Steve Ballmer Speech Transcript – Microsoft/Compaq Financial Summit


Steve Ballmer


[Due to the varying sound quality and subject matter of tapes, the information in this transcript may contain inaccuracies.]

MR. BALLMER: Thanks, Cheryl, and thanks to all of you for taking your time.I’ve got to admit, that was kind of real time delivery of Steve Ballmer, anyway.We walked in about a minute-and-a-half ago.Cheryl had no idea whether I was really ready or not.So, the systems work, even if they weren’t aided by information technology.

It is a great pleasure to have a chance to be here today, and to help keynote this event.There’s a lot going on in the world of information technology, and there’s specifically a lot going on, I think, that is very relevant that’s coming out of the PC industry and coming out of Microsoft as it relates to the financial services industry.So, the chance to have this kind of a meeting is really welcome.

I want to start with a very high level kind of picture and view of what we think we’re hearing from our customers in terms of what’s important across the industry, and then I want to try to focus in with some help and examples from some of our customers to make that make very specific sense in the context of the financial services industry.

Now, we’ll see whether I’m good enough to operate this machine.I am.Okay.I want to start with a discussion of a concept that we refer to generally as the digital nervous system

— repainting now, good.This is unusual.I don’t have a mouse, and I actually am more comfortable with a mouse than the old-fashioned device types.

I want to start with a discussion of what we call a digital nervous system, and I want to help explain it, and hopefully provide a little context.One of the great, I think, challenges that faces everybody in the information technology industry is trying to characterize for business people what the value is that information technology can bring to the business.

In the United States today, over one-half of all capital spending goes into information technology, and if you look in the financial services industry, of course, that ratio is much higher.It is the largest budget, the largest piece of the capital budget by far.And, frankly, for most business people, judgment about information technology value is not second nature.From another industry, the transportation industry, we were talking to the CIO of one of the airlines, and he was saying it was a lot more obvious to the business people in his organization when it was time to upgrade the first class lounges in their air terminals than it was obvious when it would be the right time to put an investment in and upgrade the computer network.

Now, you’re fortunate, you live in the financial services industry where people have a lot more judgment about these issues, but I think it’s still important for us to focus in on where the fundamental value is that can come out of information technology investment.About a year-and-a-half ago, we had a group of chief executive officers in Redmond to meet with Bill Gates, myself, and a number of other people from Microsoft.And Bill was trying to think through how, for business people, do we capture this value that information technology can provide?

And he came upon this analogy with the human body.Every organization has a nervous system, much as the human body has a nervous system.And the organization’s organization system helps it see, helps it learn, take input, analyze, plan, act, communicate.And the question is, what does the nervous system look like inside most organizations?And to what degree is that nervous system digital?To what degree is it based upon information technology?

If you ask many CEOs today, they’ll still tell you that their fundamental nervous systems are fairly ad hoc, ad hoc decision analysis tools, ad hoc tools for meetings, for communication, ad hoc tools that help them gain information.In the financial services business, many of you would say, oh, no, no, no, everything is electronic already.I had the privilege this morning of walking around the New York Stock Exchange, and I guarantee you, and I don’t really understand what I saw, but I guarantee you it looked a whole lot more ad hoc to me than I would have anticipated before my half-an-hour tour.And I think there’s still a lot of improvement and opportunity for information technology to have an impact.

Now, you can ask the question, if customer service for your company is poor, how quickly do you learn about that?Do you learn about it from your customers directly, or do you learn about it from your own people?Does that information get back from the broker in Dubuque, Iowa, and how quickly does that information get back?How quickly can that information be parsed and analyzed?Is it easy to access the data that you would need to access to evaluate investing to solve the customer service problem?How easy is it to reprogram the operational system?How easy is it to retrain the brokers who might have to go execute on that new customer service model.And to what degree do the fundamental investments that you’re making in information technology help with any of those goals?

Information technology really grew up serving two basic needs, the backbone operational processing inside organizations, and, with the advent of the PC, the personal productivity needs of the individuals in the organization.And what we’re seeing today is the PC graduate, become the server, become more powerful.So the PC becomes a tool not only for operations in personal productivity, but for a wide variety of what I would call the digital nervous system scenarios that I just described.

