Paul Flessner: Microsoft Worldwide Partner Conference 2004

Remarks by Paul Flessner, Senior Vice President, Server Platform Division, Microsoft Corporation

Worldwide Partner Conference 2004

Toronto, Ontario, Canada

July 12, 2004

Well, good morning, everyone. The first thing I want to say is thanks, thanks for everybody coming out and attending the Worldwide Partner Conference here in Toronto. We know it’s a big time commitment, travel and spending time away from the job, but it’s super important that we stay connected to your business and learn what’s going on and learn from all the things that you’ve been doing through the year. And I’m certainly grateful to have a chance to talk to you about what’s going on in the server and tools business and appreciate your time around that.

In a lot of ways my talk this year is a follow-up from last year when we talked about reducing IT complexity. And I think for a lot of you, based on your feedback, that’s a good thing. Some of the feedback is, “Hey, Microsoft, you change your mind too many times, too many different strategies.” Well, reducing IT complexity is not new to us and, honestly, it’s not new to the industry. It’s been trying to go on for over 30 years and I think we’ve got a lot more that we can do in this space.

So when I was preparing for the talk I was trying to think, you know, let’s think about some of the problems that we made in the industry over the last, I don’t know, let’s go all the way back, let’s go 30 years and sort of try to grade ourselves on how we’re doing.

Let’s get price performance and I thought about Moore’s Law, Gordon Moore back in 1965 saying, you know what, it looks like we can take and double the number of transistors that we can put on a chip and do that about every two years. And you know what, he was right. The disk guys kept up and the hardware has kept up, they’ve honestly done a fabulous job.

I think about our own benchmark, the SQL Server benchmark. I showed this last year, I think. In the last eight years we’ve improved the performance, the throughput by over 200 times at about 1/20th of the cost. I don’t think anybody, any other industry in the world, has got a track record like that, so we’re super proud about that.

We also said to ourselves, or we talked a lot in the ’80s, about packaged applications, standard value chain applications, could we automate that process, you know, from standard stuff, manufacturing, distribution, finance, that sort of thing, would customers have to continue to build those or could we build packaged applications to sort of allow customers to just buy them and install them and sort of lower the barrier of entry.

And I think we’ve done very well around that as well. Some customers still kind of grumble, it’s hard to put them in, it’s hard to keep them up to date, but by and large you don’t see any companies out there today building line-of-business applications. For the most part you buy them, you integrate them; maybe it takes a little longer than you like, spend a little bit more money. I’d probably give ourselves a B on that, certainly an A on the price performance, but maybe a B on the packaged applications.

Then I started to think about connectivity, have we done a good job of getting the world connected, getting the devices connected, getting the PCs connected, and, honestly, with the Internet over the last 10 years, we’ve sort of hit that one out of the park. It really is an amazing story on the amount of information you can get, the level of connectivity you can get anywhere in the world.

So we’ve done really a very good job across those three things.

Then I started thinking about what the customer experience is when they try to put all of that together, and that’s still not very easy. The ability to integrate and to build applications and deploy those applications and keep them up to date and keep the infrastructure up to date and keep your network secure is just not where we need to be.

You look at IT budgets, somewhere between 70 to 80 percent of any IT budget is consumed by the ongoing cost of operations. We all know as reasonable businesspeople that IT budgets cannot continue to expand and grow and grow each year. So the only way that we’re going to enable our customers to expand their utilization of technology and bring further business benefit, and honestly the only way we’re going to be able to continue to grow our businesses from our perspective, is see what we can do to reduce that ongoing cost of operation, reduce that complexity so that new investment can be made, because those budgets can’t continue to grow.

And we can’t do that without you. Microsoft is a software company. We do our best and we provide some pretty good products, but without partners it’s simply that the ecosystem doesn’t work.

So we’re going to talk about IT complexity, what we’ve been doing and hopefully we’ve got a good report card. At the end of the talk I’ll leave that up to you. But we’ve been hard at work this year and we’re going to give you an update on that and then also we’re anxious as always to hear feedback about how your business is going and from a customer perspective how we’re doing.

Before I jump in and maybe beat ourselves up a little bit about some of that complexity, I thought I’d give you some numbers and talk to you about some of the momentum that’s in the marketplace, and there’s actually quite a lot of good news here.

So the numbers I’m putting up now are server market growth numbers, and I want everybody to understand this is hardware units sold as a server, all operating systems, mainframe, UNIX, Linux, Windows, all of them, all up. And I put three years up, ’03, ’04 and ’05.

