Kevin Turner: Microsoft Worldwide Partner Conference 2007

ANNOUNCER: Ladies and gentlemen, please welcome Kevin Turner.

KEVIN TURNER: Good morning. All right. Let’s do it again. Good morning. Great to be here, 8,000 of our partners from 130 countries around the world. Unbelievable. What a worldwide event this is. I did ask Allison, how about the other 60 countries, she said next year. And so we’ll have 190 countries next year. But what an awesome event. Thank you so much for coming, and we’re very excited.

You know, it’s kind of an interesting time. I was the wrap-up speaker at last year’s WPC event that we had in Boston, and today I’m helping kick it off after Allison, and talk about what are we going to do this year. One of the things that we talked about last year was, hey, look, we’ve got this awesome opportunity. We’ve got this huge wave of innovation coming into the marketplace. So now what?

So I’m here to tell you today, that innovation was delivered, and we’ve got a whole new wave of innovation coming into the marketplace, and we’re going to talk about that. But it’s an honor and a privilege for me to be here today because it’s an incredible time. It’s a time that we, together with you and our partners, are changing the world with software. Thirty-two years ago, as Bill and Steve built the company, they made a decision to essentially base our business on a partner model. And Bill and Steve have both pulled me aside at different times and said, the importance of us extending our software to third parties, and being able to have great partners in the ecosystem is one of the key advantages that we’ve had as a company, and it’s something that we have to preserve, and we have to protect, and continue to help nourish and foster. And so that’s what I’m here today is to talk to you about how we’re going to do that.

But as I get started, I want to thank you. I want to thank you for, number one, because through the first three quarters of the year we have had a very, very strong year. Thank you for what you’ve sold. Thank you for the products that you help sell through, and the value that you help bring our customers. We’re totaling up the fourth quarter, and due to Sarbanes-Oxley I can’t really tell you a lot about that, but we’ve had a very good year. And it is a year, again, of unprecedented growth through the first three quarters. And you’ll certainly stay tuned next week you’ll hear how we did in the fourth quarter. But you all know through your business models that this was a strong year for the Microsoft and the partner ecosystem at Microsoft.

And, you know what, I get my best feedback as I travel around the world, I’ve been around the world six times in the last 22 months, and I do partner roundtables at every country and every subsidiary that I visit. And I get some of the best feedback that I get for our company from partners. I want to thank you for that. I want you to keep pushing us to get better. Keep giving us the feedback that we need, because that is the way that we’re going to get better.

And I also want to thank you for helping us with the launch of the decade. You know, when we talked about Windows Vista a year ago, it was like we promised it, we promised it, and it was delivered into the marketplace. The first 100 days, ladies and gentlemen, we deployed 40 million copies of Windows Vista. And as you look at the double digit growth that we’ve had in our volume licensing business, and the strength of our Vista Enterprise Edition, it is really unprecedented the way we’re going to monetize that this next year.

And when you think about the monetization of Vista, IDC and Mike Sievert is going to talk about this in a minute, just released, in FY ’08 alone, there’s a US$300 billion partner opportunity with the Vista ecosystem just in FY ’08. And as you look at the applications, you know what, on the application compatibility front, we had the best application compatibility when we launched it that we had had with a product. What our partners and our customers told us was that it needed to be better. And we rallied the team, and we’ve worked very hard, and I’m proud to be able to tell you today that we have over 10,000 devices now logoed as Vista Ready and Vista Capable. And we’re working very hard, we have over 1,900 applications converted, and the team is energized on that. So we’ve made a big turnaround on the application compatibility story, and we’re just getting started. And it’s going to continue to get better and better. So thank you for your help with Windows Vista.

We talked about Office, the 2007 Office system. And when you think about that, we touch 400,000 people, ladies and gentlemen, with our business value event, and partners participated in every single one of those events. And it was crucial, your participation was crucial to the success of that. Chris Cap also told me recently that we have over 1,000 2007 Office solutions from partners that are available today, taking advantage of the opportunity that we have. We had  that’s roughly 10 times more than we had with Office 2003. So we’re already way ahead on that particular front. We trained over 300,000 partners specifically on the 2007 Office system, and over 23,000 on Exchange Server 2007. And it’s an unbelievable opportunity for us to be able to bring in our collaboration story, and all the partners that go along with it, and also SharePoint, and be able to get strategic with big customers, and be able to drive that boundary-less organization through SharePoint utilization.

And then when you look at Exchange, this is an interesting note for you, this past year we signed up and customers signed up to take out 2.5 million IBM Lotus Notes seats this year alone. What do you think of that? (Applause.) Two-and-a-half million.

And so what do we do with big, bold goals and aspirations at Microsoft, I gave Simon Witts and our team an aspirational goal this next year of taking out 4 million IBM Lotus Notes seats by winning the customers, showing the value of our solutions, and showing them that we have a better business model, and a better monetization model than they do in this particular space. So this s a real competitive opportunity for us to get after Notes, win that business fairly, and respectfully, but win that business and be tough-minded about winning against Notes. So thank you for the momentum in FY ’07.

