Ray Ozzie: Tech•Ed 2006

Keynote Remarks by Ray Ozzie, Chief Technical Officer, Microsoft Corporation

Tech•Ed 2006

Boston, Massachusetts

June 11, 2006

ANNOUNCER: Ladies and gentlemen, please welcome from Microsoft Server and Tools Business, Bob Muglia.

BOB MUGLIA: Good evening, and welcome to Tech•Ed. It’s great to see you all out here. You know, what is it that makes a business successful? It’s people. People are the heart and soul of business. When you want to reach out and work with your customers, how do you do it? It’s through your people. When you think about your strategic planning and the future and how you’re going to drive forward, people make that happen. And when you’re thinking about your infrastructure and how you’re going to drive and create new business opportunities, people are the fuel that makes that happen.

Now, IT and developers have a very important role in this, because they bring together the combination of the people within an organization across the whole organization, and technology. It’s a crucial role.

And, at Microsoft, we believe that that technology is very important. That really is where we come in, working together in partnership with you, and the rest of the industry to create world class software that allows you to put in place and build solutions that fuel your business success, and allow you to work with your customers and partners, and to drive and help the people within your organization be more effective every day in their role.

Now, we think about this in the long term. We’ve been making huge investments in business software for many years. We’re making the largest investments ever. We see enormous opportunities for software to change the way business runs. And we have really some long-term promises that tonight we want to introduce to you. These are things that have been true for a while, they’re true today, and we believe they are promises that will matter to IT and to business for many years into the future.

They’re really core promises that we’ll talk about tonight in a very broad context, how we can work with you to help bring about software that drives out complexity, and improves your operations, allowing you to lower your cost and focus on things that drive business value. How can we help you protect the key assets that are so crucial to your business from all of the threats that exist out there? How can we help you create solutions that are unique, drive business value, create competitive advantage for you that really allow your people to work and understand what’s happening in the business? And, finally, how can we provide tools to all of the people within your organization so that they can work together and collaborate and drive value in ways that never seemed possible before?

That’s the center of what we call “People Ready” software. It’s the four promises that Microsoft is bringing to you, this long-term value, this long-term relationship. The relationship is important with all of our customers. Let’s sort of start tonight by seeing how one of our customers, a very important customer, Unilever, is using technology to fuel their business. Let’s roll the video.

(Video segment.)

It’s about people. It’s about people and partnerships working together. It’s very much about how we can build technology by listening to you and understanding what you need to drive your business forward.

That technology very much starts with the platform. We know you need underlying platform software that allows you to create the applications you need, and manage your environment the way you need it to be managed. We’re in the middle of one of the most important platform transitions that we’ve seen really in the last 15 years with a whole new generation of software. The software in both [Windows] Vista and “Longhorn” Server are really targeted at how we can work with business to help drive down your costs, and make people more effective. The platform technology enables applications of all kinds, including major applications like Office 2007, server applications, and all the many business applications that you acquire from others in the industry or build yourselves to create those solutions.

Windows Vista has really been designed to make it easy to deploy in your environment, and provide new capabilities to your end users, great offline support, great mobile networking, super high security, the most secure operating system we’ve certainly been able to build, and perhaps the most secure operating system that’s been created in the industry. It’s been a huge investment and we are very much looking forward to the feedback that we are getting right now, and driving this out into the marketplace.

“Longhorn” server complements that. The next generation of Windows Server really focuses on the different workloads and the different roles, makes it easy for you to configure and setup, fits in beautifully with your existing environment and seamlessly. It’s not a disruptive upgrade, so you can add this technology to your environment and take advantage of its new capabilities, while at the same time working with your existing AD infrastructure and other infrastructures you have in your data center. Great new features like network access protection that enable secure access, major upgrades to terminal server, major upgrades to Web serving, all in this release.

So these are foundational products that will drive the business forward. We’re very much in the beta phase of this right now. Beta two has just been made available to all of you, of these products. We’re getting that feedback. We’re learning a lot of things, lots of great feedback is coming in. We want to give you one of our very important commitments to you is that we will work together with our partners, and all our customers to make sure that these products will ship when they’re ready to ship. So we’re working on that now, and we look forward to all your feedback.

