Sanjay Parthasarathy: Microsoft Worldwide Partner Conference 2004

Remarks by Sanjay Parthasarathy, Corporate Vice President, Platform Strategy & Partner Group, Microsoft Corporation
Microsoft Worldwide Partner Conference 2004
Toronto, Ontario, Canada
July 11, 2004

SANJAY PARTHASARATHY: Good morning. Good morning. How are you? It’s great to be here. Thank you for coming. I know many of you are here asking yourselves the question, should I bet on Microsoft? Should I bet on Microsoft, are they going to grow? Are they going to grow and create opportunity for me? Are they going to invest in the future? Are they going to lead the industry? You’re asking yourself all the right questions, and my answer to you is yes, yes, yes, yes, and a very emphatic yes.

We are going to help you grow. We are going to lead. And we hope that creates a great deal of opportunity for you.

Now, FY ’04 was a very important year for us in terms of lining up our businesses to maximize execution and accountability. Accountability to ourselves, to you, to our shareholders, and I think we’ve done that. We organized ourselves into seven P & Ls, seven businesses, really, with CEOs and CFOs, and end-to-end view of those businesses. A couple of these businesses are obvious, our Windows business, which is the client; our Information Worker business, which is Office. Those are our two largest businesses. The server and tools business that includes the Server, Exchange, SQL, Visual Studio, that’s one of our fastest growing businesses, our growth business on a very large base. And then we have our investment businesses, the ones that we’re betting on for the future, Microsoft Business Solutions, MSN, Xbox, and Mobile and Embedded Devices.

So, we organized ourselves into these seven P & Ls to maximize, as I said, execution and accountability. And in the first nine months of the fiscal year, all of these businesses did extremely well. Just take a look, even our large businesses, Windows and Office, grew at 12 and 15 percent. The server business in the first nine months, 18 percent. MSN was profitable for the first time this last year. Even Xbox chipped in. In April, Xbox shipped more units than Sony PS2, and MBS, of course, is really burning it up. So our businesses are doing well, and I think this growth in our business points to an opportunity for you to take advantage of. So, let me actually drill into some of these businesses and focus on partner opportunity.

Let me start with the Server and Tools business. Now, this is a business that’s coming up on about $10 billion, and it’s growing quite rapidly. It grew 19 percent in the past quarter, and 21 percent the quarter before, and over the last nine months it’s shown a good 18 percent growth. What’s driving this growth? Windows Server 2003, Windows Server 2003 is the engine to growth in the server and tools business. This last year the server hardware unit grew at about 17 percent. And Windows Server licenses grew at about 25 percent, that’s much faster than the market. In addition, with Office 2003 launch, Exchange Server 2003 got a little bit of a boost. So that’s driving a little bit of the growth as well.

SQL Server is growing. This year, for the first year, SQL Server overtook IBM in the database market outside of mainframes. .NET adoption is driving the adoption of Windows Server as an applications server platform. So, it’s all of those aspects of our server and tools business that are driving opportunity for you.

Let’s take a little bit of a look at how Windows Server is driving growth opportunity for our partners. We did an analysis of about 556 ISVs, public ISVs, with revenues greater than $10 million a year. And what did we find? We found that ISVs that bet on Windows grew about 10 percentage points faster over a couple of years than ISVs that did not bet on Windows. Of the 20 fastest growing ISVs in the last two years, 18 are primarily on Windows. In general, the more you bet on Windows, Windows Server, the faster the ISV grows. So, this is a real opportunity out there. Customers are buying Windows Server, Windows Server 2003 in particular, and this is an opportunity for partners to take advantage of, now, right here.

Small Business Server is another area that’s driving growth in the server and tools business. In the first four months after launch, Small Business Server 2003 did twice the run rate of Small Business Server 2000. I think we’ve finally figured out how to sell servers into small and medium businesses. And I think this points to an opportunity for partners to drive business applications, enterprise class applications to small and medium businesses, and I hope you will take this opportunity over the next few years, because I think this momentum with Small Business Server is going to continue.

