Speech Transcript – Will Poole, Microsoft Worldwide Partner Conference 2003

WILL POOLE: Good morning. Some of you are probably trying to figure out what does Windows Clients mean? And it’s actually pretty easy to figure that out. We won’t confuse you this time. If you can put it inside your shirt pocket and it says Windows, that’s not it. That’s Windows Mobile. If you can imagine climbing inside of it and it says Windows, that’s a server. We’re everything in between.

So, Windows clients are laptops, Tablets, business desktops, professional desktops, home PCs, living room PCs — all that good stuff. That’s what we’re about. There’s about 550 million of those out there, half a billion, today, Windows clients, and it’s growing at the rate of around 130 million a year. So it’s a pretty exciting opportunity that we have together here.

And we created the Windows client business for the purpose of really realizing a pretty big vision we have, which is to make Windows PCs increasing and dramatically more integrated and relevant to users of all kinds. That means the way people use it in their home, in their everyday lives, in their business and their workplace, with them on the go, when they’re sitting at their desk.

We’re going to accomplish that by making these devices easier to use, by connecting them to people so that they are in control of the devices, so that companies are in control, and not vice versa. So that they help them harness the information overload they’re faced with every day, making that information real, and easy and manageable for them. And doing all of this in a way that increases communication and productivity, making people have a better connection to the world they live in through the use of Windows PCs.

Now, that’s our vision. It’s going to take us a long time to get there, and you’ll see some of those ideas come through in our themes for “Longhorn” innovation you’ll hear a bit about today. But that’s really only half of how we accomplish them, because — and I didn’t put this next bullet up here just because I’m at a partner conference — it’s because it’s actually the way we do business — and it’s vital to how we’ve succeeded in the past and how we’ll continue to succeed in the future — is that we have to make Windows PCs absolutely the best place for our partners to invest, for you to receive profits, for you to build a business.

And we are continuing to innovate in the way that we build the Windows environment, in the features that we add, in the platform that we build, everything from the .NET framework up to the new innovation in Longhorn, such that when you invest in this platform, you make money as you build products and sell them to your customers. Those are the two things that we need to accomplish in the Windows client vision over the next few years.

Now, looking at where we are today, the Windows client business in 2003, it’s really been phenomenal. Windows XP has been the fastest, has had the fastest, adoption of any operating system in history; it’s had the fastest growth rate and sales rate. We’ve sold over 130 million units — licenses — of Windows XP to date. We also have an incredibly broad network of partners, and those partners have grown in strength, they’ve grown in quality and capability to be able to take advantage of the momentum that we have in the marketplace together.

We also have brought out a number of new products and services in 2003. Now, this has not been a major operating system release year for us, but we haven’t been sitting on our hands up there in rainy Redmond; we’ve actually done a few things. And we’ve helped to push the Tablet PC along. We introduced it just about a year ago. Tablet PCs and media centers are both on track to meet or beat our expectations for how they do in their first year of business.

We’ve also rolled out Software Update Services (SUS), and that’s a very, very important capability to help our customers manage and deploy patches and the software that makes their business run.

And finally, we’ve worked very hard to take advantage of some innovative technology that we launched with Windows XP, which you probably have heard of, called Watson. And this is how we actually go and do some real-time analysis of crashes in Windows to find out what’s causing problems.

We’ve done this with device drivers. We’ve done it with the Windows kernel. We’ve done it with applications. And we’ve now made it available to third parties, to ISVs, so they can find out what’s going on with their applications. And we’ve made it available in our corporate error reporting services to companies so that they can find out what applications — whether their line of business applications they built or third party apps — they can find out which ones are causing problems.

And an example in the ISV space is a firewall vendor was able to find out information from our error reporting service and knock down the number of crashes by two-thirds. That’s a tremendous improvement. We use the underlying Watson technologies in Windows XP SP1 to fix the problems that cause 30 percent of the crashes and hangs in Windows XP that we released two years ago.

So these products and services are adding fit and finish, they’re extending the product line and really helping to carry us forward in innovation in new markets.

And, of course, this could not be possible without you, without all of your support, without your help, without your commitment to taking these platforms, adding value, and making them real for customers. So I want to thank you all for your business and your partnership this year and, of course, going forward.

Now, all that said, we have some non-trivial challenges in front of us. The economy, obviously, has not been easy. The IT spend, we’re looking at numbers that have been, roughly, flat. Minimally, they’re constrained. And there have been increasing complexities in terms of, how do you manage that IT environment? Business decision-makers and IT managers are struggling to find ways to quantify the value of the many hundreds of millions of dollars that they are spending globally on IT technologies and services.