So in ’03 we had about 6 percent growth. We were sort of coming out of that tail end of the dot-com bust, growth actually picked up that year. We were projecting about 4 percent growth and it ended up kicking in at about 6 percent.

In ’04, calendar year ’04, there is some projection in this as well, we actually have upped our estimates recently. We were thinking about 12 percent in ’04, very steady, positive growth and it ended up being about 14 percent or we think it will be about 14 percent. So we’ve had to up level that projection.

In ’05, early projection, very early projection and it will change, we change these and update these on a quarterly basis, we’re projecting again considerable growth.

Now, this data is collected from a lot of different places, but these are just some high-level projections about where we’re going to go, and there’s a lot of good news here.

Now, this isn’t — I’m going to kind of caution you — this isn’t all market growth. We’re going to see in a minute how much the overall installed base is growing. But if you think about 25 percent of the install base is replaced each year, just upgrading, so about every four years somebody upgrades their server, so about 25 percent of the installed base, which I’ll show you in a second, is upgraded each year, so only a percentage, only about 2 million of that 5.6 actually went into growing the installed base and we’re going to talk a little bit more about that.

Now, one thing I want to say real quickly before I put up the next set of numbers, I would love to share a whole bunch more data with you about our momentum and the successes we’ve had in our fiscal year, but we haven’t closed it yet and by SEC regulation we’re in a quiet time right now. Earnings come out in about two weeks, and so unless you want me to be doing my keynote next year from a cozy cell in a federal penitentiary, we’re going to keep this at a bit of a higher level and talk about kind of industry numbers and public numbers from Gartner and some of the other analysts.

So these are some data points that many of you may have seen but I think may be new to some. About 62 percent, according to the Gartner report or actually that’s IDC, 62 percent of servers in the world run Windows. That might be a bit generous. If you would probably include unpaid share — we track both paid and unpaid — unpaid share, we might be up around that high, but that’s a generous consideration of market share.

Some good news, well, 46 percent of the NT servers were upgraded in fiscal year ’04, so we took that number from 3.9 million NT 4 servers on the planet down to 2.1 million. And that’s a very positive thing for everybody. Hopefully that’s been a positive thing for your business and there’s a lot of opportunity there if you think about it. There’s 2.1 million NT 4 servers still left on the planet, and that’s a bad thing from our perspective. Many of those are Exchange 5.5, many of those replacements will include Active Directory. You will see a lot of momentum this year in the field around NT 4 replacement to Windows Server 2003.

As an example, the U.S. sub is going to run a program where any customer that purchases a Windows Server 2003 Server and 50 CALs will get a $600 benefit, if you will, toward onsite partner support in that implementation, and around the world you will see other events such as that or other promotions.

Overtaking UNIX in units is old news, happened many, many years ago, but in terms of revenue UNIX units actually did perk up a little bit this year, much to our surprise, after about three years of steady decline, but it was at a cost of huge price discounting to get them sort of back inline with what the rest of the economy of operating systems is doing.

Small Business Server really perked up. We’ve got a new product in the market, a lot of feedback was listened to and that product is doing extremely well in the market at the double year over year. We’ll just obfuscate it the best we can at that. And it’s a very important set of opportunities.

Small business we think will upgrade and invest about 6.6 percent of their budgets this year into IT spending, about 75 percent of small businesses that have a server, which is only about 7 percent of 40 million businesses, so there’s a lot of small business opportunity out there. But the ones who have technology are very excited about an upgrade, so there’s a great opportunity there.

So that’s sort of the broad-brush industry momentum. There is a lot of good news there and we should all be excited about that in terms of the server business.

Now I’m going to take a slightly different look. This is again server market, all server, not just the Windows installed base, this is all servers on the planet. Installed base is 21.7 million and that’s up about 10 percent. Remember that was 5.6 million on the previous slide of units shipped this year, calendar year is our projection, and we’re estimating that about 2 million of those will go into installed base growth. So that’s considerable.

But the number as an industry that we want to focus on is growing that number, growing the installed base, growing the opportunity for the customer. If we can reduce IT complexity, customers can reinvest the money they’re spending there and they can install and buy and automate new business processes, utilizing new systems, and that causes industry growth and that’s the number that we are all excited and motivated together to help grow.

And then we’re going to look at this by operations infrastructure, applications infrastructure and information worker infrastructure, so we’re going to look at the numbers across those installed bases as well.

Now, operations infrastructure is things like security, networking, storage management; no surprise that we’re seeing big growth there with all that’s going on around deployment, patch management and all of that work, so there’s big, healthy growth and we’ve really I think after sort of a long, slow start have some very exciting and strong products in this space. SMS 2003 has fantastic momentum in the market. There really is some good business opportunities there for you as well.

