Remarks by Kevin Turner, Chief Operating Officer
July 14, 2010
ANNOUNCER: Ladies and gentlemen, please welcome Microsoft’s Chief Operating Officer Kevin Turner.
KEVIN TURNER: Good morning. Let me try that again. Good morning. (Cheers and applause.) All right. We’ve got to get the energy up in this place. That’s my job, to wrap up this conference with energy. And this is my favorite meeting to go to all year long, because I spend more time with this audience, with customers, and in strategy sessions with partners than any other audience we have in our company. So, I’m really, really proud to be here today, and I’m really proud of what I’ve got to share with you, and sort of wrap up this whole conference, and hopefully pull it all together for you so we can crystallize what we’re going to go do this next year to really win in the marketplace.
Before I do that, though, I’ve got a couple of very special thank yous that I want to give out. One is to Allison Watson. Allison Watson has been your champion. I don’t know where Allison is, if they’ve got a light on her. (Cheers and applause.)
Allison has been your champion in our company for over the past eight years, and has done a phenomenal job, a phenomenal job. And she’s really taken this audience, and this conference 130 countries represented here, our highest attendance ever in the history of our partner conference. A lot of that is attributed to her leadership over the past eight-plus years, and I’m really proud that Allison has earned the opportunity and the right to go broaden her leadership skills, and learn a new area, and a new business, and make a contribution there. And so, let’s appreciate and thank Allison for me one more time wherever she is, hopefully she can hear that. (Cheers and applause.)
I’m also excited to get Jon Roskill going. You’ve seen him throughout the partner conference, and clearly he’s another talented leader that we have in the company, and he comes in with a very deep resume of really understanding Microsoft, and really someone who is going to help us continue the progress we’ve made with our partner channels, and take it to the next level. So, you’ll get to know Jon a lot better as the year goes on. But, clearly, I’m excited about our company giving these two very talented leaders the chance to cross-pollinate and develop themselves in other ways in the company.
As I jump in today, clearly the title of my presentation is betting big on cloud services. And it’s a very important thing. You’ve heard the cloud all throughout this conference. The other thing I would tell you is, as you think about all of the things that we’re going to pull together, I’m going to try to put it into action-oriented terms for you, so that we can really walk out of here aligned, both the Microsoft folks in the audience, as well as all of our partners around the globe, because I think this is a very important, really inflection point for both our partners and Microsoft as a company.
And as I do that, I want to remind you of what I told you a year ago. A year ago I told you that we were going to have a five-point game plan to really weather the storm in this macroeconomic environment, the greatest single financial economic turmoil situation that any of us had seen in our lifetime, and what a big opportunity it was.
And I outlined this five-point plan. And one of the key points on this plan is the importance of growing market share. And I talked to you at length last year about, gosh, we’ve got to find ways to get out and grow our market share. Well, you know what, I’m going to share some market share numbers with you in a moment that’s going to rock your world. We’ve got some incredible progress on market share, ladies and gentlemen, and I’ll tell you what, if you look all up, 13 of the 15 key areas that we track in our company, we grew market share this past year together with you, our partners. Give yourself a hand for that, that’s a very big deal. (Applause.)
Now, the two areas we didn’t grow market share. One is mobile, and I’m going to talk about mobile, and Steve talked about mobile on day one. The second area is browser. But, you know what, in May and June, we’ve reversed the tide on browser for the first time in many years with IE8. And I’m going to show you with IE9 how we’re going to take that to the next level, and really make a lot of progress this year. So, browser, from a trend line perspective, has turned. We’ve grown share the last two months, and that’s only the beginning because IE9 is going to be a very, very strong release for us.
And so, when you think about that, what an incredible performance, because what I told you a year ago was, winners and losers in this macroeconomic environment are going to be determined by who is growing market share, and who is not. And that’s precisely what we were able to do together.
And that was not possible without your hard work, your dedication, and the dedication of your teams. And so, we owe you a big debt of gratitude to all of us for helping get through this very, very tough and difficult environment. So, really thank you for your time, thank you for your hard work, thank you for your participation in this conference, and thank you most of all for your partnership and belief in Microsoft, very, very appreciated. (Applause.)
Now, as I set up where we’re going and this idea of betting big, I’m drawn to the fact that 35 years ago, Bill and Paul Allen started our company on a dream, a dream that said, we’re going to put a PC on every desk, and in every home. That dream was so far-fetched 35 years ago people thought they were crazy. And think about what has happened in the world in the last 35 years, and all the different changes that have happened, graphical user interface, client server computing models, the explosion of the Internet, Web-based applications. So, what an incredible opportunity and what an incredible blessing this particular aspiration was for our company. And then when you think about where are we going, where are the customers going? It’s amazing when you think about all of the things with where we’re going, and you think about the next big transition.
Ladies and gentleman, we’re going to a new world. We’re going to a world where not only will every device be connected, but every application, and more importantly every person will be connected. We’re going to a world where you will live, where how you live and how you work, the lines will be blurred, because lifestyle and work style are becoming more and more connected.
