Steve Ballmer: Microsoft Dynamics Partner Day

STEVE BALLMER: Well, thanks. It is a real honor for me to have a chance to be here with you today. I’m going to take a few minutes and share some top-level thoughts. And I know there’s a big stack of questions that have already come in from all of you, and I’m sure we’ll have a lot of fun with those as well.

I will say — some of you I know have heard me say this before, that when I travel the world, the most fun I get to have is the time I get to spend with our partners. Partners have a very interesting kind of dynamic. A partner is in a sense more committed and more involved with us than a customer, and more independent than our employees. So, I tend to get some of the most direct, strong, and important feedback about what we’re doing wrong and right from our partners, and I look forward to that kind of a discussion here today.

I want to talk about the People Ready Business, what it means to us, what it means to me, and why I think sort of in a sense the technologies that we’re offering for businesses of today really form an incredible opportunity for you and for us.

How did we come to this term, the People Ready Business? We went out and did a lot of research, and really tried to get a sense of what was on systematically our customers’ minds. Anecdotally I’ll tell you I feel like there’s been a big shift, there had been a big shift. After the year 2000, businesses around the world felt to me like they were very much in a mode of cost cutting, and over the course of the last three years, I’ve sensed that businesses have wanted to invest in the things that grow revenue.

When we went out and talked not just to IT executives but to business executives, they really confirmed this. They really said, “Hey, look, we understand that we have to keep costs under control, but a lot of our success will depend on growth. And the thing that we figured out that’s a little different now than maybe in the past is we really believe that the best way to grow is to empower our people, empower our people to find new products to sell to people, to empower our people to invent new products and new services that we can offer to provide superior customer service, to take out costs. We need to arm our people, because we just simply can’t in this day and age figure everything out centrally.”

And so we came upon this concept of the People Ready Business. And a People Ready Business is one that really does recognize that virtually everybody in the business has a role to play in driving business value, and those people must be given the tools that will help make them most effective in driving overall business performance.

So, we took that back out and we did a lot of focusing testing on that, and it really resonated with the business leaders, as well as the IT leaders that we talked about around the globe.

I feel in a sense particularly able to relate. I joined Microsoft when we were 30 people. Today, we’re 77,000 people. And in a sense that whole time people have been our number one asset. And in a sense I feel very comfortable with this as kind of a design philosophy, but I’m glad to see it also resonating with customers around the world.

Before I jump off on that in detail, I want to say thanks to all of you. We had an incredible fiscal year ’06. We are in the midst of a very good fiscal year ’07. We report earnings later this week, so I will say nothing about that in any detail, and I hope you’ll accommodate me on that. But I say thank you to you for that, because as everybody in this room knows, we made a decision early on at Microsoft to really build our business in conjunction with and on the backs of partnerships with others.

We are not a reseller, we are not a distributor, we are not a system integrator; we are a software vendor, but most of the software products in the world will never come from our company. And we have focused in on building partnerships with the folks who really help us go drive revenue, go drive profit, go drive success.

And we think it’s very important that we share common vision, because it’s only if we’re working very well together that we’re really going to achieve mutual business success. If we think businesses should be People Ready, and you think they should be, I don’t know, process ready, that’s probably okay, but we’d better figure out a way to communicate one core message in front of the customers. And the value that we bring together, our products, with the various competencies and services represented in the room are terribly important to us.

I was just reviewing the performance of our Dutch subsidiary. We will grow this year very healthy double digits in revenue. And so I say an extra special thank you to all of you, because I think that not only we need to say thanks, but it also reflects the incredible success that you’re having with your customers in the marketplace today.

I talked about the concepts of the People Ready Business, people at the center, people creating value. But I think it’s probably important to think about that in pieces. And I kind of broke the world down in four blocks. And now we’re trying to translate, okay, what does it mean more specifically somehow in a technology sense to be a People Ready Business.

Most businesses in their discussions with their IT people start with a discussion of business process: How do we process transactions, how do we ensure we have the right amount of inventory, how do we do the business of a business, the stuff that I show on the right on this slide, line of business applications, and they are terribly important.

And yet if you look at the computing environment, really growth in computing over the last 20 years, a lot of it has been on the left of this page, it’s been on personal productivity: How do I analyze, how do I communicate, how do I share.

And in some senses those two worlds of computing, with some commonality and some differences in the infrastructure that support them, have been developing over this period of time.