Microsoft as a company will invest this year about $3 billion in R & D.And that R & D investment is really focused on two critical goals.One is

three critical goals.One is providing services through Windows, through Office, through our BackOffice products, but services that make it easy for you, that are advanced enough that you can rapidly create and deploy so-called digital nervous systems applications.Applications for electronic commerce to tie your customers into your digital nervous system.Business operations applications, trading, claims processing, retail banking, the basic backbone applications of the business, and also knowledge management applications, the kind of applications that let you and let the people who work for you make better decisions about how to serve your customers and how to serve your company’s own interests.

But we’re also investing in two other things.First, we’re investing in our new MSN online portal as a place where consumers can go to figure out how to accomplish things on the Internet, how to buy a house, how to buy a car, how to invest their money.And while we’re not involved in lending money on houses, or insuring cars, or managing money, we do seek business partners who want to work with us to provide the consumer with an experience where they can become much more Internet aware.

The third investment we’re making, and one that I’m sure is very much on the minds of many of you in the audience today, is the investment in improving the information technology services and support that our platform evidences.There are still a lot of questions.How manageable is the Microsoft platform?How scalable?How reliable is the Microsoft platform?And there is a lot of work going on in our company to try to not only provide new services for the digital nervous system for electronic commerce for the web lifestyle, but also to make sure that the products and services that you can deploy today are increasingly robust and low cost of operation inside your organization.

I had a chance to meet with one of our Wall Street clients this morning, and we spent a lot of time talking about the exciting applications which could really change the way they work, and a lot of those are knowledge applications.But there was also a very strong focus on continued improvement in the reliability and the cost of ownership of NT, both as a workstation as well as as a server platform, and we are totally committed as a company to improvement in that regard.As we look forward to Windows NT 5, which will ship next year, one of its key goals is to improve the fundamental reliability, availability and cost of ownership of managing Windows NT based systems.So, it’s very, very, very much on our minds, despite the need to continue to improve our services for handling your business.

About two years ago now, we introduced a framework in the Windows world that we call Windows DNA for Financial Services.DNA stands for distributed Internet architecture.It’s the basic programming model that is evidenced today on our Windows NT and Windows 98 systems.It involves our so-called COM or component object model.And what we have tried to do is work in a variety of industries with the important software vendors, and a number of the key customers, to get people to agree on a standard set of protocols for communication of information between different applications that are relevant in that vertical market.

So, we sat down with a group of independent software vendors and customers in the insurance industry to help define a standard set of object protocols that are COM protocols that work in the Windows world for communication, for example, in the insurance industry.We’ve done the same thing in the banking industry, first on our own, and then in conjunction with some participants like Intuit, now with Check Free, with Integrion, to try to bring together an important set of COM-based protocol standards for the banking world.The same thing in the securities world.And what the goal is here is to allow third-party applications, as well as applications that you write yourself, to plug together to make this digital nervous system concept more valuable.

Our company is not in the business of providing industry specific applications.But we are in the business of trying to help galvanize industry leaders to agree on protocols which will allow digital nervous systems to flourish knowing full well that you’d like to buy as many applications as you can, and you would like to make sure that the applications that you create yourself can plug into a homogenous whole.

So, there’s a lot of work that’s gone on by the software vendors, by people within the customer organizations represented here today, and by our own people to define, to publish this standard set of protocols.We had a group of over 35 independent software vendors together yesterday who are working on many of the applications across these three industries which are relevant for Windows DNA for Financial Services.With the complexity, with the fast change in the financial services business, it’s quite clear that the best thing to do is to use off-the-shelf applications where possible, but have an incredible ability to tailor, to customize, and to add your own value.We’re only going to get there if there’s some degree of standardization.We think this is a very sensible level at which to standardize.

First, in the banking world, one of the great challenges that we see in the way people are trying to get business value is the notion of being able to centralize and share a common back-end across a wide variety of channels of distribution, the branch, the ATM, the call center, and Internet banking.And the question is, how do you allow people to buy or to build the best technology to support their planned delivery of banking services through any one of these channels, and yet still have the information flow together for analysis purposes, for sharing purposes, for operational purposes, on the back-end?