The other thing I thought I would do is, I ended last year with five things, five things that I told you you can expect from us. As I thought about what we would talk about today, I thought, you know, I need to hold that mirror up, and I need to talk about how did we do against those five things that we said last year, and specifically what I said last year that you can expect of us. And so let’s go through these.

The first thing we told you was, we’re going to strengthen our commitment to partners. And you know what, we did that, both monetarily, and programmatically. And when you look at the amount of money that we’re putting into our partner channels, an unprecedented over $2 billion investment in tools, and joint marketing, and presales support, and people. Allison talked about our PAM role, our partner account managers. We found in some of our subsidiaries that the PAM role was kind of optional. Well, we moved that from kind of guidance to direction. It’s not optional anymore, and our subsidiaries are on board with that, and our country managers are on board with that. We’re committed to that role to helping you in so many ways.

You know, when you talk about the next one, on creating profitable business opportunities, you might say, this one is a little squishy. What does that mean? One of the things that I challenged Allison and the team to do was create those profitability models that she showed you, to be able to allow you to do scenarios to see how we’re doing.

So this is something we’re going to continue to enhance our portal, and our tools, and our decision support systems that we provide for you to be able to see how you’re doing and benchmark yourself, and what is the optimal way to become profitable. And we think that’s a competitive advantage in the marketplace. And we’re going to continue to enhance those blueprints. They’re not perfect today, but we’re going to keep making them better by getting your feedback, and figuring out which ones you want us to work on.

Deliver market leading innovations, honestly, we hit this one out of the park. We delivered on every single major release that we told you we would a year ago. And when I show you the list in a minute, I think you’ll be taken aback by the amount of innovation that we put into the marketplace with you just this past year.

Provide clear product roadmaps, this is one for the first time we do have a roadmap for every business group in Microsoft available to you. The thing I would tell you here is, we’ve still got a long way to go. This was a hard exercise for us. It was difficult. It took a lot of encouragement. It took a lot of follow-up. It’s complicated, and there’s a lot of reasons why it’s complicated. But, the fact of the matter is, we made a big step forward in this space with being able to show you our roadmaps, and being able to tie those back to our profitability models. And that’s an important thing for you in the future. Now, we’ve got to make progress here. So I didn’t give us an A, I didn’t give us a B. I’d give us a C on this particular commitment.

Lastly, we told you we’re going to work hard to be one Microsoft. And I’ll tell you on this one I’d give us a C as well, because when I learned that the PAM role wasn’t consistently implemented in all the places, and that you all had to talk to multiple people at Microsoft to figure out who is on first, and who is on second, we made some changes.

We’ve now got a cross-company partner council that Allison Watson heads, and she’s in charge of that, where she has responsibility over all the partner ecosystem at Microsoft for the first time. We have an individual that owns that. And it starts there, because it starts with leadership. If we don’t have our act together in Redmond, it’s hard for you to be able to know who to talk to. So we’re going to get better at that, and we’re going to work on that, and you’ve got my commitment that that will remain on the list until we improve.

The next thing I wanted to get into was I really wanted to say, look, if I’m a partner why in the world would I choose Microsoft, because, you know what, our customers have a lot of choices, and we also know that our partners have a lot of choices. And we take that commitment and responsibility to partners very seriously. And as I was preparing for what we’d talk about I took inventory, and I tried to answer the question, if I were a partner why would I bet on Microsoft, why would I align with Microsoft, what is the advantage of Microsoft, and how do we have a forward looking perspective of where they’re going, and how do we go with them? So I want to go through these five things, and talk to you about a long-term approach to innovation, partner ecosystem, which I’ve listed as one of our five key advantages that we have as a company.

Our software plus services strategy, and making that hard transition that we have, and then the fact that we’re a multi-core company, but it begins and ends with people, and people includes partners, as well. So let’s talk about long-term approach to innovation. When you think about long-term approach to innovation it first starts with putting your money where your mouth is. Our company invested over $7 billion this past year. It will go up again this next year. That is more than any other technology company in the world in R&D and innovation. That’s $7 billion. We’re not slowing down. We’re going to continue to take the long-term approach.

As we said before, we owe you a clear software roadmap of where we’re going and how our solutions connect together, and you’re going to get bits and pieces of that throughout this conference, and then we’re going to put it together at the end. But, when you think about Vista, the 2007 Office system, and Exchange 2007, those were huge, huge, big dog releases. Those are monumental products, multi-billion dollar products that we put into the marketplace. But, ladies and gentlemen, that’s only a part of the story. That’s only just a fraction of the story. I want to show you what the rest of the story looks like.

This is the innovation that we put into the marketplace last year, operating systems, operations, security, our Dynamics and business applications platforms, application platform, collaboration, entertainment and devices. Now, if you’re sitting in the back of the room, I apologize, because it’s hard to read. I didn’t start out making this slide for an eye chart, but it turned into one as we went around and said, okay, what did we roll out this past year. We put over $20 billion of prior year’s R&D spend into the marketplace in the last Fiscal Year ’07, unprecedented in the history of Microsoft.