So that’s something that we have to work together to help them understand that value, to see the value, so they can continue to increase the spend. We actually are starting to see, in fiscal year ’04, some good trends up in IT spending. We’re encouraged by that.

Customer satisfaction. We are very, very focused on improving our customer sat in a number of different areas, security being first and foremost. You heard from Steve Ballmer yesterday; I’ll talk some more about that today. We’ve made huge investments, in how we address the concerns, needs, and actual problems that people have in the area of security. But we’re not confused about the level of impact that this has had to our customers and our partners, and we’re going to continue to think hard, listen hard, and work hard to address these issues.

We also know that we made life more complicated for some of our partners and customers by licensing changes, policy changes on updates and support, account management changes, and so on. And these are all things we’ve gotten feedback from you and our customers. We know that we have work to do here, and we are committed to improving how we operate in these areas.

And last but not least, we have challenges in competition, in competition with free, which is not easy for any of us. If you want to build a commercial software business, it is challenging to build that on zero dollar unit priced software. And our customers perceive that that zero dollar unit priced software is, in fact, a lower actual cost than Windows XP, and it’s not surprising why they see that.

So our challenge together is to show people that the actual cost of ownership and value received from owning a Windows PC is, in fact, far superior to what they get if they buy a Linux Open Source environment.

So, to help understand that particular area, we’ve been working very hard to quantify and communicate the areas of value of Windows. And this is all, really, in three large areas: security, integrated innovation and better overall value in terms of productivity needs of use.

And drilling into integrated innovation — and you’ve, I’m sure, heard that word from us a lot, and you’ll continue to, because it is absolutely fundamental to how we deliver value to our customers. We really look at a number of aspects of that that are starting to actually really be delivering value to our customers that they can quantify and see. Ease of deployment, ease of use, and choice.

To give some examples on ease of use, we did some studies to look at the productivity of users, comparing Windows XP to Windows 2000 Professional. Now, there’s not a huge set of differences between those two, but just the improvements that we made to ease of use in Windows XP can make a Windows XP user 25 percent more efficient. They’re able to accomplish common tasks 25 percent more quickly than Windows 2000 Professional. That translates directly into the increased productivity and goes directly to the bottom line.

Choice makes a huge difference. The work that we and our partners have done to get over 4,000 applications individually tested by Microsoft and certified; to get tens of thousands — I think the number is about 40,000 — devices through our Windows hardware quality labs to know that those devices work well when you plug them together, those are things that aren’t easy to do if you’re working on a decentralized Open Source model. Those are areas that we’re going to continue to invest in to make sure that we can show the value that all of us have created together when you put a Windows XP PC on a business desktop.

We’re proud of some of the feedback we’ve gotten, and here’s a quote from IDC: “With Windows XP, Microsoft has fielded the most stable, reliable and easy to use COE technology the company has ever produced in its 25 years in business.” That’s actually pretty good. We feel like we’re making some good progress there. We’ve got an operating system, client operating environment that is recognized as having the stability and reliability that people want.

It’s the best we’ve ever done. We think it’s the best that anybody’s ever done. And we, of course, know that we’re not done yet. We’ve got a lot more to do, but we feel great about where we are.

So now, let’s talk about, what are our priorities? What is the Windows client business looking at for this calendar year, and what will probably carry us well into ’04? And the first thing we’re looking at is customer needs in the area of security vulnerabilities. How do we mitigate these problems? And in each of these areas, you can see that we have clearly defined partner opportunities, where we think we can work with you.

So working with you on helping to do vulnerability assessments, helping to deploy SUS and other technologies to do patch management, to make the customer situation better.

A second area is reducing the cost of deployment. Deployment — I’ll talk about it in a few minutes more — is a very, very daunting task for many companies, for good reason. And it’s something that we know how to do less expensively. We know how to make it possible, and we just need to work together to quantify the value of doing the deployment, and then actually making it happen.

And the third area is enhancing productivity, and this is a little bit more forward-looking. This is looking at the new investments we’re making in the likes of the Tablet PC, the integration of wireless networking, bringing Office 2003 and Server 2003 together, and creating an integrated environment that delivers better productivity at a better cost.

Going forward, we see tremendous opportunities for driving innovation. And again, from the Windows client perspective, Longhorn is the main place we do this. We see the opportunity to do rich communications and collaboration solutions that involve new devices, servers, communications — all integrated together and deployed easily, as a great opportunity area for you.

We also see that as we get into the Longhorn timeframe that we will have the ability to more easily and effectively distribute smart applications that take advantage of Web services, take advantage of the rich client environment, and can be rolled out and deployed at a low cost to deliver the kind of features and productivities that customers need out of their IT infrastructure.

