Brad Smith: Creating Opportunity Through Technology

Remarks by Brad Smith, General Counsel and Executive Vice President, Legal and Corporate Affairs
Information Technology Association of South Africa
Johannesburg, South Africa
September 29, 2011

BRAD SMITH: Thank you so much for giving me the opportunity to be here today and share this time with you. I think this is where you know a lot about me than I know about you. But, it’s a real pleasure for me to be here in South Africa. I’ve had the opportunity to spend a week traveling across Africa. I spent the last few days in Kenya and then arrived here last night. And I wanted to share this morning some perspective with you, starting with the theme that it’s an awfully dynamic time.

Things are changing very quickly around the world, and they’re probably changing especially quickly in our industry. So, I thought what it might be most useful to do would be to give you a little bit of perspective about where we’re going as a company from a technology perspective, give you our perspective about where the industry is going from a technology perspective, and then with that as context share a few thoughts on the specific topic that you’re addressing here, how technology and the technology that all of us are focused on in this room can really make a positive impact here in South Africa and around the world in empowering youth, and improving people’s lives.

I will say, as somebody who has been a Microsoft employee for 18 years, and who has been connected in various ways with this industry, starting when I was (inaudible) in London. This is as dramatic a time in the industry as I’ve ever seen. You just see things changing week-by-week, month-by-month, and sometimes even day-by-day. I thought it was a particularly interesting week about the third week in August. The week began on Monday by Google announcing that they were getting into the hardware business through their acquisition of Motorola mobility, and then just two days later HP announcing that they were thinking of getting out of the hardware business or at least the PC part of the hardware business. And I think it’s the type of situation that causes people around the world, whether they’re in our industry or outside, to ask what is actually going on.

I think from our perspective one of the most important things is this, we’ve entered a new era for computing. Surely, when I started working in the industry, there were computers that moved from the mainframe to the desktop, the PC was taking the world by storm. But, we’re really now looking at an era where there are three or four screens in people’s lives that are all connected to computers. We would certainly say as a company that the PC regains a very important place. And we don’t actually envision the future where the PC necessarily disappears, although it will continue to evolve, but perhaps even more important than that is just the proliferation of computers in people’s lives.

Increasingly, people not only have a computer that they carry around or put on their desk, they have a computer that they carry around and keep it in their pocket, or their purse. And that’s the phone, or the smart phone. And even in markets where feature phones remain more popular than smart phones, I think the future is increasingly clear, it’s just a matter of time before virtually every phone becomes a smart phone. It may be a decade, it may be less, it may be more, but it’s hard really to conceive of a world in the year 2020, or 2025, or 2030 when people will be using phones that no are longer are run, in effect, by very powerful computers when you put them into historical perspective.

And at the other end of the spectrum, in terms of size, the television screen, we believe over the next decade, will come to be thought of as a computer-connected screen, just the way the phone has become a computer connected screen. We’re already starting to see this for us as a company. We’ve been at the forefront of this, in terms of our Xbox, and our Kinect devices, but really one should look down the road and imagine that in one way or another televisions will be connected to computers, and they’ll in turn be connected to the Internet, and they’ll in turn have access to all of the content that is available on the Internet. And that will reshape the world of television, as we know it.

Then between the phone and the TV, I think one of the interesting questions of the next, say, five years will be whether we’ll really see a market for laptops and slates, or tablets as two separate devices, or whether these will somehow converge and become one. I think that’s a question that, frankly, people are not yet asking as often as I would expect them to, but I think increasingly over the next couple of years we’ll see that kind of question emerge more front and center.

We’re going to see a variety of different form factors, as different companies experiment with different things to, in effect, combine the best of the touch-based interface, a keyboard-based interface, and a mouse-based interface, all in one device. So, we really have a much bigger industry when you think about it in those terms.

For a company like Microsoft, which Bill Gates founded on this vision that ultimately there would be a computer on every desk and in every home, we have moved so far beyond that and now see a computer in every pocket, a computer in every living room, as well as a computer on every desk, and indeed oftentimes on multiple desks even in a single home.

When we think about where we fit as a company, if you try to envision for yourself, think about where Microsoft is going, I think if there’s one thing that we have the opportunity to do as a company, is to drive what I would call computing that is more natural. One of the things that I’m proud that Microsoft has done over the last couple of decades is they’ve really made computing more personal.