You know what I see when I see this slide? I see one thing in FY ’08, I see money. I see monetization. I can smell it and hear it, see it, okay, because this is the year that we’re going to monetize that innovation. And wow, you think about it, because we’ve talked about a lot of those products for a lot of years, and they came to life, they came to fruition. And the opportunity that we have is okay, now what are we going to do in FY ’08? Well, guess what, we’re going to announce some more big dogs today, starting with Windows Server 2008, SQL Server 2008, and Visual Studio 2008.

When you think about Windows Server and it’s been a while since we’ve had a new release on Windows Server, when you think about the ecosystem that’s created through Windows Server it is an unbelievable opportunity for us, great improvements for Web, virtualization and security, three key things in the eyes of our customers. And when you think about SQL, you know what, one of the fastest growing, most profitable businesses in all of Microsoft is our SQL Server business, we’re winning share, and earning share from customers, because our stuff works and it’s saving people money.

And when you think about the fact that we’re right on schedule with another release of that in 2008, securable, reliable and scalable platform for your applications, what an opportunity to monetize that.

And then our Visual Studio 2008, improved language and data features for creating modern software, fewer lines of code, more reusable code; that’s what people are looking for in the marketplace.

And your question to me might be when, when will you do this Microsoft? It says announcing; when?

Well, here’s when. We’re going to do it on February 27, 2008 worldwide. It’s the biggest single launch we’ve got in Microsoft on one day. (Applause.)

And Andy Lees told me it’s a feeding frenzy of opportunity. He told me to use that word, because there’s hundreds of billions of dollars available to you through the partner ecosystem and monetization for these products.

And then as I look out, the area that we’ve got the most innovation in the last 18 months of any area in our company is in our Dynamics and ERP space, and we’ve got five new products coming into the marketplace today. And I talked to Doug and Tami this morning, and they had a great meeting yesterday with 1,200 partners of our best partners that we have in the company for MBS. What an opportunity that we have with our Dynamics launches, deeper and deeper Microsoft integration and amped up business productivity that we have to drive that.

And if you look over that last year and a half, that’s the most innovative set of products that we’ve ever released in that Dynamics space in the history of Microsoft. And we’re significantly increasing the overall business productivity at the team and organizational level across financial management, supply chain management, and Customer Relationship Management.

And part of the way we achieve this business productivity is the impact through deeper integration with our Microsoft stack. We have invested in integrating our technologies together so customers and partners don’t have to allow, they don’t have to wonder is it going to be built on the Microsoft stack, because we’ve built the entire Microsoft stack on these products: Windows, SQL Server, SharePoint, BizTalk. It is the native infrastructure we’re using for Dynamics, and that’s further and further integrated to make it easy for you.

Now, unlike some of our competitors, Microsoft delivers business applications 100 percent through our partner ecosystem. So, I want to thank those Dynamics partners out there, and I want to continue to go win new ERP customers, and I want to sell in to the ERP customers that we have more and more the value creation that we can make together.

And I also want to make sure that we aggressively compete for share in this market. You know, there are people, there’s talk of Oracle and SAP coming to mid-market and small business, and up the stack and down the stack. Make no mistake, we want to compete. We want to be tough-minded about competition, we want to compete fairly and respectfully, but we want to win new ERP customers with Microsoft Dynamics. Make no mistake about that.

But I do want to highlight one of these products. We talked a little bit about this product last year at this conference. And I want to bring up Brad, and I want Brad Wilson to come out and talk about Dynamics CRM Live, because we’ve got an exciting demo to show you, and a real opportunity for us to win some sockets, and a business opportunity for you as partners. So, please help me bring up Brad Wilson. (Cheers, applause.)

BRAD WILSON: Kevin, thank you. Good morning.

KEVIN TURNER: Morning!

BRAD WILSON: Let’s give you a quick demonstration here.

KEVIN TURNER: So, what are you going to show us, Brad?

BRAD WILSON: I’m going to show you the new Dynamics Live CRM service we have debuting real soon here, based on our new Titan platform, a fully multi-tenanted platform, based on all the great Microsoft technology you just talked about in the last few minutes.

KEVIN TURNER: Great.

BRAD WILSON: Let me go ahead and just show you how we go ahead and sign into the system here. So, I’ll go ahead and sign in as a customer in the Early Access Program. When I come in here, I’ll logon through my Windows Live login ID. Love that.

What happens here is I actually — since this is a fully multi-tenanted system, and I’m a partner in this scenario, I can log into multiple organizations here. So, I can come into multiple firms on whose behalf I do work.

I’m going to log into my marketplace organization. When I click on this, it’s going to go ahead and hit my Live CRM service. This is real code running on our Windows Live datacenters right now, and it pulls up full featured sales, service, and marketing application right here. So, you can come in here and you can look at different parts of the application. You’ve got sales, you’ve got all your marketing leads right here. In the service space you’ve got your service calendar will pop up here with the people you can schedule for field service or other kinds of activities, right?