So I’d like to drill in now to the security area. And if it’s not readily apparent to you yet, security is absolutely our number one priority. As you know, there is no silver bullet to this problem. There is no one thing that Microsoft can do or any customer can do that would solve the kinds of challenges that everybody faces with the criminal acts that are being basically perpetrated on a daily, if not hourly, basis, on companies of all kinds.

And that means we have to innovate. We’ve got to innovate in a lot of different areas. We’re going to have to innovate in our software. We’re going to have to innovate in how we work with third party software. We’re going to have to innovate in understanding best practices, seeing what works for different classes of customers and making that available to others.

I’ve been on lots of phone calls with security professionals and CIOs, hearing about their stories over the last couple months. And for every three or four that you hear that are really unpleasant stories about the impacts of this security problem or this virus, you also hear somebody say, “Nope, wasn’t a problem, did not have any problem with that area.” And you say, “Wow, that’s interesting.”

So you say, “Well, what can we learn from this guy, and help teach the other guys? How can we work together to really go and harvest those best practices and get the information out, so that everybody can be as secure as is possible, given the environments they run?”

So the things that we’re doing here: first is looking at new patch policies. There’s anecdotal evidence that the work that we’ve done to try to make Windows more secure has, in fact, laid out a blueprint for the bad guys to come after us. So we’re moving to monthly rolled out patches. This is going to help reduce the cost for companies to rollout and update our patches but it will also help to reduce the tendency for those patches to become a signpost for the hackers to go after.

We also have listened to our customers and are extending our support for some of the key legacy environments that are still out there — Windows 2000 SP2 and Windows NT SP6A for NT 4. We’re extending that until June of next year, and we hope that that’s going to give our customers and their suppliers plenty of time to get on the most up to date system.

Windows XP SP2, Steve talked about this briefly yesterday. This is a very important area for us to work on. It’s not going to happen overnight. It’s a bunch of work to try to address some of the things that we’ve learned over the last year. But we’re going to improve the firewalls, the Internet connection firewalls, so it can coexist with applications well on a corporate Internet and reduce the perimeter of security down to one PC, as well as working within a secure intranet environment.

We’re going to improve e-mail and Web browsing so that those cannot be used as easily as vectors of transmission. We’re going to enhance memory protection, taking advantage of some of the processor advances that have happened from Intel and AMD over the last couple of years to make buffer overruns harder.

And finally, we’re working on it incredibly hard and fast. We’re going to get all of this to beta by the end of the year, and we’re going to ship it as soon as we can, based on customer feedback, seeing how well it all works in the marketplace.

So the next priority for us is this cost reduction and deployment. And as you know, this is not something that companies take lightly. And, in fact, if you look at the Morgan Stanley survey, you find that the number one, two, or three items that have come up from CIOs, Fortune 1,000 CIOs, over the past 12 months, have always been, “How do I get upgraded to the most recent operating system, Windows 2000 and Windows XP?” So it’s consistently held in the top three.

And the reason for that is, obviously, they’re looking for the increased productivity, they’re looking for the benefit of having a single environment that’s easier to deploy and manage. But they also are looking at a looming issue with these aging Y2K compliant PCs. Many of them are getting beyond their three-year lifecycle. They’re starting to get expensive to maintain, and they’re also, of course, running software that is moving towards end of its life. So that means that we’ve got to really help these guys and help our partners address the customers’ needs.

So there’s two areas we’re working. One is deployment prescriptive guidance. The business desktop deployment solution accelerator is a toolkit of scripts, of best practices, of instruction for how do you put all this together in order to make the deployment as inexpensive as possible.

Zero touch deployment is part of that. EDS is one of our big partners that’s making use of those capabilities to literally have a system setup for zero touch deployment of thousands and thousands of desktops.

We also are looking at application compatibility, because, of course, you can’t deploy unless you know the apps work. We worked with a number of our largest customers to go and inventory the systems, the applications they have out there, using the Application Compatibility Toolkit version three to actually look at, literally, thousands of applications that are used within those large customers, and see what works, see where the issues are, see what shims and compatibility modes have to be enabled to make those applications work.

And at the end of this process, we were able to address 97 percent of those applications, some of them being very old, legacy line of business applications, some of them being ISV and third party apps. Ninety-seven percent of them we could make work. Now, that’s a pretty good number. And once you’ve got those guys working, you then need to push out the shims. You need to use the tools that we have to help deploy the technology so those applications can be working as the new operating system base goes out there.

