can now take advantage of our global
hyperscale enterprise grade cloud, but the biggest payoff for our customers has been the rate of innovation in the
cloud is probably an order of magnitude if not more faster. And with Office, particularly, we are seeing great
adoption. I would say we have now upwards of 100 million active users in the cloud commercially. And
this is across different platforms, more than 90 million iOS and Android Office users. We are seeing increasing
usage of our core workloads, not just Exchange and Mail, but OneDrive and SharePoint and Yammer and Skype, also
our newer workload like Teams.
And some of the fast is movement of the mixed shift from on-premises into the cloud, and with Office we are -- I
think we shared this data a couple of months ago at the Financial Analyst Briefing, but for Office we are now 50
percent commercial Office is in the cloud. And we think that by FY '19 we'll have two-thirds of commercial
Office in Office 365, and Exchange will be north of that, 70 percent. So there is a bit of a mixed shift for
But also the cloud I many ways is democratization of, it's not just economies of scale, which is obvious, also economies
of skills. Today there are many segments where you take the sophisticated capabilities that many vendors produce,
it's hard for our customers to go stand those things up and be able to consume it, even if they find the capital
overlay for it. When you deliver via the cloud, you naturally start out with a very consume as you go model,
a simple model. And so with Office 365 now we are starting to see small businesses that couldn't really run
a lot of our capabilities like Skype, Conferencing, or OneDrive and SharePoint, they can now actually consume that.
In emerging markets we see the same thing.
So there are a couple of secular trends, which is economies of scale, economics of skills, and of course device proliferation
where the consumption now isn't bound to you being on-premises. You can consume it from any device.
KARL KEIRSTEAD: Those factors certainly feel like they're picking up steam of late.
RAJESH JHA: Yeah.
KARL KEIRSTEAD: And, Rajesh, on the second one around AI in general, we always listen to Satya. On the
stage he's always talking about these trends. How does the enterprise spend on AI and machine learning, it
feels super early stage, but how do you think those megatrends impact the Office business? How might a customer
apply AI to Office, for instance?
RAJESH JHA: I think AI is going to be pervasive. It is starting to already be there with Office. Every
single day we have tens of billions of signals that come to our cloud as our users use Office. And now all
of these signals actually belong to the customer. This doesn't belong to Microsoft, but we're able to take
these signals and give value back to our end users and our customers.
Who do I work with? What documents do I look at? Who am I going to meet next? What's trending in
my workgroup, or in my organization? What messages are flowing through the system? All of these are
signals. And you know today if you take a look at, let me give you a couple of examples, if you take a look
at PowerPoint, we now are at the point where we can have end users have a digital designer in the cloud working
on their behalf, telling them the right content if I'm actually producing some content, it knows what is the relevant
content in the enterprise corpus that I should be linking or using.
It helps me picking the right design templates, getting the styles right, in Word. In PowerPoint, again, like
more and more workplaces are diverse and globally co-located and PowerPoint, I don't know if you guys have seen
some of the recent demos of the PowerPoint Translator, but I could be talking here and I have real time transcription
and translation into one of tens of languages, with Word it's like you have you professional editor in the cloud
working on your behalf, making sure your content is professional, that the tone is gender neutral, that it's geopolitically
With Excel I throw in something like a country label and I can tell Excel, hey, recognize that as an entity. So
if I now go into the cell next to it and I type GDP Excel will auto-populate the GDP next to it doesn't treat
it like a text thing anymore. You can tell it to treat it like an entity. In Outlook we have AI that
knows who do I work with, who am I close to organizationally, and what should I prioritize or focus on? Am
I spending my time correctly in meetings? If you send me a note, Karl, saying can you send me the deck from
yesterday, Outlook will soon suggest for you what that deck might be.
You can right click on it; it will detect the natural language query. You can right click on it and it will
suggest the right thing. And if we don't get it right, that's a signal back to us, just so we can get our
And this is not just about end users, AI working for end users. For IT professionals we see signals flowing
through our cloud in Office. We see signals flowing through Windows Enterprise. We see signals flowing
through directory and networks. And so we're able to triangulate all of these signals and suggest to the CISO,
hey, these patterns look suspect, or maybe you want to turn on 2FA for these set of folks, or the encryption policies
for these set of folks.