Now, we’ve talked for a long time about foundational things, like a client operating system and a server operating system. Those are both important platforms that you need for your business, but there is an important new change that is happening that IT needs to be very much aware of. This change has really impacted the way consumers work with technology and software. The entire consumer software industry has shifted to services and delivery of consumer software through services. But, that really hasn’t happened yet in the business space. Well, stay tuned, because there’s many changes coming, and I’m very pleased tonight to be able to introduce to you a man who has tremendous experience on this, and will tell you about these disruptive changes that will affect all of us.

Mr. Ray Ozzie, please welcome him.

RAY OZZIE: Thank you, Bob.

Good evening to all of you. Welcome to Tech•Ed. Welcome to Boston, my hometown, and the home of our beloved Red Sox. As Bob mentioned, we have a lot of ground to cover in the next few hours, Bob and Chris Capossela are going to be showing you and telling you about a number of exciting new technologies. They are going to discuss and demo things that are going to help you in your businesses today, and in the very near future. My purpose here this evening is to be their warm-up act. Unfortunately, they’re going to do all the cool demos, not me.

Instead, I’d like to take a step back and talk about the larger technology environment that we find ourselves in, because I think some fundamental changes are before us, changes that all IT professionals should be keenly aware of. In the years ahead, I believe we’re about to witness and participate in, and drive another major era of technology disruption, one that has implications for all of us here, and all of our customers. The new era that we’re approaching will be something I refer to as the services disruption, an era in which Internet-based services will fundamentally transform the way that we design, deploy, manage and use enterprise infrastructure and business solutions.

In many ways change and disruption are synonymous with our industry, and this is really no accident. It’s because the fundamental, low-level, enabling technologies that we build our stuff on continue improvement with a steady march of progress, building and building, and every five to 10 years something just snaps. A wave forms, and it crests, and a fundamental transformation of one kind or another occurs.

As some of you are aware, I’ve been here in Boston for more than 25 years, and I’ve been fortunate enough to have had the opportunity to be a part of a number of these technology waves, technological disruptions, all the while working very close to here. I thought I’d take you through a little tour of these transformations, these disruptions, by having a little fun with Windows Live Virtual Earth technology. So let’s get started.

I first came to Boston here in 1979, after graduating from the University of Illinois in Champaign-Urbana. I joined Data General in Westborough, Mass., about 40 minutes west of here. At the time I joined the company DG and DEC and others were trying to use advances in semiconductor technology to disrupt IBM’s lock on the computer market. The soul of the new machine, this first disruption that I experienced would be the powerful 32-bit super minicomputer, challenging the mainframe.

While working at DG, as an OS developer, I happened to be exposed to this new single chip, 16-bit microprocessor, in the form of the Micronova at Data General, but also the Motorola 68000, National 16-032, Zylog Z9000 and so on. At DG we were trying to use the mini to disrupt the mainframe, but I was kind of getting the distinct sense that the mini itself would be disrupted by microcomputers, and I wanted to be part of it. So in 1981 I took a job working for Dan Bricklin and Bob Frankston at a little company called Software Arts in Cambridge, a short cab right from here, to work on VisiCalc, the first electronic spreadsheet. I loved working with Dan and Bob, and it was an amazing time in the industry.

Although the mini still ruled, the microprocessor was about to really change everything. When I started working at Software Arts micros were still mainly used in hobbyist computers. The technology was improving, and things were building, and building, and you could see how they ultimately would impact business, you could almost smell the disruption in the air. This is about the time that I met Bill and Steve at a little company called Microsoft out West, because many of us were working under NDA, on software for what would ultimately become the IBM PC. This is about the time that I met Mitch Kapor, who was working on something that would eventually be called 123. The combination of the IBM PC, and Microsoft DOS and Lotus 123 caused the wave to crest. Microprocessors broke out of the hobbyist market, and into the mainstream, and the next disruption was upon us in full force with the PC revolution.

