Remarks by Orlando Ayala, Microsoft Worldwide Partner Conference 2003

Remarks by Orlando Ayala, Senior Vice President, Microsoft Small and Midmarket Solutions & Partner Group
Microsoft Worldwide Partner Conference 2003
New Orleans, Louisiana
October 9, 2003

ORLANDO AYALA: Good morning. Welcome back. I hope you have enjoyed both Allison’s and Steve’s speeches. Certainly it’s my honor and my pleasure to be here today and perhaps pick out a couple of themes that you have already heard from Steve and Allison and dive into those in some detail.

Now, those two said something very important: number one, opportunity, and number two, innovation. I really don’t want to do that without making a very important point. The point is that more than ever before I think this industry has been challenged to deliver on the promise of customer value. That’s why I decided to make this session specifically about that.

Our industry actually has a bad habit of getting quite emotional in technical battles. Of course, technology is important because technology enables many of the great solutions that customers use. But in the end, there’s one very important fact: this is all about customers, and this is all about who is going to resolve customer pain better than the other. That’s what it’s all about.

All of us have started to read the press, and overall you heard from Allison, there have been a lot of challenges in the past, actually since 2000. There’s a lot of talk about the industry rebounding. And in Microsoft we believe that some of that is really coming back. You know, I’m not going to go over all these details on the statistics; I’ll let you read them. But certainly within Microsoft, we believe we still have huge opportunity to deliver great value to customers, and therefore to take the industry to the next level.

Where is there relevant opportunity though is that, based on the lessons that everyone learned as a result of the ’90s, customers are going to be a lot more demanding around how you’re going to deliver that value. Yeah, we will see some IT budgets coming back, but I’ll tell you, customers learn a lot on what to do and what not to do, a lot of the hype left behind, a lot of hurt people, a lot of overspending on technology that perhaps was not the most appropriate and that, I think, is the major difference we all are going to be confronted with moving forward, which is how we are going to understand customer needs.

That’s why today we want to characterize this opportunity in a very precise way. The company is making very big investments in understanding, truly understanding, by customer segment how they buy, where’s the pain. That is what it’s all about. So we have realigned the company, I think, in a very positive way around seven P & Ls. Many of you have read about that.

But I wanted to make the point that today we’re talking about customers and how they get enabled from the technology that we produce. Just for the sake of making clear segmentation — and I know that in many ways you don’t see the segmentation as a barrier, but in many ways you serve many of these customers across segments. For the sake of making it clear, the Small and Medium Solutions Group and Partner Group takes care of customers of about a thousand employees all the way down to one employee or two. So that’s the segment. And the enterprise segment is basically served, you know, of course, a thousand employees and up. So that’s the way we look at it.

And today, we’re going to start diving in detail, not only in the small and medium business space, but for those on the enterprise space and, very important, today, the last session in the morning is going to be delivered by Doug Burgum, who runs our Microsoft Business Solutions group. And that’s going to be a very important session, because I am one of those convinced and have no doubt in my mind that the next level of leadership that will happen for our company, together with our partners, is our ability to go and take more of a solution approach on how we basically sell a market and support our customers. So it’s very important.

This is coming at a very interesting time in the history of the company. We are bringing that asset and we’re really putting that asset in the mainstream of Microsoft, because we use all of our other assets to enable massive, massive movement in the industry around solutions.

So, again, we’re going to go over some of this segment in detail and again, we just circle back on customer value precisely.

Let me take you on to small business for now and just dive in a little bit on this. There’s a big opportunity, as it’s well understood — I’ll also talk about the numbers in two seconds. The reality is that, historically, this is a space that has been heavily under-served and in general, there has been lack of access and automation.

The industry in general, I think, has taken products, mostly assigned for big enterprise accounts, tried to massage them or put them on a new tag line, and pretend those are good for small and medium businesses. The reality is that in many ways the small and medium businesses really have been falling behind in their ability to project their businesses as global enterprises; why not think that way for those that have that aspiration?

So, again, here’s a huge opportunity to go back and fix that. It’s allowing the small and medium businesses to deeply adopt technology to enable massive, massive improvements on how they run their organizations.

And we think of this as an incredible opportunity in four dimensions. First customers, as I already said: still there is very big pain on how small and medium businesses use technology. You’re going to see throughout my presentation that addressed in the context of our products are really trying to resolve that challenge.

For the industry, because certainly I don’t think this is just about Microsoft, we truly believe that coming together with you, we have the unique opportunity in the next 10 years to provide massive opportunity for the use of IT in this space. It’s going to take hard work and focus but I’m very, very confident that we can make that happen.

Number three, partners. You know, this is an ecosystem that is very, very large. You will see in my next slide we’re talking about 40 million customers that can adopt technology in a deep way. We cannot make it happen without partners. We have a network of partners of around 750,000 around the world, of which 35,000 are Certified and about 4,500 are Microsoft Business Solutions partners. And it’s up to us to engage with you in a very precise way, understanding your business to be able to realize this opportunity that frankly nobody has been able to fulfill in the marketplace.

Microsoft is already an incumbent in this market, by the way. We sell about $10 billion in the small and medium business already when you count Windows and Office. But, again, I believe still the upside is huge for the company to be positioned more in the context of a solution approach that is very viable for this type of customer, and that’s the challenge that we have decided to take on as a company.

I moved from my previous responsibility managing the worldwide sales team for the company, mostly a geography job, for one very clear reason. With all the investments the company is making strategically, I believe one of the most important ones to drive growth moving forward is absolutely this business space.

In the next 12 months, we have been given about $2 billion of investments that we’re going to make, mostly, frankly, on partners and customers. I’ll give you a few more details on that. So if we really think about this opportunity, the fact that this market is very fragmented, what we have in front of us is truly, truly an amazing opportunity.

Of course, it will only be fulfilled for Microsoft and you if we truly focus on that customer value element deeply. And you will note — Steve already mentioned this — we remain absolutely committed to the partner ecosystem for one very important reason. We are not a company that wants to sell to just a few customers. We are not IBM. We are not Sun.

We have a large aspiration, and the aspiration is that 40 million organizations in the world should have the opportunity to realize their dreams, running their organizations, projecting their organizations, empowering their employees, just like a global enterprise. There’s no reason why that shouldn’t happen.

So it’s 40 million customers. It’s a very different strategy. And to be able to tackle that type of challenge, we cannot do it without you — absolutely not. In the past 25 years, we were able to basically penetrate deeply in individual productivity. Steve spoke this morning about 600 million sockets out there of people using our products. We believe that we are just at the verge of the opportunity to go out and provide deep acclimation to 40 million customers over the next 10 years in a major and significant way.

You have seen the numbers. AMI projects this market to be altogether — not only software, this is hardware, services and everything — to be about $420 billion worldwide. And the projections being made are actually quite incredible. It’s to reach $750 billion by 2006.

Many of these predictions are based on the fact that to be able to answer the challenge of economic growth for many customers around the world, getting the small and medium business, especially the medium business — small also, but especially that type of business to really thrive, to really be able to get empowered with information, to take it to the next level and contribute back to the country. So it’s a very important opportunity.