I think certainly we played as big a role as any other company in helping to create the personal computer and making computing more personal in a whole host of ways. But, as we look to the future, what we’re really trying to do is make computing more natural. And if you think about what that means, I think it means two things. First, it’s about a more natural user interface. And we see that in a variety of ways already. Increasingly if the screen is close enough to touch, people are designing screens that can be touched. And we’ve seen that with the phone, and we’ve seen that with the iPad, it is at the heart of what we’re doing for the fundamental redesign of Windows with Windows 8.

But, we also see a variety of screens that actually will be beyond the reach of an individual. It’s too far away to touch, namely the screen on the wall. And this is true for the screen on the wall that is a television set, but I think it’s going to be the screen on the wall in many conference rooms around the world, as well.

And for those screens, when you look at what we’ve done with Kinect, we’ve created the ability for computers to understand a gesture, a point, and a swipe of the hand. It’s very easy to envision a future where in meetings, or where watching television, or in a classroom people are able to manipulate the computer screen even when they’re several meters away from it.

Of course, whether you’re close to the screen, or far away from it, we are very focused on enabling computers to understand what people say when they speak, when they talk to the computer. You’ll see this in our new phone software, for example. One of the things I love about our new phone software is if you’re driving a car and you have a Bluetooth connection, you can get a text message while you’re driving and you’ll hear the computer talk to you through the speaker in your car. It will tell you that you have a text message and it will ask you whether you want the computer to read it to you.

If you say read it, it will read it. And then it will ask you whether you would like to reply to it. And if you say that you’d like to reply to it, it will ask you whether you would like to dictate or reply. When you do it will then read it back to you to make sure that it understood you and then it will give you the opportunity to send. It really is something that begins to help us feel like we’re entering some of those worlds of science fiction, and yet that’s something that isn’t going to be available next decade. Literally, in many countries around the world it will be available next week. And it gives us a glimpse at how I think computing will become more and more natural in a wide variety of scenarios.

I think for Microsoft our commitment to Windows Phone is a demonstration and an illustration of many of these things. First of all, it really underscores our focus on working with developers around the world to bring the benefits of this new and more natural interface to life. It is the fastest growing application marketplace for any new phone platform in the history of phone software, 30,000 apps in the first year. We now have 50,000 registered developers. But, what is most exciting about it is this focus on putting people first.

In our new phone software, we’ve brought 500 new features to the market, and we’ve kept all of this compatible with the software that we made available last year. I think most importantly for countries like South Africa, a lot of this is about the advancements that we’re still focused on, and our partnerships with additional companies.

We view our partnership with Nokia as being the single most important partnership we have in the phone space by far. They are going to be announcing a number of phones in the coming months. This is going to bring our phones into 190 countries around the world, and we also are going to have a variety of new phones from Samsung, HTC, and many other companies as well.

If you haven’t had a chance to take a look at our phone, I hope you will, the reviews have been really encouraging for us, and a lot of what people are focusing on is precisely what I’ve been talking about. The iPhone is a great product. The Android phones are great products. But, you know, frankly, from our perspective, they mostly serve as launching pads for applications. We’ve really tried to design a phone that’s more focused on people than robots. And so, we’ve really tried to bring information to life. And so, you can look at your screen, and you can see how many e-mails you have, how many text messages you have.

We have these Live Tiles that constantly change. You can put your family members, your close friends, your colleagues on the first screen. If they sent you an e-mail, if they posted a photo on Facebook, or if they’ve done anything in various social networks in which you’re connected, you’ll see it right on the first screen, and you don’t even actually have to do anything further to find out what’s going on.

So, we’re very excited about this, not only for the phone, but really as an illustration of where we’re going across all of these devices, the phone, Windows 8, very much based on the similar approach, Xbox, and Xbox Live as well.