So, while people are becoming more computer savvy, as people have been using PCs more and more effectively personally, we’ve had kind of an island really between formal business process and personal productivity. And it’s really filling that island where I think we have a lot of opportunity together to create value in the People Ready Business. How do we give people the tools that build from where they are on personal productivity, but let them really engage in finding the information they need to do their job, in analyzing that information, in handling exceptions, in collaborating effectively to drive business performance? People don’t want to leave the world of current business process, and people don’t want to leave the current tools that drive their productivity, but we can add value in between.

There’s kind of a saying in business that the happiest customer is somebody who had a problem but then you served them very well when you sort of in a sense took an unhappy situation and made it a very happy situation.

Handling exceptions, yet if you look at most line of business applications today, they’re not oriented around handling exceptions, they’re oriented around routine process. And this whole picture is really driving our perspective on where to take our products, where to take our Dynamics products, where to take our Office productivity products, where to take our System Center and Forefront and security and management products on to the next level. And we’re really trying to make sure that in a very comprehensive sense you can deliver this kind of solution to the customers that we both serve.

At the same time, we’re also working with partners, some of whom we compete with and some of whom are pure partners, folks like SAP, for example, with the Duet offering that we’re building, where somebody has elected to use another company’s line of business platform, say SAP’s, but still can use our infrastructure, our front-end productivity tools, and in that case a jointly designed offer from us and SAP to fill that kind of middle bucket. A lot of the work we’re doing in Dynamics around role-based productivity is explicitly designed to get at this notion of the People Ready Business.

I’m going to give you a little update on every one of the boxes, because I think it’s interesting and important for you as our partners to understand. First is personal productivity. This has obviously been an incredibly important year for all of us. We’ve launched Vista, Office 2007. We recently launched Windows Mobile 6.0 with a number of mobile device manufacturers.

And we’re really driving hard. There are incredible innovations in Vista and in Office 2007. Just for personal productivity; forget all the rest of the stuff. I don’t know how many people are regularly using these products, but every day I’ll tell you I am amazed in my own personal usage. You can’t make an ugly PowerPoint slide with PowerPoint 2007. Somehow I was always able to make ugly slides with older versions of Office, but I can’t do it anymore; they just look so good. I’m exaggerating here slightly, but I hope you get the point. (Laughter.)

The ability people have because of the new user interface to find and have access to new capabilities, you know, people often say I don’t use that higher percentage of the functionality that’s in Office, and yet so much more of it is surfaced every day.

Bill Gates during the development process sent some mail to the Excel team, and he said, you know, “Hey, it’s great, I love the new UI, but I didn’t realize you had added so many new features to Excel.” And he listed a few things. They sent him back a piece of mail and said, “Bill, that’s not a new feature.” And Bill said, “Of course it is. I’m a power user of Excel, and I know it’s a new feature.” And they said, “No, Bill, it’s been there two releases.” And Bill responded, “Boy, that new user interface must be nice. I wasn’t even able to find it myself before.” And it gives you just a sense of how much innovation there is and how much potential there is in innovation and personal productivity.

For those of you who don’t carry a Windows Mobile device, the ability to really take your office with you on the road, and to take personal entertainment, and, oh, by the way, to have a phone call or two, it’s really an amazing set of strides forward in what that can mean for you personally.

Infrastructure is kind of the technology that underpins it, the technologies that let you drive business value, deliver IT services at low cost, provide good reliability, security, and availability for these systems, and this is another area of big innovation.

I’m going to be at a conference later on today where we talk about our Forefront security and our System Center management product lines. They’ve really come a long way. We have a lot to offer now with management and security.

We’ll bring the new version of Windows Server to market later this year, which takes even more strides forward in terms of low total cost of ownership.

And frankly whether you’re trying to drive a desktop, a file share, a SharePoint site, or a mission critical business application in a large company, Windows Server is the best — Windows is the best tool to do that. Most total cost of ownership, best scalability I would say up and down the line.

I talked about this area of analysis, exceptions, teamwork. It all starts with this notion of finding information. Most users in most companies, except maybe the most People Ready companies, will still tell you it is hard to find the information they need to do their jobs, hard to find.

I had a fellow sit next to me, now it’s a few years ago, on an airplane. And he looked over, and I’m reading computer magazines, and blah, blah, blah. And he says to me, “You work in the computer business?” I said, “Yes.” And I always was a little nervous, because I was afraid maybe I’d get asked for technical support on his laptop or something. But I say, “Yes, yes, I work in the computer business.” And he says, “Well, we have a lot of computers in our company.” And I said, “That’s outstanding. I’m delighted about that.” And he says, “Well, but I have a question for you. My job is to set the price of car insurance in the state of Colorado in the United States.” And there are different regulatory environments, so different prices in every state.

