Q&A: Microsoft Plans for Growth Close to Home

REDMOND, Wash., Jan. 10, 2005 — Microsofts move from Albuquerque, N.M., to Bellevue, Wash., in 1979 did more than reunite the then-fledgling companys co-founders, Bill Gates and Paul Allen, with Washington state’s Puget Sound region, where both had grown up. It signaled the start of a mutually beneficial relationship between Microsoft and the region that has helped both prosper and grow over the past quarter century.

Brad Smith, Senior Vice President and General Counsel, Microsoft Corp. Click image for high-res version (.tif file, 9 mb, 300 dpi).

Microsoft has signaled its intention to plant its roots even deeper in the Puget Sound region. As part of the companys blueprint for workforce and facilities expansion around the world, Microsoft filed its first long-term development agreement today with the City of Redmond, Wash. The agreement outlines the companys plan to add 2 million square feet (approximately 186,000 square meters) on and around its Redmond campus over the next 10 to 20 years. The additional development is expected to ultimately house between 10,000 and 12,000 workers.

PressPass talked with Brad Smith, Microsofts senior vice president and general counsel, to learn more about the long-term expansion of Microsofts Redmond home base and how these plans fit into Microsofts commitment to the Puget Sound region, which 28,000 of its 57,000 employees call home.

PressPass: Can you tell us about the development agreement Microsoft filed today with the City of Redmond, Wash.?

Smith: Todays filing reflects the strong, constructive partnership Microsoft has with local governments. It also reflects our commitment to ensuring the worlds center for developing the best and most popular software in the world remains in the state of Washington.

Todays filing is the first step in our plans to make one of the largest corporate campuses in the country even bigger. It also signifies our intent to add by adding more than 2 million additional square feet of office space to the current 8 million square feet [approximately 743,000 square meters] we already have in Redmond. With this agreement, we are also committing as much as US$30 million in local transportation and infrastructure improvements.

Focusing our expansion efforts on our main campus allows us to maintain close proximity among our core product development teams, as well as maximize efficiencies of existing campus and related infrastructure. We also can strengthen our already deep role in Redmond and neighboring communities.

We spent the past year working closely with the city of Redmond on this agreement. While it does not define the specific location and timing of each building, it does support a long-term collaborative approach to growth with City of Redmond officials. It sets in place the regulatory terms for the development and defines related enhancements to local highways and other infrastructure. The Redmond City Council will review the document and, we hope, ratify it in the coming months.

PressPass: Why is Microsoft filing this agreement with the City of Redmond?

Smith: This is a voluntary effort on our part to be responsible neighbors. Redmond and the rest the Puget Sound area are Microsofts home. We are inextricably linked. This agreement demonstrates that Microsoft will be a vital, growing fixture here for many years to come, and the company wants to ensure that local government and members of the community are involved at the earliest stages of planning this growth.

Taking a long-term and comprehensive approach to our growth is the fiscally smart thing to do — for both Microsoft and local governments. By planning ahead, we both know the regulations and mitigations the company must meet in order to grow, and we both can reduce the risks and costs associated with future development and operations in a rapidly growing region.

PressPass: What if Microsoft needs to add more than 2 million square feet? Is the company limiting its own growth?

Smith: Most definitely not. In no way should this agreement be viewed as a cap for our overall growth in the area. The terms of the agreement — whether 10 or 20 years — should not be used to calculate our pace of development, which is totally dependent on future headcount growth.

Over the years, weve almost always met or exceeded our growth projects earlier than anticipated and do not foresee this trend changing. As additional facilities are needed, we can turn to other options to support future growth in the region. For example, we could house close to 5,000 additional employees on 1.2 million square feet [approximately 111,500 square meters] of potential office space on our existing 63 acres [approximately 255,000 square meters] at Issaquah Highland.

PressPass: How does Microsofts growth in Redmond compare to the company’s growth in other parts of the world?

Smith: Our plans for the Redmond campus are integral to our overall vision for growth around the world. The two cannot be viewed separately because they both play a vital role in the companys continued growth and ability to innovate and serve the many and varied needs of our customers around the world.