SMS has a CAL, the Client Access License is included in the back office CAL and the core CAL. There are a lot of customers out there who own licenses for that product that have not deployed simply because the first two versions of the product weren’t as strong as the customer would have liked. With SMS 2003 we’re seeing much stronger momentum and much more satisfied customers, so I think there’s lots of opportunity to get out there and help the customer get a plan on patch management, deployment and all the things that can come from the benefits of SMS. We have many case studies about customers who have SMS installed versus those who do not, and what happened during previous virus attacks and denial of service and that sort of thing, so there’s a great story there.

MOM, Microsoft Operations Manager 2005, which is about to ship in a few months, again we think is a very strong monitoring, management tool for continuous monitoring and management and alerting, and we’ll talk a bit more about that.

And ISA, Internet Security Acceleration Server, firewall and caching, we just had a release of that product as well.

So we believe we’re well positioned, but certainly there’s a lot of growth for partner product in this space. You can see the number of servers in the install base that are focused on this and we’ve had just all up great growth.

Now, from an applications perspective these are your database stuff and integration servers and all of the application technology in that place. Again, the market perked up quite a bit. This is actually the largest installed base of servers, if you will, 9.8 million. I’ll show you the information worker in a second. But good growth again, 11 percent in the marketplace.

And SQL Server, I want to talk just quickly about SQL Server and BizTalk. SQL Server has been a phenomenal success for us and I’ve got a bit of a test here this morning for all of you, hope you’re awake. We’ve got the three bar graphs, right, and this is revenue growth based on Gartner’s report for calendar year 2003, not to be confused with our fiscal year ’04, which I’m not talking about, OK, calendar year 2003. And we’ve got revenue growth rates. We’ve got somebody in orange, which may be called Oracle, somebody in blue, which might be called IBM, and then a little bit of yellow there, which is Microsoft SQL Server.

And Oracle had growth of 2.4 percent, IBM had 2.5 and SQL Server had just over 11 percent. Now, this is revenue growth. (Applause.) Thank you, thank you very much.

Honestly, I’m going to flat out brag. We believe SQL Server is the leading database in the industry today. You might be scratching your head at that statement, but I believe it, I’m going to say it at a full stop. We definitely believe we are the market leader. It’s our estimation that we today ship more units than Oracle or IBM combined, and unit share is what this game is all about. So we estimate that we’re now shipping more units of SQL Server than IBM and Oracle combined.

The only things that we don’t lead are revenue, from a revenue share we don’t lead that, and we probably never will because we don’t charge at the same price that they do and it’s not our goal to do that. We want to put a product in the marketplace that’s accessible to all businesses, and we’ll continue to push on that. So we’ll never be the market revenue share leader, it’s not our goal, but unit share leader is, and I think we’ve attained that. We’re proud to see our product growing.

Now, our next fiscal year is going to be a little tougher for us because we have 2005, SQL Server 2005 won’t ship until about this time next year, end of first half next year, and Oracle and IBM do have hot, new products in the market, but we feel very good about our market position and we’ve done some things, I believe very innovative in the last year, which we’re going to talk about in a minute that have really helped us.

BizTalk Server 2004 is also an enterprise-ready product. Integration is a very hot market, we’re going to talk about that, we’re going to demo it, and we believe that service-oriented architecture and Web services are something that the market overall is ready for. We think it will help reduce complexity and increase the longevity of an application investment that a customer makes.

So we’re feeling great about our position in this space.

Now, the Information Worker — you’re going to panic in a minute, you’ll see, oh, down 2 percent in terms of the install base. There’s nothing at all to panic here. Actually, Microsoft is one of the vendors that’s been driving server consolidation in this space. Exchange Server 2003 was all about improving operational efficiency. Again, anything we can do to reduce the ongoing cost of operations of systems gives us an opportunity to grow the market.

So we really think we’re in this position where we’ve been able to really help customers consolidate file servers. There was a huge proliferation of file servers that customers have been much more aggressive in managing, and we believe this market is continuing to grow, we know it’s continuing to grow based on our CAL business. So we’re selling more seats of Exchange, SharePoint, are growing very, very well, but overall the number of servers to support those seats, based on efficiencies that we’re doing in our server technology and tuning, is enabling customers to reduce ongoing cost of operations.