We’re going to a world where customers don’t want to do upgrades. They don’t want to have to do maintenance. We’re going to a world where the technology is going to predetermine your intent and productivity is going to explode. And we’re going to a world that at least for the next 20 years, for the next 20 years we’re going to be working on this next big aspiration for our company, because at Microsoft big aspirations have always fueled our company.
We have six values, ladies and gentlemen, as an organization. One of them is believing in big, bold goals. That’s formally written into our aspirations as an organization. And our big bold goal for the next couple of decades is we want to have a continuous cloud service for every person and every business. And that should tell you, Microsoft is all in, because we’re going to a world of smart clouds talking with smart devices. That’s where we’re headed.
That’s why this is so exciting. And this unlocks an unbelievable opportunity for partners, an unbelievable opportunity for new markets to get made, an unbelievable opportunity for new revenue streams. And I’m going to talk you through at least some of those, but this is going to be a multiyear journey. We’re not going to accomplish this in FY ’11. We’re going to be working on it for the next 20 years, and we’re going to make progress and you’re going to see the progress we’ve made to date is unprecedented. We are in this game in a huge way.
I’m going to talk to you about what we have today that, candidly, blows customers away when we’re able to show them and tell our story. So, we’re headed to continuous cloud services for every person and every business around the world. There are six-and-a-half billion people in the world. And there are billions of businesses. Let’s go get them. That’s a big opportunity. That’s the big bet that we have together.
So, when we re-transition our company we look at these top products that we have, Windows 7, Office, Windows Server, SQL, Bing, Xbox, and Windows Phone. These are the most strategic products that we have. We have some others that are critical that actually support these products. And we took a look at these products with Windows 7. We’ve got great new releases of Windows Live, a cloud service, coming out that actually makes the Windows experience incredible.
Office 2010 with Web Apps, we now have it in the cloud. Windows Server and SQL Server, we’ve got Azure. When you look at Bing, our decision engine, what an incredible cloud service it is. Xbox has Xbox Live in the cloud, an online gaming service. And Windows Phone is going to connect in an incredible way a whole litany of applications, marketplaces and cloud services. So when you think about us being relevant across together with partners, the PC, the mobile device, the television, the home in the living room, yes with on-premise, and also with cloud services we’re betting big. And you saw yesterday our consumer story, and let me just give you an update on where is Microsoft on the consumer cloud services. Well, guess what, we launched something called Windows Live not too many years ago. We already have 530 million Windows Live IDs. There’s a little over a billion people on the Internet. We’ve got over half of those already, with the Windows Live ID.
Now, the salesperson in me says, let’s go get the other 500 million. So, that’s a go do for all of us. We’ve got to figure out how to get that done, 368 million people using our mail, 303 million Messenger users, 303 million Messenger users. Think about it, 459 million MSN users, 25 million people pay us a subscription fee for Xbox Live, 2 billion calls a year are handled with our TellMe voice automation software. And then our ad platform, and Zune, our music and movie platform, and you look at that, and Bing handling over 4 billion worldwide queries per month, we’ve got some incredible consumer cloud services, ladies and gentlemen, that are going to serve us and are serving us extremely well when we flip to commercial cloud services.
So, when you think about cloud services, I want you to keep it in two buckets, consumer, and I want you to talk about commercial, and they’re separate, but they do come together. When I talk about commercial cloud services, this is what we will have in market this year. This is not a three-year road map. This is not a five-year outlook. This is not some place we’re headed. This is where we are today. We are the undisputed market leader in commercial cloud services. And when I talk to customers and partners alike I start with productivity. I go to communications, I go to collaboration, I go to business applications and desktop management, identity and database, and platform.
People have wanted Office in the cloud. Office 2010 is now in the cloud. People have wanted the ability to have online communications, OCS, and Exchange online in the cloud, Live Meeting in the cloud. SharePoint Online, the fastest-growing product in the history of Microsoft to $1 billion. SharePoint will be the fastest-growing product to $2 billion in the history of Microsoft this next year and in the next 18 months.
Microsoft Dynamics CRM in the cloud, Intune, our new desktop management software with Forefront is coming out, as well. As we talked about with the identity, we’re the only company in the world that can federate across an on-premise and a cloud environment using Active Directory, and where we’re headed in that particular area. SQL and Windows Azure and the appliance that Bob Muglia showed you on day one, how strategic that is.
So, when you’re talking with a customer this is magic, this is unbelievable. I mean, think about it. This is what we have today to go find all the opportunities associated with deployment, adoption, services, provisioning, rationalizing the cloud and where people are going to go, and it is an awesome, awesome opportunity that we have. I also want to tell you about two things that wont’ change.