One of the things that the industry is having to sort out as the world goes to these multiple devices is not just the design of software and improvements in hardware, but intellectual property issues as well. This is an area of Microsoft’s work, which I’m responsible for. I’m responsible for all our intellectual property issues, and our patent portfolio, and our patent licensing. We were really encouraged yesterday where we had the opportunity to announce what I believe is quite possibly one of the most important patent agreements in the history of our industry, which is the agreement we announced yesterday between Microsoft and Samsung. We timed the announcement, frankly, so it was coming out at 2:30 p.m. yesterday afternoon local time here in Johannesburg, 3:30 in Nairobi, and that’s because we were in the plane that left Nairobi at four o’clock. And, frankly, with the new world of public relations and social media, I was sitting in the airport lounge in Nairobi, so that promptly and exactly at 3:30 I could send out four tweets to announce this, and post things back in Redmond, and we were able to show the world. And, in fact, while these patent issues are complicated, they are not by any means insurmountable.

And, as we’ve addressed with Samsung, Samsung now has access to our portfolio for their Android phones. We get an appropriate royalty for the infringements that Android has in our portfolio. And, equally important, we forged a new partnership that will enable us to work with Samsung to bring to market better and more Samsung phones that are running Windows 7, and we’ll be able to do more to market those phones around the world. Clearly, the IP issue is top of mind, and I would be happy to talk about it more if you have questions about it as we conclude.

Beyond the new devices, I think it is equally important to really look at the industry and think about how all of these devices are really being connected by new services, in particular cloud services. And I think you can think of software, for the most part, as falling either into a category of software being written for and installed on new devices, or software that is being offered as a cloud service. And I think you can think about services, in turn, as largely following those two categories. And the consumer services that are designed for people at home, or in their personal lives, or enterprise services that are designed for people at work.

And you’re seeing here our commitment to addressing services across people’s lives. You see that with what we’re offering today, and you see it in what we hope to be able to bring to market very soon in terms of the regulatory approval needed to close our acquisition of Skype. So, certainly, we as a company are focused on this whole range of services.

The cloud for us is the future. And I know people here and in other countries often see it coming either very quickly or more remotely, but it, too, is the type of thing that is remaking the industry. And, as we think about the future in terms of the year 2015, or 2020, or 2025, it’s just so clear that so much of what we think of today as traditional software that is installed on a personal computer, or run out of the server room is instead going to be run out of the data center offered as a cloud service.

We’re certainly very excited about it, both because it really creates new scenarios, and enables people to work together in new ways, but equally important we just see it fundamentally changing the economics of our industry. The economies of scale for large scale cloud services are so substantial when it comes to the purchase and aggregation of hardware, and the agility it gives to customers to upload and pay as they go for the storage and services they need, then it’s hard to believe that it will be anything less than a tidal wave that reshapes our industry over the next decade.

Of course, one of the things that we really like as a software company is, it gives us an ability we’ve never had before, which, first of all, is to ensure that everybody has our latest software. There’s probably, for me, nothing that has been more frustrating as a Microsoft employee over the last few years than to walk into an enterprise, or a university campus and see one student running a Mac that’s three months old, and somebody else running Windows XP and Office 2003. Then people say, well, look how much better the Apple software is. And I would say, well, let’s go do apples to apples. Let’s go get the Apple software from 2003, and the year 2001, and look next at the Microsoft software from 2003 and 2001.

Clearly, one of our challenges as a company has been to upgrade people to the latest offerings, and with the cloud we’re able to do that much more seamlessly. Of course, the other thing it gives us the opportunity to do is frankly ensure that we and everybody else get paid more often for software, because the cloud does give us an ability to connect with customers in a direct way. And I think it is one step that will help us reduce piracy around the world, certainly here in South Africa as well.

When we think about the cloud services that we’re focused on, I put them into a couple of categories. The first is personal productivity software. We have taken Office and taken it into the cloud with Office 365. And we’ve now made this available in a number of markets, and it’s going to be coming here to South Africa in the coming quarters, and it really includes the full range of what people are used to in Office today. That includes, obviously, Outlook, and Word, and Excel, and PowerPoint, but it also includes the backend that people associate with Exchange. It includes SharePoint Online. It includes Lync Online.

I think what is probably most exciting is the new scenarios it gives us the opportunity to address, and really the ability to provide these services in a much more economical way, especially for small businesses. I think that is the small business sector of most countries that are really going to benefit most substantially from having a number of these services. If they no longer have to buy a server, or think about having a server room, or think about buying more computing capacity than they need, they can buy exactly what they want for exactly the number of people that they want to provide it with, and they can rely on a data center, and the support services that those of us who are running data centers can provide.