Allison this morning spoke about competencies and the new Microsoft Partners Program. And I wanted to see this opportunity through a lens. Again, these numbers are not scientific. These numbers are not projections of growth for Microsoft. But within the company, we work very hard on understanding how we segment that opportunity. And you’re going to see that the way we have segmented this opportunity here for the next fiscal year is actually quite related to how we are doing the competencies in the new Microsoft Partner Program. You add it all up, it’s about $32 billion, about 10 percent of the $400 billion in those plans that I mentioned before.

But just think of this calculation: If we believe the projections of $750 billion for 2006, the software business — not just Microsoft — the software business should be basically about $67 billion, maintaining that ratio of 10 percent; so, again, very big projections here.

And what we have done is basically categorizing the different elements of opportunity, and we are lining up all of our resources. How do we relate to partners? How do we do go-to-market? By the way, the GTM means go-to-market. How do you crack those go-to-markets?

There was a question from the audience before. “OK, I have to deal with I don’t know how many people to be able to do business with Microsoft.” Certainly that’s an area we have to work very hard on. We talk about the concept of Lead Pan. But there’s another angle on how we’re trying to really address this, really thinking not through products but really thinking through scenarios we’re trying to resolve in such a way that we can line up the Microsoft resources, facing you in a coordinated way.

I already wanted to make the connection back to the Partner Program, the new Partner Program, because truly where Steve spoke of getting all that pipe aligned — you, the need for the customer, how we see the opportunity — that is exactly what we’re trying to do here.

We see incredible opportunities still. Let’s pick a couple of those: communication and collaboration and business intelligence. I mean, any of this business is interesting. It’s a multi-billion dollar business. But those two — people ask about Office. I had the opportunity to visit Russia. I have a little bit of a cold so I have to apologize. I’m not blaming Russia, by the way; I’m just saying on my trip I just got it.

But I visited Russia, and I’ll tell you, I was so excited to find a partner named Polycom. I don’t know if you are here, but if you are here, you know, hats off. This is a partner that really understood the fact that with Office System we’re creating a new paradigm on how individual productivity and group productivity is going to be projected for the next century.

Really we’re taking Office and we’re making it a very powerful product that basically connects information in a very proactive way. And I will talk more about that but I wanted to call those two as huge opportunities. People say, “Office? Hmm, for the most part, that thing is already — you know, all the opportunity there is all fulfilled.” We don’t believe that.

In fact, we believe that still 90 percent of the opportunity is in front of us. In fact, when you talk customer value, and I said, “Next leadership in the industry is going to be defined in those terms, in who is going to resolve pain better.” There’s a lot of this discussion about Linux and price and this and that. And frankly, for the most part, a lot of this stuff has to do with the industry getting actually pretty emotional and religious about it. I’m understanding, you know, the fact that customers are looking at this for some reasons, but in the end it’s about withholding customer pain. That is going to make companies fail or succeed. And we’re going to be focused on that every single day, every single minute, in everything we do. If we don’t get it right, we’re going to go back and do it again, do it again, do it again, until we are best in class in resolving these issues.

So I couldn’t be more excited about the opportunity in this space. Truly we believe we have an amazing set of scenarios here that we together can fulfill to take not only the industry to the next level, but as Steve said, when you go and tackle big problems like security, which he has spent a lot of time on, I’ll tell you, I’ll see it as a huge opportunity. Yeah, there’s a lot of problems and we have to step up to the plate and resolve it. But I see a huge opportunity to resolve one of the most challenging engineering and market problems that have ever been placed out there. We’re excited about that; so again a very big opportunity for all of us here.

But I fully realize that there are all kinds of partners here. And I really wanted to offer the opportunity to bring on stage Simon Witts, who is the corporate vice president for the enterprise group around the company. I want to invite Simon. He has a very long-standing history of customer proximity. Actually, he came from our markets in EMEA. He’s been a long time in the field. Now he has come to Redmond to really bring alive this concept of bringing customers value at the forefront of the enterprise space; as I said, 1,000 employees up. So it covers small and medium businesses. And now, please welcome Simon Witts, who’s going to walk us through the opportunity of the enterprise. (Applause.)

SIMON WITTS: Good morning. It’s a huge pleasure to be here, and I’m getting excited out in the back. It’s very inspirational to see Orlando do what Orlando does best: Look at opportunity in the face and find ways to realize more customer value. And here we are in the first of SMS & P with all of that opportunity laid out in front of us ahead.

EPG is actually in its eighth year. If I go all the way back to our first year, it was NT-3.51 and the opportunity to have a server platform inside the enterprise. We were equally excited then and I’m equally excited now.

What’s unique about partnering with Microsoft in the enterprise? It’s the breadth of those scenarios we can now partner on, and when you get into them, as we’re starting to see, it’s the pure depth of partnership that we can create.

So what I want to do in my few minutes is get you as excited as I still am about the opportunity in the enterprise and our conviction to partner to growth. The way I was going to do that quickly is to lay out the enterprise GTMs and drill into just one of them to show you how we build up the growth model, and then we can extrapolate it for the market for us all.

Here are the enterprise GTMs. I will make one caveat straightaway. This is also the software opportunity. But using a term from this morning, this is Microsoft Classic. And I’m going to ask Doug Burgum to talk more expansively about the opportunity of business solutions also inside the enterprise. I was energized at yesterday’s breakout in looking at the corporate segment, which is our low-end enterprise, with the MBS partners who came early and the energy of taking that solution set also into our enterprise client.

If I look at my business, I actually plan around about 15 percent of this revenue, software revenue, is mine. It makes up about a third of my quota when I look at it in this way. If I look at your business, I think it’s quite clear that you’ve got 85 percent of what’s on the chart but also you add the services and your final solution provisions on top of that.

There is growth in FY04 but looking out, for those who invest, there is significant growth also up to FY06. And what I’m showing you here is the number of 38 percent growth by taking a view at it by these go-to-market scenarios, up to ’06.

Okay, let’s just take one, as I said, of these GTMs and drill down so I can convince you the growth is there and the opportunity to partner is real. And the one I’ve picked is the top one, which is the one around operational efficiency. And in one sense, the best way to do that — because for us, operational efficiency is all about getting better business value from the server infrastructure inside the shop or inside the account while getting the cost down as quick as we can. And a way to look at the opportunity is to look at who are the top infrastructure server players. And the best to do it apples by apples, in a way, is to compare them in terms of their total revenue from that server infrastructure inside the enterprise.

So who’s who? Who’s risen to number one? Who’s stayed just about flat? And who’s been in decline? Microsoft: Total software revenue for that server infrastructure has actually risen to number one, although some of you could point out, “Simon, you’ve cheated. You’ve actually left out 6 percent of all the servers in the enterprise by excluding IBM propriety platform with OS-400 and OS-390.”

So let me just put that back. Ooh, ooh. Customer value, operational efficiency from the server infrastructure; there is an opportunity, in and of itself.

Now, you could say, “But Simon, IBM is now the Linux company and what they’re doing is transforming or migrating those servers outside of their accounts, and they’re bringing the costs down too of those system servers.”

So let me look at it a slightly different way, to zone right in on the opportunity inside this go-to-market. And I’m going to do it by looking at installed space, server platform inside our enterprise account.