Not only have we been successful in retaining the most talented developers and engineers in the world, over the past several years alone we have added thousands of new jobs worldwide, and expect to continue to do so. As we grow globally, we continue to expand locally. In fact, a majority of our new hiring remains in the Puget Sound area.

Last year, two-thirds of our total worldwide growth occurred here. This fiscal year we plan — and are on track– to add 6,000 to 7,000 new employees worldwide. Roughly half will be in the Puget Sound area slightly more than our growth overseas. By maintaining steady growth here at home, the Puget Sound area, this will remain the hub of our core development efforts.

PressPass: What do you mean when you say

core development

will remain in Redmond?

Smith: Over the past few decades, Redmond has become the software development capital of the world. Quite simply, the products developed here have changed the way the world works and lives. While our other facilities are doing increasingly important work, a majority of our most advanced research and product development has — and will continue to be — done on the Redmond campus. This is where a majority of our top developers and researchers work side-by-side to create the future of software. Having so many great minds together in one place is crucial to making this happen.

PressPass: If Redmond is so successful, why not locate all of your research and development there?

Smith: Microsoft is a company built on innovation, and innovation isnt restricted by geography. Countries such as India, China and Russia offer a growing pool of talented developers. Our goal is to work with top technical and research talent no matter where this talent resides. That said, we are committed to having the majority of our core development remain in Washington.

PressPass: Earlier you said Microsoft is

inextricably linked

to the Puget Sound region. How so?

Smith: What the Puget Sound region and Microsoft have provided each other cant be measured strictly in dollars and cents, headcount or per-capita income growth. But they do help tell the story. When Microsoft moved from Albuquerque, N.M. to Bellevue, Wash. in 1979, we had 30 employees and just $3 million in annual revenue. Now we have 28,000 in the Puget Sound area and nearly 30,000 in other locations. The companys growth and the technology innovations it has introduced cant be attributed solely to those original 30 employees. Microsoft was able to find the talent here or attract talented people elsewhere to come here to build this company and create software that has changed the world.

Similarly, Redmond and the rest of the Puget Sound area have benefited from Microsofts growth locally. An economic impact study we commissioned two years ago determined that for every dollar Microsoft makes, it generates $8 of revenues for our partners. And as Microsoft has grown, so has the Puget Sounds economy. Since Microsoft relocated its headquarters to Redmond in 1986, the citys population has increased by more than 30 percent, and now tops 46,000. Also, per-capita income has increased by more than 60 percent, and now exceeds $66,000, according to the 2000 census. Obviously, Microsoft isnt the only reason for this growth, but were proud to have played a significant role.

Its also fair to say that Microsoft has helped enhance the technological literacy of people throughout the Puget Sound area. Examples are everywhere. Earlier this year, Redmond was selected as the top
“Digital City”
in its population category by a survey conducted by the Center for Digital Government and the National League of Cities. Bellevue came sixth in its category. The survey focused on the use of online and other digital services offered by local government.

PressPass: When does Microsoft plan to begin expanding its Redmond campus? How will this change the campus?

Smith: The campus will take on the look and feel of a university, with outdoor common areas surrounded by buildings. Design of the first new building is slated to begin this year, with occupancy scheduled for 2007. It will be located near our six original buildings on the Redmond campus.

Little else is set in stone. The development agreement weve submitted today doesnt include a detailed list of new buildings, renovations or locations. We will make these decisions over the coming years, based on our actual growth in workers and the needs of different product and development teams.

If by some chance, the Redmond City Council doesnt approve this agreement, the growth projections contained in it will remain in Microsofts master plan, our internal guide for future development, and we will plan for project-by-project development under existing development regulations.

PressPass: Can you tell us more about the mitigations included in the development agreement?

Smith: We are committed to partnering with local and state government and other business interests to help ensure our local growth and that of others doesnt negatively impact the community. Regional transportation improvements are among the enhancements outlined in the agreement and Microsoft is working with government in this important area, committing up to $30 million in transportation and infrastructure improvements. These are critical to the long-term growth of Microsoft and the region, and we intend to play our role in making sure this regions infrastructure keeps up with its growth.

We view our involvement in policy discussions, particularly those issues impacting our business and state competitiveness, as extremely important. We are committed to being an engaged, socially responsible corporate citizen, working constructively with others on issues important to our company, its employees and the communities and state where they live.

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