You can also come in here and see your Resource Center, and the Resource Center is a thing we’re adding to put community right inside the product, so you can get help, you can get tips, workgroups, message boards, those kinds of things right here in the product.

Let me show you one innovation I think our partners have a lot of interest in. There’s a new marketplace that we’re building, which we’re going to be debuting in calendar year 2008, which has got a marketplace of partner applications you can directly download into our live service.

KEVIN TURNER: Absolutely.

BRAD WILSON: I’ve got a list here of these partner applications in here. Let me go ahead and search in here based on vertical templates.

KEVIN TURNER: So, the partner can write the applet; we’ll host the applet in marketplace.

BRAD WILSON: Correct, and we will let them directly modify our base system into a very specific vertical application to our regional application for our customers.

KEVIN TURNER: Awesome, awesome.

BRAD WILSON: I’ve got a list here of different providers of applications. Let me go ahead and click on this solutions area and get a list of them sorted by solution type. In this case, in this scenario I’m an event management company, I want to go ahead and look at this event management template. So, I can look at this one here. I’ll show details. I’ve got a quick sketch of the actual application. I find out who the partner is. I can come in here and click on these and see some screenshots of the actual application.

For my usage this looks pretty darn good. I’m going to go ahead and download this template directly into my Live service right here. So, I’ll click on download. You get the usual terms of conditions to protect all of our intellectual property here. I’ll go ahead and click on this, and click okay.

What’s going to happen here is this is going to connect to our Live service, it’s going to grab the partner template, it’s going to go ahead and modify the application on the fly and it will go ahead and remodel the data model, all the workflows around it, the roles, the user interface, and all these things around that.

KEVIN TURNER: Awesome.

BRAD WILSON: So, it’s taking a second here to kind of make the connection. It’s actually grabbing an application, which is all XML metadata that our partners created, and this was created by one of our partners, and it’s actually modifying this on the fly.

So, we’ve gone from a vanilla marketing, sales, and service system to one that’s really much more oriented to how I would run an events management company.

Let me go ahead and click out of here. I’ll come back up here and refresh my browser. And at this point you’ll see that when we reload the page, it just takes a second, we fully remodel this. There’s no longer sales, service, and marketing out there; we’ve got events, sponsorships, projects, and lots more things that are specific to my business.

Let me show you one more kind of quick, cool thing here. Within this I can look at my locations here. Underneath locations I’m going to go ahead and show you how we’re mashing up Virtual Earth with our Live service, a great combination of software plus services going on here where I can look at this and I can hover over different locations here in Denver like Coors Field, and I can directly see what the capacity is, what the cost is, how many bookings I have there. It’s a great way for me to break out of this paradigm of just tables full of information, and really start to do a really visual application on behalf of my customers to help them do their jobs more quickly.

Let me show you one more quick thing here — two more quick things. One is on the setting side as a partner I can come in here and fully customize everything in here. Even from this template I can look at all the entities that were created for this template, I can grab all my entities here, and what I’ll do with this view is I’ll go ahead and just take a look at the ones that were added by this template, the custom one, and from here I can click into any entity here, I can add new attributes, change permissions, make it work offline or online, those sorts of things. So, it’s a tremendously configurable environment where our partners can create applications and then deliver them to our customers either directly to add to today or through a marketplace.

KEVIN TURNER: So, it’s a great example of being able to map the technology to how people actually do the work?

BRAD WILSON: That’s the exact point of our whole thrust is think about the problem you want to solve, then figure out how our technology enables our customers to solve that.

KEVIN TURNER: Right.

BRAD WILSON: Let me show you one more thing I think you’ll really like, which is an example of this running in my favorite application, frankly, which is Outlook. So, in this case we’re connecting to our server out here, checking our network access, initializing our interface. At this point you’ve got the exact same application. We went ahead and remodeled standard sales, service and marketing. It’s all right here inside of Outlook for me. So, when I open up Outlook in the morning, it’s all right here. The same kinds of mash-ups of this visual way of working work the same way in a rich client as they do in a browser. So, it’s really about delivering the power of choice to our customers, and our partners are really the vehicle for taking this technology and making very specific solutions for them.

KEVIN TURNER: And extending the application and extending the technology with the partner network and ecosystem is what gives us that competitive advantage.

BRAD WILSON: We can’t do this without our partners, because —

KEVIN TURNER: It allows us to localize the technology and really leverage and get the value out of it.

BRAD WILSON: Absolutely, absolutely.

KEVIN TURNER: Tell me who this product would compete with.

BRAD WILSON: This would compete with on-demand vendors like Salesforce.com or Siebel on-demand and people like that.

KEVIN TURNER: Really? Siebel, Salesforce.

BRAD WILSON: Yep.

KEVIN TURNER: And there’s an opportunity there. (Laughter.) So, how much is this?