Windows, of course, is growing at a healthy rate, and it’s grown at about 12 percent in the last nine months. There are about 600 million users of Windows worldwide, and that in itself presents an incredible opportunity for partners to leverage. In addition, the smart client is back. Customers are asking for the smart client because they’ve learned, they’ve realized the limitations of the browser. They want the rich interactivity that a smart client provides. They want to experience that interactivity which is only possible when you have code on the client. The smart client is another opportunity that partners have that customers are asking for. In addition to that, some of the new form factors, like the Tablet, like the Windows Media Center, are finding their way into solutions that partners are building for customers.

In the Information Worker side, Office has had a tremendous year. And the engine there, of course, is Office 2003. There are about 400 to 450 million copies of Office out there, and that is driving a great deal of partner growth. In addition to that, in this last year, we have seen an incredible amount of partner innovation using Office 2003. Partners are building solutions using Office XML, InfoPath, SharePoint Portal Server, solutions for compliances, solutions for collaboration, and those solutions really are driving the Office growth worldwide.

In addition to partner solutions, enterprises are starting to use Office as a front-end to their line-of-business applications. Office as a front end to their line-of-business applications helps those enterprises get value from their existing enterprise applications like ERP and CRM, driving more usage, and by driving more users. And I think that points to a partner opportunity as well. If partners use Office as a smart client on top of their line-of-business apps, there is an opportunity to drive revenue through client access licenses as more users start to use those applications because they’re more comfortable, and they’re more used to the Office user interface. So, I think that is a real opportunity that over the next few years partners will be able to maximize.

To give you a taste of what partners are doing in terms of smart client, both using forms and .NET on Windows, as well as using Office 2003, I would like to invite Scott Garvey, who is the director of evangelism for smart clients, to take you through an example of what partners have built.

Scott, welcome.

SCOTT GARVEY: Thank you, Sanjay. (Applause.)

Sanjay, you mentioned smart client a few times, maybe I should start off by giving a definition. So smart clients are easily managed and deployed client applications which provide a rich, interactive user experience through the use of local resources or connecting to both local and remote data sources.

What I’d like to show today is a smart client that was written by an Australian ISV, Lockard, with their SI partner Avanade. What we have here is a Windows form application running managed code, .NET Framework, and we see a satellite image of an airport, but what’s more interesting is we actually have a flight path of an aircraft that is taking off from that airport. You see we’ve captured many different flights throughout the day, but I want to drill down on what we’re doing here to minimize the noise impact that aircraft have on a community. So what this airport has done is dictated through regulation that aircraft pilots must stay within a certain set of gates as they full throttle up and climb outside the airspace.

So you see that United Airlines 1492 has done a very good job of staying within the center of these gates as he’s climbing outside the airspace. But, this is not an automobile, this is an airplane, so let’s bump it up a little bit and see this thing in three dimensions. And you actually see that as the pilot is taking off they do a very good job of staying within the tunnel so that they minimize the impact on the surrounding communities. This happens to be San Jose Airport and this is Silicon Valley, so there are millions and millions of tech workers who are trying to write code, they don’t want to hear airport noise.

So let’s use the application to actually take a complaint. I’m going to click on a link down here, George Holsinger called in and said at 3:25 there was an aircraft that produced a lot of loud noise and I wasn’t able to code. So the first thing you want to do is actually find out how close is George to the airport. And we find that George is about 8,000 feet, or 2 kilometers from the airport. So certainly he could be affected by some airport noise.

So let’s take a look at the actual airplane, the flight of that aircraft at 3:25 and see if they stayed within the gates. And you’ll notice that the aircraft took an early turn, he actually missed the gates. So what happens is, as this airplane is going full throttle, he’s actually closer to George’s house than he should be. So now the interaction with the customer is, George, thank you for calling, we actually have noticed that the pilot made an error. We’re in contact with the pilot, and to the airline to ensure that this doesn’t happen again. Thank you so much for calling this to our attention. Really helps in customer satisfaction.