Anyway, so I said, “Okay, that’s good.” He says, “And I have a theory.” “What’s that?” He says, “My theory is that we should charge more, a higher price for car insurance if you buy it the week between Christmas and New Year’s.” I said, “Why is that?” He said, “Well, I think people who buy car insurance between Christmas and New Year are probably planning to drink a little too much for New Year’s Eve.” And I said, “Well, that’s actually a believable theory. I don’t know why people would be buying car insurance,” I said, “but what’s the computer problem?” He said, “I know our computers actually know the answer. I know locked up someplace in our computers is all of the experience we’ve had with people who have bought car insurance that week, and I can’t get at the information.” And I think if we all think about it, we’d say that’s not atypical for what we see.

The technologies that come into play, they start with search, portal and search technologies, an area where we’ve made great investments, particularly with SharePoint in the most recent release. We’ve done a lot in Office to provide access to line of business applications in Dynamics directly from within our Office products. We’ve worked on not only search and portal, but business intelligence technologies so that people can actually have the tools to pivot, to organize, to query in a way that gets them rich answers to their questions.

We brought out a whole new line of products under the brand PerformancePoint that are really focused in on business intelligence.

And last but certainly not least is the point I made about exception handling. And what is exception handling? It’s really the notion of taking something that is a structured workflow in something like Dynamics or SAP, processing it through a set of unstructured workflows, being able to collaborate on it with others, and then reinserting it.

And so you see us with SharePoint introducing new capabilities in workflow, in document management, new collaboration capabilities, voice, video, and other services through our Office Communications Server products.

So, when I talk about this space between — if I can say it this way — Office and Dynamics, in some senses we’re trying to fill that space with SharePoint, PerformancePoint, and our Office Communications Server and services offerings.

When you get to the bucket that I talked about on the far right, then we’re talking about line of business applications. And I’m very excited to have a chance to participate in the rollout of Microsoft Dynamics NAV version 5. This is a major upgrade to our Dynamics NAV product in business intelligence, in finances, in supply chain and inventory management.

We’ve moved to adopt the new Office 2007 user experience, which I think is very important, because it makes the line of business applications familiar and discoverable.

We’ve done the integration with SharePoint and SQL Server to try to get the integrated portals, search, workflow, data analysis, and business intelligence.

And we’re supporting our Open XML file format for interoperability with Office documents, with NAV, and a variety of other products.

We launched this product on March 30th. I’m very excited about it. And I know for a number of you who are serving customers here in the Netherlands, this will be an important part of the toolset.

As everybody here know, we’re very committed to the ERP and CRM and supply chain space. We want to have the most customers in this area. And we’ll be very persistent about our innovation in this area, and our support of partners who really want to go out and work with us on line of business application customers.

With the delivery of NAV version 5 we really now have delivered the entirety of what we call wave one of Microsoft Dynamics. We have the Dynamics NAV product, the Dynamics AX product, in the United States we’ve got the Dynamics GP product, we’ve got our CRM offering. And what we committed to do was to if not totally unify these things, bring them together first at the user interface level, and then eventually at the programmability and back-end level. And with this launch of NAV version 5, for those of you who are partners on the Navision side or the Axapta side, this is really quite a major step forward.

I flipped through some of the questions, and one of the things that I know is on all of our partners’ minds across the board is what does the transformation that we see in our industry towards software as a service really mean? I get out there all the time, and I tell our customers software is changing. The software of tomorrow won’t just be a CD that we deliver, but it will also be a CD, it will be services that can get delivered out of a datacenter. Eventually the goal should be for our customers to be able to just click and run the applications that they want.

And yet a lot of our partners are involved today providing custom development services, systems configuration services, systems integration services, and it is important that we and you are working together through this transformation.

The amount of value add that we anticipate customers wanting, that we Microsoft do not provide ourselves, is going to grow. The opportunity in being a Microsoft partner is going to continue to grow. Exactly what you do is likely to change over time.

Just a small show of hands: How many people in this audience were in the computer business around 1990? Show of hands. How many people were doing system integration at the time, anybody, systems integration business in the early ’90s? In the early 90s I had partners coming to me and say, “Look, we hear you’re thinking about integrating TCP/IP into Windows.” Back then you used to buy a TCP/IP protocol stack, and you’d buy an operating system, and an integrator would put them together and charge a bunch of money. It was a good business. That business is gone, disappeared. We integrated TCP/IP directly into Windows, of course. And yet has that created or net reduced opportunities for our partners? Of course, it’s created opportunities.