In 1983 I joined Lotus to be part of that disruption by building the second version of 123, which eventually came to be known as Symphony. While I was working on that product local networks for PCs had begun to spread, little by little. People were beginning to explore using them for sharing files, and sharing use of these expensive new laser printers. People were beginning to explore the graphical user interface. And, once again, technology improvements were building and building upon each other. You could feel that another disruption was going to happen and to me, and others in the industry, disruption meant opportunity. I wanted to be part of something that was happening that later on we’d call the client-server era.

So in 1984 Lotus agreed to finance a new startup that I was forming in Littleton, Massachusetts, about 45 minutes northwest of here, where many of the new networking startups had formed. For five years our company, Iris Associates, worked to create the product that eventually became known as Lotus Notes. The year of the LAN took a while to take hold, and it was many more years than we initially thought, but between Netware, Notes, and NT, the client-server disruption began to have a major impact in enterprises.

In retrospect this era, though it seemed very significant at the time, it was really just kind of a footnote, because five years after it had begun along came the mother of all technology disruptions, the Web. And it’s hard to think of any major aspect of our lives at this point that hasn’t been transformed in some way by the simplicity, the IP packet, or the angle bracket, or the browser. For better and for worse, the line between our work lives and our home lives has been forever blurred by technology. We work at home, we shop at work, and our Sunday services are now available through a podcast.

In the late ’90s, kind of as the Web craze heightened, it seemed increasingly ironic to me that such a decentralized technology as the Internet would just treat the PC as a dumb terminal in the form of a browser. I kind of felt that a new technology disruption, again, was going to be shortly upon us in the form of peer-to-peer technology.

So I formed a startup, Groove Networks, about 30 minutes north of here on Cape Ann, kind of the heart of the perfect storm. And what a storm this P2P disruption has been for some industries, Napster and music, BitTorrent and video, Skype and telecom. Groove brought the benefits of manageable peer-to-peer to information workers within the enterprise, enabling teams to work together as peers across firewalls and across the globe.

Of course, about a year ago Microsoft bought Groove, which is now a key component of Office 2007 Enterprise Edition, and of course brings me here today.

What am I doing here at Microsoft? Well, just as in those previous eras, I see some fundamental technology changes afoot. And it’s my job to ensure that Microsoft will be a leader in helping our partners and our customers through this next transformation, this next disruption, helping to harness it for your benefit. Like past disruptions, this one is being catalyzed by the steady march of progress of technology; things are getting smaller, things are getting cheaper, cheap computing, cheap storage, cheap communications. Richard Karlgaard, the publisher of Forbes, coined the combination of these trends the Cheap Revolution.

In terms of processing power, everybody has heard, everybody knows about Moore’s Law; the phone in my pocket has a processor 10 times as fast as the fastest controlled data supercomputers that I used to use in college, and it has about 10 times as much memory. Although microprocessor speed has been stabilizing of late, we’ve moved to multi-core, and soon we’re going to be in an era of many core processors, putting oodles of processors onto a single chip. More than you might be expecting, PCs might have as many as 32 CPUs per chip as soon as 5 years from now. One startup, Rapport, is working to put more than 1,000 CPUs, of a different type, onto a single chip. It’s going to be an amazing next few years, as we see this panning out.

In terms of storage, the growth rate has been even more impressive. IBM’s breakthrough ThinkPad 560 laptop, introduced about 10 years ago, just after Win 95 shipped, with an 810 megabyte hard drive, and this was one of my favorite laptops. Today $25 bucks will buy you a 1-gig flash SD card for your camera, or LaCie will sell you a 2-1/2 terabyte USB appliance to backup your photos, 3,000 times the capacity of that ThinkPad just 10 years ago.

In the meantime bandwidth has also increased dramatically with speed and capacity doubling every 12 months. During the Internet bubble telecoms, such as Global Crossing and WorldCom invested $1.5 trillion laying fiber optic lines across the world. Many of these companies went bust, but the fiber that they laid is still there, and it’s still being lit up, providing a robust, extensive, and relatively cheap cross-country, and worldwide backbone. The growth of local access in recent years, particularly in this country, the cable modem, DSL, WiFi at Starbucks, has brought the power of this backbone out into the mainstream. From your Handycam to Windows Movie Maker, to YouTube or Rocketboom, even the transmission of personal video is now possible and done very commonly across the Internet, and we’re nearing the dawn of an IPTV revolution.