And so, as we have built Windows DNA for Financial Services; this is probably the top challenge which people have highlighted for us.Give us the ability, give us an architecture, give us a set of standards which will allow us to support this range of delivery mechanisms with the same fundamental application set, but appropriately tailored for these different channels of distribution and delivery.

We have a customer that we’ve done a lot of work with, not only on this problem, but generally on the issue of how to standardize appropriate object protocols for the financial services for the banking industry, and that’s Crestar Bank in Richmond.We have with us today Tripp Johnson, who is senior vice president of electronic commerce at Crestar Bank, and what I’d like to do now is invite Tripp to come on up and join me, and talk to you a little bit about some of the challenges they face, how they use Windows DNA for Financial Services, and give you a little bit of appreciation of what’s possible.

Please welcome Tripp.

MR. JOHNSON: Thanks.Good morning, and thank you for having me here.If you take the previous slide that Steve was showing, where he had branch, ATM, call center, and Internet.I would also like to add voice response unit, because that’s also a critical delivery channel for a lot of Crestar customers.So envision in your mind four or five silos throughout pretty much every bank in the world, but they’re all trying to get to the same place, the back end host.By doing so they are consistently reinventing the wheel, every time we go down the silos, still getting to the end result.What we have done at Crestar, let’s see if I can do it better than Steve, there we go.At Crestar we’ve taken the silos and gone into this wonderful mix.We have Argo’s teller platform, we have a Voyager Internet platform from Corillian that does our Internet banking, our voice response unit is from Syntellect , our teller platform is also from Argo, our call center is 100 percent Microsoft NT based, our ATMs are Diebold, which they are converting, and have converted for this initiative into

— they have taken out OS2 and put in Windows NT, and our PFMs, which are Microsoft Money, and of course our Internet.

What this architecture that you see before you is allowing Crestar to do is provide for our customers at all touch points throughout the bank -whether they want to come in the branch, pick up the telephone, go to the ATM, go to the call center, go on the Internet -consistent data and consistent information by amalgamating all of this together and the knowledge base that Steve was referring to earlier, we are able to amalgamate this all on the back end, instead of relying solely on the host. Now the host still contains the financial information, but a lot of the marketing data is in disparate places around the bank.

So by building on Windows DNAfs, we were able to strip out a lot of the silo effect, and begin to connect the dots on reusing technology that, say, we implemented for the Internet, use it in the ATM, use technology in the ATM on the voice response unit, on the voice response unit into the call center.And what that gives us is

— there we go, the benefit, new product.

We demonstrated last night at an event, at an ATM where you could go up and enroll and bill pay, you could also have your bills presented through the ATM interface, as well as pick up the voice response unit and the same bills that you enrolled in on the ATM will now show up on the voice response unit.If you have a problem, you can always zero out and go to a call center route, because that call center route will also have the same screen, and be able to see which bills you have just enrolled in, which ones are pending, which ones didn’t go through, as well as the Internet, will see it all.So the goal for Crestar was implementing Windows DNAfs, not ripping out all the architecture that we have and starting over, no, not at all.IS would have killed us, especially with Y2K and all the mergers going on.But, taking what we’ve invested in over the many years, and just starting to connect the dots.

And I think the core fabric of DNAfs has allowed us to start linking these disparate systems that in the past were unable to communicate with.It gives us a flexible environment, we’re able to add new products and new offers to customers.And, as you see, the biggest benefit is consolidated marketing.At any channel that a customer comes to, we can offer you, say, an equity loan.If you say, I don’t want to hear about it right now, but I am interested, when they pick up the voice response unit, they’ll get step two, instead of going back though the whole cycle.So we’ll walk them through the sales cycle, regardless of which delivery channel they come in on, which will add

— lower the total cost of ownership, increase quality share of customers, and hopefully at the end of the day, Crestar has serviced its customer in the best way it knows how.

Back to you, Steve.

MR. BALLMER: Our experience with Crestar has really been an important one for us.Crestar was one of the early banks here in the United States to really pick up and use Windows NT, quite broadly in their environment.And not only have we had a chance to contribute, but we’ve had a chance to learn a lot and really refine many of the concepts in Windows DNA for Financial Services, working with Crestar.Certainly, you could tell from Tripp’s remarks, there’s a lot of importance in getting a unified view of customer cross delivery channels, that’s important to understanding, that’s important to operations, that’s important to customer service, and that’s been one of the critical drivers for the investments we’ve made so far in Windows DNA for Financial Services.

