Kevin Turner: CeBIT Global Conference

Remarks by Kevin Turner, Chief Operating Officer, Microsoft Corp., on how IT is changing the world of business
Hannover, Germany
March 3, 2009

KEVIN TURNER: Well, good morning. It’s great to be here today, and certainly I really appreciate the opportunity to be at CeBIT 2009.

Having been here before, I continue to be deeply impressed by the sheer size and amazing quality of this wonderful event. It’s truly one of the world’s premier technology events, and I’m both honored and humbled to be asked to come back and share some remarks with you today.

Today, I was asked to share my perspective on the economy and innovation, two things that I spend a fair amount of time really thinking about, working on, and certainly forming opinions.

With the global economy reeling in the face of the most challenging macroeconomic environment we have ever seen, I would like to focus on the critical role that technological innovation can play in helping to restart long-term growth, and the positive impact that innovation and technology can have on society as a whole.

But before I start with my remarks on the economy, I do want to make one thing clear upfront: I don’t claim to be an economist. But every prudent businessperson that I know needs a model to understand what’s happening in the economy and how it will affect his or her business, and more importantly how it affects its customers. I’ve certainly been thinking and working a lot on this in terms of the impact the economy will have on our business at Microsoft, and how we can help our customers to not only weather this storm, but how can we help them to thrive in this environment.

I don’t think there is any disagreement in this room about the current economic climate. It’s without a doubt the most challenging that any of us have ever faced in our lifetime. The rules of business have changed, and the ideas and business philosophies that have been propelling business for the last 10 years have become unraveled, and new ones must be created.

I won’t discuss the need for more stringent regulations on the world’s financial institutions and credit markets, other than to say it’s needed and, in my view it should and will happen.

In the past 10 years we’ve seen a phenomenal expansion of wealth across the globe. The rise of the middle class has been exponential, and this overall wealth creation has been fueled by three things: certainly innovation, the globalization of markets, and lastly the increasing of consumer debt.

During the last quarter century, the average incomes around the globe have grown at rates never seen before in the course of human history. Hundreds of millions of people have risen from poverty to join the middle class for the very first time.

Technology was at the heart of the innovation that drove this transformation. The PC, the Internet, e-mail, fiber optics, accessibility of information, mobile devices, et cetera: All of these things were at the center of a changing world and a growing economy.

Important contributions to technology that drove this progress can be traced to the work of inventors, engineers, and scientists at innovative companies around the world, including here in Europe, companies like Siemens, Nokia, and many more.

But over the last 10 months, the situation has changed dramatically. Today, we find ourselves confronting what I think we all agree is the most challenging macroeconomic climate any of us have ever faced.

The latest economic news only serves to reinforce the severity of the situation. On last Thursday, we learned that the U.S. economy declined by an annual rate of more than 6 percent during the last three months of 2008, the worst showing in more than a quarter century. Unemployment has risen to 7.6 percent, a 16-year high. Here in Germany the economy contracted by more than 2 percent during the fourth quarter, and the jobless rate climbed to 8.5 percent. And similar to the US, a recent survey of German business leaders shows that confidence in the German economy is at a 26-year low.

At Microsoft we’ve been studying these fluid macroeconomic developments in the global economy. We believe that while this may be a once-in-a-lifetime macroeconomic event, it is also a once-in-a-lifetime opportunity. We see this as an opportunity to learn and adapt our business model so that we can better serve our customers. And it is also a chance to deliver new innovations that will help our customers create new business models so that they may thrive in the new economy.

And this is at the heart of want I’d like to convey to you today. My firm belief is that technology and innovation will continue to play a key role in helping us first to stabilize the current global macroeconomic crisis, but then to rebuild it into a prosperous and sustainable future.

Now, when we think about the economy all up, we like to think about it in terms of an economic reset. I believe that we are all clear that we’re not going to return to an environment of growth and prosperity overnight. The current recession will be deeper and last longer than those we’ve seen in the recent past. The reason this is true is that for the past decade one of the key drivers of growth has been private debt, and this was certainly the case in the United States. For 10 years, people have based much of their spending on the belief that housing prices would continue to go up, but the economic growth built on private debt rather than innovation and productivity is not sustainable.

As a result, what we’re seeing now is a fundamental economic rest. The economy, including the U.S., will have to re-establish itself at a lower level of consumer and business spending that reflects the real value of underlying assets rather than how much debt can be taken on. Only when the value of assets and the balance of debt reaches an acceptable level can the economy begin to grow again at a healthy rate again.

It’s impossible to say how long it will take for the economy to reset. Certainly the remainder of this year will continue to be challenging. Fortunately, the discipline of economics has advanced considerably over the years, and we can only hope this will drive a faster turnaround than we have seen in previous economic situations.

On a positive note, the other two factors that helped create widespread prosperity in recent decades still remain. One is the globalization of markets, which helped drive economic growth since the early 1990s. That will continue to have enormous influence. People have seen how free trade and our interconnected economies, while not perfect, have helped improve the quality of life in nearly every corner of the globe.