Let’s look at how do we become proactive, not just reactive. So I want to run a query here and actually look at how in one day how many pilots actually did what’s called an early turn. Let’s run through the query very quickly, and we find that there’s a number of aircraft that actually have done an early turn. So if I do a select all, I see that I have dozens and dozens of aircraft who have broken the gate, and have gone outside of their prescriptive airspace, so that tunnel of space. What I can do now before the call, I can actually work with the pilot, work with the airlines and say, we have a problem here, let’s try to stay within the gates, to minimize the impact of the aircraft noise through the airport.

Now, the last thing, how do we take this very rich information that’s in this smart client, and share that outside of airport management. What they’ve done is actually taken advantage of the power of Office. Let’s run another query here, but this time instead of running a report that’s going to be in a browser in the Win Form, let’s actually run the report and take advantage of integrating the rich information back into Office.

So as we run the query we see that it actually takes the data that we have on the local client, and brings us over to a very familiar interface that everyone knows how to use, called Excel. So now other airports, governments, and community leaders can take a look at how is this airport doing in terms of operations. So like all good Excel templates, I can actually filter, do pivot tables and see that American Airlines had 54 departures, 59 arrivals, I can look at different aircraft type, I can look at different airlines, et cetera.

So what we have shown here is the power of really having local data. If that was in a browser imagine the waiting time between every round trip for a UI update. We’ve shown how to leverage Office, and very familiar tools, and get that rich data that you have spread throughout the ecosystem. So I think we’ve really shown that this experience goes beyond the browser. If you want to hear more about smart clients, we’re going to have a talk today at 3:20, AP4, and we’ll talk about more customer examples, more partner examples, and the roadmap, and how you can make money delivering smart clients, versus the alternative.

Sanjay, thanks very much. (Applause.)

SANJAY PARTHASARATHY: Thanks, Scott.

There is a real opportunity with smart clients, because it really drives decision making, productivity, for users. And I think that’s a fabulous way to really drive home the value to our customers, the value of using the Microsoft platform. Customers are asking for .NET, and this is an opportunity for partners, because customers want .NET. Forrester just finished up in May a study of about 800 enterprises, and asked them which platform they’re adopting for major development for most of their development, and the answer, the majority of those enterprises are adopting .NET. So, this is an opportunity that I think is only going to accelerate in the next couple of years. It’s been two years and five months since VisualStudio.NET launched. And in that short time .NET has momentum.

With the developer community worldwide, .NET has momentum, too. It is incredible that in the two years and five months, worldwide, .NET is neck to neck with J2. In the U.S., in the U.K., in Australia, .NET is ahead by quite a bit. In EMEA, Europe, Middle East and Africa, it’s ahead by a bit. And in Asia we have work to do. We have work to do together, and we’re going to do the work in the next couple of years to make sure we’re ahead in Asia-Pacific as well. But this is a real opportunity, this is an opportunity for Microsoft, and for partners to really drive home the value of .NET. Customers are asking for .NET because it’s the most productive platform, it’s the most cost effective development and operating environment, and it helps users make the most of their decisions.

MBS, as I said, MBS is burning it up; 21 percent growth in the first nine months. Where is that growth coming from? It’s coming from a few industries, manufacturing, in distribution in retail, in professional services. And we think we’re going to add to that momentum by starting up in a new industry, which is not for profit businesses in FY ’05. With ERP and CRM due to release in FY ’05, we think there is an opportunity for partners to upgrade, to do new development of solutions, to do add-ins, and I think in general we are going to see a lot of innovation and opportunity in ’05 as well.

So, the MBS business, as Allison mentioned, is growing up a lot faster than the overall category, with 21 percent growth it is about three times the compound annual growth rate of the ERP and CRM categories as a whole. And I hope you will take advantage of this growth rate with the MBS business.