I mean I could go on, but I think AI is going to be incredibly pervasive. Now some of these AI capabilities
are going to just be in the existing products and make them better. Some AI capabilities, we've got this thing
called it's in early preview right now, something we call Workplace Analytics. That we think is a value
added service that we'll add to Office 365. What does Workplace Analytics do? I've talked about AI for
end users, AI for IT; Workplace Analytics is for people who are decision makers, leaders of organizations, HR, sales
professional. I'll give you a couple of examples.
Last year I bought three companies, so obviously what's top of mind for me is, hey, are these companies that I acquired,
are they getting progressively more integrated with the rest of the team? And the Workplace Analytics, what
it does, it takes a look at the communication pattern between groups of people, collaboration patterns, meeting
patterns, and sure enough I found that one of the three was actually starting further apart. And so it was
easy for me to go and get the right processes and connections in place.
One of our customers, early customers, who worked with analytics, they discovered that the correlation between their
sales person efficiency was directly correlated to the size of the internal network, not so much how much time they
spend with the customer. That mattered, but not as much as the size of the internal network. So they
did their reorg around that core factor.
So AI is going to permeate I think existing experiences, generate new capabilities. It all starts with the
fact that if you have data, if you have high quality signals, if you're able to iterate on that quickly, learn and
experiment and get the right relevance, then you can create value back for your users and your customers. And
that's why cloud is so much more inherently in a way than on premises, because these models, these AI models, these
machine learning models, they have to be curated, they have to be personalized, they have to be creative. Nothing
is more annoying than having an assistant getting it wrong for you.
Even if they get it wrong one out of three times you lose your trust in that. So the UI has to be done tastefully
and so on. So I mean we are very bullish in what we can do in terms of generating user value and customer
value with AI on our existing infrastructure. And I think LinkedIn is the other data set, if you think about
the fact that we have a half-a-billion people and people's rolodex is in LinkedIn and who follows whom and what
speech do you click on in your work context. So AI is going to be big.
KARL KEIRSTEAD: I'm excited to see how the AI trend affects Microsoft going forward. So I'll be watching.
RAJESH JHA: We're on it, Karl.
KARL KEIRSTEAD: It sounds like you are on it. Let's zoom in, maybe from these broader themes of cloud
and AI, zoom a little bit into Office.
RAJESH JHA: Sure.
KARL KEIRSTEAD: So inside Microsoft this is a roughly $25 billion business. I think if you were a standalone
you'd probably be a top five software company. Growing at 6 percent this past quarter, at least on the commercial
side, that's a terrific growth rate. So, Rajesh, can you run through what a couple of the key growth drivers
are for Office? I'm sure you've got some continued seat growth, as ubiquitous as you are. You've got
RPU growth, maybe driven by the transition to some of these newer versions. What's driving that commercial
growth of 6 percent?
RAJESH JHA: It's what you said, Karl. I mean it's both seat growth and RPU growth. But before I
get into that let me just share what I think is more foundational, which is we are very anchored in what our mission
is with Office. With Office we want to empower every individual, every organization to succeed, whether you're
in a work context, your home context, whether you're in school, and we are really grounded actually creating experiences
and products that people love and they trust. They want to enable communication, collaboration, creativity,
and letting people work anywhere, work across devices.
When you start with a mission like that and you take a step back on that, the first thing I would say is monetization
of Office. If you get people engaged in your products, because they love it, because they trust it, because
it does the right things for you, then you earn the optionality to monetize. Without usage, without earning
the trust and love of end users, that is not going to happen.
We are very grounded in are we building the right experiences. And so that Office is going to take advantage
of not just AI, as I talked about, but also natural user interface, increasingly mobility patterns. We start
to think about Office being relevant in different segments. So one of the RPU drivers for us, I mean actually
a seat growth driver. We have like I said about 50 percent of our commercial Office in the cloud with Office
365. And by FY '19 we think we'll be about two-thirds of our way there, into the customer transition to the
It's just moving to the cloud form on-premises. Office is an incredibly horizontal product. So you think
about what does a small business want from Office in terms of productivity communication, collaboration? When
you go to markets like Kenya or Indonesia or India, where people's only devices, these are information workers,
their devices are going to be phones. What does Office mean to those users?