For simplicity, I’ve pulled out the 6 percent of proprietary servers. And the way you should look at it I’ve shown you Windows, I’ve shown you Linux, I’ve shown you UNIX and I’ve shown you Novell. And I’ve shown across the bottom there installed base share. You’ll see that Windows is about half the servers and you’ll see it’s actually got a relatively shared or simple workload mix, a pretty unified workload mix; now, from the very simplest or low-end application to the relatively simple to migrate all the way up to the high-end, hardest to migrate or re-host, and you’ll see Linux has grown on the low end, the easy to migrate, predominantly from Novell and UNIX, and UNIX still in a way dominates the high-end or the complex work mix.

The way we look at this is quite simple. Novell is a commodity platform now at a premier price and customers are migrating to Windows or they’re migrating to Linux at each time. UNIX is in the wrong TCO ballpark. And you might say, “Fine, Simon, but that is a very complex, high-end workload to re-host or migrate. Are customers really willing and are they doing that?” My answer is yes, in a very, very fast fashion. TCO, getting the complexity out is so real. Even with the most complex high-end application, we’re seeing a large movement to migrate; currently, two-to-one decision-making to go to Windows.

So the opportunity I see is simple. First off, server consolidation. And if you looked inside that Windows column, 60 percent — 60 percent of those servers are NT 4. So we quickly have to upgrade those, consolidate them, while at the same time creating a more robust Windows environment to enable that re-hosting of the UNIX or the more complex workload mix.

The way I’ve taken that into my sales force, just to be clear, is I’ve said, “I want you to upgrade 40 percent of those Windows servers in the next year. I want you to upgrade about 10 percent. There’s 2 million UNIX servers in the enterprise and I want commitments of 10 percent to come the Windows way.”

As you look into your sales forces and your penetration of this GTM, you’ll decide what your goals are.

But let me end with this example, an example when we partner together in a fairly deep way, as we did with both Hewlett-Packard and Dell, Motorola; you can find an immense opportunity grounded on creating customer value through operational efficiency around the server infrastructure inside the account.

Here, inside Motorola, they had a sprawling server situation. We’ve seen it. You can see the domain count here. And the first thing to do is upgrade and dramatically consolidate that environment. The operational costs of just managing that environment alone have just tumbled to the point where just seven people can manage those 4,000 servers. The really neat thing, though, is the operational environment has been tuned to the point where using extensions inside the Windows server system, in this case with SMS (Systems Management Server), the customer can put tangible, real hour-by-hour benefits to one of their processes, such as software distribution inside their network. So I think we’ve won together in Motorola with a very, very tangible set of values.

I wanted to leave you as convicted as I am about the real growth inside these scenarios. And you add them up and remember our uniqueness of being able to partner in such a broad set of scenarios and go deep, deep, deep in terms of bringing customer value inside the account. I hope I’ve done that. If not, SimonWI@Microsoft.com. I’d love to hear why. And I have the privilege to come back and speak to you on Saturday morning during Kevin’s block to get much more tangible around how we engage together to realize the opportunity to deliver customer value, as I’ve said, inside the enterprise.

So I look forward to seeing you Saturday morning. Thank you very much. Orlando. (Applause.)

ORLANDO AYALA: Thanks. So I hope Simon and I were able to communicate to you our excitement about opportunity and how we are looking at opportunity.

Everyone talks about opportunity. The real question is, how are we going to go after it? And if there is something to leave behind out of the few slides you have seen so far, I would say a couple of things.

Number one, the market will continue to grow; we believe in that.

Number two, I hope you have noticed a real change in tone. So far we are not talking about a product; I hope you have already noticed that. The reason why we are not is because we want to really set the stage around the scenarios, all built out of the pain we have seen in customers for us to target.

It’s also a statement of engagement. Many questions come about how do I engage with Microsoft. For the most part, we have a line of resources around these opportunities. Again, it’s an opportunity for us to engage in a deeper way around customer value.

I said I wanted to stay on two topics. One was opportunity — we have done that. The next one is really innovation. Steve spoke a little bit about this, actually quite a lot, if you just think about the security speech that he gave. But there are four dimensions that we are pushing the limits on innovation to really excel and be the best in class in delivering product to customers. And here they are: targeted research and development to the segments we serve; customer connection — deep and broad — very important part of innovation we have to do; an extensive ecosystem — how do we take the challenge to the next level; and a really great business value. And to us great business value comes with, again, enabling those scenarios and making them real for you and for our customers, so we can make it a reality.

Let me dive in very quickly on some of this. In terms of research and development, just for the small and medium business space, the company has about 2,000 developers, and in the range of about US$500 million in directly targeted R & D. In this space, we’re driving hard on 64-bit implementations of our products that can deliver closer to that marketplace. But I am quite excited about the small and medium business space, because again you make a benchmark on which companies are truly investing in the small and medium space in the R & D. Any time, I welcome anyone to make that comparison. We are the company that is innovating, putting R & D dollars directly into this challenge. And we believe that’s going to make a big difference.

So it’s important in our relationship, because we can count with a partner that is truly committed to understand customer segments and do the R & D needed to win.

Customer connection: How we relate to customers, how do we do licensing? We heard about an issue with Terminal Server this morning in the Q & A. How are we going to go and resolve that issue? How do we communicate it back to customers?

We are making deep innovations in using technology to reach out to customers. Windows Updates. Office Update. Our products are designed to be able to scale our connection to customers, so we can understand what is happening in their environment without the need to go and ask them one at a time what’s going on, or wait for our one year survey to understand what’s going on. We deeply believe that customer connections are going to be enabled to technology, too.

We have put in our systems something that I really love. We call it Complaint Management System. We used to make service to customers once a year — not good. Not good, no, no. We want customer feedback every week, and this system allows us to bring feedback to be filed in the company system that every single employee can look at every Monday morning — what happened with this server this week? Let me see what customers are reporting. We are going extend that tool to you, our partners, so you are able to lodge complaints and we commit ourselves to look at those complaints and do something about it. (Applause.) Thank you.

So this customer connection element is very broad. It calls for more account management, tele-management, ensuring that we create this go-to-market in a good way for you.

Extensive ecosystems: If there is one thing that I really would like to say about the new Microsoft Partner Program, it’s that the core of that program is truly understanding your business models. We have all kinds of partners here, and we’d better understand how you make money. We better, otherwise you will move away from us, and that cannot happen.

So if you ask me what’s my major commitment taking over this organization, I go back and ask the question to my people over and over again: How is the partner making money? Businesses are very simple equations: Either you make money or you don’t. It’s simple. It’s easy, right? And if people aren’t making money, then it’s not viable. People know that, and we better recognize that.

So, again, I wanted to talk about the ecosystem because taking that ecosystem to the next level with a very powerful and visible business case for you is the limit where I am going to push my team so we innovate in a deep way.

Then last, but not least, is great business value. We can do great R & D and many other things, but again, if we don’t understand those customer scenarios really well, and those customer scenarios can both support and involve how we react to the issues and engineering, a series of elements that you have got to bring together to truly deliver the value.

So these are the four elements of innovation. You can pretty much see everyone in our company is very focused, and we just benchmark ourselves against every one of these issues and challenges.