Are we growing? Is Microsoft growing? Yes, absolutely, we are. Is that creating opportunity for partners? Absolutely. And I think if you bet on Windows Server 2003, SQL Server 2000, MBS, .NET, Small Business Server, Windows as a smart client, and Office as a smart client, you can turbocharge your growth and profitability and your business.

But we’re not just looking at the past, we’re betting on the future as well. We’re investing in the future. Over the past couple of years, we have out-invested our industry peers in terms of software. That’s our investment that will hopefully guarantee our growth and your growth for the next five to 10 years. Now, what are we getting for all of this growth. For one thing, we’re getting the most comprehensive end-to-end platform for partners to build solutions on. It starts with Windows, .NET, it extends through to Windows Server Systems, all the way to Office, MBS, and devices, all wrapped up by a single programming model and the best development tools in the world, which is Visual Studio. You’re also getting for that investment the most productive set of tools for developers to build applications. The most cost-effective platform for IT professionals to run, manage and operate their information, and the best decision-making platform for end users. That’s what our investment is targeted at, and that’s what we’re betting our investment will accelerate in the next few years.

The fruits of our investment will make their way out over two waves in the next five years or so. The first wave I think of, we think of as the “Yukon” wave, and the second is the “Longhorn” wave. So, let me actually drill in a little bit into these two waves of platform innovation that are out there.

I like to think about the platform at four different levels, at the fundamental level we deal with the APIs, with security, with manageability, with reliability; at the smart client and presentation level, I think about the user experience, and the user interface; at the data level, about the file systems and the database; and at the communications level it’s about interop and integration.

And over the next two waves, you’re starting to see the technologies and the platform investments line up in each of these areas. Take fundamentals. Today you have the Win32 API model, and the managed code API model with .NET. With the “Yukon” wave and Visual Studio 2005, we really have accelerated the performance and the return on investment that you can get from investing in .NET.

In addition to that, we will have Visual Studio tools for Office so you can use .NET managed code to write solutions within Word and Excel, and we’ve also launched an enterprise-class toolset, a toolsuite really, that helps architects and testers and distributive development within Visual Studio 2005.

In the “Longhorn” timeframe, the entire Windows API is written using .NET. It’s called Win FS, and it points to the fact that any investment that you make in .NET today, the .NET Framework, carries on — carries out to the “Longhorn” timeframe. Of course DOS applications and Win 32 applications and Win 16 applications will run in “Longhorn,” but the more you bet on .NET today, the more you’re in tune and can take advantage of the “Longhorn” generation.

In terms of smart client and presentation, we have three different models today, the Web Form, Win Form, and Office as a smart client, as Scott showed. Now, that carries through in terms of the “Yukon” wave. But with “Avalon” in the “Longhorn” wave you have — we have the opportunity to abstract out programming models in addition to what we’ve done with Visual Studio .NET to abstract out programming languages.

What do I mean by that? With “Avalon,” you can write a single line of code that can render itself as HTML if you want, or form, or animation. You could do a video compositing, you can do audio programming — all with code that looks just like HTML or Visual Basic. It is an incredibly powerful innovation that will radically simply and add prosperity to your developers, and it’s something that we’re looking forward to very, very much.

At the data level with “Yukon,” you have a native XML file system. In addition to that, you have new analysis and business intelligence services. You have the ability to write stored procedures using the .NET CLR, and you have some immense improvements in scalability and performance.

In the “Longhorn” timeframe, Win FS is a native XML file system, and I think that that brings with it a great deal of advantages, because you can now use XML to look at data across your entire system, and abstract it to make better decisions using knowledge that you extract from that data.

At the communications level, you all know that we bet on Web services. Web services is the fundamental bet that we’ve made in terms of interop and integration. We just released Web services extension 2.0, which allows you to build an end-to-end, reliable, secure transacted messaging infrastructure. And in the “Longhorn” timeframe, “Indigo” gives you a programmable communications layer that is built on advanced Web services.