BRAD WILSON: Well, what we’re doing here is we are launching — we’re announcing today the first two editions. There’s a professional edition and an enterprise edition. What’s happening is in the marketplace these products might cost anywhere from $75 to $125 per month per user. Our enterprise edition, the more expensive one, will be $59 per month per user. And our professional edition will be $44 per month per user. So, the same —

KEVIN TURNER: $44 per month per user for professional users?

BRAD WILSON: That’s correct. (Cheers, applause.)

KEVIN TURNER: So, there are some people out there that understand what those other two companies you mentioned are paying, and it’s a lot more than $44.

BRAD WILSON: This is a great deal.

KEVIN TURNER: Awesome.

BRAD WILSON: And it’s with our partners we can deliver better solutions, more configurable, much more visual ways of working than these other vendors can provide today.

KEVIN TURNER: I really subscribe to lowering the price and increasing the sockets.

BRAD WILSON: That’s our whole idea.

KEVIN TURNER: I love that business model, so we’re going to keep pushing that.

BRAD WILSON: That’s right.

KEVIN TURNER: So, tell me one thing. How does the partner make money on this model?

BRAD WILSON: What’s great about this is whether it’s on-demand or on-premise, so much of what our partners do isn’t about just the hardware piece, it’s about business consulting, requirements analysis, end user training, defining workflow, generating a data model that really works for that customer. All these pieces are exactly the same whether you’re on-premise or on-demand, whether that’s software or a service it all works exactly the same.

KEVIN TURNER: Now, do we have an Early Adopter Program?

BRAD WILSON: We do. We’re starting one up this quarter, and what we’re going to do kind of uniquely here, we’re going to make it entirely through-partner. So, our partners are the only way to get into our Dynamics Live CRM Early Adopter Program.

KEVIN TURNER: This is a big deal; thank you so much.

BRAD WILSON: Kevin, thank you.

KEVIN TURNER: Keep pushing.

BRAD WILSON: Thank you. (Applause.)

KEVIN TURNER: What an awesome opportunity to grow our business. And if you’re not involved in that, we’d encourage you to take a look at it, because again it’s going to save customers a lot of money and bring that value to the marketplace like no one else, and we’re very excited about the potential and the opportunity we have there.

So, now I want to talk to you about FY ’08. I gave you some of the big dogs, Dynamics, I give you Windows Server 2008, a new revolution of SQL Server, another release of Visual Studio. What else? What else? What else?

Look at this. It’s turned out to be another eye chart. And there’s a lot of speakers that are going to come up over the next couple of days and talk about these specifics, but I wanted to show you this because it’s unprecedented. This is not the FY ’07 slide again with a different heading; these are all new products that we’re bringing into the marketplace this next year. What an exciting time from innovation; I mean, these are wave after wave after wave. And I think it’s important as you bet on a company and you make your choices to align with partners that you look at the companies that are committed to delivering that consistent innovation so that we can bring that into the marketplace.

So, that’s our long term approach to innovation, two wonderful years, two unprecedented years for us to be able to really drive and accelerate our monetization, because I do believe again we’ve never had the opportunity. And this is a slide that I’ll use with our field sellers and use with all of our partners around the world; this is the year we accelerate that monetization. FY ’07 was a very good year. We’ve got the tables set to make FY ’08 a great, fantastic, unprecedented, historic year with the products that we’ve got in the marketplace, and the power of the partner ecosystem that we have, which brings me to the partner ecosystem, which I believe is the second competitive Microsoft advantage that we have.

I’ve told you about the lessons that I’ve been told right when I came to Microsoft about the partner ecosystem and the importance of it and nurturing it, and making sure we extend our applications to more and more third parties.

Well, guess what, we can’t talk about partners in general without getting somewhat specific. So, we have eight different partner types, all different shapes and sizes around the world, with all different competencies and specializations that we’re driving that.

And when you think about the opportunity that we have with 600,000 partners, some partners selling through partners, partner to partner, partner direct, partner with Microsoft, and we have over 160 million customers around the world, that equals a competitive advantage. No other company has built their company to this size with the partner ecosystem that we have. And so we get the fact that partners are key to Microsoft’s long term success, and that’s why we’re so committed to you as our partners.

And as I look at this growth formula in terms of capacity and productivity by type and competency across the globe, I just see opportunity. I see opportunity for us to continue to do more to drive that competitive advantage.

Again those are big numbers, and as Allison will tell you, I like to get down to specifics on how are we going to measure. And so we’ve worked hard to create a partner dashboard for you where each one of you can look at your data and only your data. But on our portal we’re going to make available to you what the best of class partners within your partner type are doing, and how do you benchmark yourself against the very best, and that’s the target column on this slide.

So, we’re going to have that visibility for you to help you hit the profitability, to help you hit the metrics so that when we sit down to have a partner roundtable, one year from now my goal is every partner roundtable I have I’m going to start with the partner dashboard, you’re going to have your copy, I’m going to have mine, they’re going to be the same copy, so we’re not going to have to reconcile the data, and we’re going to work through how do we grow your business together.