So, we’re rebooting, re-pivoting, re-transitioning the whole company around betting big on cloud services. You get that, I hope. But, there’s two things that won’t change. One, we’re going to continue to innovate for the long term. All of those cloud services, we didn’t just wake up and start working on those three months ago. Those have been things we have been working on as an organization for the last three or four years, and I asked us as a company not to go out and over-sell our cloud services until we actually had it in market. But, you know what, the wraps are off. It’s now available in over 40 countries. We’re going all in. The marketing is coming. The air cover is coming. We need to activate every single partner we’ve got to make sure we get out and tell and sell this story.
So, innovation for the long-term remains paramount at Microsoft and will in the future. And I’ll show you some specifics on that. And clearly, strategy and innovation without execution is hallucination. We have to execute. You know that, I know that. Great execution is what determines success. And that’s so important. And I’ll talk about a four-point game plan this year for us to win in the marketplace.
When it comes to R&D, we back it up. We put our money where our mouth is. When everybody was cutting R&D, OK, during this tough economic cycle the last 24 months, Microsoft didn’t. We put over $9 billion into R&D. And what are we going to do this year, we could do up to $9.5 billion in R&D this year. Keep investing, that’s an investment in each one of your futures out there, huge investments, huge. (Applause.)
Seventy percent of all the developers in Microsoft are working on cloud services today. A year from now, over 90 percent of all developers in Microsoft will be working on cloud services. And all the learnings from those cloud services are just going to let us accelerate that market leadership in this space. And they’re also going to help us continue to improve those on premise products that are also so important to us. And so, it’s real important that you understand where are we investing, where are we putting our bets behind.
The other thing that I’m really jazzed about is talking about some of the things we’re doing as a company this next year on the R&D side. Just have a look at the products we have coming out this year. We’ve had an incredible three or four or five-year run here on innovation. I mean, we’ve put it in the marketplace. You all know that. You all tell me that. My goodness we’ve put a lot of innovation at us, it’s coming so fast we don’t know how to catch it all. What a great problem to have, and we’re proud of that problem. We’ve got to keep finding ways to maximize and leverage the opportunity, but, boy, are we proud of that.
Look at this lineup we’ve got, some of the things on there, the Azure and Azure Appliance, one of the most strategic things we will do as a company to get Azure activated. Over 10,000 people are already using it, and writing applications. We need hundreds of thousands. We need every ISV and every corporate developer, and every partner writing applications in Azure. We’re going to have an Azure Appliance for people that want to protect their data, and manage their cloud and infrastructure. We’re going to enable that. Intune Desktop Management. All the cloud services. IE9 is going to be not only the most safest and secure browser in the market, which IE8 is today, it will be the fastest browser in the market. You saw some demos of that on day one. It’s a smoking hot browser product.
We’ve got a product coming out with Xbox called Kinect. And why is Kinect important? Kinect is important because it will be the hottest single item in retail this holiday selling season. It is an awesome experience that when you walk up to your television set, it recognizes who you are, what you do, what you say, how you gesture. It is built around some sensing technology that was built in Microsoft Research. Gaming is just the start. It will be the hub of the living room, ladies and gentlemen. This Kinect product, when you see it, is unbelievable. And we’re going to have one, and hopefully we’re going to have a bunch of them to sell this fall, but I really believe this will be the item this holiday selling season.
Windows Phone, I’ll talk more about Windows Phone in a moment, but, gosh darn it, it’s taken too long. I’m glad to be back in the game. Yes, we missed a cycle, Steve talked about that. But we’re getting in the game in a big way, and that game is not over, ladies and gentlemen, the smartphone game is just beginning for where we’re going to take it.
And so we’ve got so much innovation, and it’s coming faster, and faster, and faster. We’ve got execution excellence in our product groups. We’re putting out some of the highest quality products in the history of Microsoft right now. And the number one product that we’ve ever produced from a quality standpoint, this will be no surprise in this room, is Windows 7, highest quality product we’ve ever put out. That’s all from customer feedback.
And when you look at one of the last surveys that I saw in the marketplace, Microsoft is not at the top on vulnerabilities and exceptions anymore. Number one is Apple. Number two is Oracle. They can have that first place mantle all they want as it relates to defects and vulnerabilities. That’s the only thing we’re going to give them. (Applause.) We’re delivering this innovation, and we’re committed to it.
Now, let’s talk about execution excellence. This is what we’ve got to go do. This is what we’ve got to do with our partners. This is where we need your help. This is where we want to enlist you in the cause of what we’re trying to get done. Four things: Leading with the cloud; driving Windows 7; growing share and competing to win; and driving customer satisfaction. Let’s jump in.
Leading with the cloud. There is an opportunity for every single partner in the cloud with Microsoft. Resellers, distributors, SIs, hosters, ISVs, app builders, we want you. We’ve got opportunities for you to build, tell, sell and support the cloud services offering. When customers are stuck, ladies and gentlemen, on these old versions, it blocks so much revenue opportunity for both you and us. The cloud really takes it to a new level, and opens up all these revenue streams that we can participate in together to get after that. I mean, it just opens up a whole new world of opportunities. That’s why we need you to lean in. We need you to lean in, help us figure it out. If you don’t lean in now, it’s potentially going to be too late, you’re going to miss it. The market is getting made for this right now. That’s the urgency. And I hope you feel that.