I want to turn now to the insurance industry, and talk a little bit about digital nervous systems, and Windows DNA for Financial Services, in the insurance agency, insurance business.The insurance business to me is a fascinating business.As much as I’ve had a chance to get to know it a little bit, to study a little bit, I still find that there are as many models and ways to create and sell insurance products as you can possibly imagine.And in the shift between captive agent, independent agent, direct to consumer offering, call center marketing, you do have some of the similar issues that we do in the banking world that relate to new channels of distribution, but now we’re talking about a business that does have a long sales cycle for the distribution of products.

We’re talking about an industry in which getting the right information in the right place, maybe getting it fewer times, so you get one consistent record from the customer is important.The insurance business is fundamentally in some ways a knowledge management business, that’s what a lot of the actuarial process and the claims process is all about.Customers expect convenience, et cetera, in that service.

Again, there’s a lot of change and transition, and allowing people to specialize, allowing software vendors to write a claims application, but not a policy management application.Allowing insurance companies to pick and choose from the applications of independent software vendors and their own work is very important.We started an initiative about two years ago that we called OLiFe at the time.At the time it stood for OLE, our object linking and embedding architecture, which has just gotten embedded into the component object model and DNA.And so there’s a Windows for Financial Services approach then, that makes sense in the insurance business.

Rather than have me tell you about it in great detail, we thought we’d do a little demonstration of some of what is possible and attainable today, building on these concepts in the insurance business, and to do that I’d like to invite to join me up on stage today, Diana Beecher.Diana is the CIO for Travelers Insurance, and please welcome Diana.She’s going to have a chance with a couple of her colleagues to show you a little bit of what’s possible.


MS. BEECHER: Thank you, Steve.

Thank you.

Steve talked a lot about interoperability.And you can’t interoperate without having somebody to interoperate with.So John Higginson from Applied Systems is here to show you what were doing with the DNA technology.

MR. HIGGINSON: Okay.We thought we’d begin today by taking a look at how the environment is for the independent agent, and for the carriers today.And we’re going to start by taking a brief walk through of the steps that occur to complete a policy in the industry.The first step is to go in and actually complete the questionnaire or the ACORD form, this is a standard form that the insurance agents use.The next step after that is for them to input that information into their agency management system.They’re reentering that, or perhaps they’ve done it electronically in the first step, but they have to put it

— make sure it’s in that system.From that system they’re bridging into another application, which provides a price for that policy.

So they’re going into what’s called a rating application, which gives them the price and helps them to select a company.Based on their company selection, often what they then do is go into a proprietary company application.They do this by going in and usually firing up a 3270 emulation session, and entering directly into the company mainframe.That same information they collected on the ACORD standard form, and that they’ve already entered into their agency system.Now that they’ve done that, that data is in the company’s mainframe system.

MS. BEECHER: The data flows through to the mainframe systems of the insurance carriers, in an old fashioned

— there it goes, I was looking for our session there.An old fashioned host back session.Now, notice that the agent has had to input the data twice, first into the Applied system, and then into the carrier system, in this case Travelers, of course.What happens is in the Travelers system the insurance policy is completed and issued.And overnight, the information is downloaded to the agent’s system in his office, so that his records in his office are complete.

Last night, when we were talking about this, one of the Microsoft guys who used to work in the insurance business, said that that normally takes two weeks.I was trying to say that it take 24 hours.But, he’s saying it takes two weeks.Now, we’re going to show you something brand new today that’s going to really change that model.You know, it’s a big change if its 24 hours, but it’s an astronomical change if it’s two weeks.

MR. HIGGINSON: Just recapping some of the limitations of this model.Diana mentioned the lengthy cycle time for transactions.You saw how we enter this information in, we have to do it a couple of different times at different systems, and then we have to wait at least overnight for that information to come back.So there’s a lengthy cycle time for these transactions.