Do you think that’s going to make a big difference out in the field as our field tries to help you and you try to look at your opportunities? That was a question? (Applause.) It will make a huge difference, and it’s just getting started.

But we’re not stopping there. We’re extending that dashboard to our subsidiaries so that all the country managers are going to get measured on how well they support our partner ecosystem. And so when we sit down for our reviews with our country managers, we’re going to start with the partner dashboard and talk about the ecosystem and how well they’re nurturing the ecosystem within their subsidiary, and we’re going to hold our teams accountable for helping you be successful.

And Allison talked about the profitability model, and when you think about this idea of how do I increase revenue, how do I enhance our processes, how do I get the tools, making that easy for you, I just want to remind you we’re just getting started at this, and we’re going to remain committed to providing these profitable business opportunities for you.

Now I want to talk about software plus services. You know, this is a huge transformation that our company has made the decision to transform themselves into being software plus services, not software as a service but software plus services, and that’s an important distinction, and I’ll talk about that in a second.

But we believe we’re the company that’s uniquely positioned to deliver this software plus services into the marketplace by extending our software from 100 percent on-premise to 100 percent hosted.

And the easiest way that I like to think about it is this chart. When you look at the three different models of on-premise, a hybrid approach, or a pure software as a service approach, that this hybrid approach of software plus services offers the greatest flexibility and control of IT. And we’re going to enable the partner ecosystem with software plus services.

But this is a hard transition. It was a hard transition for us to accept a couple of years ago, and it is one that’s in full steam ahead at Microsoft, because it’s a new business model. And this is part of change, and change, ladies and gentlemen, is tough, it’s difficult, it’s hard sometimes. But you know what, we have to change faster internally than the world is changing externally or we will become obsolete.

And so this importance that I want to bring to you on this is I have a lot of partners ask me in these roundtables, “Why are you getting into software plus services? I don’t want any part of that. That’s a different model than I’ve used in the past.”

My call to action for you today is, look, this is going to happen. The opportunity is here. We need to build the door and go through that door and reach that opportunity.

But software plus services is imminent, it’s going to happen. It doesn’t mean the traditional client-based software or locally based software is going to go away, but the customer is going to want the choice.

And so I encourage all the Microsoft partners — we’ll help you, we’ll work with you, but this change is going to happen, and I encourage all of you to make that change with us, and make sure that you’re looking at your business model that way.

Now I want to announce a software plus services opportunity. It’s the greatest example I have of where we’ve extended our traditional software into a software plus services offering. And so when you look at our Office Live partner opportunity, we have an install base of over 400,000 small businesses right now that have taken us up on it. And like we just talked about with Dynamics Live CRM, like we just talked about available on Microsoft Marketplace, partners are going to be able to write applets that we’ll host, and we’re going to continue to drive and get further and further in our reach for these small businesses.
So, we believe today that just like Live CRM it’s another example of how we’re extending our traditional software into the software plus services area. Office Live, as you all know, offers the basic IT services, ad-funded, free Web sites, workspaces, customer management, tools and more, all kinds of things that it gives small businesses today, and there’s different monetization models in it.

And if you look at where it’s going, I mean, this past year we were in one country, we’re going to five more big geographies this year. So, this thing is just starting out, and it’s starting to explode.

So, I encourage all of you to take a look at Office Live, build solutions, learn more, profile your business around this solution and service, and help us get the reach out to small business.

We fully believe and expect in two or three years Office Live will be one of the most deployed, most utilized of all the products that we have in the Microsoft portfolio. Certainly it won’t be as big as Windows in a couple of years, but we do believe it will reach our top three or four largest deployed applications that we have around the world. There’s millions and millions of small businesses that we can reach, and we’ve got a big opportunity to drive it with Office Live, and there’s a huge opportunity for you as partners to participate in it.

Now I want to talk about the fourth advantage that I believe we have, and it’s called multi-core. There’s a lot of multi-core in the marketplace today, but simply stated I wanted to talk you through how we invest that $7 billion plus every year.

You know, we started out as a client desktop company 32 years ago, and built a very successful and promising business. Certainly this last year has been an unprecedented year for Vista and Office and the launch. And we are still committed to the desktop. There will be another release and launch of a Vista type operating system. There will be another release of Office, and we’re going to continue to invest in that, because the customer wants a choice.

The second pillar of the company, 10 or 11 years ago, when I was a big enterprise customer at the time, people said, “Microsoft, why are you getting into the server business? You’re a desktop company.” Well, today the fastest growing business that we have, both from a revenue and a profitability standpoint, is in the server and business applications space. It’s the fastest growing from a revenue and a profitability pillar in the company, and it’s a huge opportunity, and we’re winning share and earning share with customers by delivering the value into the marketplace, and we’re going to keep investing.