And we’re not asking you to go out and sell slideware. We have it in the market, and we will have it in the market this year. That’s why the urgency on this is so important.
This is a tough slide for you to read. It’s the busiest slide I’ve ever done in the history of my life, candidly. But it’s important, because I don’t want to talk in generics. One of the things I’ve been working on with Allison and the team, and Jon now, is I want to talk about partner types. Because partners, when they talk to me, they don’t care about generics. They care about, if I’m an SI, what does it mean to me? They care about, if I’m a reseller, what does it mean to me? They care about, if I’m a distributor, what does it mean to me, et cetera.
Well, this is what it means to you. Partner revenue streams start at the resale, our host level partners can conduct transactions and capture the margins. You can increase your revenues in margins since this can be easily done by reselling the product and layering your own managed services on top of it to make a successful solution offering in your portfolio. Once a customer buys a product and is paying for it monthly, they are more likely to buy additional services on similar subscription models. Moving customers to the cloud is good for you, because it allows customers to remove infrastructure and maintenance costs, and freeze up customer resources to focus on things that drive customer competitive advantage, and this is where partners can help customers deliver value. Azure provides an incredible infrastructure opportunity for partners to move up the stack, and line up those business solutions. And Azure is a great place for these types of apps.
So, when you think about all of the different things that we can do together, we’ve got profitability models, and we’re going to keep taking your feedback, and keep tuning these things, but we’re not going to walk away from it. We’re committed to you having an opportunity to explode your business in a new way. Now, it’s a different revenue stream. It’s a different licensing model. It’s a different everything. But get in, and let’s figure it out together. We really want you all-in with us on the cloud. And we’re working hard for hosters, app builders, and ISVs, and distributors, and resellers, and SIs to say, here’s what we can do together.
And do I think we have this completely figured out? No. Do I think we’re a whole lot better off than we were a year ago? Absolutely. Are we going to make some more progress in the next six months to a year? Yes, we are, but only if you get involved and help us. And there are partners around the world that have already taken advantage of these models, and are exploding and building new businesses with these revenue models. But jump in, there’s a big, big opportunity for you.
And when you think about some of the actions that you can take, there’s a real opportunity to educate our customers.
Our customers are going to need some help, because this changes how they do budgets. It moves things from CAPEX to OPEX. Who is going to hold the customer’s hand and help them understand that from a budgeting standpoint? We need partners.
Who is going to help customers understand TCO and the improvement they get from not having to do upgrades, not having to do maintenance? Partners. Who is going to help them understand which apps need to move to the cloud and which don’t? Partners. Who is going to help them federate their Active Directory, migrate their data to the cloud, rewrite legacy applications? Partners. Who is going to help deliver cloud services where there’s no cloud available for anyone? Partners. Who is going to make sure we build applications in Azure and on top of BPOS and create local apps that are linked to those cloud data sets. Who is going to build applications to access public and private cloud information and on-premises data? Partners. These are four huge opportunities that every partner can do something today to help activate themselves around cloud services.
Now, let me go to the second point of execution excellence. Windows 7 and Office 2010 refresh. Just take a look at my numbers. Of our install base 85 percent is still running XP or Vista, 80 or earlier, 85 percent, 52 percent are running old version of the browser, 63 percent are running old versions of Office. Think about the revenue opportunity that we have with this refresh opportunity in our triple play of Windows 7, IE 8 and 9, and Office 2010.
We have a very unique opportunity, ladies and gentlemen, to really get in and utilize the incredible momentum we have with Windows 7, the highest quality product we ever put out, the most superior PC operating system on the planet by a margin. No question, and I’ll show you some share numbers in a minute that will rock your world. This is an incredible opportunity that we have and the opportunity we have for partners to help customers get on a modern platform so they can build modern solutions just unlocks services revenue and new revenue streams around the planet, with every customer. Get excited behind this; it’s a huge opportunity and one that right now we’ve got to seize the moment.
Now, let’s talk about my favorite, the third thing. Compete, you guys generally know that I love to compete. It’s the thing I get up in the morning thinking about. It’s the thing I go to bed thinking about. And two hours later I’ll wake up thinking about it again. I love to compete. Compete boils down to a test of will. And boy do we have some incredible competitors. I’ve named them all right there. Some incredible competitors and I’m going to show you some stuff in a minute on some share numbers that I don’t believe you’ve seen yet. And I want to take the secret off that today.
I’ve been waiting all year to show you these slides I’m about to show you on share, all year. It’s an incredible opportunity that we have. And these competitors, they’re great competitors. These competitors make us better. They keep us on our toes. They keep us competing. They keep us innovating. They keep us driving for business value with customers. So, let’s jump in and talk about some of these competitors.