The other thing that’s just fascinating to me is to see what it’s doing for voice and video. This is really at the heart of what led us to make the acquisition of Skype. When I think about what I’ve seen over the years as a Microsoft employee, I would say there are three products over the last 20 years that I’ve seen sweep through Microsoft, and the Microsoft employee community in a really viral way. And each of them became blockbuster successes that changed a lot of the computing landscape.

The first was Outlook. It’s really Outlook that fundamentally changed a lot of the ways people handle personal information, because it obviously connected e-mail with calendaring, and scheduling, and tasks. And people started to hold meetings online in a way that they had never done before, and make materials available with each other.

The second was SharePoint as a personal who leads a department of 1,000 people, I could tell that SharePoint was going to be a success when about 18 months after we had created it, somebody told me that our department had 750 different SharePoint sites. It’s because individual employees started creating them to organize projects with their co-workers. And, indeed, we see that it really changed the way a lot of people work together in enterprises around the world.

And the third, the most recent, is Lync. Lync is our successor to Office Communicator. It’s what we came out with in the last year, and it really is a little bit of what you might think of as something like Skype, but for the enterprise. And it’s been remarkable to me to see how quickly our employees have just embraced Lync in a variety of ways. You can find out very quickly through presence whether somebody is likely to be available at their desk. So, before you pick up the phone and call them, or address them and send e-mail, you actually know whether they’re there. It’s been so easy for people to communicate by video, as well as voice, to bring people together very quickly for an instantaneous meeting, and then really to work on documents together in a way that is just so transformational compared to those capabilities in the past.

And so, I think, when we envision the future that brings together Skype and Lync, and our other services, it’s really exciting to think about how people are going to collaborate and connect with each other five years from now in a way that really is much more advanced, and just a lot more enriching for people than is the case today.

Because of our focus on the cloud, we’re really now investing to ensure that there are cloud capabilities in every one of our products. We’ve got now 20 million businesses running our cloud services. We’ve got one billion individuals who are using our cloud services. And 90 percent of our research and development money is now really focused on the cloud.

And in addition to the applications and services that I mentioned, for us it’s really also all about the platform as well. So, we’ve really strived to take Windows Server, and create the cloud-based version of that, Windows Azure, and then really provide customers with a variety of platform-based offerings. If they want a private cloud, we’re focused on providing it. If they want a public cloud, we’re focused on providing it. And we see both of these things moving together as the cloud continues to advance.

It’s going to have a huge impact worldwide. We’re already seeing that. It’s already something that’s on its way to generating $800 billion of new revenue over this decade. It’s the kind of thing that most people are predicting that around the world will create a million new jobs and 100,000 new companies. And I know here in South Africa, you all are very focused on the undersea cables that will give you the faster broadband connectivity to the rest of the world. People will be waiting for the other advances that will connect them much more closely with broadband capability in their homes and in their offices, but I think wherever people are it is the future, and the only real question is how quickly will that future arrive.

For us, it’s really interesting to think about these new devices, and these new services and the cloud, and then put them in the context of what you’re talking about here today, creating new opportunities for people. We would say that today there is an opportunity divide. A decade ago, people were all focused on what they called the digital divide. There are a variety of digital divides around the world. And I think it’s probably more important today to talk about the opportunity divide. The divide that separates people who really have a bright future from people who don’t have as much cause for optimism about what they’re likely to see in their own lives over the next three or five or ten years.

Certainly, a big factor in thinking about the opportunity divide is the way in which economies around the world are changing. From a global perspective, there are many economists who are now predicting that two-thirds of the jobs that are created in the year 2020 do not yet exist. They will require skills that people do not yet have. Even today, on a global basis, one quarter of unemployment is generally attributable to a mismatch between the skills that new jobs require, and the skills that people have. In short, people do not have to the degree that we need the skills that they need in order to fulfill the jobs that are being created.