MS. BEECHER: There’s a huge possibility of errors in this kind of flow, too.I mean, that’s basic stuff.Everybody knows, if you handle the same data twice the likelihood that you’re going to make an error increases by double.And that’s a problem that takes a longer amount of time for the agent, and increases his costs to run his operation.It also takes a longer time to service the customer.If you remember what Steve said in his opening comments, that customer service and the customer demand to get better service, and to deal with insurance issues on a more rapid basis is a really important driver in our business today.

We’re looking to develop tools, develop technologies that will allow us to streamline this whole process.The benefits are not only for providers, like Travelers Property Casualty, but the benefits are also for our agents.It’s really important for their business viability and their success in the future to have very good operating models for their own businesses.

MR. HIGGINSON: It also allows us to allow applications to interoperate.Those are applications on the desktop that they may have their agency management system, rating packages, other systems they’re going to have at their local desktops or their networks.But, it also allows us to bridge together disparate applications that can be on different networks, different platforms thousands of miles away.

MS. BEECHER: And that’s really important, because there are many parties involved.You know, it’s kind of obvious, but the customer, the agent, the insurance provider, maybe a claims servicer, an auto shop, all kinds of parties involved in this business flow, so it’s really important to have interoperability.What Applied and Travelers have done, and what we’re going to give you a real quick demo of today is, using Windows DNAfs infrastructure, we’ve developed an application that allows the agent to enter the information about his customer directly into his agency system, the one that he uses to manage his own business.And then in a seamless way, that will flow back to the Traveler’s host systems, where the normal rating, quoting and policy issuance activities can occur.

MR. HIGGINSON: Okay.Can we take a look at the agent machine now?The first thing that we’re going to do is we’re going to

— we’re going to change three pieces of information in the agent system.This is the agency manager, this is Aapplied Systems application for the agent’s desktop.First thing we’re going to do is we’re going to update the address for this account.Behind me is Jim Crikowsky (sp), he’s one of our senior developers forthis project.The second step is we’re going to go into the policy detail for this, and we’re going to add an inspection contact for this policy.This is a small business or a business owner’s policy.So we’re going to go in, we already have a contact defined, we’re going to add that contact as being a contact for this policy, click okay.And lastly, we’re going to go in and update the legal entity definition of this account, we’re going to change it from a partnership to a corporation.

Now, we’ve made all those changes, and in the old model we would have to reenter this into a company system, wait for that cycle time to happen, it would be at least 24 hours.What Jim is going to do now is he’s going to go back in, and he’s going to choose this application that we just updated, and he’s going to select an option to transmit it immediately.Now, as he’s done this, a lot of things are happening behind the scenes.We have a live network connection between these two machines, we’re using a number of different technologies, we’re using the Microsoft DNA framework, and those technologies, we’re using ACORD’s objects framework, and we’ve built a system to send this information back and forth.

But, there are two key concepts, even with all the technology that underlies this, that takes care of the business limitation we have today.One is that this data was entered once, and you’ll see it in the carrier system without having to reenter it through a different application.Second, it happened in real time.We didn’t have to wait for that cycle time to complete.

Now, if we can have the underwriter’s machine, please?

MS. BEECHER: Cal Richey, who has been the project leader on this effort from the Travelers side is pretending to use the underwriter.And she’s brought up the screen that is on the underwriter’s desk.And I think if you follow the cursor you’ll see the changes that were made on the Applied application form have flowed straight through to the Travelers system.This is a live application on Travelers that is used to rate and quote small commercial policies.

The final points on the slide were

Are you bringing it back?


MR. HIGGINSON: Again, to sum up the technology, and what we can bring to the industry with DNAfs, we can maximize the work flow efficiencies in the agency.Their time can be spent working with the customer, doing the data entry once.They don’t have to bring up different interfaces, different applications to go through these work flows and put this information in.

MS. BEECHER: It’s an assurance that the information is instantly synchronized.And the point I was making earlier about eliminating the opportunities for error, making sure that the data is correct on the first try.

MR. HIGGINSON: It eliminates redundant information.As you saw, we don’t have to take this information in three different forms and enter it into three different applications.New information is entered once, and everybody has that information.This can be sent to the carrier without the carrier having to make modifications, or having the agent reenter it as it comes back from the carrier.