The third area is entertainment and devices, and that’s where Xbox lives and Zune and Microsoft TV and Windows Mobile and games and Entertainment Room and IPTV and all the things that go into that, lifestyle technologies, and that’s an important arm for us. This is an arm that we’ve done a lot in the last three years to grow share, and what we’ve got to do over the next three years is find a way to get profitable. We’ve worked hard to grow share, and we’ve got great solutions in this space, and the next challenge for us is to get profitable in this particular pillar. And it’s an important pillar because Bill’s vision for the company has changed, and I’ll talk about that in a second.

The fourth one is software plus services. And those of you who have been around IT a long time like I have remember the days when people said, “Well, everything is going to go 100 percent thin client; well, everything is going to go 100 percent Java; everything is going to go outsourced; everything is going to go insourced.” That’s hype. Another hype is everything is going to go to software as a service. We don’t believe that’s true. We do believe somewhere in the middle, like has been true in the past, is true, that the customer wants the choice to host it, to have a partner host it, perhaps to have Microsoft host it. Delivering that choice is what our software plus services strategy is about, and it’s why we differentiate it in the name, is that it’s about extending our solutions to where the customer wants a choice.

So, we invest across those four pillars. Thirty-two years ago, Bill’s vision for the company was put a PC on every desk and in every home. And it’s not that that vision today, ladies and gentlemen, is completely fulfilled, because we still have work to do, but the fact of the matter is it’s largely fulfilled in mature markets and well on its way in the other markets.

And so he’s given us a new vision and a new aspiration, and his vision and aspiration for Microsoft is we need to be the one company in the world that can connect the digital work style and the digital lifestyle and bring it together. And that’s why we have a multi-core innovation approach to allow partners to build an ecosystem around how they choose and where they choose to give you the choice. And this newest pillar of software plus services is going to open up a whole new opportunity for existing partners to extend their business and a whole new opportunity for new partners to come along and create value in the marketplace, and that’s why it’s so exciting to us.

Now I want to talk about people, and I want to talk about the fact that we take our multi-cored approach, and we’re transitioning from a product-centric company to a People Ready company. We talked about People-Ready Business last year and driving real world business processes, and this helps us move from that product-centric company to a solutions-based company.

And when you think about our optimization model here on the right of your screen, we’ve had wonderful success by working with our customers and our partners and working through where customers fit within the lifecycle of basic, standardized, rationalized and dynamic. It’s been one of the most successful things that we’ve put from a monetization and a value-add framework that we’ve put in the marketplace. And it resonates with customers because it’s in their terms, and that’s the competitive advantage that we have with the People-Ready Business, and we’re going to stick with it, and we’re going to continue to feed it and grow it on the commercial side.

When you say how does that snap to partners, the feedback we get from you are, “Look, I need to play my business for investments, I need to be able to grow and enable my business, I need a solution visible to the marketplace, I need to close more deals.” You’re going to hear others talk about the ecosystem investments that we’re committing to you to make to continue to grow profitability, to continue to get after new opportunities as they come along, to continue to compete in new ways, and to bring things to the marketplace that we’ve not brought before. But we’re committed to the People-Ready Business for partners and customers.

And so let me end with people. I think there are three things to boil this down that we want our partners and our sales teams to focus on, three things at the highest level that we need your help. The first is execution. And when you think about execution, and you have to understand I’m a guy who loves execution, okay, I love execution. In fact, there’s a guy named Craig Mundie who’s our head of strategy and research. He works on long cycle innovation. And he and I have a lot of fun all the time, because one of the things that we’ve kind of coined, and it’s been said different ways by different people, but one of the things we’ve coined is that strategy without execution is hallucination. And we don’t want to hallucinate, we want to monetize that.

So, this gets back to sell, sell, sell in the marketplace, that we do a lot of great things for the world, but we’re not a 501(c) nonprofit organization. We’re here to sell stuff. And making sure that we continue to drive that and ride the momentum that we have with that unprecedented innovation wave is something that we’re very focused on.

The first one is execution, sell, sell, sell, get out there and help us sell it, and create that value in the marketplace.

The next one is we will compete to win. You know, Steve talked a year ago about, look, we’re getting into some space where you’re going to have to choose. We’re getting into security, we’re getting into unified communications, we’re going to bump into Symantec, we’re going to bump into Cisco, we’re going to bump into SAP; that’s the nature of it. But we’re going to compete to win and let the customer decide. We’re going to compete, we’re going to be tough minded about competition. We want to win. We’re going to be tough minded about winning, but we’re going to compete fairly and respectfully and earn the business with customers.

But I want to show you, because I get asked a lot, “Well, hey, how are you doing against Linux and open source?” Well, look at this IDC chart that we’ve got where you can see the fact that Microsoft’s install base is massive but still growing at a great rate. And Linux has experienced good growth, quite frankly, on their base. Let me give you one other quote: For the first quarter since IDC began tracking Linux server spending, that Windows Server revenue has grown faster than Linux server revenue, May 27, 2007. So, we’re taking share, winning share. That’s a big deal. (Applause.)