Right now the impact of all of these trends, cheap computing, storage and communications, is far more apparent in consumer technology than in our enterprises. The latest in hardware and software is more likely to be used by our teenagers than by ourselves. If you look at the technology in the Xbox 360 it’s just incredible.

For those of us close to IT, and who have been close to IT for many years, this is a jarring reversal from the days when we saw the latest innovations in computing and communications at places like NCC and COMDEX. In those days, the enterprise requirements for large-scale transaction systems, and the public sector requirements for large-scale scientific computing drove creation of the world’s most advanced data centers. Enterprises were showcases for vendors’ most sophisticated and scalable technologies.

Today some of the world’s most advanced data centers are those designed to directly serve consumers out on the Internet. For example, last month there were about 130 million people who used Windows Live Spaces, another 230 million used our Messenger IM service. More than 250 million people used Windows Hotmail service, hundreds of millions of active, unique users each month. Clearly, building systems at this scale is different than building software for enterprise servers, which are designed to serve thousands or tens of thousands of concurrent users.

It’s estimated that just among Microsoft and Yahoo and Google, there are well over 1 million servers racked up in data centers, located around the globe, serving trillions of e-mails, and IMs, and searches, housing many, many petabytes of storage, serving 1 billion Internet users. And the investment continues, you don’t have to stray far from our Redmond headquarters to see. Earlier this year, Microsoft purchased a huge track of land in central Washington along the Columbia River, near the third-largest hydroelectric power source in the world, the Grand Coulee Dam. Last year Google purchased a tract of land in western Oregon, also along the Columbia River, a little further south. It’s rumored that Yahoo is considering moving into this area, as well. This is just one geography, the same thing is happening elsewhere, elsewhere in this country, elsewhere worldwide.

These investments portend a fundamental change in computing, and communications. Those who look at the present understand that this infrastructure is being financed by growth in search and the growth in online advertising and the growth of consumer use of the Internet. Just like the PC and the cell phone and e-mail before it, this infrastructure will ultimately benefit and impact every segment, from individuals to small business, to enterprise, to education, to government, basically anyone who has access to pipes fat enough to make use of the services that these data centers might provide.

So how might IT organizations ultimately take advantage of these data center investments? Might they be used to augment your enterprise infrastructure, so you can leverage our scale to drive down the TCO of your basic services? Might they be used not just for infrastructure services, but also for enterprise applications? Might they help you to reduce the complexity and increase the agility of your organizations through easier integration with partners and suppliers. Might they be used to help amplify the impact of the people who increasingly find themselves as members of global work teams? The answer, of course, is yes, but in what form?

At times of disruption like this there are always extremists. Twenty-five years ago, at the beginning of the PC revolution, some predicted the death of the mainframe, because of the PC. Now there are extremists who believe that every application will be accessed through a browser, and that everything will move to this computing cloud, that your enterprise data center will go away, that you’ll trust third parties with your business information, and systems.

Microsoft is taking a very pragmatic approach; a seamless, blended, client-server-service approach. We want to make sure that you can easily transition client and server-based applications to services, or vice-versa. Our services won’t be disconnected from existing applications, but instead are going to be designed to complement and extend our Windows and Office platforms to the Internet.

Under the name Live, we’ll provide a blend of desktop software, server-based software, and our own enterprise service offering, and our partners’ offerings, enabling you to make the right tradeoffs that make the most sense for your business. One notable example of this client-server-service synergy can be found in our approach to information management and search. Our goal is to provide the people within your organization a simplified, unified way of getting at the information that they need, no matter where it resides.

We showed one key aspect of this concept a few weeks ago in the form of Windows Live Search. Windows Live Search essentially brings together in one user experience the ability to find information on your PC, find information in SharePoint, and in your enterprise applications, and find information out on the Internet. For example, a sales rep might need information about a customer. Utilizing Windows Live Search, she could find all the relevant results, even from within enterprise applications, in one view, with just one query.