First up, Google, the go-do is, don’t let customers get Google. OK. What an opportunity. What does that mean? It happens and the productivity space they’re coming after us, guns a blazing, they’re all over us. Recently they introduced a ruler in their word processor, an application that we’ve had for 14 years. They put it out. They’re coming after us. And I’ll tell you one of the things that you need to know, is they’ve won some customers. Here’s one right here. This is an advertisement on the back of BusinessWeek. Fast, elegant responses, that’s just their e-mail. Jaguar Land Rover has gone Google, wow. It hurts to look at that, but one of the things that you really see when you look behind it is what did their employees say. This was also published to BusinessWeek. You can’t make this stuff up. This is unbelievable.
Stay with me, here. Tom, I just couldn’t believe how poor Google mail really is, this is all public information. Any of the alleged savings will soon be washed away by inefficiencies. Another guy, I had to quit Jaguar Land Rover, Google Mail and the new attitude of using the awful software for a small cost reduction at the expense of worker productivity were the two main reasons for my leaving. Here’s one from Rachel, as an employee at Jaguar, I believe the move to Google Mail was a huge, big mistake. Everything now takes twice as long. It’s funny that at Jaguar Land Rover we sell ourselves as best of breed, but install IT equivalent of vinyl seats.
Peter over here talks about the fact that our organization has been crippled by inefficiencies directly attributable to the dreadful mail system. I don’t think you’re going to be seeing this advertisement out too much longer. OK. Not with this kind of feedback. This isn’t Microsoft solicited. This is what they’re putting in the blogs of these companies. And we’ve had some losses ladies and gentlemen. Take a look at some of them. We’ve lost some customers, to Google Docs, and Apps and Spreadsheets. We’ve lost these. But, you know what we’ve done with our partners on these specific ones? We went and won them back.
Every single one of these right here right now. We went and won them back. OK. And we want we don’t want some of the customers. What do we want? We want all the customers on productivity, all of them. You can quote me on that. We don’t want some of them, we want all of the customers to experience the best-of-breed productivity application software on the planet that we do with our partners. So, with our partners some of the wins that they’ve had they haven’t had that many, but they’ve had some, we’re winning them back one at a time.
And we’re moving the rest to the cloud in a huge way and look at some of the Q4 wins that we had this past year together. Huge companies, American Express, Nokia, Coke, McDonald’s, Home Depot, Starbucks, et cetera, et cetera, huge opportunity. Moving over 2 million seats coming to online services, a huge opportunity, huge, huge, big-time partner opportunity. And one of the areas that we’ve been hit the hardest is in education. And guess what, we’re winning in education, 700,000 seats in the state of Kentucky and the Department of Education picked Microsoft and a partner to go implement that, 700,000 in that one deal. And we’re going to stay after it. And this is an area that’s been tough for us, but we’re winning. And it’s a test of will and we’re going to stay focused on that, and we need your help.
By the way, let’s talk search. We launched search last May, just over 13 months ago, how are we doing? Boy, take a look. This is per IDC. Excuse me, per comScore the search tracker. We’re up in search. Unique users 28 percent, 51 percent in market share, we’re at 12.1 percent today. When we finish the Yahoo! integration we’ll be at over 30 points this year, 30 points a share in a place that we were left for dead. People had given up hope. Guess what, Bing is out there. Bing is doing it every single day.
And I’ve got news for you, I’ve got news for you, we don’t read your e-mail and invade your privacies. We’re not soliciting vans to drive to your neighborhoods, and spy on you, snoop your Wi-Fi. That’s not what we’re doing. That’s not what Microsoft is about. We don’t have a mission statement that says don’t do evil to remind us not to do evil. OK? That’s not who we are. (Laughter and applause.)
Use and evangelize Bing. It helps us. It helps you. Set the word out, it’s huge. Bing is on fire, and we’re going to keep investing and keep making progress.
So, now let’s get into Apple. Now, boy, there’s a good one, good competitor. Wonder what market share slides he’s going to show here? Well, I’ve got one that’s going to rock your world. OK, rock your world. I talked to you a year ago about the Apple Tax. Well, let’s just take a look at laptop share, ladies and gentlemen, since Windows 7 came out in the U.S., laptop share. Look at the laptop share we’ve taken and earned with our customers in the last two years with Windows 7, look at that. (Applause.) What a secret that is. Nobody knows that. That is straight out of IDC. (Applause.)
IDC numbers right there. We’re up 2.6 points on a very high base, which you all are well familiar with, OK, since Windows 7 hit the marketplace. I’ll bet some of you cannot believe that number, because when I show that to customers, they’re like, “I had no idea.” It’s the greatest single operating system that we’ve ever produced. It’s the highest quality operating system we’ve ever produced. It’s the fastest-growing operating system we’ve ever produced. Nine of out 10 people, over nine out of 10 people, when they choose a PC, choose a Windows PC, ladies and gentlemen, around the world. So we are making some progress against Apple.