Now, I would like to take one element of the discussion. As I said, OK, it’s most about customer scenarios, but I said also technology enables those customer scenarios. And I am so pleased to be here today, having quite frankly the honor of announcing a phenomenal product. There’s been years of research around what’s good, what’s bad, where is the customer having pain? And I do believe this is not about another version of the Small Business Server. I truly believe this is the product that is going to cause a revolution on server adoption in the market for the next two years. There are many elements that are going to make this happen.

And when I look back to companies that have been able to realize great value through products and scenarios for customers, there is always that magic time where things come together. And I will always think of this balanced triangle that is a very important part of making a product successful. And it’s, is the software really a great innovation, yes or no? Is the customer value super clear, yes or no? And is it part of the ecosystem that can take the value and deliver the value to the customer? And I truly believe that this magic triangle has happened for Small Business Server after years of research. We have right now compensation in my group around making this a reality, because again I think this is the right time for this product.

So let me just talk about Small Business Server. And I wish I had a lot more time, frankly, to discuss in detail the value of this product. But if I needed to summarize it, I would summarize it in two things that are true innovations targeted to resolve pain. Number one is integrated simplicity. No matter what people say, we are convinced our customers want more integration. Customers don’t want to bother tying things together by themselves; they want the system to work really well.

You would be amazed of the easy way you can set up this system. This year our OEM channel — HP, Dell and our system builders — I think are going to create a revolution, with a real price point of about $600, $599. And when you take that machine pre-configured in a box, it takes 15 minutes to basically have your infrastructure up and running — 15 minutes. I tell people, put the Linux stack next to it any time and see how long it takes for them to enable the same level of productivity so you can go focus on the customer problem as opposed to tying up the infrastructure. It’s a phenomenal opportunity here for us.

Another element that is super exciting is the ability to automatically protect information. The opportunities this gives to protect that information, the ability to ensure that you can replicate and recover data in an easier way; again, I am taking here a very high level approach, but there’s a lot more around this product on integrated simplicity.

But every time we have put this program in front of customers and the press, people have been amazed at about how much more we have been able to do in simplifying the experience for the customer.

Another particular element is not about the simplifying experience, but how are you going to empower these businesses to do more, get more done? The idea here is that really integrating Small Business Server with Office creates an environment where you can connect broadly with your ecosystem, as more business servers are able to connect with their supply chain, with their customers, enabling their employees to do more through collaboration. SharePoint Services is a part of this product. It comes with a product, actually in the base SKU. So right by default, you can get people to go and do great collaboration out of the box.

Another great opportunity — and I will tell you about opportunity for the channel in a few minutes. Best customer service. I happen to have a brother that has a small business. You know, the fact that he takes basically two employees in the back and counts little parts in a hobby shop, there is no reason to do that. Why cannot I connect him all the way to the supplier and customers to be able to basically release that manpower to be in front of customers? There is no reason why. And that’s the challenge that I think product will be able to resolve.

So, again, great things in the product, I really encourage you to look at this. It’s a huge opportunity for us.

A below $2,000 server category is going to be created. With a price point of $599, I would argue we have this product. The prices of this product I think was wrong for 90 percent of the customers that can use this product. At that price point, we have lowered the barrier, and we believe we are on a tipping point of massive adoption of servers in this space. That’s why we are so excited about the opportunity here.

Office. Another great example: XML and InfoPath. The new version of Office allows you to have small forms, so you can get it back through your back-end systems to do a lot more business inside, out of the box again. The XML element of Office, specifically in the Pro version, truly enables amazing collaboration and business intelligence scenarios that can be extended all the way to the supply chain.

So Office is not anymore this word processor, spreadsheet and PowerPoint. Frankly, as I said before, this is calling for a true platform. You probably have heard about business consolidators. I was talking with this co-partner, very focused on extending the value of Office platforms as opposed to these three things that just do word processing and presentations; so an amazing opportunity.

Information is like management coming out of the box. The fact that you can decide what e-mails you want people to see or not see, or print, or modify, this per se is actually in a category of service out there, especially in the context of security.

So, again, all the customer scenarios — you say, okay, you are back to product. Well, I have to talk about the technology that enables those technologies but I am truly talking about scenario-based solutions. The Office version for small businesses includes business contact managers. It’s the opportunity for customers to be able to track customer leads — amazing set of opportunity for a small businesses that is just using Outlook, because it works in Outlook, actually uses Outlook as one of the elements to be able to flag those customers. So, again, this is all about target R & D to enable scenarios.

So, in summary, Office provides an amazing opportunity on interaction, share and integrate information, and we believe great impact on this type of scenario that I have been describing.

Now, let’s now just listen to a customer about what really matters. Here is a sample of a small business, quite exciting one, that has decided to use Small Business Server, not only to simplify their experience but to take their customer relationships to the next level. So let’s look at the video that will highlight the great value of this talk. Play video.

(RMI Video segment.)

(Applause.)

ORLANDO AYALA: So I hope you were able to capture the type of scenarios this company is having, a small company, actually quite remote, depends heavily on employees being out in the mountains serving customers, and at the same time being connected at all times back to the office to be able to do their jobs. So, again, this is what it’s all about.

Now, let’s take a quick look at some of the technology that is enabling this great, great innovation. For that, let me introduce Katy Hunter, group product manager for Windows group. She is going to give us a small demo. Katy? (Applause.)

KATY HUNTER: Hi.

ORLANDO AYALA: Okay, Katy. The way I would like to start this is, as I said, it’s all about customer pain. I know you and your team and development team — I know for a fact that you have been very focused on talking to customers and really trying to capture what characterizes this pain for this type of customer.

KATY HUNTER: Right. I would characterize the pain in probably two broad categories. One is the pain around just being on top of their business information. Small businesses tend to feel a little bit out of control, and they need to get on top of their business information so their employees can be more productive, and they can satisfy the demands from their customers.

The second area of pain is really the general anxiety around IT in general. Small businesses want to focus on their business, and any idea that that business is going to be disrupted gives them some pain. And this really translates also to a pain that our partners have been telling us about. You’ve told us that you question the ability really to provide super high quality service to a volume of small business customers, and to do so at a profit that is acceptable.

ORLANDO AYALA: All right, I would agree with those pains. So show us how we are going to address that, please.

KATY HUNTER: All right. Well, the team nailed it. Want to take a look?

ORLANDO AYALA: Yes, great.

KATY HUNTER: All right. First of all, we created a network environment here that is exactly like the RMI environment. And first I’m going to show you how easy it is to connect remotely to my business data. There’s a single very-easy-to-remember Web page to go to for the Remote Web Workplace. The Remote Web Workplace consolidates all of the options for connecting remotely to the server. Once I authenticate, I have a secure communication going on with the server. And here’s all my options for connectivity: Outlook Web access — I can connect to the team Internet site. I can connect to a client computer on the network and get a rich Windows XP and Office 2003 experience from any PC connected to the Internet, anywhere in the world. For RMI, this means that they can connect and run their business, even while they are at the Internet cafe at base camp on Mount Everest.

ORLANDO AYALA: Or their Pocket PCs.

KATY HUNTER: Their Pocket PC — you can’t get much more remote than that.