Now, that doesn’t mean that there wasn’t some turbulence along the way. We had some partners who had to build new skills. But at the same time, the net activity, the net opportunities continue to grow.

Even as software gets instances of service in the cloud, it’s going to need configuration services. The need for compliance and security policy and tuning and monitoring is not going to go away.

And the thing that you can count on as we proceed down this path is that we will work with you to make sure that we continue to find great value for everything you do and everything we do.

The good news is software is not going to turn into a service tomorrow morning. Our business and your business will be stable for the next year, two years. And we have the time now to really do this and do this well together in a way that can be non-disruptive and very convenient from where you all stand today.

And we’ll take Windows and make Windows Live and Office Live and CRM Live, and a variety of these services, and we’re hard at work on that now, and see that as a source of real opportunity for you and for us.

You know, if you take a look at this overall, I think there’s never been a better time to be a partner of Microsoft. As we look to the future, we see just incredibly opportunity. We just finished looking at our three-year growth plan as a management team. We see huge opportunity in the pipeline of products that we have in the market, and we’ll add our opportunity as your opportunity, and your opportunity as ours.

And we think that as long as we continue to attract and retain the best and the brightest, we bring innovative products to market, we continue to expand our product portfolio, building new cores of excellence, if you will, we drive this transformation to software as a service, what we call the Live transformation, and we all bet for the long term, there’s huge opportunity.

I made this list in part because I went back and studied what’s happened in our industry over the course of the last 25 years. I’ve been at Microsoft 27 years, and I’ve seen companies come and go. There are companies that were important in the industry when I started that don’t exist anymore. There have been companies that were very important that are just a lot less important today, companies that were technology leaders who are not. And the number one thing I wound up concluding that differentiates the great companies from the less great companies are the things on this PowerPoint slide. And perhaps the most important of those is long term approach. When we commit to something, we commit to it, and we commit to being successful. And if we don’t get it right at first, we just keep working it and working it and working it and working it and working it.

And I think you count on us to do that as partners. When you make an investment to learn or train your people in one of our technologies, you’re counting on us to make it successful. And I want to make sure you understand we continue to have the kind of long term commitment that I think will help us both succeed and prosper into the future.

Thank you very much for your time. I’ll look forward to some of the questions. I know Eric is going to come back and join me on stage. But before he does, I just want to give again a great round of thanks to you. Please. (Applause.)

MODERATOR: So, okay. Well, thanks, Steve, for a very inspirational and an insight on the vision.

So, we’ve got a couple of questions here. They’ve been asked before and been posted and which Steve is going to answer. We’ve got 10 minutes, because, as you may understand, Steve is on a very tight schedule. He will be on stage on the next event, and so we need to be very quick here.

So, the first question is wondering how Microsoft is going to win significant market share in the Dynamics business over the couple next years.

STEVE BALLMER: By seizing on this notion of the People Ready Business and really focusing in on empowering people to make a difference, I think we have a distinct advantage over all competitors in the ERP space.

I heard an anecdote from one of our sales reps who was working with a customer, and he said one of our competitors perhaps did us the greatest service in winning this account. And I said, “Well, what happened?” He said, one of our competitors came in and said, “You have three choices, don’t you, Mr. Customer?” And the customer said, “Yes.” Choice number one is a company that really knows databases very well. All they’re going to do is focus in on the data. This was not a Microsoft person, this was the competitor speaking. The second choice is you can focus on a company that really is very firm, very disciplines, very business process oriented. The third company is one of those companies that’s very end user oriented and people oriented. Now those are your three choices; which do you take? And the customer says, of course, I take the one that’s people oriented. And at the end of the day I actually think that is really a differentiator for us relative to SAP, to Oracle.

I also think we’re in an environment right now where a lot of companies that were successful in the ERP business in the past are having a hard time investing in the future. There’s a transition happening, and I think between the differentiation we have with our big competitors, and what we see going on, if you will, with the smaller competitors, we have a very distinct opportunity to grow share.

MODERATOR: Okay. Well, thank you. Let’s hope that’s announced to how we’re going to win the market share in the Dynamics business.

So, you talked about the Live business already. So there’s a Dutch newspaper who’s very interested in how that’s going to proceed, and at what speed the normal client-server business will be overtaken by software as a service.