But innovation is the foundation for progress and recovery. This is the powerful driver of recent economic growth, and it is the acceleration of innovation through technology that we believe will carry us into the future.

Innovation has always been at the very core of economic and social progress. Fundamentally, a good answer to today’s economic crisis is innovate your way through it and out of it.

In my view, while this is a good time for companies to cut costs and become more efficient, we also see the market leaders investing, investing in innovation so that they may innovate new business models and new customer scenarios.

Because a crisis is a terrible thing to waste. This crisis represents an opportunity for leaders to drive urgency and action and decision-making throughout their organizations.

You may have heard that Microsoft has announced some job eliminations as part of our plans for better aligning our investments with our priorities, resulting in strong cost saving actions across the company. What you may not have heard is that this alignment and realignment will also allow us to reassign some employees to new priorities, and that we may create 2,000 to 3,000 new jobs over the same timeframe as we continue to invest in new growth opportunities.

Microsoft is a company that believes and bets on innovation. Last year, we spent over $8 billion U.S. in R&D, including significant investments in places like our Microsoft Research facility in the UK and our Search Technology Center in Munich. We continue to focus heavily on basic research projects that may not be commercialized for a decade. When other companies and governments have been pulling back, we’ve been increasing our investments.

Despite this tough economy – or maybe even because of this tough economy, we’re going to invest a record $9 billion U.S. this year in research and development, more than any technology company in the world, because we know all along that leadership and courage, along with innovation, is what it’s going to take for both Microsoft and our customer base to emerge from this crisis both sooner and stronger.

We’re investing in innovation because we believe our industry stands at the threshold of a new revolution in what technology can do for people. We saw this kind of transformation when graphical user interfaces helped popularize the PC. We saw it again with the emergence of the Internet. And now we’re on the verge of the next big wave of technology transformation.

We believe there are a number of technological trends that will combine to make this transformation possible. The first one that is emerging for us is increasing ubiquity and the power of computing. Today, a laptop has more computing power than a mainframe did at the beginning of the PC era. Our mobile phones and mobile devices are more powerful than PCs were at the beginning of the Internet era. But over the next few years, we’ll take a leap into uncharted territory as multi-core PCs and devices become common and we develop new ways to write computer programs and software to take full advantage of this new computing power.

This will lead to breakthrough applications that are more intelligent, more aware of their environment, and can anticipate the information and capabilities you need, based on what you are doing.

The next few years will also see dramatic change in the way that people interact with technology. Touch, gestures, handwriting, and speech recognition will become the second emerging trend, and it will become a normal part of how we control and use our devices.

Today, for example, you might surf the Web because you want to buy insurance or you want to buy a new car or maybe a new house. Today, this process is manual. You’ll type in a set of search queries, collect some data, take some notes, and then try to assimilate the information into your decision-making process.

In five years, it’s likely that the software will be much more sophisticated. You’ll say to the computer: “I want to buy a new house.” You’ll converse with it much like you would a person, whether literally or through spoken word or perhaps through other mechanisms. And you’ll describe what are some of the goals that you have for this new house, and the computer will help you fulfill and find the house that you need.

And, think about people who today still don’t even have access to computers. When we think about the fact that a billion people every single day use Microsoft software, we’re also energized by the fact that there’s over 6 billion people in the world, and that we’ve got to find ways to go after and target the 5 billion people who need to utilize our technology on a daily basis.

And when we think about that in five years’ time, we think there will be billions more able to use computers to do things that today are just not accessible to them. You might find a computer in a rural environment that would be assisting people with educational tasks or otherwise where they have very weak teaching capabilities. Or you might find a medical doctor in a box, so to speak, in the form of a computer that could help people with basic, non-acute care, and medical problems that today they can get no medical support for.

As part of that exponential growth in the computing power, in the next few years we’ll also see dramatic changes in the way people interact with technology. Touch, gestures, handwriting, and speech recognition will become a normal part, as I said, of how we control these devices.

It may also sound a bit like science fiction, but we’re rapidly nearing the time when interacting with technology will be a lot like interacting with people. This will make technology more accessible and simpler to use, and will unlock the potential of computers and devices to help individuals and communities solve tough business and societal problems.

A third trend that we’re seeing is related to screens and displays. During the next few years, high-definition screens and displays will be cheap, light, and more portable. They’ll be embedded in walls and table tops, and you’ll be able to carry one that folds up or even rolls out in your briefcase or purse.

These trends will all combine and help us create a single computing platform that extends from PCs and devices out to the massive storage and computing capacity of giant datacenters.

This will enable us to transcend the barriers between devices, and unlock the movement and accessibility of information, while we create experiences that reflect what we want to do, rather than the limits of technology.