And, for instance, here I can take a look at my daily sales report from Microsoft’s retail management system. So even though I’m out of the office, I can keep tabs of my business, 24 by 7.

So, while we are here at the client PC on the Small Business Server network, I want to show how Small Business Server extends the value and introduces the value of server computing through that end user’s experience. And the best way to show that is through the company Website we’ve created. Using Windows SharePoint Services, Small Business Server creates an intranet site for small businesses to takes care of everything. It’s a single place to go for the announcements, for interesting links on the Internet. We have access here to the online status of co-workers, so we can kick off instant-messaging conversations. This particular site has actually been customized for RMI, with a Web part for calendaring, and we built them a climb calendar so they can keep track of the upcoming guided climbs they have going.

The single place to keep track of the business information really keeps them on top of things. And it even gets better when you use it with Office 2003. So, here we’ll go into a document library, and you’ll see that we have a Word document here. It’s been checked out to really facilitate joint document creation. And when you launch Word to work on that document, the actual company intranet experience travels with you here in the shared workspace. Again, I can go ahead and kick off instant-messaging conversations with my co-workers, and I get access to those important Web links from the site.

So here in Office 2003 we can create really professional business output. And when you add Office to a Small Business Server network, that output can then be stored and shared and communicated, really increasing the impact from the document itself, and the total solution has a greater value.

ORLANDO AYALA: How about the other pain?

KATY HUNTER: The other pain.

ORLANDO AYALA: You have a lot of angst in the problem of driving IT. They don’t want to be focused on the infrastructure part of driving that service forward. So what are we doing with that?

KATY HUNTER: So with that, we will switch ourselves over to the partner’s perspective, and show how a partner can offer volume services around supporting small business customers. We’ll go ahead and support them remotely so you can efficiently service a lot of customers. And we’ll do so at the same Web page with the Remote Web Workplace. But I want you to notice as you log in as the administrator that the Remote Web Workplace dynamically creates your options that are specifically targeted on taking care of the day-to-day operations of the server. We built this perspective specifically with the partner’s business model in mind. You can connect to the server desktop to do servicing. Any client machine on the network can be connected to, to do servicing. You can view server performance reports, where Small Business Server monitors and reports a series of critical statistics about the health of the server. You can receive these reports on a regular basis or you can go ahead and get notified when any critical alert occurs. Right here, we have an out-of-the-box maintenance agreement service offering for you to offer to your Small Business Server customers.

ORLANDO AYALA: That means virtually if you wanted to, I mean, again the product team has taken it to an extreme, 7 by 24, offer to a customer remotely by a partner could be done. Basically you are monitoring that system to ensure that you are on the proactive approach not reactive.

KATY HUNTER: And it’s very good service to be able to provide, because you’ll have a good track of what’s going on with the system. Similar to the RMI case where their service provider outsourcer is nearly two hours away from there and almost never needs to go on site.

So there’s more service opportunities for partners. And to show you we’ll go to the server desktop itself. And this is in the area of creating custom solutions. Now, I know a few of you out there might be saying, “Hey, I’m an infrastructure guy — I don’t create custom solutions.” But with Windows Small Business Server 2003 and SharePoint with its Web part technology, you can create custom solutions very easily, just like this climb calendar was customized for RMI. You simply go to modify the shared page and you will see the Web parts that can be customized based on your individual customer’s information.

And it’s easy to add a Web part to a page. Here we’ll go and grab this MSNBC weather Web part from the online gallery, drop it on the page where we want that to be, and then we need to tell it the location where we want to track the weather. And on Mount Rainier, we have the zip code as 98304. And just like that, RMI has a custom solution for tracking what the weather is like on Mount Rainier on an ongoing basis. Thank you. (Applause.)

Creating customized solutions is highly valued by customers and you can provide these custom solutions without writing a single line of code.

All right, so I really only showed you a tiny bit of the value of Small Business Server. We have lots of sessions here and I encourage you all to go to the Small Business Server session, where you will get hot off of the press the evaluation copy of Small Business Server so you too can experience the value. Thank you.

ORLANDO AYALA: Great, thank you, Katy. That was very good. Thanks. (Applause.)

So, again, I hope this demo demonstrated several things: One, the incredible power of enabling a customer to the next level of running that business. And number two, frankly, we see a new business model for a channel coming out of this, with services never seen before, all enabled by the great innovation of a product that is really targeted to this segment.

Let me summarize now on partner opportunities because I think this is a very important element. And I would characterize there’s four very important elements.

Number one, high volume. We truly are targeting this product to create an amazing phenomenon of server adoption in the marketplace.

Number two, service revenues. The fact that the infrastructure pieces in many ways are actually very automated — I said 15 minutes to set up the basic infrastructure allows you to focus your services a lot into the great part the customer will value, which is how can you make my business better: Web parts, SharePoint Portal sites — many, many, great things that will have direct impact on the customer’s business.

I said new business models. I already mentioned this. I think this product can generate new business models for you, the one we described on remote management.

Last but not least, we are seeing a great opportunity to really get customers to adopt the whole of the value stack, including CRM solutions on top of it, provided by Microsoft and our partners. So I believe these four opportunities are very real, and our goal is to ensure that we engage you deeply in realizing that opportunity for you.

Now, let me change gears a little bit here. And you all know there is a lot of noise in the marketplace, especially on the small and medium business. A lot of people are rushing into the marketplace. There’s been announcements by many companies. And you know why — we show the numbers. People feel this is a very important area of growth. So what I would like to do now is really talk a little bit about the competitive landscape and how we fit.

And if we assume a premise that customers want more integrated solutions out of the box that can be heavily extended with value related to business value, let’s start with that premise. And you see ability to execute going up, completeness of offering going horizontal. Let’s start mapping some people. We believe Oracle, for the most has tried hard, mostly targeted to the high-end space, meaning enterprise, The offering as a full-platform company we think is questionable.

Then of course you have limits. And you may argue limits can be one stack, that essentially could provide a lot of the answers to some of these issues. Now the question is how effectively that reflects any value for the customers.

And I really wanted to bring somebody in our company on stage that has been assigned by the company to really look into something that is very important. There’s a large amount of the story that has not been told on the facts. I’d say there’s a lot of hype, a lot of emotions around, but Martin is really focused on ensuring that we certainly talk about reality here. So I would like to invite Martin Taylor — and he’s general manager for Platform Strategies. Welcome, Martin.

MARTIN TAYLOR: Thank you. Thank you. Good afternoon. Good morning, good evening, I don’t know where you are from, but thank you for being here.

ORLANDO AYALA: Okay, you know a lot of what is happening here is about business models — business models for the customers. The customers think that perhaps, you know, just not paying for software is going to resolve all their problems. And also for the channel frankly. So one thing I would like you to address is how do you see basically in terms of business models the difference between Linux and Windows?

MARTIN TAYLOR: Yeah, well, and it’s obviously a great question for the audience here. It’s one that I get asked all the time and I really look at it in three different categories.

First of all, I would say that all of our partners want to develop long-term relationships with their customers, and so the question they have to ask themselves is, does Microsoft give me the opportunity to do that, or is this Linux, Open Source good enough world give me the opportunity to do that?