I know you see this in South Africa. We see it everywhere. That’s one of the benefits of being present in 190 countries. And, as you heard, in the United States, it’s actually one of the issues that I’ve been most involved in focusing on, not just as a Microsoft employee, but as somebody involved in the community. We have a huge skills mismatch in the United States, and it is most troubling when we look at what it means for the next generation of people.

If 2011 stands for one thing, I think it stands for the impact that youth are having around the world, especially when young people lose hope about what their economies have the potential to deliver for them. We’ve seen young people play an enormously influential role in changing regimes in Northern Africa. We’ve seen young people in the streets in Southern Europe, and in the United Kingdom. We’ve seen youth unemployment on the rise in the United States in a way that has an affect in the world of politics as well. And, clearly, we have such a need to address this; there are a billion people around the world today that lack access to education. And it quite well could be the single most important issue of our time. It is most certainly worthy of the kinds of things that we as an industry can hope to help address.

In fact, as we think about the opportunity divide, I think that information and communications technologies can be an opportunity multiplier, and that’s what we should aim as an industry for it to be. It is an opportunity multiplier in terms of economics. In terms of giving people the skills that they will need to fill jobs, it’s also an opportunity multiplier in addressing many of the social challenges of our day, whether it’s improved healthcare, or better management of energy concerns, or a focus on the environment. What we’re seeing around the world is new companies and larger companies all playing a role in developing technology that addresses these kinds of social challenges.

I think more than anything else what we should ask is, what can we do as an industry to focus on the needs of the next generation of people, especially in countries where the next generation of people accounts for such a large percentage of all of the people that there are. That is the kind of challenge where we truly can have an impact.

I think there are two areas in particular that are worth thinking more about. There are certainly areas that we’ve been thinking about. The first is technology for education. How can we as an industry use what we’re creating to help improve education for the next generation of people? One of the things that we’ve done around the world is really tried to invest in programs that do that. You heard the reference before. We’ve reached almost 300 million young people around the world. Of course, in many ways the best place to reach young people is in schools.

So, we’ve created programs, a program that we call Partners In Learning, that we run around the world and that we operate here in South Africa, as well. Here in South Africa we’ve been able to train 30,000 teachers, and provide them with the curriculum and the mentorship so that they can better use computers, as tools to improve the classroom, so that teachers can be better teachers, and hopefully through that we’ll reach students and help them become better students.

Through the Imagine Cup we’ve tried to focus in particular on creating opportunities for people that want to aspire to a career in our industry. And really give them the opportunity when they’re young as students, to create new technology, and to better compete with students on a global basis. And this is truly, I think, one of the most inspiring things we have the opportunity as a company to witness and experience, to just see what these enormously creative young people are able to do.

We’ve also learned that it’s important to reach young people, not only in schools, but outside of schools, as well. That’s why a particular focus of our philanthropic work, which is another area that I’m responsible for at Microsoft, is around community technology centers, the various clubs and centers that exist in different kinds of settings around the world that attract young people when school is over. And here in South Africa we’ve been able to make donations and provide software, and cash and hardware and training in community technology centers that have reached 1.9 million people and are providing digital literacy training to over 300,000 young people.

If we can equip more young people earlier in their lives with the opportunity to experience and learn from and learn how to make use of the products and services that were created, I think we have the opportunity to help equip them to be more successful in their lives.

The other thing we’ve really tried to focus on is new businesses – I really thought it was important and heard that reference earlier –entrepreneurial opportunities for people who are leaving universities, or who are starting up their own businesses. That’s why we created a program around the world that we call BizSpark. It’s designed to provide new businesses with access to our technology, at a much lower cost. Here in South Africa we’ve had the opportunity already to work with 200 companies, and through those 200 companies there have been over 20,000 downloads of our software.

And we’re very excited about the opportunity that we are pursuing here in South Africa to engage in a much deeper way with a smaller number of very promising businesses, in particular.

This is our economic empowerment program, where we’re focused on equity equivalent investments. I had the good fortune to start the day today by sitting down with four of the CEOs and the small businesses that we’re working with, and it really is inspiring to hear about what people are focused on creating. And I think if we as an industry can find ways to connect with and invest in, and mentor, and coach, and help provide moral support for more of these small businesses, and young entrepreneurs, over time collectively we can really have a very dramatic impact.