There’s still a remaining three percent, and those numbers will, of course, vary from account to account. And there’s two things that can be done there. One is, of course, to rewrite applications, to enhance them, to make them compatible and bring them into the new environment.

But another one is to look at the Microsoft Virtual PC. Earlier this year, we acquired a company called Connectix that’s got some great technology in this area. And that’s going to enable you to run side by side a virtual machine, so that you can have a legacy application running in a brand new environment, and get the benefits of both of them without having to have the cost of a redevelopment or otherwise with a legacy app.

So the deployment opportunity here is quite large, and we think it spans from all of our partners, from outsourcers, to systems integrators, to resellers, to certified technology training centers. And in all of these areas, we see very substantial business opportunities that come into many of billions of dollars to actually go out there and help our customers deploy today.

Looking a little bit more to new technologies now, let’s think about user productivity. What are we doing to help address the productivity needs of those IT professionals that are trying to say, “How do I ensure that I can add value to increase the bottom line productivity of my company with these new technologies?”

And Tablet is something we’ve been excited about for a number of years. It’s been a long-term investment for Microsoft and for the industry. And this is not a revolution, in which everybody stops typing and starts writing. This is an evolution, where the PC, the notebook, PC morphs into different form factors, such that it can be used in different scenarios. It can get increased productivity in different places.

So you’re going to see form factors that will be as revolutionary as the slate — you know, a very thin, less than a half-inch, beautiful piece of electronics that can be used by an executive to take notes or to quickly look up information in a boardroom. And you’re going to see it vary all the way up to a convertible laptop, which is a no-compromises mobile laptop that can be used by a road warrior on the airplane to one minute be banging out e-mails and the next minute to convert the thing over and be annotating a letter that goes back to his assistant or putting notes in PowerPoint that goes down to the marketing manager to get it right.

So we’re seeing that the pen input provides these new scenarios of use, new productivity of use for many different horizontal applications. But we also are seeing a tremendous amount of innovation in specific vertical applications and line of business applications. There are some companies that have looked at taking paper catalogues and replacing them, bringing them all online, enabling pen-based annotation of paper catalogues, and having a salesperson be able to sit directly in front of a professor in an academic sales environment to work through this thing, in a way that never could have been done before.

There’s many, many examples of how you can apply these technologies to make the social engineering, the productivity, and the software all play together in new and different ways.

We’ve got over 30 different OEMs shipping Tablet devices or in the process of shipping them now. We’re seeing second and third generation tablets starting to come out, taking advantage of the latest processor technology, improved battery life, integrated wireless.

By the way, speaking of integrated wireless, do you all know that wireless is, right now, looking at about a 41 percent productivity increase for a mobile user? That’s pretty impressive, about seven and a half hours of increased usage by having integrated wireless in a mobile environment, and being able to get access to corporate and business information anywhere you are.

So we’re every excited about where the Tablet’s going. I think you’ve really only seen the beginning here. You’re going to see lots more stuff coming out over the next 12 months.

Another area that we’re very excited about is an effort that we did jointly with Hewlett-Packard. And what we did is to say, “Hey, let’s look at the business desktop, and let’s take a no-holds-barred approach to innovation.” What could happen in the next two or three years in terms of hardware development, combined with the vision that we have for Longhorn, the vision that we for integrated Web services and communications, to put that together in a package that is going to be, today, probably pretty expensive, but in two or three years, potentially the normal desktop environment?

And as a result of this effort, we created the code name “Athens,” a real-time communication concept PC. You see a picture of it there. And what it does is to pull together a very large screen that doesn’t just give you a bigger picture of your PowerPoint or a larger couple of pages in Word, which are all good things, but it also uses that extra screen real estate to have things like a taskbar, where you can have real-time video communications happening while you are looking at a PowerPoint document, for example.

It uses the integration of a camera and an integrated phone so that you can have very easy video or audio communications fully built into the system. It has them interact seamlessly with the software.

So I can’t do this thing justice by describing it. I recommend taking a look at it if you’re able to come to our hardware conference next spring, it will be taking the next step forward. And it’s something we’re very excited about bringing to market over the next couple of years with our partners.

The work that we’ve done to create the hardware development kits, and looking at how this could fit into the Longhorn design, is something that’s going to really help us increase productivity for the knowledge worker desktop.

Well, I can’t talk about Windows clients without taking about Longhorn. And Longhorn is undoubtedly the most important thing that we’re going to do over the next few years for the company. And when I talk about Longhorn, I’m really meaning that in the broad sense, in that we’ve got a client release that comes out, we have a server release that will follow that, and we have a whole wave of products that are going to come out from Microsoft and our partners that are going to take advantage of the platform that comes in Longhorn.