The way that you build long-term relationships with customers is by delivering value to them. We have a fundamental belief that technology delivers value to customers and allows them to do rich things.

And so, if I’m a partner, do I want to deliver a set of services and solutions on top of an innovative platform to help my customers, or do I want to deliver to my customers something that’s just good enough? And so, that’s the first thing.

The second thing is we do have a better long-term economic model when you take a look at the fact that we build our software in a way that allows software to do the basic plumbing, and then our partners to do the higher-end value work. If you take the premise that there’s a limited set of IT budget that will allocate the services, where do partners want to be on that value curve? Do they want to be at that level of cobbling together a set of things that weren’t designed to work well together, or do they want to be on the side of the curve of adding value on top of an integrated platform? And I think that the economics will play out over time.

The third area is one that’s been talked about throughout the morning, and that’s really our business model of partnership. We truly do stand beside our partners and behind our products in a way that is unprecedented in the industry. I know I’ve been here, as you know, Orlando, almost 11 years. I helped start and drive our solution providers business in the Washington, D.C. area; it was my first job with the company.

And we’ve been partner, partner, partner, partner, partner-centric from day one almost. And so, I don’t know where that same level of commitment and dedication to the partnership model exists in the Linux world. And on top of that, from a technology perspective, you know, we can give a roadmap to our partners, if they’re ISVs, to build their solutions on top of. We can indemnify our software so our partners don’t have to worry about taking on that responsibility.

There’s a set of things that we offer to our partnership, our partners, from a technology perspective as well.

ORLANDO AYALA: So I guess this morning, Steve was very articulate about Linux responding to a challenge like the one we’ve got.

MARTIN TAYLOR: Exactly.

ORLANDO AYALA: All right. How important is being asked by customers how to talk about Linux? I mean, they get asked about Linux and, you know, customers are intrigued about it. So what do you have to say about that?

>MARTIN TAYLOR: Well, I think the most important thing we can do together, because I think we have shared customers, is really move this from a high-fueled, emotionally charged discussion, to a fact-based discussion. And, you know, you already said that I’m kind of the guy trying to drive that for our company, and with —

ORLANDO AYALA: It’s OK: you are.

MARTIN TAYLOR: — and with our partners.

So what does that mean? We know that there are some things that are very important to our customers: reliability, interoperability, security, TCO. They take decisions on a platform based on those set of dimensions. The level of hype and emotion in the marketplace is truly amazing around those things.

And so, what we need to do is work with our partners and deliver facts around interoperability, around reliability, around security. Steve shared some security facts with you all today — Microsoft versus the Open Source world, and TCO. Let’s take TCO as an example.

ORLANDO AYALA: All right.

MARTIN TAYLOR: So TCO. We’ve moved from the earlier emotion of, or hype, saying, “Linux is free.” Now, people know that the software acquisition cost is only about 3 to 5 percent. It’s really more about the broader set of issues around TCO. So in that environment I looked around and said, “Hey, where are the facts on this?”

And so, we worked with IDC and we looked at five server workloads: file, print, Web, networking and security. And over a three to five year period, Windows Server 2000 had 11 to 22 percent TCO advantages over Linux, or Red Hat specifically, the Red Hat distribution on four out of five of those workloads. The one we didn’t win was Web servers. We were anywhere from 4 to 5 percent more expensive there, but we’re going to repurpose this for Windows Server 2003.

So that was great, and customers said, “Hey, thank you for this information. But you know what? We think broader than just individual, simple workloads. We think about the stack.” So we worked with Forester and Giga, who’s actually now a subsidiary of Forester, to build a human resource application, and medium sized and large organizations. And so they have a model that they do called TEI, where they measure cost, benefits, flexibility, and risk.

And they built a simple HR, Web-based, portal-type application, working with a set of customers, and we were found to be 25 to 28 percent better advantaged around TEI in that model, partly because once Linux begins to move into the commercial space, people put commercial applications on top of that. We have cost advantages there — you know, Microsoft did. We had cost advantages around people costs, around tools. And so, that was a great example of looking at our stats versus IBM J2EE and the Linux stack.

Let me tell you about a third study.

ORLANDO AYALA: Well, wait a minute. People know about the studies and the facts — you know, have heard rumors and comments about Microsoft paying for these studies. So what is this all about?

MARTIN TAYLOR: So that’s something that comes up — and thank you for bringing it up, that, “Microsoft, you commissioned this study. How can it be true? How do we think about this?” And let me share kind of the history a little bit.

When I took this job on, I said, “I know I can’t go build these solutions in the lab myself and tell the world these are the facts.” So I went out and talked to analysts and I said, “Hey, wouldn’t it be great to have some facts on TCO? Wouldn’t it be great to have some facts on the stack, and talk about that in a fact-based way?” And they said, “Yes, it would be great.” And I said, “OK, well, can you guys do the study?” And they said, “Yes, we’d love to but it costs a lot of money because it takes people, you have to go interview customers, there’s a lot of things you have to do there.” And so, we said, “Fine. We’ll commission the study, and you guys use your methodology, you use your process.”

At the end of the day, the customers value the data. And I meet with customers all around the world, especially out at our executive briefing center in Redman. I share these facts with them and they all say, “Thank you very much for these facts. Thank you for this information.”

So let me tell you a couple of premises that I have and then I’ll have a call to action for the folks here in this room around this topic. First of all, we will do these studies with credible third-party companies, with a variety of them. So if you see a study that comes out from Microsoft, from Martin Taylor Consulting, you should raise your eyebrows on that one. But, you know, we’re going to work with credible third parties to drive these studies.

Secondly, we’ll have a level of transparency. So, you know, if we commission the studies, we’ll say we commissioned the studies. In the TCO study I showed you, we didn’t win the Web server one. We showed that. In the TEI study that we did with Forester-Giga, you know, it was more advantageous to move from UNIX to Linux in some scenarios. That’s documented in this study, based on training and resources. And so, we’ll have a level of transparency.

The third thing, though, is what’s way more important than the actual numbers — 25, 28, 11, 22 — is the process and the methodology. And so, all of these studies have the process and have the methodology that was used so that our partners can take them to their customers, and they can replicate their own studies.

ORLANDO AYALA: So how can we make this available?

MARTIN TAYLOR: So today, there is a site that should be up. If it’s not —

ORLANDO AYALA: Right there. Right up here.

MARTIN TAYLOR: — if it’s not, I will actually call someone when I walk off the stage and get it up. It’s called Microsoft.com/getthefacts — g-e-t-t-h-e-f-a-c-t-s. That site will actually have all the studies I’ve just mentioned available to you. You can pull those down, and I would encourage to take them to your customers when they’re trying to make decisions and say, “Hey, here are the facts from Microsoft, and from third parties that worked with Microsoft,” and have them ask their Linux vendors for similar types of information so we can have a fact based discussion.

Now, if you’re in the room and you are one of the Linux vendors — other than seeing me after class back by that door — I want you to ask whoever you work with, IBM, Red Hat, or whomever, for a same set of facts, so you can give your customers a balanced view of the world.

ORLANDO AYALA: Now, let’s talk about the fact that IBM is pushing this very hard. In many ways, when you look at the quadrants and you add IBM to the picture, certainly, IBM is adding credibility. So what is your perspective on this?