Another example of this client-server-service synergy can be found in our ERP solution, Dynamics AX Version 4, which as of this week is now generally available. Using Dynamics you can now create business mash-ups, snapping together Web-based services into custom rapid solutions. Dynamics server and service capabilities are also made available directly in Outlook, or through remixable technologies, such as RSS. Our approach to other forms of enterprise IT infrastructure will be similarly flexible. In the areas of e-mail related services, collaboration services, or communication services.

We think it’s important to provide you the choice of architecture, whether client, server, or service-based to match your specific needs. The concept of using client-server-service synergy, specifically server-service symmetry, to give IT architectural choice isn’t a concept that’s particularly new for me.

You might not be aware, but this is exactly what we did in Groove, giving users the client-based and service-based flexibility that they need when operating in the field, and giving IT the centralized management and security controls it needs through servers. The Groove experience has proven out time and time again that architectural flexibility really matters.

It became apparent again this spring when some people on my staff from my Humanitarian Systems team were working on a field engagement with two NGOs, Partners In Technology International, and the International Assistance Mission. My team’s mission in this engagement was to use collaboration technology to enable these NGOs to better deliver medical care where it’s needed in remote areas of Afghanistan. This isn’t a place where you’ll find high bandwidth Internet services, or where you’ll be able to easily use corporate VPNs. My team was working with the NGOs high in a rural village at 9,300 feet, no power grid, no water systems, no cell towers. The small clinic in which they were working is a two-day drive from the nearest hospital, and it doesn’t have the labs or equipment to do much of the diagnosis that is the staple of modern medicine. Before introducing technology into the equation, it took between two and six weeks to coordinate getting the results of tests where locally taken tissue samples are flown to Pakistan, and doctors must interact repeatedly back and forth at quite a distance.

The goal was to try to use Groove and other technologies in a pilot project with these NGOs intending to reduce the coordination among doctors from weeks down to two days. Doctors within the village gather data and work together in a peer-to-peer manner with their WiFi enabled laptops. They coordinate with remote doctors using VSAT-based Internet links, transferring information over Groove-based services, securely exchanging tests and medical records, and conversations over these high-latency remote satellite links.

Of course, back at the hospitals doctors can use high speed networks and server-based architectures and robust centralized collaboration and content management systems such as SharePoint that interoperate with these tools out in the field such as Groove, yet those field-based tools can still be managed centrally from the hospital or from the NGO’s home base.

The cross-boundary communication and collaboration challenges that your organizations face might not be as extreme as the challenges that these doctors face in these remote areas, which, of course, is exactly the point in our doing this kind of exercise.

But you probably do have a number of needs involving highly mobile employees or people working outside the firewall, and in dealing with such situations architectural flexibility, deployment flexibility and client-server-service synergy can be key.

Another great example of the power of services can be found in one of our newest offerings, Office Live, which seamlessly weaves together the scale and power of Windows Live’s identity and communication services and the power of SharePoint for rapid Web-based solution development and deployment.

The product, which is still in beta, has more than 80,000 subscribers in the U.S. alone. Office Live presents a great opportunity to leverage enterprise skills in moving toward a services world, a significant opportunity for solution partners, small businesses, business units within enterprises seeking rapid, maybe even disposable, solutions that instantly span enterprise boundaries.

Office Live was able to scale and provide great function quickly, not just because it was based on SharePoint but because it took advantage of the Windows Live platform services, in particular Live Identity. Any application taking advantage of Live Identity is able to inherit the full power of Windows Live and the Windows Live services platform. This power is available to any developer on the Internet, and if you’re interested in this, I urge you to check out dev.live.com or attend the Windows Live tech talk on Tuesday morning.

It’s our intent to federate this Windows Live identity service with our Windows Active Directory product, enabling enterprise authenticated identities to have transparent and secure access to a vast array of Internet-based services, without creation or use of a separate identity. Windows Live federation with AD will also make it far easier for you to support the kinds of lightweight, cross-company trust relationships that are so crucial in today’s global work environment.

We’re making these investments because we believe technology within the enterprise will become more valuable when it’s seamlessly enhanced by innovations that are happening out on the Internet at great scale. We want to give each of you choice in appropriately balancing the use of Internet-based services with your needs for control, for confidentiality, for quality of service or system integration.