So to a reasonable extent, you can think of Longhorn as creating a next, very large wave of innovation in the industry and one that we’re going to get a huge amount of our own and partner resources behind to help go out and refresh the development platform to increase productivity and increase the penetration and relevance PC computing in everyday work lives.

So the three themes in which you’re going to see innovation for Longhorn: first, is putting the user in control. Again, the PC needs to be working for the user, and not vice versa. They need to feel comfortable that security issues are addressed, that privacy is addressed. They need to have intuitive and easy ways to control their PC, and they really shouldn’t have to think about it. They shouldn’t have to think about management, upgrade, migration, all of these things that should just work.

Now, that’s easy to say and it’s incredibly hard to do, as I’m sure many of you know. So we have a tremendous amount of investment in this control, and the basics that underlay that, to make a Longhorn PC something that people are going to desire and deploy rapidly.

The second area of innovation is going to be about bringing information to life. The underlying technology that makes this possible and a good part is a thing called Win FS, the database-driven file system. But our high level goal here is to say, “How do we make it easier to visualize the information on your computer, on your local network as well as on the Web, and bring all that together in a seamless way?”

How do we make it easier for you to manage the information that you’ve got? How do we make it easier for an application to manage information of all kinds, which can be anything from e-mail messages to files, to database entries, to queries that are out on the Web? We need to do all of that and make the experience rich and immersive, to make it easier to use than anybody’s ever seen before.

The final area of innovation is in connection, and connecting people all around their world. That means bringing together real-time communications. That means making voice, video and data communications seamless and natural. And by making all of this possible not only for a specific application or a specific feature of the operating system, but to make all of this possible in the development platform, means that you will be able to make communication enablement a fundamental of any application.

So there will no longer be an excuse for having islands or silos of applications that don’t know how to communicate and connect to one another, that don’t know how to take advantage of the capabilities that are in the operating system. We’re going to make all of that surface at a higher level, and bring it together in a way that will dramatically increase productivity.

So that’s really just whetting your appetite. I’m sorry I don’t have time to tell you more about it today. We have the Professional Developers Conference happening in about three weeks, and I’m sure you’ve heard by now that that’s something we hope you attend.

The roadmap for Windows over the next couple of years, as you can see, it’s maybe a multilane highway there. There’s a lot of Windows going on. And we’ve got a great base out there today in 2003. We’ve got a number of different products that are going to be updated or revised or enhanced over the course of the next calendar year. That includes our 64-bit desktops. That includes the Service Pack 2 to address the security and quality issues for Windows XP. That includes an update to our Tablet operating system to address some of the new form factors and the things we’ve learned from the version one that we shipped there last year.

And, of course, you’ll see the Longhorn Beta 1. And that’s the time that we expect people to start really looking at, developers looking at, Longhorn as the place they can be making a 12- to 24-month investment to start bringing out new products that will be shipping when Longhorn releases in 2005 and 2006.

So what you’ll see, then, in that timeframe, is the Longhorn wave. And we have not set a hard date on when that wave is going to start breaking yet, but it’s one that we’re putting all of the efforts of the company behind. We’re putting our own technologies, as well as, in the Windows division, as well as in other areas, to help ensure a huge amount of success for the Longhorn wave.

So call to action: what should we be doing together? The first one here is security, security, security. We need to mitigate them; we need to help our customers. We have a security GTM. That’s actually the session is later today. And we estimate there’s about a US$7.7 billion market activity, market opportunity, if you look at products and services and security, and if you combine the opportunities both in enterprise as well as small and medium business.

The second one is reducing cost of deployment. We, again, have a realized value GTM. That one’s over $8 billion of opportunity. We have a $71 million marketing campaign alone of money that will go, largely, through our partners to our customers to help realizing the value and kick-starting deployment over the course of the next 12 months.

Enhancing productivity, looking at our communications and collaboration GTM, looking at new form factors like the Tablet, looking at innovations in real time communications –we see there’s a lot of work that can be done here today, all of which will get even better come Longhorn.

And, of course, the fourth area is, say, we’ve got to invest for the future, what are new opportunities that we can work on together, and that’s what PDC is all about. Come and learn where we are. If you can’t make it to PDC, everything will be available on TechNet afterwards. So there’s a tremendous amount of information and I strongly recommend that you get the technical people in your organizations to go and learn all they can about the opportunities that will come.

So that’s what I’ve got to say about Windows clients. Thank you very much. We’re going to have a Q & A coming up in a few minutes, and look forward to talking with you more. Thank you. (Applause.)