MARTIN TAYLOR: So first of all, I feel that IBM is adding to the hyper-rama around Linux and all of these things. As a matter of fact, the third study that I was going to mention, before you called me to task on the commissioning aspect of these studies, was there was hype in the marketplace that IBM was fueling, saying, “Hey, you know what? You can take three to four fully burdened Intel servers and move them to a Linux on the mainframe on the Z-series. You can take 20 Windows NT file servers and consolidate them on Linux Z-series.”

And I said, “Wow,” you know, “Where are the facts around this? Where are customers that have actually done this? Where is data that shows the performance gains around this? Where is the evidence that shows the price benefits in doing this?” And I couldn’t find it. So I had to go buy some time on a mainframe, which is very expensive to do. I hired two expensive Linux consultants to basically build a set of workload scenarios to basically find the cracks on this claim from IBM.

And this study is up on the site, Microsoft.com/getthefacts. It was validated by Meta. And we found that at best case for them they were 20 percent less performance gains and at worst case 300 percent less performance gains in trying to do what they claimed you could do with Linux on the mainframe.

And so, first of all, they are driving the hype around this and I would ask all of our partners here to call them to task, as appropriate, regarding that, and ask our customers for facts around these things.

As they look at their business model, I think they’re approaching some forks in the road. They claim to fully embrace open source. But to me, when I embrace Windows, that means I provide a level of roadmap for my partners and talk about the stack. I don’t see their road map that IBM can deliver for the Linux kernel in the evolution.

I provide a level of indemnification not just against one other vendor that might be suing me but against anyone regarding my technology. I don’t see that level of embracing on the IBM side of the world.

And then, as Red Hat begins to bundle middleware and J-Boss and a set of technologies into their distribution, I don’t know how IBM’s going to think about their commercial software market as it relates to that.

So I think that the hype is kind of weaning down and some reality will come to play with IBM’s embracing of this scenario.

But I also think everyone here should not be confused. If you do anything here — services, integration, consulting, design work — in the enterprise state, IBM is your competitor. They are a services company. They are not a software company. They are not a hardware company. They are a services organization. And so, let’s not be confused that we do compete with them — we being our extended partner community — on that dynamic.

ORLANDO AYALA: So, that’s great stuff. I know we have series of sessions where you and the team are going to describe partner opportunities, so I guess you want to make an invitation to these folks.

MARTIN TAYLOR: Yeah, I’ve heard different people plug their sessions here, and I won’t plug my personal session, but I will say that we only had a few minutes here to explain, from a perception perspective and from the hype perspective and our approach to the marketplace. Tomorrow morning, we’ll have a set of technology sessions by different executives from Redmond and that’s when we’ll really talk about how, through innovation, we really change the game and extend the value proposition we give to customers through innovation, and through our software stack, and through our model.

And so, you’ll hear that from the keynotes, and then there will be track-based drill downs on doing one on Windows Server, someone else is doing one on the client as well as the development model. Look for your handy-dandy books you have there, and I’d welcome to have a deeper session on those things.

ORLANDO AYALA: That sounds great. Okay, Martin, thank you very much. (Applause.)

MARTIN TAYLOR: Thank you.

ORLANDO AYALA: Now, when we think about Microsoft, where in this quadrant our company is, I would argue that the completeness of our platform is a very powerful asset. I think a lot of people recognize that. Many people argue that Microsoft doesn’t have, you know, thousands of people to go and reach our customers. But that is what we believe is a real differentiator as a company.

We committed our company to a partner-centered model. Ninety-five percent of our revenue comes through partners and that is what is making the difference in the marketplace. We believe that really with your help the next round of innovation and value for customers is going to truly be taken to the next level precisely because we believe in this partner ecosystem and the power that you can deliver in the marketplace.

So we’re in a position now to talk a little bit about partner models, business models, because as I said, for me, it’s all about understanding your business model. How do you work? How do you make money? And to help me do that, what I would like to do next is show a video from our partners that speaks of enablement and their business model. So let’s do that.

(Video segment.)

ORLANDO AYALA: So when you listen to that, it’s quite obvious — and as Allison said this morning — that there was no way we could take the next level of partnership with you unless we understood clearly the variety of business models that we engage you with. So it’s very, very clear that the new partner program is truly targeted to try to understand the elements that are going to be relevant for you in terms of your opportunity engagement and so on.

So again, we recognize this. And I would like to dive in a little bit in a couple of scenarios that I think are very important. So let me talk a little bit about ISVs. I think this is a very important community. Our company has been committed to ISVs for a long, long time. In many ways, I think ISVs have made the Windows platform very, very successful.

And we engaged in a worldwide approach to talk to ISVs around the world. We visited close to 70 countries around the world, engaged with 6,000 partners, to really try to understand, and also clarify, the maximum strategy with respect to the platform. We’re also engaged deeply in Europe, in the Middle East and Africa. Partners on the CRM space also to try to explain what we really mean in terms of bringing to the market an extended platform that will accelerate the opportunity for ISVs.

And I’m going to use the next slide to just talk through that. As you know, our company has been heavily platform-based. That’s what we do. That’s what we love to do. What we love to do is do platforms. This has been a great evolution of how we have taken the Windows paradigm to the next level, to Web services. It’s a very, very exciting time.

And something’s happening in the industry at this point in time. We believe there is a huge inefficiency in R & D dollars happening in the ISV base. When you look at ISVs around the world, actually, you know, there’s a lot of people losing money. And we believe that’s happening because people are still very focused on horizontal functionality that is not highly differentiated to the customer. This is how we created what we call the Microsoft Business Framework, which is really extending the value of Visual Studio .NET for you to be able to enable business applications, with pre-made logic and tools that allow you to focus more on the scenario-based opportunity, as opposed to the horizontal value of, you know, CRM or an ERP system.

And it is with that that even for products — Axapta, Great Plains, Navision and so on — and yesterday I had the opportunity to engage partners on this — I was amazed on how beautifully many partners are delivering amazing value just by extending this product more as a platform than as a product itself.

So here is our premise. And you may say, “Your bet may be wrong,” but part of the value that I think we can provide to you is trying to anticipate trends. Because we do believe a real trend for ISVs in the business applications is happening right now. And it’s reflected by some of the situations that you have heard about — Oracle trying to acquire People Soft. I think yesterday was another announcement around our CRM consolidation.

So we know consolidation on horizontal business functionality will happen with or without Microsoft. It will happen. Given that trend, our view is we want to extend the platform in such a way that you basically outsource R & D to Microsoft on the horizontal functionality, and then we provide a great opportunity where we believe the customer is going to pay the real, high, top dollars for innovation. It’s really going vertically and extending this platform to be able to provide the maximum impact for your R & D dollars.

So again, the premise is, there will be consolidation. The premise is who really wants to do the next horizontal non-differentiated CRM functionality, or ERP functionality?

So it will happen. And we are taking the bet that, as a company — as a platform company — we can extend the value to ISVs, offering them a platform that allows awesome functionality going up. So, if we do all this together, I think together we will maximize the impact to the customer value equation.