Let’s talk about some areas where we’ve got some opportunities. And I showed you some of this last year, the Apple Tax, the overcharging in the high margins. Yes, they exploited Vista. They could charge those high margins with Vista. We had a tough operating system period right there. We also had a tough hardware period right there. They had better battery life, thinner, smaller. Look at what’s coming out this fall, just take a look at some of these laptops, Toshiba, all of these, by the way, of the three different size laptops, have a better CPU than Apple.
Oh, by the way, on weight, all of these are lighter than Apple. On battery life, the gaps are really closing in. Apple leads in the 13-inch. You could say that we’re at parity with 15 and 17. I couldn’t show you that a year ago. Our hardware manufacturers have made incredible progress on weight, thickness, screen size. (Applause.) One of the things that I can tell you, if you go to a Microsoft store, you can get the Microsoft signature build on that PC, which eliminates that third-party software that drives you nuts sometimes. I encourage you to check that out.
But a big, big opportunity we have because we’re killing them on value. We’ve got the most superior operating system, the hardware has made a ton of progress, and we’re just killing them on value. And this story is going to get louder, and louder, and louder. And we’re going to keep telling it, and telling it, and telling it.
Now, let’s talk about phones. This has been tough. This is a lowlight, for me, for the company, it’s tough. But, you know what, in the October timeframe, and in the November timeframe, October likely across Europe, November likely across the U.S., we’re back in this game. And this game is not over. There are 200 smartphones right now being sold. When you think about what’s going to happen in the next three to five years, there will be 450 million smartphones that will be sold, more than double the number. And so, what an opportunity we have to really go make change.
When you look at this phone, and they’re showing you some of the UI, it’s not like any phone you’ve ever seen from Microsoft. And, ladies and gentlemen, I think that’s a good thing. This UI is completely different. We rebooted the whole team, the whole energy, and they have put an incredible product together.
And we’ve got smart design with this thing. We’re going to have these tiles that allow you to find what you’re looking for very easily and seamlessly. And you’re not going to have to wade through a bunch of apps. They’re going to be aligned by smart tiles. We’ve got a development platform that allows you to develop across the PC, and the console, and the phone at the same time using .NET, Silverlight and XNA, very, very strategic.
And we’re going to give those developer tools away for free, and it’s available on Microsoft.com. You can go download the SDK and get going today to go spike that marketplace. And we’re going to continue to have high-resolution screens, and incredible cameras, and touch technology, and we’re going to keep working on that.
But one of the things that I want to make sure that you know today is that you’re going to be able to use the Windows Phone 7 and not have to worry about how you’re holding it to make a phone call. (Applause.) It looks like iPhone 4 might be their Vista. (Cheers and applause.) And I’m OK with that. That’s another mantle they’re welcome to take. I actually read that headline last week, and I just sort of had to smile after I did cartwheels again. (Laughter.)
We’re back in the game with Windows Phone 7. There are lots of great partner opportunities for you to get involved in, and clearly we’re excited about that. But we’ve got a lot of work to do. We’ve got a lot of work to do. We’re rebooting ourselves in this area. But, let me tell you, before Windows 7 hit the marketplace it just launched in October, it feels like it’s been out there longer than that, it’s only been in market nine months. I don’t get questions about Windows anymore. Just think about where we are going to be in nine months after Windows Phone 7 launches. Stay tuned. Our customers are going to vote by what they buy, but clearly we’ve done it once, we’re going to do it again. That’s what we’re working hard every single day to make sure we do with this product.
Now, let’s talk about iPad. Where are we headed with iPad? What’s going on with all these new form factors? Well, this is the most elegant way that I know to talk to you about that marketplace, OK. When you look at content creation, and content consumption, the iPad is fabulous at content consumption. It is very, very good. It’s lousy at content creation. That’s a documented fact. When you look at the landscape, though, of where does creation go and where does consumption go, we think it’s a big opportunity with readers being at the far right, the Kindles and others having just basically being a consumption device, desktops starting out as the core workhorse for content creation.
We believe there’s a sweet spot in the middle, because we’ve been in the tablet business for a very long time. But the opportunity to eliminate paper, the opportunity to use electronic means, the opportunity to take pen and writing and handwriting recognition to a new level, the touch capabilities that we’ve built into Windows Phone 7, where speech and voice is going, and how we leverage our TellMe assets. Video and where that’s going to play out. And new user interfaces like Kinect that focuses on gestures, and speech and movement. This marketplace is not determined, because what you’ll find with content consumption devices is they don’t replace anything, they’re generally a third device for most people. And that’s a fact. That’s not going to change, because productivity matters, and you can’t maximize your productivity if all you’re doing is consuming content.
And so, the ability to find, and I put a question mark right in the middle of this, the ability to find the sweet spot, right, maximizing great content creation with great content consumption is where Microsoft is focusing our energy. The ability to do both as these new form factors emerge and utilize this rapidly changing technology is an incredible challenge for us.