MS. BEECHER: And, really importantly, it very much shortens the workflow timeline, and ensures that we’re going to have a very fast and accurate response to the end customer regarding his new insurance policy.

That’s what we’d like to show you today, and I’d just like to thank Microsoft for all their help in this effort.They’ve been right there with us all along.And the fourth partner in the effort is Symmetry Technology Labs of East Hartford, Connecticut, who’ve also been right here writing a lot of this object code, which is generically available through the industry organization called ACORD, and does not belong to either Travelers or Applied.

Thank you everybody.

MR. HIGGINSON: Thank you.


MR. BALLMER: What a complicated set of problems.Independent agents communicating with multiple carriers, looking for quotes, looking for policies, running their own claims infrastructure with the carriers.Very, very complicated, with a lot of need for interoperability since those independent agents are independent businessmen, who can make some of their own choices about what to do, and so the kind of interoperability that we get out of Windows DNA for Financial Services I think is very, very important in the insurance business.

I’d like to turn now and talk a little bit about the securities business.It seems sensible, given where we are, that we kept the securities business to be the grand finale, so to speak.We see many of the same issues inside the securities business that we see inside of some of these other financial services industries.The number of people involved in conducting securities trades is quite large, from the customer through to the brokerage firm, to the trader, depending upon whether you’re on the NASDAQ or on the New York Stock Exchange, or elsewhere, there’s a variety of other third parties who get involved.The market data companies that provide information to people who are trying to make intelligent evaluation, the clearing process itself is very complicated, and in all cases you have multiple companies, and you’ve got multiple software vendors all trying to build applications which benefit by communicating with one another, and having a set of protocols, and a standard way for communicating important business information inside the Windows environment is important.

We’ve done a set of work with our securities industry customers, and with some of the independent software vendors, again, to define standard ways for applications to exchange information, whether those are third party written applications, or applications that are written by the securities firms themselves in order to conduct the full range of activity that people engage in.It’s an industry in which there’s already a lot of “standards efforts,” some of which are quite overlapping in confusion.There’s a proliferation of formats that people use to exchange data, and to provide a central force to help galvanize at least the way information gets passed when it’s in the Windows world we thought would be a real value-add, and certainly our partners and customers in the industry have responded very well.

Integrating applications today in the business is too expensive, it’s too hard.Many of our customers wind up writing a large number of the applications in their business themselves.This kind of a framework we think is exactly the right thing at the right time.I’d like to invite to join me up on stage now Whit Gregg, who is MIS director for Sanford Bernstein .He’ll have a chance to talk to you a little bit about the ways in which they’ve used Windows DNA for Financial Services inside Sanford Bernstein.



MR. GREGG: Hi, Steve.

Good morning.Well, in the securities industry, as I think many of you might be aware, there’s probably more standards than most of the other segments we heard from earlier.And so the proliferation of standards is a significant issue there.And, interfacing to our various trading partners, interfacing between systems within these firms is being driven more rapidly, customer demands, we’re trying to connect these interfaces more quickly, quicker time to market, and that’s caused a web of interconnections between a variety of systems across with our trading partners and internally within our own organization.And that’s driven the complexity up.And the complexity then, in turn, increases the risk of making further changes.

So, on the one hand, we’re getting a lot of pressure from the business and from the customers to implement these interfaces, and connect these systems together rapidly.At the same time as those accumulate, it makes further changes more difficult.So, we think that the key factor there is reducing the risk of making these changes

reducing the operational risk.If we reduce the operational risk, we can reduce the cost of implementing these systems and, as a result, we can implement them more quickly.

It’s interesting to note that the systems from five years ago that we thought were important ones to differentiate our services to our clients are today’s commoditized system, and we have a new set of systems going in that differentiate us from our competitors.So that’s a continuous cycle to try to achieve some business advantage there.

So the way Windows DNAfs fits into that picture is to allow us to have a standardized glue to connect all these disparate systems together in a way that segregates the types of connections and the protocols of those connections from the business logic in each of these systems.And through that we can make additional changes or add additional connections as our clients’ and business require without having a ripple effect into a lot of the applications on our end or on our customers’ end.