We’ll be able to connect seamlessly to the people, information, and applications, no matter where we are or what device we are using. This is important, because as computing becomes richer, more pervasive, and more universally useful, it will enable every citizen to be an active participant in the global economic recovery.

As business leaders who can drive technological innovation, we can amplify the abilities of individuals, organizations, and nations to tackle pressing social problems including education, renewable energy resources, and health care.

If you examine environmental sustainability as an example, information technology will help people and companies control their carbon footprint and reduce their environmental impact. Here in Europe, Microsoft has been working with AKQA and the auto manufacturer Fiat to develop Eco:Drive. A first in the industry, Eco:Drive provides drivers with data about the link between their driving habits and their car’s performance. Drivers can use that information to improve fuel efficiency and reduce CO2 emissions. In fact, with consistent use of the application, you can expect to reduce your CO2 emissions by up to 15 per cent.

Another piece of environmental technology of critical interest to Europe, where GRI-based sustainability reporting is very strong, is our Environmental Sustainability Dashboard, which is based on our Dynamics product. This streamlines the collection of data on four of the Global Reporting Initiative G3 Environmental Performance Indicators relating to energy consumption and greenhouse gas emissions. It is vital technology available to the environment and sustainability reporting.

Another area of great impact is healthcare, where strong innovation is leading to more efficient and personalized treatment.

Microsoft is working with one of our best partners, Intel, and we’re working together with the hospital chain Asklepios in Barmbek on a project called OneIT that uses a common technology platform to improve patient care. By working closely with independent software companies like SyynX Solutions, we are helping to set new standards in hospital treatment throughout Germany.

Studies show the strongest benefits of this technology project are being realized by patients. Something as simple as the time it takes for physicians to access patient records has been reduced from nearly an hour to less than a minute. Physicians can now access radiology results 89 percent faster and laboratory results 75 percent faster.

This technology-driven transformation will also have a dramatic impact on businesses around the world. The ability to deploy and manage applications in the cloud through massive datacenters built by companies like Microsoft is already enabling companies to access incredible amounts of computing power and use exactly the solutions and resources they need, when they need them.

Today, companies around the world are taking advantage of cloud-based versions of many of Microsoft’s most important business products, including Exchange and SharePoint. Part of our Business Productivity Online Suite, which we launched yesterday here at CeBIT, these applications are designed for the Internet, hosted by Microsoft, sold through our partners, and delivered as subscription services. They enable companies of all sizes to add new capabilities quickly and in a way that is extremely cost effective.

These are just a few examples of what we’re seeing today as our customers invest in innovation to grow their market share and position themselves to emerge from this economic downturn in a positive way.

But these examples, they’re only the tip of the iceberg. The truth is the transformation is just beginning, and we can only guess what will be possible in the future. Every time a new platform emerges, it serves as a catalyst for an incredible outpouring of new ideas and innovations that expand the universe of what is possible. This is the real foundation for sustainable growth and long-term economic prosperity.

To help articulate this vision of what is possible, I thought it would be helpful if I brought along a short video that last week we shot in Redmond, where we hosted an event called TechFest. This is where our researchers from around the world show off some of the great ideas and innovations that they are working on. And, in fact, you may have seen an article in today’s International Herald Tribune highlighting a few of those innovations.

While this video will give you a glimpse of the future and some of the scenarios where we see technology changing, I can attest to the fact that some of these technologies are already alive and well in the Microsoft Research Labs.

So, please roll that video.

(Video segment.)

KEVIN TURNER: So, I want to close today by telling you that I am optimistic about the future of technology-driven innovation and progress. But there is no doubt that we will still need to find smart ways to respond to the current difficult macroeconomic environment. We need to do the hard work to understand the issues, the historical data, the areas of potential innovation, and the current solutions in the context of our new circumstances.

As I said earlier, we’re in the midst of a once-in-a-lifetime economic crisis, which in turn is also a once-in-a-lifetime opportunity to think carefully about what our priorities should be and make the investments that will put us on the right path for the future.

I have a very close relationship with my father, and this period of economic uncertainty has taken me back to some of the lessons that he tried to instill in me when I was growing up. He was a hard worker and he always taught me that when opportunity doesn’t knock, you have to build your own door.

Well, Microsoft is committed to innovation and to the building of doors that will enable opportunity for our customers, our partners, and for our company. We will deliver innovative new versions of Windows and Office for the PC, mobile devices, we’ve embraced cloud and cloud based services, and we’re very optimistic about the potential for innovation to make a difference in society.

Ultimately, our goal is to deliver great software solutions that will help our customers and partners save money and create business value so that they can continue to succeed during the current macroeconomic situation, and then thrive and grow through the ongoing innovation as the global economy begins to turn around.

Now, with that, I’d like to thank you again for the opportunity to be here today, to share these remarks about what we’re doing as a company, as well as the position that we see from a macroeconomic standpoint, and I believe that Stefan is going to come up and we’re going to take some questions.

Thank you very much. (Applause.)


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