So, this market is not made, it’s only just beginning, and don’t think we aren’t just all over this thing. We are. We are. And we’re going to keep focusing in on it, and finding the right sweet spot, the sweet spot between content creation and content consumption. So, this is going to be something that just continues over time.
The last thing I’ll talk to you about as it relates to Apple is our stores. A year ago, I told you we were going to do retail stores. And after just nine short months, we now have four stores open that are just incredible. They are an incredible learning vehicle for us. I told you a year ago we’re going to take all the learnings that we hear with that direct end-user consumer and we’re going to use that to drive and design our future products and where we’re going to go. And we’re going to build dozens more stores. And we’re just getting started on that. And we’re going to keep building them. But, that direct contact with consumers in the community is awesome and it’s an awesome thing for us to do.
And we created something called Microsoft Signature, and Microsoft Signature is our build that is streamlined and causes your PC to just run in ways that you can’t imagine. There’s no third- party software on it. And I encourage you for every PC you buy at the Microsoft stores, it runs our Signature build. Check it out. And you can check it out on MicrosoftStore.com. So, we’re very excited about the progress we’ve made on our stores.
Now, let’s go to VMware, another really strong, high-priced competitor. What’s the VMware tax all about? How do we grow share against VMware? Another slide that will rock your world, we’re up six points. They’re down 3.7, this is per IDC, an incredible opportunity for us to work together and partner together to grow market share. Really, really strong momentum and I couldn’t have shown you this momentum three years ago, because we were trying to get in the game, and I told you all last year we’re going to be in this game and we’re in it for the long term.
If any of you are holding out, and you’re holding on, and we’ve listened to you. We listened to the margin concerns that you had and we made some deal registration changes and some other changes per your feedback. And I hope most of you take us up on that. But, if you’re not you’ve got to know, ladies and gentlemen, we’re going to compete, because when I got a better product and I’m a cheaper price, I like our chances. And so you’re going to see you know the price gaps, we’ve talked about that and showed that. It’s incredible.
In the next six months VMware, the majority of their enterprise license agreements will expire and require a renewal, because when those were formed three years ago we didn’t really have a good competitive solution, but what a partner opportunity we can go after right now in the next six months to really get out there and show feature for feature, because with R2 I’m matching up. We’ve got some stuff. They’ve got some stuff.
We’re all over it, and we’re going to keep working on this, and keep working on it and working on it, and keep making our product better, and better, and better. And we’re cross-platform, we run VMware. So, we can protect that customer’s investment. They aren’t cross-platform. So, bet with us on that. We’ve got a cloud road map, a cloud story, and where we’re going. We’ve got incredible momentum, and we’re delivering everything we’ve got to make sure we win in this critical space and this is a unique time for us to go get together.
Now, let’s talk about Linux. You would think in the toughest economic environment that we’ve seen in our lifetime we would be under tremendous pressure for “the perception of free.” Guess what, the highest market share gains in the history of the company were made against Linux this past year, 3.7 percent over the last two years, an incredible momentum here. How in the world did we do that? With partners, selling the story, helping customers get the facts that that TCO is better with Windows than it is with Linux and open source.
What an opportunity we have together. I’m really, really proud of the progress we’ve made here. Everybody in the world thought we were going to be under all kinds of attack as it relates to share. But, we were the highest and we just grew it higher with our partners, and that’s an awesome place for us to be.
Now, let’s talk about Oracle. I love this picture of Larry. It kind of says it all. (Laughter.) Because, there’s a big outreach right now from customers. Oracle has got this thing coming out called Fusion. I think it’s the September-October timeframe, best I can tell. They’ve got something called Fusion, which is going to require Oracle customers to re-platform all their solutions. OK. And take the new Fusion, it’s a complete application platform transition. That’s a beautiful thing. What I believe they’re going to do and hope they do is they’re going to charge extra maintenance for those customers who choose not to go.
Now, I shared with you last year they raised their maintenances prices across the board, 100 percent. That was a beautiful thing for Microsoft, OK. In the toughest economic time the world had ever seen they did a price increase, a good strategy for them. They reported incredible financials, good strategy for them, good strategy for us from a market share standpoint.
You saw some of the previous slides, OK. So, when this fusion platform comes out, something they’ve been working on a long, long time, what an opportunity we have, ladies and gentlemen, to go re-platform those workloads onto Microsoft’s database, the SQL database with partners, rewriting those tier-one applications, because when I tell you the Oracle customers need to be saved, just go talk to some of them.
I mean, if you think about where Larry is going on the cloud, again, I can’t make this stuff up. These are actual quotes. He talks about I’m not going to fight this thing. We don’t understand what we would do differently in light of the cloud. That’s not the message you’re getting from us. Next he says, I think it’s ludicrous that cloud computing is taking over the world. We think it’s very hard to make money in this thing. Good, keep thinking that. Third, he says maybe I’m an idiot, enough said. I mean, when you think about what’s happening here, what an opportunity, but let me transition for you.