When you think about baggage attendants working in airlines, the folks who work in the corporate office their needs
we understand today. But if you're a worker in a fast food restaurant, if you're a baggage attendant, a baggage
handler, if you're a cleaning staff at a hotel, what does Office mean to those folks?
So as we started to create new services we launched Microsoft Kaizala in India, we are seeing how I mean the
early reception has been good and then we'll launch it in a few more emerging markets. We've got this frontline
SKU in Office 365 aimed at not the information workers, we're thinking about a specific small business SKU. We're
adding more value there.
So we're seeing seat growth, because now it's affordable for these folks. They don't need capital overlay,
but more importantly, we've got the right products and the right services. So we both see an expansion in
seat growth overall, and if you remember our analyst briefing a couple of months ago the Office commercial seats
have grown 8 percent. So it's not just movement to the cloud. The overall base is expanding.
KARL KEIRSTEAD: And that's amazing just how ubiquitous Office is that you're still growing seat counts by that
RAJESH JHA: Oh, yeah. I think when you start to think about all the billion people who are front line
workers, these small businesses who were never able to afford or run Office, there's a lot we can do there.
Now in terms of RPU driver, the first users who moved from on-premises into the cloud for Office, they wanted professional
grade e-mail with Exchange Online and Outlook, but like I said, as they started to get engaged, as they started
to use it, they've started to increasingly opt into our hero SKU, which is E3, which has not just messaging and
calendaring but document storage, modern Internet sites that work on your phones with SharePoint, Conferencing with
Skype, Yammer. We've added Microsoft Teams to the hub for collaboration. And over the last two or three
years, it's been great to see the uptake on our SKU. So customers are now moving to our cloud not for one
workload, but increasingly for our hero SKU.
And then, as you know, we've added E5 that has advanced security and compliance capabilities. That's got phone
system in the cloud. That has business analytics in the cloud. So the early momentum on E5 has been
great. Now some of the workloads in E5, we're going to see a longer sales cycle, things like PBX in the cloud,
there's existing vendor contract that have to be worked through. But the Advanced Threat Protection, Lockbox,
Conferencing, these are super easy for our customers to switch on. And so that drives RPU.
And the other thing I would say on RPU is Microsoft 365 takes the user-centricity of Office 365 and we're thinking
about the entire needs of a modern workplace by bringing management across devices with EMS and then Windows 10
Enterprise on the desktop. That's going to be another RPU driver for us.
KARL KEIRSTEAD: Okay. And Rajesh, on the transition to 365, you mentioned on the commercial side Microsoft
has already transitioned roughly 50 percent of the commercial base in fiscal '18. So how long do you think
it might take to get that to 100, and will it ever get to 100? And for the customers that are not yet flipped
onto Office 365, what are the most frequent sort of two or three objections that are keeping them on-prem that you
and the sales teams are chipping away at slowly and you'll eventually get to? But what are they, what are
RAJESH JHA: Yeah, I would say, like I said, FY '19 we think two-thirds of our Office base is going to be in
the cloud or messaging, like Exchange Online and Outlook will be 70 percent. We are running about a year ahead
of where we thought we would be two years ago. If you go back, I don't know what we shared exactly, but internally
we think we're running about a year ahead on the customer's transition.
In terms of will all customers eventually move to the cloud, given our install base and the diversity of regulatory
context that these customers exist in I think it's a stretch to say all, but we think with two-thirds of the customers,
and there's a bit of a carrot in here, too, if you move to the cloud you get a much faster rate of innovation because
of the AI and the ML that we can go run, and we see signals.
You know, in terms of what gets in the way for our customers I would say the regulatory issues for public sector,
that's important. And so you'll see with Microsoft Cloud we are very, very intentional about being in the
markets that make sense. And we think about it as One Microsoft Cloud, Azure, Dynamics, Office, we do business
case together. Should we go into this country, how much public sector revenue does that unlock? And
these things do make a difference. When you are a bank, which is global, and as you well know you've got certain
considerations that we have to work through. But we are chipping away.