That’s a big deal. Competing with the perception of free, when we all know it’s not free is something that we’ve got to keep working on.

So, now our opportunity is to go win HPC and Web workloads this next year. We need your help. We’ve got a great high performance compute cluster solution out there that saves people money, that’s an incredible opportunity for us to get after HPC workloads, and get after Win the Web workloads, and we need your help. And so that’s a call to action as we continue to change the momentum as it relates to Linux and Open Source.

And you all also asked me, “Well, hey, what’s the field going to be compensated on in FY ’08? You know, you’re making a lot of changes; what are you compensating them on?” Well, this is what hits the wallet right here. Look first of all at overall customer satisfaction, and I’ll talk about that in a second, but the fact of the matter is the reason we’re here is to serve customers and create value.

But look at number two. They’re going to get compensated on how well they take care of our partners. Yes, every subsidiary, every country manager is going to get compensated on that.

Windows Server, new license growth, so that’s growing share, winning share, working, earning, competing out there, going right at Linux. Enterprise search design wins, winning in the enterprise against Google Enterprise Search, and anybody else that comes along; winning enterprise search, it’s important to us.

As you look at Cisco, growth in voice capable organizations and sockets. We’re getting into unified communications. We’re going to partner some with Cisco, and we’re going to compete with Cisco. We’re going to save people money with the Microsoft solution; you can bet on that, and we’re going to continue to do that.

We’ve talked about Office SharePoint Server licenses and growth and getting after IBM, Notes, and making sure that we compete to win in that space is an important one.

ERP, new customer adds, that’s right at Dynamics. We’re compensating our country managers on helping us get more new Dynamics customers up and running.

Security revenue, here it comes, here comes the security launch that we talked about with Forefront and Security Center, and where we’re going in that entire portfolio and suite. We’re going to goal every country manager on growing and bootstrapping that new business.

And SQL Server revenue growth, you’ve got the big launches this week, and getting after Oracle on database share, and getting after IBM on database share, and winning the database because we’re saving people money.

So, I wanted you to see the key metrics that your field, the people that support you out in the world are working on, and what they’re going to be compensated on this next year. So, we’re going to compete, compete with a tough minded approach to winning, and compete fairly and respectfully.

This third thing I talked about was we have to take making sure that we take care of our customers a personal obsession. You know, I think we can improve in this area. I think we, Microsoft, can improve in this area. That’s why it’s at the top of the list. We’re not going to let our competition outrun, outthink or out-hustle us as it relates to taking care of customers. But you know what, you call on a fair number of our customers on our behalf, and so we need you to make taking care of our customers a personal obsession. We’re asking you to adopt that and take customer service and customer satisfaction with us to the next level, and tell us if you need help. And I’ll share with you my e-mail and my phone number in a minute, but I want to know if there’s something in the way of you taking care of a customer and treating them the way they should be treated, I want to know about it. That’s how serious I am about us taking this idea of exceeding the customer’s expectations to the next level.

So, those are the three things. And so this is the Microsoft advantage.

Now, I put this up here to tell you a lot of things. One is we’ve got a big, lot of room for improvement. I tell our teams the biggest room in our house is the room for improvement. And we’re going to keep pushing and keep getting better, and we need the feedback. But I hope you take away that we’re very committed to winning with partners. We’re in it to win it with partners, and that is the way that the Microsoft company was built, and that is the way it will continue to run.

Now, as I get to travel around the world, I see special stories, and I see these stories about how partners have worked with small businesses or nonprofit organizations or special situations or schools or largest enterprises of where Microsoft and partners coming together to help people make a difference. And then I’m often reminded that you know what, people need to be reminded at times what’s special about them, and what’s special about the company they chose to work with and for.

So, I want to share with you a true story of what Microsoft and a partner in Vietnam were able to accomplish for a small business person. Please roll that.

(Video segment.)

KEVIN TURNER: What do you think? (Applause.) They’re here; let’s give them a hand, let’s give them a hand, that Microsoft partner that did a great job there.

That’s what it’s about, ladies and gentlemen, helping other people, succeeding in life by helping other people, enabling people and businesses throughout the world to realize their full potential. That’s the Microsoft mission statement, it’s the Microsoft partner ecosystem mission statement. We’re in it together.

Focus on three things: execution, sell, sell, sell. Focus on competing to win. Get out there and compete fairly and respectfully, but compete. And thirdly, let’s make sure we take care of those customers and each other.

And I’ll tell you, we’ll win as a company, we’ll win as a community, and we’ll win together, because we’re set for one heck of a great year this next year. This is the year that I think we can go knock it out of the park, and I encourage all of you, if you need something from me, right there is my e-mail address and my phone number. If I can help you in any way, I want you to know I’m available to you 7 by 24, because I have Windows Mobile with me at all times. (Laughter.)

Again, go knock it out of the park, build your business; we’ll be there for you, and thank you for what you do for Microsoft and for our customers. (Applause.)