So Bob talked earlier about our ”People-Ready” initiative. “People Ready” also means IT ready. It means that well-accepted, user-friendly tools needn’t be out of control or unmanageable. It means that IT’s requirements needn’t be inconsistent with end users’ desires. Protect information, control access: historically IT vendors and IT professionals have viewed their domain of control as being that of the enterprise; that is, if it’s within the firewall it can be managed, and if it’s out the firewall it’s at best out of control or at worst suspect or rogue.

But as you well know, it’s no longer that black and white inside versus outside. Increasingly what IT needs are new options enabling the scope of manageability to be extended outside the firewall, to registered devices and software and systems, regardless of where they might be.

This is particularly relevant as people are bringing personal laptops and smartphones and USB memory keys into the enterprise, because they find them useful. And in general we want to let people use a variety of these self-supported devices that they might find useful, and that’s a key tenet of being “People Ready.” But IT needs more options that let employees use these devices, while at the same time protecting companies’ interests.

We’re entering an era where online services will yield tremendous opportunity for IT in the realm of management as a service; that is, Internet-based management services that can reach out and touch a wide variety of software and devices. I believe management as a service, federated with existing enterprise management systems, hold great promise in this realm.

An example of the power and value of management as a service can be found today in our Exchange hosted services, which include antivirus, anti-spam, archiving, disaster recovery and encryption capabilities, all delivered and manageable purely as an Internet service.

Yet another example is a new line of security products that we’re announcing here today called Forefront. Bob is going to tell you more about these new client-server-service security solutions in a few minutes.

Over the course of my career I’ve witnessed a number of disruptions, of transformations due to progressive waves of the cheap revolution, and I’ve seen customers benefit directly from each of these waves. If there’s a lesson to be learned, it’s that those who survive and thrive are the ones who understand the trends and make intentional decisions about their own destiny at the right time.

The PC revolution was a win for many companies, whose managers recognized and grasped the power of that tool. Michael Milliken once said that VisiCalc, the product of Bricklin’s imagination and Frankston’s cleverness, paved the way to the invention of the junk bond and was responsible for many of the corporate mega deals of the ’80s. There’s no question in the transformational impact of the PC and the spreadsheet.

The client-server era enabled significant business process reengineering. Wal-Mart used the technology to fuel the period of its most remarkable growth, extending its own network from warehouse and stores outward through is supply chain directly to Procter & Gamble’s factories.

The Web era, of course, will be remembered not just for the bubble and the dot-com craze, but for the huge and successful commitment of companies like GE to the Internet. All the way back in 1999 Jack Welch told his top managers that he expected each of GE’s 20 business units to be the leader in e-commerce in its own industry. Just a year later in 2000, each of those units was using the Web for real-time order tracking and pricing and customer service, and GE itself had purchased more than $6 billion in supplies on the Web.

Some years from now as you kind of look back at this time that I’ve labeled the services disruption, I believe you’ll view it as the beginning of a period when your view of enterprise services and Internet services became enmeshed and intertwined for the better toward both driving down cost and improving business solution agility. And when you do look back, I’m confident, based on what’s happening within this company, that you’ll feel that Microsoft helped you to leverage this transition in your business.

Today, Microsoft is laying the foundation for this new world. We’re deeply focusing in all of our tools and products, from clients to server to service on open interoperability, heterogeneous solutions, choice and flexibility in mapping out your own enterprise architecture. We’re intentionally shaping our tools and platforms to provide you a high degree of consistency so you can leverage your development and management skills and investments from PC to enterprise server to service in the cloud to mobile phones and other kinds of emergent devices.

We’re taking our knowledge and experience in serving consumers at Internet scale, even in things as seemingly unrelated to enterprise as Xbox Live, and applying those lessons learned and investments to the benefit of enterprise IT and enterprise users.

So in closing, I just want to thank you for making the investment to be with us here this week. I know it’s a sacrifice, particularly on a Sunday. I hope you leave here on Friday with some fresh perspectives, some new ideas for growth, and a better appreciation for how Microsoft might be able to help you. And I hope we learn from you. It’s going to be an exciting era, we look forward to working with you a lot, and thank you very much, I appreciate it. (Applause.)

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