So, DNAfs is important there because it defines a set of generic business transactions that are not specific to a particular type of protocol, but are more generic in nature, so that we can have one set of applications that communicate to some customers who want to use Protocol

X or Protocol Y, or their proprietary Protocol Z, and our applications can be insulated from those issues.

And, finally, DNAfs is extensible so that when we want to add customized extensions that allow us to differentiate ourselves to our customers in some specialized way, we can do that smoothly without having an impact on all the other benefits.

So, to illustrate my point, this is sort of a typical kind of diagram of system interconnections.There’s nine separate transaction feeds between all these systems.Building all nine to start with is significant, but I think equally important is, if you want to change one of those systems, you have to change at least three feeds.You have to coordinate with three different business entities to make that change, and the coordination and management of that whole process is a significant cost and impediment to change.

So, now in the DNAfs environment, I’ve only got six feeds to build, which is an improvement.I think the other thing is that since the feeds are segregated from the business applications, we can go and buy snap-in components from specialized vendors to provide these various protocol feeds in a snap-in kind of way, without buying a whole application suite from any of these vendors.So, that’s a leverage there.

I think the important one is, if I want to change one of those applications – swap it in for a more current version-I only have to change one feed and coordinate with one business entity.So the costs and the risks associated with making those changes is substantially reduced.

So, overall, it’s trying to control the domino effect of the continuous change that we experience in our business to narrow down our risks and reduce our costs.We have some vendors now who have come to us with DNAfs compliant systems, and we think that’s a very strong offering to integrate into our overall environment.And I think that the fact that Microsoft has committed to be behind this whole effort for the long haul is an important confidence builder, and will garner a lot of support in the industry.

Thank you.


MR. BALLMER: I think you can get a sense really across all three sectors of the financial services arena represented today that there is a growing momentum behind the Windows DNA for Financial Services.We actually have quite a broad range of partners.You can see on the slide up there now a list of some of those folks in the banking business, the insurance business, the securities business.I particularly want to highlight Reuters, who is partnering with Microsoft and Compaq in putting on this event today, but there are really quite a broad set of companies who are committed not only to building applications on Windows for the financial services industry, but to have those applications support the protocols that are important in their industry, so their applications can snap together with one another in addition to snapping together with the code that you may choose to create yourself for a set of applications that you’re building.

We talked about this topic yesterday with a group of press and analysts, and at the end of this kind of a conversation, we could still have somebody put up their hand and say, but what is Win DNA for Financial Services.It’s not a tool kit, it’s not a block of code.It is a set of standards, protocols, object protocols that you use for communication of business information and business processing logic between components that get created by the people in this room, and by other customers around the globe.What we’re trying to do is to provide a lightning rod to help galvanize that industry standards effort.But, it’s really our customers and partners like the people on the slide who define those protocols who really understand the specifics of the banking market, the insurance market, and the securities market, on a go-forward basis.

We do have a specialization inside our own organization in our consulting group that we call MCS FS.This is a group of our own architectural engineers who live in the field, who can work with you every day to help design your own Windows DNA for Financial Services applications, who can help you figure out how you make the applications you want to create yourself, plug into these third party applications, and who are experts not only at helping drive these standards, but experts in providing you assistance in getting the most of out this kind of standardization effort.

This group also is the core of the people that we have who spend their time, all day every day, living in the financial service’s face, and really getting up close and personal with the kinds of interoperability challenges, development challenges, and digital nervous system challenges which in many ways are very unique to the financial services industry.

There are many other partnership areas where we see opportunity to continue to extend Windows DNA for Financial Services, in portfolio management, in branch automation, self-service and Internet banking, risk management, property casualty, et cetera.Some of the work you’ve already seen in some of the demonstrations, some of the work the partners have done, but we want to continue to push in the areas in which important business interoperability is coming through loud and clear as a concern from our customers.

One of the most important of these, I would say, is the area of self-service, the whole Internet explosion has gotten people to focus in on how does the Internet change my business?How does it allow me to change my relationship with my customer?How does it allow me to take cost out?How does it allow me to improve service?How does it allow me to attract new customer types?And so one of the most important areas in which we’re working is extensions to Windows DNA for Financial Services, that help improve the self-service opportunity.We’re still pretty early in self-service.If you take a look at the securities business, about 20 percent of securities firms have Web sites that allow for online transactions.But, in the U.S. today already over 30 percent of retail security transactions are happening over the Internet, which is really quite an amazing thing.