We want to serve our customers the best we can, and we think the way is cloud. It doesn't mean we're going
to stop doing on-premises product. The OPEX investments that we make today on engineering, on building for
the cloud or building for on-premises, they are 90, 95 percent shared. So there's an additional test burden,
but we are going to support our customers whether they're on-prem or the cloud, but we want to make it really attractive
for them to move to the cloud. And we are very humble about what are the blockers and we're just chipping
KARL KEIRSTEAD: Good. I'm sure you'll get there. Let's talk a little bit about some of the adjacencies
around Office where Office can actually act as an accelerant. So one that I know is on the minds of everybody
is Azure, where you've had amazing success at Microsoft. And it feels to me like there's synergies with the
transition to Office 365. You even just mentioned that you internally think of this as one broader Microsoft
Cloud, although for reporting purposes it's quite separate. But it feels to me like these are self-reinforcing
trends. In other words, customers that make the leap to cloud deployed Office are probably more inclined to
use Azure. And I'm sure there's a great cross-sell there. So do you mind describing those synergies
starting with Azure?
RAJESH JHA: Sure. First I would say, from an engineering perspective Scott and I, we plan together in
terms of a data center footprint, where should we build these data centers, where should we build the edges and
the networking investments, because the customers that is their expectation of us anyway. When they come to
the cloud, they do end up using, if I remember correctly, 90 percent of our customers today, 90 percent of Fortune
500 customers use at least one cloud from Microsoft. The interesting thing is 60 percent of them use at least
three clouds from Microsoft.
And so if you pause for a second and you think about it, look, if you use Office 365 you're going to want to protect
the directory, you're going to protect the devices, and so you use Enterprise Management Suite, Enterprise Mobility
Suite, EMS. That's exactly what you would use to protect Azure as well.
Dynamics and Office 365, we have integration, whether it be on our web launcher, how we integrate, or whether it
would be in Outlook. And if you were trying to extend a business process in Dynamics you would use Power Apps
and Flow, that's exactly what you would use to extend Office 365. You can go into SharePoint and you can create
a business process workflow front end with Power Apps that writes data back to Dynamics. And these are not
things that we are contriving, these are things that our customers are naturally asking for as they start to use
Office 365 that pulls in EMS, as they start using Dynamics 365 they want better integration with Office.
So we do think, and the reason that 60 percent of our Fortune 500 customers use at least three clouds from Microsoft
is because there's a natural synergy.
KARL KEIRSTEAD: And then maybe on the LinkedIn side, I think it was May 16 that you announced that deal. I
don't think it got closed until a while later, but Microsoft has largely left LinkedIn alone, it feels like. So
what is the synergy story that's pending, Rajesh, that we can look forward to either on the go to market or product
integration? In what way is one plus one equals three on Office plus LinkedIn?
RAJESH JHA: You know we continue to be very, very excited about LinkedIn. Our first priority, like you
said, Karl, is to continue to grow our engagement, engage users and members on LinkedIn, and the engagement there,
because that is a flywheel that we feel just has a natural momentum, and we want to do what we can to keep that
If you think about LinkedIn and Office, it's what we talked about during the time of acquisition, you bring in the
LinkedIn identity and profile together with the Office identity and profile. So I know the meetings, the trending
documents, the people you work with, and LinkedIn has the same context and how can we bring that profile from LinkedIn
or the identity and experiences together with the Office in Office and Outlook. Those are the things you would
be seeing coming out shortly.
When I'm in Microsoft Word and I'm creating a resume, which actually happens a lot, we can connect directly to the
LinkedIn web services and get the trends for the skills and get that populated right into Word and actually go a
step further. While I'm creating the resume why don't I not expose you to the jobs that may be relevant based
on the construct of your resume.
KARL KEIRSTEAD: I see.
RAJESH JHA: Take Dynamics and LinkedIn, we now have the Dynamics 365 for Sales in our GTM and our product integration
with LinkedIn Sales Navigator. So a sales person can now use LinkedIn, half a billion people, define the relevant
people to sell with or sell through, and do the social selling. On Dynamics recently, we announced the Dynamics
365 for Talent, where LinkedIn Recruiting and Learning, you can bring that together so an HR professional can now
get the complete lifecycle of staffing, recruiting, onboarding, training, retaining.
So you'll see more and more of the integration we're doing with LinkedIn and Dynamics and Office.
KARL KEIRSTEAD: Okay. I look forward to that. And on the organically built products, do you want
to talk for a minute about Teams? That seems a pretty exciting product. You, I think, made some announcements
just this week actually.