There’s one real point that I want to make here, which is the investments that you make today in our platform carry through over the next two generations, and they only get better.

What about MBS? What about the MBS roadmap? MBS 2.0 has a couple of generations that line up with “Yukon” and with “Longhorn.” The innovation in MBS is going to be focused on five pillars. And those five pillars are here, the design themes if you will. Empower users is all deep integration with Office, so you can do drag-and-drop integration with Word and Excel. It’s about an Office-like user interface, Outlook interface, if you will. It includes the ability to do custom UI for roles and tasks. It’s about extensibility for partners, so that you can build web parts and make it a part of the user experience that users can use for their role or task-specific interaction.

Insight. Insight is also about deep integration with Office, so that you can do Excel pivot tables on your ERP data real-time. It’s about being able to configure your environment, so that you can allow certain events to trigger off no-fly notifications using SQL Notification Server.

The connected pillar is all about interop using Web services. It’s about integration using Web services. It’s about correlation of every e-mail in your system with data in your ERP and CRM system.

Best TCO is about using a common methodology of implementation across the entire Business Solutions suite. It’s about building ERP and CRM for Small Business Server.

And finally adaptive processes is about using the metadata-driven design in Axapta across MBS, so you don’t have to write code every time you need to make a change to accommodate a customer request.

So the MBS roadmap is driven by these five pillars, and over the next six to nine months you’ll start to see releases of ERP and CRM, and over the next 18 months you’ll see the other components of the MBS suite out in the market.

Now, MBS 2.0 is betting on the Microsoft platform roadmap, so much so that MBS is using Web services for interop and integration, will use “Yukon,” will use Office as a Smart Client, and will use the .NET framework to do some business logic. And the MBS roadmap is lined up with the overall platform roadmap.

It’s not just the investments that we’re making in the platform that count. We’re making a lot of investments with partners, for partners, and have in the last couple of years, and will continue to do so. I want to focus a little bit on the new investments that we’re making for ISVs in particular. We are expanding the ISV royalty program. We’re expanding it to include new products. We’re simplifying it, and we’re lowering the initial commitment, because we’ve seen the demand from you, we’ve seen the requirements from you, and we’re taking note of what you need from the royalty program.

We launched the ISV Buddy Program this last week. And this is really targeted at the little guy. You know, those of you who have partner account managers know that when you have a question, you have a problem, you can call the partner account manager and he or she will take care of it for you. There are thousands — no, 10 thousands of ISVs out there, little guys — five, 10, two people — who have questions, who have concerns. And they have no one to call. And with the Buddy Program, we’re matching up Microsoft employees with ISVs, so that when they have a question, when they have a concern, when they have a problem, they can call up their buddy. We launched it about a week ago. Over 1,000 employees have signed up already, including Steve Ballmer, and we are going to be able to push this over the next couple of years so we can have a personal connection with ISVs anywhere in the world.

We also launched the MSDN ISV portal to deal specifically with ISV issues, business issues as well as technology issues. And these are just a couple of the investments we’re making with the ISV community.

So, in conclusion, I know you started off, you had the question, should you bet on Microsoft, is Microsoft going to grow? Is that growth going to create opportunity for me? Are they investing for the future? Are they going to lead? And I hope you’re convinced that, yes, we are growing, we plan to continue to grow. I hope that growth drives growth for you. I’ve show you a few of the investments we’re making that drive leadership up the platform, and leadership in terms of opportunity for you. And I do hope that you’re convinced and that you will bet on Microsoft and with Microsoft.

So I talked a little bit about the platform and the opportunity, and Orlando and Simon are going to talk a little bit about the customer opportunity. So let’s hear a little bit from a partner about the customer opportunity, and I thank you very much for your support and your attendance here. Thank you. (Applause.)

(Video segment.)

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