I can’t help as a lawyer but pause and say that all these things not only rely on what we do when it comes to technology and programs, and donations, and money, but it also relies on having a strong public policy and legal framework, as well.

If there’s one thing I concluded from traveling the world it’s this. If a government could do only three things to really bring these opportunities to life as well as possible, the three things would be this, expand broadband, expand broadband, expand broadband. Because the truth is, if you can to provide broadband connectivity to people things are going to take off. The industry is going to flourish. Individuals are going to get connected. And there will be problems that will arise, and they can be sorted out.

But, if you can’t provide broadband connectivity in the first place, no one is going to have the opportunity to make use of this new platform. And all of the problems that people debate, like privacy and security, won’t even become relevant, because people won’t be using these services in the first place.

These are obviously important issues here in South Africa. In fact, I’ve been really struck by just how important they are here. It’s exciting to see the opportunity that is coming with the ongoing investments in undersea cables. But, of course, as you all know better than I do, there’s a big difference between having a great connection next door to the landing of a cable in Cape Town, and having a great connection to broadband across an entire nation. That’s going to require continuing investments by companies, and it’s going to require continuing innovation by governments and companies, as well.

One of the things we’re really excited about, as a company, is the new white spaces wireless, or super Wi-Fi technology that is readily available around the world. This is the unused spectrum in the 500 to 800 megahertz area. It’s the unused spectrum in the area where TV signals, terrestrially, are broadcast, but it’s the spectrum that the TV signals themselves are not using.

We put together a technical demonstration this week in Nairobi, in conjunction with the Internet governance forum that’s taking place there. I had the opportunity to use that a little bit myself. It was a wonderful thing, because we went to the ICT Ministry in Kenya and we asked them if we could get regulatory permission to set this up, and they arranged for us to do this, in three days. I wish our governments in the United States could move that fast. And what we were able to do was set up with a simple box and it had basically a super Wi-Fi signal that reaches a kilometer. And using this I had the opportunity to use an Xbox and access Xbox Live, and access high definition video, and real broadband connectivity.

And you can just see how over the next couple of years the countries that take advantage of this new technology are going to be able to connect more people in urban areas. They’re going to be able to connect more people in rural areas, as well. It’s a game-changer in terms of what it will mean to make broadband capability more accessible to people.

Then we can focus on the other issues that are important, as well. And the other issues are important, as well. Privacy and security, and data sovereignty are issues that are increasingly top of mind to many, many governments around the world. And if there’s one message that we seek to underscore it’s this, we really hope that governments will work hard to address these issues together.

There’s a lot of room for debating around the particulars, and I’ve had the opportunity to get involved in a lot of the particulars. Around the precise nature of privacy laws and security steps, and data sovereignty rules, but in some ways more important than the particulars is the work to get a common framework across borders, because if there are two really defining characteristics of the cloud, it’s these. Information sits somewhere else, namely a data center, and information crosses borders. And if we’re going to enable these technologies to move forward, we need governments to adopt fairly consistent rules and really collaborate with each other and work also.

And I also hope that IP protection will continue to move forward in a way that addresses these new technologies, that strikes the right balance, and that really encourages investments in innovations by companies large and small, old and new.

Finally, I would say that our real opportunity and our real challenge as an industry is to design technology in a way that puts people first. In a sense, that’s what natural computing should be all about. We have within our grasp over the next few years the opportunity to make computers so much easier to use, and so much more affordable to buy. I remember a decade ago when people first started talking about the digital divide, and one of the things that struck me was that in all of the years that I’d been working around the world, I had never heard anybody talk about the television divide for the simple reason that televisions were considered to be affordable, and you didn’t need to do very much work to learn how to operate them.

And I felt for a decade that our goal as an industry should be to make computers as affordable as televisions, and as easy to use. But, of course, much, much more powerful than the television has ever been. We now stand on the cusp of realizing that vision. Technology is coming to market in the coming months and quarters, and the next couple of years, and it will be up to the public and private sectors together to find a way to make sure that these technologies are as accessible as they can be through broadband technology and other steps.

But, beyond that, it’s up to all of us in our industry and in government working together to really make sure we do what we can to close the opportunity divide, and turn these advances into the opportunity multiplier that they really deserve to be.

Thank you very much. (Applause.)


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