We went to Europe, and in Europe, about three weeks ago we announced 14 deep partnerships. And I think one of those today is Skylight, a company based in the Netherlands, where this partner is truly taking that step, and is saying, “I will focus basically on extending Microsoft CRM. I don’t need to worry about horizontal functionality.” And what they are doing is really taking the CRM paradigm to a vertical approach that is very relevant in tax, in currency, and so on.

So we’re seeing this momentum; it’s taking time. We need to sit down and listen to ISVs. In fact, the fact that we took Microsoft in the framework of Visual Studio .NET came out of listening to partners very closely to decide on what’s different before we engaged those partners.

So we’ve continued to engage ISVs in a very deep way, to really understand their position on how they will make money. It’s not easy to jump. I know where there’s a challenge, and the industry is shifting to a new paradigm, it’s hard to make that change. It’s very hard. It happened with Windows — it happened.

So that’s our view at this point in time. So I just wanted to say we’re very committed to the ISV paradigm. We’re very committed to ISVs. And there’s a lot of noise out there — Microsoft’s trying to take away the ISV business. I wanted to give a perspective on why we believe there’s amazing opportunity on partnering together and taking that paradigm for small businesses and enterprise to the next level of value.

I said at the beginning, if you asked me my scorecard, my scorecard would be about this element. And it’s really the best in class department experience around business models. And today, I’m very pleased to take the second scenario business model and I’m very, very pleased to have with us today, two great individuals, Tom and John. They are our partners from InterDyn Group. And I want to invite them to the stage for us to discover a little bit about what I consider the very innovative approach, based on opportunities, that they have taken to take their solutions, actually, to many, many locations around the U.S. and, potentially, around the world.

Welcome.

JOHN HENDRICKSON: Thank you, Orlando.

ORLANDO AYALA: Okay, John, I will start with you. And it would be useful for us to know who is, really, InterDyn Group?

JOHN HENDRICKSON: Yeah. I think InterDyn is a fairly unique business model. We’re an organization of top MBS partners, who came together about seven years ago with kind of a strategy of, you know, of working together collaboratively on shared resources, shared expertise, shared marketing, and really kind of trying to build a virtual organization of kind of delivering some of that value.

ORLANDO AYALA: So it sounds like a very interesting business model. So how have, really customers seen — you are full stack partner.

JOHN HENDRICKSON: Right, right.

ORLANDO AYALA: You do MBS, you do all the Microsoft products. But what was the value for the customer? And frankly, what was your company’s advantage as a result of this?

JOHN HENDRICKSON: I really believe that our ability to work together has delivered a lot of extra, you know, customer satisfaction. And I think there’s also been success in bringing the entire customer stack, whether it’s infrastructure — whether it’s tools, business applications — to midmarket and enterprise customers.

ORLANDO AYALA: So you’re saying you can basically draw skills from the group, depending on the type of scenarios you try delivering to the customer. And so perhaps you can work us through some examples of customers that have really benefited from what I consider our very interesting clustering approach to bring these skills all together for the customer?

JOHN HENDRICKSON: Yeah. Let me tell you, Orlando, about a couple customers that we’ve done some work for. El Dorado Stone is headquartered in San Diego. They have operations across the country. They have distribution centers across the country. And what they were really looking for was an implementation where they could have both local expertise, but at each distribution center they really wanted that local support and the implementation, and ongoing support as well.

So what we were able to do is, by bringing in the different InterDyn partners across the country, we were able to provide them kind of the best of both worlds — that enterprise implementation.

ORLANDO AYALA: I understand, now, you have been able to compete very directly with IBM, Oracle —

JOHN HENDRICKSON: Absolutely. I mean, by having that expertise, kind of nationwide and around the country, we are able to go head to head with the SAPs, People Softs and the Oracles. And not only are we competing with them, we’re winning against them.

Let me tell you about another situation: Evergreen Healthcare. And that’s another enterprise implementation up in the Pacific Northwest. And that was a situation that’s a fairly large implementation, and they needed some business analytics expertise. And down in Southern California, we have a center of excellence for business analytics.

So what we were able to do is we sent some of our folks onto that engagement and provided them that expertise. And what it really did is to kind of help that partner, it helped him bring to bear the expertise that was needed on the engagement, without having to develop that expertise and maintain it themselves.

ORLANDO AYALA: That’s great. You know, Fingerhut has been an amazing case. So if you want to talk about that —

JOHN HENDRICKSON: It certainly has. I think that’s a good example of kind of the capacity component that InterDyn brings. You know, we have Fingerhut as a catalogue company that was looking to put in a ERP system, integration to their Website, to their supply chains and .NET development, and had a timeframe to have all that up and running in three weeks. And, you know, that was something where we needed to look to having to a couple people from our Portland office, some people from our New York office, and we were able to put about, then, 13 people onsite for an extended period of time, and, in fact, got them up and running in a three-week period of time.

ORLANDO AYALA: All right. Both of you have heard about the new Microsoft Partner Program. So how is the new program really going to benefit you?

TOM GILDRED: Well, I think that the new program’s great. And I think that the flexibility of the program is really going to allow us to continue to partner the way that we want to partner, to innovate, and bring, kind of, benefit to us and, by virtue of that, bring benefit to our customers.

JOHN HENDRICKSON: We’re getting better business models.

TOM GILDRED: Absolutely.

ORLANDO AYALA: Okay, that’s very good. Thank you, again, for taking the time. Because, really, partners like you are fully committed and really innovative in the approach you take your services to market; that will make the difference. So thank you very much for joining us today.

JOHN HENDRICKSON: Thanks for having us.

ORLANDO AYALA: Now, in closing, you heard many things today. But if I needed to leave something behind with you, it’s the fact that we truly understand as a company that you and your business model have to be considered very deeply on how we make decisions, how we make ourselves predictable into the market and to you.

You hear about competences today in the new program. I’m not going to go over it in detail, but competence is related to where we see the opportunity; past performance recognition that we provide tailored benefits will really provide us the opportunity to engage in a real deep way on how we deliver that value to the customer.

Again, its not just about the small business, its about the enterprise for sure, so the partner is an umbrella, and the go-to-markets I described before are the true innovation that will come together to add value for the customer.

Now, if we come together, we can realize that opportunity for customers, realize that value. We all dream about double-digit growth, very scarce these days. And I wanted to mention that study that we did with IDC, and IDC actually spent a good time going through it, that said that for every dollar of Microsoft software there are $8 appreciated in partner services of all kinds. I do believe that really focusing on opportunity the way we described, focusing on innovation, on the customer engagement, on the partner ecosystem and on R & D and in the business value we think we can improve that. We think that for every dollar of Microsoft our role should be to increase that ratio, to see great outcome growth, and then capture the opportunity that we all dream about.

I’d like to close by saying, we are very committed as a company to two very important principles: one, the relevance of technology in the context of customer value and number two, the fact that real innovation in the value stack of software will not be realized unless we make that very, very clear connection in the ecosystem between you, and the customer in the right context, which is that context of value that we described before.

So I’d really like to also take the opportunity to thank you very much for the amazing performance in the past year. I know Steve wanted the opportunity to say the same, thank you very much. We can’t make it without you. We’re truly looking forward to engage you to take this opportunity to the next level, with great customer value. Thank you.

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