Here are some more customer quotes, OK. I mean these customers feel like hostages. Once you’ve made a deal with the devil it’s hard to get away. They’re extorting us. I’m very unhappy with them, says James Sims, the CIO of SaveMart Supermarkets. We’re totally locked in. The bigger they’ve gotten, the stronger they’ve gotten. It’s harder for customers to get a deal. A VP of IT Alaska, yes, it is.
Customers needs say we’ve got an incredible opportunity to go sell the SQL advantage, and what we have with our self-service BI, and this new parallel data warehousing capability, and SQL Azure, both with the appliance and the cloud, what an opportunity for us to really get to and sell the stack, embrace Azure and make sure we win these tier-one workloads against Oracle. What a unique time. This is the time we’ve got to go do it. Let’s get after that and drive it extremely hard.
And as I wrap up the compete section, we’ve got a lot of areas to go compete. We’ve got a ton of areas I didn’t get to because for time purposes I can’t, but we compete across all these things, rolling in, digging in, things like CRM, things like OCS and Live Meeting. We’re after it. We’re going to have the best product and the best price in the marketplace. There’s plenty of ways to go create our own demand by competitive displacement. Let’s get after that together and drive it extremely hard.
Now, the last thing I want to share with you is driving customer satisfaction. That’s the fourth point. I cover this every year. We’re all in this together. When Microsoft and a partner go to a customer, they just look at the relationship, that’s it. You reflect us, I reflect you, and making sure we earn the right to be the trusted advisor to our customers is absolutely paramount.
The thing I would tell you today is, you’ve got to run the current version of software in your shop. You can’t be out selling the stuff if you’re on SQL Server 2005, or Windows XP, or whatever. You’ve got to run the latest and greatest stuff in your shop, get current; your sales will go up. When we took out Siebel and put in Microsoft CRM, our CRM sales went through the roof. Imagine that. What an opportunity it is, stay current; get current, lead customers to the cloud. They’re going that direction, lead them, lead, and change your business around that. Of course, creating business value, we all have to answer for what we do and what we charge, and leverage this incredible R&D story. And I do believe that all great relationships are built on trust. If customers trust us, they’re going to stick with us. And don’t forget, the single greatest thing we can do to improve customer satisfaction is drive deployment and adoption, the software that customers already own. Get it deployed, get it adopted.
And so this is my four-point game plan for how we’re going to win with our partners, leading with the cloud, driving Windows 7 and Office 2010, growing share by competing to win. It’s a test of wills, and making sure that we’re taking care of our customers. They’re the ones that pay the bills. And so, when you think about this, there’s a lot of stuff you’ve heard at this conference. But every single activity in our company, ladies and gentlemen, is all built around our passion and our desire to excel. Good is not enough at Microsoft. We have this restless dissatisfaction with the status quo. We have this inner divine discontent that we can always do it better, and we’re going to keep working on it. And we’re not great in every single category, but where we’re not, you can bet we’re going to work to do it better the next time, and the next time after that.
And I shared this slide with you a few years ago, and I mean it today, it’s either daylight or a train, ladies and gentlemen, this cloud services is coming. We see daylight. We see a land of opportunity. We see new revenue streams. We see change. We see a multiyear journey. We see a whole new business model. We see years of work. And when we have great relationships with the customer, and our partners, we see revenue streams, and profits. And that’s what we’re here to do.
And when you think about that, I really encourage you to bet big with us on the cloud. This continuous cloud service for every person and every business is our big aspiration. It is why we matter. It is why we’re here. And I really, really want you to take it to heart, and hope you join.
And, as I normally do at this event, I’m always struck by some of the partner stories I hear about that I see, and I read in the marketplace. And how you all are doing amazing things with the magic of software. And I’ve got one today I want to share and highlight for you, it’s an awesome story. It’s an incredible story. And it’s unbelievable, candidly. And it is a story that when they roll the video here in just a moment, I think you’re going to really understand that we all are connected, we all are a part of something bigger than ourselves.
Roll the video.
KEVIN TURNER: Isn’t that awesome? Awesome! Where’s Jack York? He’s here. Microsoft partner Jack York, where are you at? Where’s he at right here? Right here. (Applause.) Let’s congratulate Jack for the great work he’s doing right there. (Applause.) Changing people’s lives right there. Thank you Jack, thanks for being here.
So ladies and gentlemen, that’s why we do what we do. Amazing things around the world helping people realize their full potential. And we couldn’t do it without our partners. I’m so proud to be associated with you, I look forward to traveling out and doing the partner roundtables in the 30 countries that I visit a year and all the cities here in the U.S.
Keep the feedback coming: [email protected]. But take this one last thing away: We’re going win, and we’re going to win together. Thank you very much. (Applause.)