RAJESH JHA: Yesterday.
KARL KEIRSTEAD: How big can that be?
RAJESH JHA: Teams can be huge, because I do think we are seeing a pretty fundamental shift in the way the modern
workplace is evolving. If you take a look at the new generation of workers, they're expectation of why they
work and how they work is pretty different. They expect it to be inherently collaborative and actually as
all of us know most material work happens in the context of teamwork. So Office 365 we have a bunch of collaboration
tools, but Teams we think is really the hub for teamwork from Microsoft.
In the last four months, or five months, we've grown from 50,000 customers using Microsoft Teams to over 125,000
customers. And the growth is just continuing to increase week-over-week. We continue to innovate. And
the nice thing about Microsoft Teams is we've engineered that so that the experience is cloud delivered. Even
the UI is cloud delivered. So the rate of innovation we think we can keep that level very high.
Over the last few months we've done mobile meetings. We've expanded the surface area for extensibility in Microsoft
Teams. Yesterday we announced perhaps the most frequent requested feature by our customers. Every customer
interaction that I've had what they want is the ability to have somebody outside their organization with the right
IT policies and controls, but for these guest workers to be able to collaborate on the documents, be a part of a
meeting, be a part of a chat, and now that's all possible. As of yesterday we started to roll that out.
And then remember that Microsoft Teams is available to anybody in our hero SKU E3. This isn't one of the products
that we put in our E5 tier, because we thought it was so foundational to the way the workforce is evolving that
we just addressed that by putting that in our core SKU.
KARL KEIRSTEAD: That's exciting. You touched a little bit earlier on the Dynamics side, to complete the
picture of adjacent businesses. I've always felt, frankly, that Microsoft has a massive opportunity to take
on more of the SaaS space, or call it the business application market. Dynamics is a terrific start, but it
feels to me like there's further that Microsoft can go to become a real rival to Oracle and SAP in the broader ERP
space. Do you share that view that there's a bit of a white space opportunity for Microsoft to grab, whether
it's organically built or via acquisitions.
RAJESH JHA: As you've seen and as I mentioned, 60 percent of Fortune 500 use three or more clouds a month.
We want to be really grounded in what are we seeing from our customers, what are like you said our adjacencies,
where do we have natural strengths. I talked about the billion signals that come into our cloud with Office
365. So you take the Microsoft Graph, you take the Dynamics user interactions, the schemas in Dynamics, you
take the Office and the deep understanding of people and groups and documents and so on and we construct the Microsoft
So that's the source of our core and then we are going to go off on that. The other great addition to our cloud
data assets, which I think is our core, is the LinkedIn Graph. Now Satya has talked about the intelligent
cloud and the intelligent edge. In many ways Office is the intelligent edge. But the other important
node here is the intelligent data, or the intelligent network. So you take a Microsoft Graph, you take the
LinkedIn Graph, that's our intelligent network. So we start from that core.
Now if you take LinkedIn and Dynamics together, that's like a $5 billion business, 70 percent in the cloud. Dynamics
itself has grown 75 percent year-over-year. So we are very excited about the Dynamics business. We're
just being very ground in what we are seeing as our natural assets with the Microsoft Graph and the LinkedIn Graph
and the usage that we see from our customers, we'll go from there. I think the LinkedIn recruiting and learning
solutions combined with Dynamics 365 for talent I think is an example of something that you should expect to see
from us, bringing these assets together.
KARL KEIRSTEAD: It makes sense. I'll ask you one financial question. I know you're going to look
for Mike Spencer to give you a good answer, but I've got a feeling you know it. On the gross margin side inside
Office 365 you obviously don't disclose what it is. But we try to back into it. And we feel like at
some point in time Office 365 gross margins should be able to get close to the pure play SaaS group. I don't
think you're there yet. But what will it take beyond just scale for you to get there and can you get the Office
365 gross margins up to I'll call it 75-80 percent level. Is that realistic?
RAJESH JHA: Let me answer your question and not answer your question. The first thing I'd say is when
you take a look at these pure SaaS providers, they are more point solutions. Office 365 I talked about what
our mission is in terms of communicate, collaborate, create, analyze. So we have the full suite of services.