In the banking market, 35 percent of institutions allow for online transactions.And there’s about 5 million people who somehow interact with their bank online today in the United States.In insurance, the market is still less developed.Only about 1 percent of insurance institutions allow online transactions through to the consumer, and if you take a look at, say, the car market as an indication of where things may be going from a consumer property and casualty basis, about 2 percent of car buying transactions start out online.

But, we’re seeing that number climb very steeply, and I think in many ways the insurance business will be

— it’ll be very rapid, the degree to which we see the insurance business transformed by self-service.Just as you saw in Diana’s demonstration, the amount of information that gets entered and reentered, even with some of these improvements, could be cut down perhaps still more dramatically if the customer was part of that process, the end insuree, and could participate end to end in the filing of information, claims information, et cetera, across the Internet.So this is an area where we think there’s a particular need to extend Win DNA for Financial Services.

Microsoft as a company has a core platform of products that we provide, that we’re trying to use to underpin these financial service scenarios, and these digital nervous system scenarios in general.Windows, Office, NT Server, Exchange, SQL Server, and our development tools that wrap around that, form the basis for the infrastructure that we provide you to implement both this architecture and the solutions that you build.And we’ll continue to improve them, as I said at the beginning, both functionally, to offer more important capability, whether that’s better self-service capabilities over the Internet, richer customer interaction over the Internet, more advanced facilities to make it easy for you to put together your own electronic commerce site, as well as improving the manageability and availability of these products.

We as a company, as I said earlier, also participate in the consumer end of the business, through out MSN offering.What we’re trying to do is make MSN a very important place for consumers to go, who are looking to accomplish important things on the Internet, doing research on health, on shopping, on financial issues, people who want to communicate, people who are trying to get something done on the Internet.Whether they’re trying to do that with their PC, or over time over their cellular phone, whether that’s over a intelligent device in their car, or perhaps a device that’s attached to their TV, we want to be able to reach them with this kind of essential advice.

Today, we have as part of services that help you find and buy a home, buy a car, invest information through home advisors, through Car Point, through Money Central.And as I said earlier, we think that presents a lot of opportunity for us to go to market together, offering information about insurance, mortgages, loans, brokerage information, and as I’m sure many of you know, we’ve already done a number of partnerships, particularly in the area of Money Central, and Microsoft Investor.

We’ve had good momentum and acceptance for our product line in the financial services industry, and we’re very focused in on it.Across banking, securities and insurance, you can see there are about 120,000 bank branches around the world automated on NT Server.About 32 percent of the insurance brokerages, again, in the branch have automated around NT Server.You can see the share there in the insurance business.The thing I’m trying to drive home here is, the financial services business is a big part of Microsoft’s revenue, and we are very, very committed to continually enhancing these products, based upon your input and your feedback.

Sometimes people ask me, is financial services important, or are you really just focused in on this consumer stuff, blah, blah, blah, blah.We are very dedicated to the financial services industry.I think we receive roughly 7 percent of our overall revenue as a company derives from the financial services market.From large financial services institutions, not including the downstream, independent brokers, et cetera, and smaller banks and securities firms, and insurance firms around the world, where you might get to numbers that are more like 13, 14, 15 percent of our business.

So this is a serious long-term effort for us.We’re going to invest consistently.We’re going to invest to improve your ability to manage information, conduct operations, and interact with your customers electronically.We’re going to continue to invest in the software vendors who are important to you and important to us.We’re going to continue to invest, to improve the degree to which you can rely on these products, 7 days a week, 24 hours a day, inside your environment.And we’re going to push forward, we’re going to enhance, we’re going to improve, we’ll be there to consult with you, to support you, in every way, shape and form that we can.

It’s been a privilege to get together today not only with Compaq and with Reuters, but with the folks from Crestar, from Travelers and from Sanford Bernstein to have a chance to address you today.So I want to, again, thank our customers for agreeing to speak to you, and thank you for coming, and maybe have a chance to open up for questions.Thanks very much.


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