STEVE BALLMER: Well, overtaken is a funny word. I don’t accept the word. I don’t think software goes away and service comes in. I think that is some of the mentality some people have, it will be about service or software; I think it’s about service and software.

So, as we envision — let me just take Windows Live and Office Live. The notion that you actually have software running on a PC is invariant. The question is, does the software get installed or does it come down off the Internet and run on your PC? Does the software know about a service and set of servers up in the cloud and help you? So, we think about this as software and service as opposed to software or, or contrasted with service.

When will we replace? We’re replacing right now. We’re introducing technologies right now that drive this transition. We’ve talked about our CRM Live. We will have CRM hosted and CRM Live. You see us introducing new capabilities today in Office Live. But the transition is not abrupt.

And so to the second question, how fast is that possible from a commercial and a shareholder point of view, the answer is as fast as we can drive it with our customers. We are not going to let somebody else differentiate versus us based upon being more focused on software and service than we are. And we think we can do that in a way that is great from a shareholder point of view, but I know in the long run the thing that’s best for our shareholders is that we succeed, so we’re trying to drive this as quickly as possible.

MODERATOR: Well, that’s great. That will mean that it will only grow even faster, so that’s wonderful.

So, then obviously as it’s a Dynamics conference here, there are several partners wondering on what’s the competencies you need to really fulfill the customer needs towards the future.

STEVE BALLMER: I think the competencies that are in shortest supply are the competencies that help people really set up line of business processes, and think through the kind of search and business intelligence and exception handling that people want to do.

There’s still a shortage always of basic infrastructure skills in the marketplace, but as we take a look at the market today in the Netherlands, and I would say across the world, folks who can come in, talk to a business about how they want to set up their inventory management system, what visibility do managers want on inventory conditions, what kind of tools and approach do people want to analyze inventory, sales costs, cost of goods sold, it’s really that kind of business level thinking, configuration, and setup that’s probably the competency that’s in most short supply.

MODERATOR: Okay, well, that’s great, because I think again what Steve is emphasizing is the fact that it’s customer knowledge. It’s really wanting to know what the customer wants and then relating that towards what’s Microsoft competencies on the technology needed to really bridge the gap between customer needs and what the technology wants.

So here is another one. This is from KPN. They’re a big hoster in the Netherlands. And they are wondering if Microsoft will become a hoster in Europe.

STEVE BALLMER: Well, it’s sort of a funny question. We will do CRM Live. We will host our own CRM Live. So, we will certainly host our own applications. Are we going to be in the business of accepting arbitrary applications and hosting them on behalf of our customers, as KPN does? No. We will provide infrastructure to KPN so that they can provide great hosting services around Windows, they can run arbitrary applications. We will though host CRM. We obviously host Windows Live mail, Messenger, search. There’s a number of applications we host ourselves. And as people read, perhaps you do in the newspaper, about us and some of the other companies in the industry building these new huge, huge, huge datacenters, we’re really thinking not about the general purpose applications, we’re really talking about hosting people’s CRM implementations, their e-mail, et cetera, et cetera.

So, in a special purpose sense I guess you could say we’re a hoster. In a general purpose sense I don’t think customers will feel any level of competition between what we do and what KPN and others do as hosting services.

MODERATOR: Okay, that’s pretty clear, so for KPN I think that’s the answer on whether or not they’re going to be hosters in Europe.

So, here is the last one, and it’s about BI (business intelligence). And actually he wants to know what you think about the importance of BI to Microsoft.

STEVE BALLMER: It’s one of these things where given that the fellow is from a company named BI Ready, I should probably say it’s the most important thing to Microsoft. (Laughter.) Or he’s worried we’re going to get into his face, and I should say it’s not very important at all. Neither of which is true.

But we are very focused in on BI. It is an area where we’ve expanded the portfolio with PerformancePoint. We have expanded with the analytical services and reporting services in SQL Server. It is an area where I think you can expect us to continue to expand what we do. There’s a number of acquisitions and R&D and other things that we’re considering.

So, probably the best way to think about it is we will have an expanding profile, and we’ll expect to have an expanding market presence and sort of competitive position relative to the other big BI vendors with the steps that we’re taking. So, it’s an area of growth, an area of opportunity, an area of innovation and investment for us.

MODERATOR: Okay, Steve. Well, this is it. I really want to thank Steve for being here. If I talk for myself, it’s been very, very inspirational. I know you’re on a tight schedule, so I really want to thank you. Please give warm applause to Steve Ballmer.

STEVE BALLMER: Thank you all very much. (Applause.)