Not all these services have the same margin structure. You take something like Skype, which is a transaction,
a meeting, that has a different cost profile than something like infinite storage for documents or mail.
Now, you know, of course we're going to take Skype there, too, where every meeting is an it's a very important
artifact, where we probably want to record it, transcribe it, translate it, give you automatic notes. But
you get my point, which is the cost profile. We have such a wide range of services. The cost profile,
the margin profile, or every individual feature is very different from each other. So that's why I think you
shouldn't really be thinking about Office 365 as one of these point solutions we're a full suite. That being
said, we absolutely are going to be best of class for what we do.
There are a few things, of course, that are margin drivers for us. One is the premium SKU mix. And we've
talked about just what a great journey it's been for us to take our early customers from a single workload, which
is about messaging and calendaring to our entire E3 suite. And then we want to get them to E5 capabilities,
we want to get them to the entire Microsoft 365. That's basically the levels you should think about, how we
can drive the premium mix, which I think is the biggest factor in driving margins.
The other one I would say from an engineering perspective, we continue to drive CAPEX and OPEX efficiency. More
recently we've brought our consumer mail back in, what used to be Hotmail, or Outlook.com and Exchange Online together.
So we've taken the fixed cost of the two messaging systems and collapsed them together. And on the operational
side we're starting to see the scale play out for things, the fixed cost in things like support and compliance.
So I think we like where we are on the margins and I definitely think we have room to grow, but with driving to premium
mix and just doing the engineering and the operational rigor, but it's a wide range of services and not all the
features are the same.
KARL KEIRSTEAD: Rajesh, just to close, I think the next big Microsoft event that at least I'll be at will be
the big Ignite event at the end of September. I know that's not necessarily pure Office, that's a much broader
conference, but I take it the focus at that event will be just continuing to drive product innovation and pushing
the cloud adoption. What are the couple of major themes that you can give us a quick preview on for that big
RAJESH JHA: First of all, let me just say, we are all very grateful that the hurricane, in fact, was a little
less severe than we thought, but it's still a pretty significant impact for a lot of folks.
KARL KEIRSTEAD: The event is in Orlando.
RAJESH JHA: Yes, so the prayers are with everybody in Florida. But Ignite is the world's largest event
for IT professionals and enterprise developers. A couple of themes that you should expect to see at Ignite
for us to expand on are artificial intelligence, of course, from an infrastructure perspective, productivity perspective,
business application perspective. Hybrid cloud, how all of these things come together, you should expect to
hear a lot of that. And how that experience has evolved in a world where we have billions of signals. Again,
so that's where we remain excited about that and you'll hear more about that.
The other one is Microsoft 365. Microsoft 365 is a big deal not just for Microsoft but more importantly for
our customers. Microsoft 365, if I could just take a minute and expand on what it is, and what the gestalt
of Microsoft 365 is, it's about pivoting on the user's complete needs. So not just the product or the services
that come with Office, but how do you manage these on different devices when you're on your desktop. How does
Windows 10 Enterprise light up? How do we innovate all the way from the silicon into the operating system,
into the cloud to run AI and ML models and bring it back into Office and the experiences? How do these experiences,
how you interact with Office, how does that roam for you from device to device.
Three out of four CISOs they expect to get hacked in the next year. This is a sobering statistic that just
blew me away, you think of ransomware, the ever sophisticated cyber-threat and even Microsoft 365, how do we bring
the end-to-end protection on a user basis, network, directory, application, how do we bring that all together? So
enabling the end user to be creative, to be able to collaborate on any device by keeping IT and the organization
secure, you'll see a lot about M365 there, too.
KARL KEIRSTEAD: I'm excited for that.
RAJESH JHA: So am I.
KARL KEIRSTEAD: So thank you and I don't think anybody would have anticipated, let's say, five years ago that
Office would be the kind of growth engine it is for Microsoft. So it's a fantastic success story and congratulations
on that. And thank you very much, Microsoft, everybody, for coming to our event this year.
RAJESH JHA: Thank you, Karl and thank you everyone. Thanks for having me here.
May 25, 2021 11:10 AM - PT
JP Morgan Global Technology, Media and Communications Conference
Alysa Taylor, Business Applications and Global Industry, Marketing