Exchange is continuing to roar through the market. I want to make sure we’re clear on one point there. It says 60 percent of all deployed messaging seats; that’s in enterprises, so that’s in the enterprise segment for Exchange — 124 million desktop seats all up and our business is very healthy against IBM and the Notes business.

So we feel very good about our position again. These are IDC numbers that are publicly available today.

SPS with its v.2 product, version 2, is doing phenomenally well in the marketplace. Again, SPS is part of the core CAL, so lots of CALs have been purchased of SPS and there’s lots and lots of opportunity for you to get out there and work with us to help improve the productivity of the Information Worker by building these team portals and projecting information and opportunities to combine SPS with our business intelligence technology inside SQL Server, lots of opportunity to bring productivity into the information worker.

So, complexity: If you look across the entire ecosystem of application development, deployment into the operations center with the IT professional and the business Information Worker being the user of that information, there’s a lot that goes on here. Think about a business process, any complex business process, thousands, tens of thousands, maybe even millions of individual lines of code have to be written to map out those processes and that’s the job of the developer.

Then the developer has this job after they’ve hopefully captured all that business process, working with end users who sometimes don’t know exactly how the business process works until they try to describe it to you and then they start to discover all the nuances, they take those lines of code, they hand them over to the operations people and the operations people have the dubious job of trying to set that up and configure it and deploy it and manage it and keep it running and patch it and all of that. And then all of that has to deliver good value to the business information worker.

So this is an incredibly complicated set of circumstances, and each IT investment or each application investment is scrutinized deeply today, we all know that. Will I get time to market? Does the vendor that I’m going to acquire from have a good toolset for my application developer so I can get great time to market? Does the platform I’m going to deploy on, do they care not just about cost of acquisition but total cost of ownership? Everybody knows that 90 percent of the cost of a system when it’s over its lifetime is in the ongoing cost of operations, not in the cost of acquisition, so that’s really where you have to pay attention. And will it be productive? Will I gain business value? Will my information workers drive on it? Will they be able to create new value in the business utilizing this investment?

So all of those things have to work together, and in order to do that and deliver that kind of an application platform, you have to have a very comprehensive investment and you have to cover a lot of space. We want to talk about that space and several of us are going to talk about that space.

This morning, the first thing, Windows Server System, that’s me. I’m talking about the server business and I’m also going to talk a little bit about the tools business, Visual Studio. You have to have a well thought out, carefully planned and orchestrated server infrastructure environment that covers the operations environment, that covers the application environment and the Information Worker environment. All of that has to work well together in order to get that total cost of ownership in line for our customers. Visual Studio, the toolset has to be comprehensive from the server through the client out into the application, a super important part of managing costs.

So I’m talking about the green and orange, the server and tools business. Will is going to come out and talk about the client, the Windows platform on the client. Jeff is going to come out and talk about Office and the Office System, and Doug, whom many of you know very well, is going to talk about MBS.

And all up, this is the technology we’ve put into place. The most important thing you see behind, which is the partner solution, partner investment around integration in all of what you do to make that stuff pull together and work as a platform for our customers. I don’t say it lightly; we literally can’t do it without you.

So I’m going to blow up the Windows Server System component and that’s what we’re going to spend the rest of the talk on. And we’re going to talk about this kind of across the three dimensions that we’ve already sort of highlighted: operations infrastructure, app infrastructure and the information worker infrastructure.

We talked about the value that we want to bring: managing total cost, delivering new business value or productivity and keeping the business running. And I also want to talk about some key initiatives, the Dynamic Systems Initiative, which is really focused on comprehensive management and deployment and really working on TCO. I want to talk a little bit about .NET, which is really focused on our implementation of Web services.

What are Web services important for? Interoperability. Web services do not discriminate on language or operating system, they do not care. They’re a set of standards for interoperability. It’s a set of standards that Microsoft has pushed hard into the marketplace with cooperation from IBM and others to make sure that customers can get good interoperability.

It’s also, very importantly, about services-oriented architecture and allowing you to write discrete applications so that they can interact with other applications in a way that’s well described and in an industry-standard way so that customers can maximize the lifetime of their investment in an application.

And Trustworthy Computing, keeping the business running, reliability, security, quality, all the things that are important to customers in terms of just keeping the business well established.

Now, Windows Server System, we talked a lot about whether we were going to do this as a company, should we introduce a new brand, what does it mean and my perspective on it was, look, we can’t introduce a new brand unless it means something. I’m going to whack IBM here, and maybe if there’s somebody from IBM, I apologize, but in my perspective WebSphere is a marketecture. It really is about a marketing architecture, it’s a bunch of branding, it pulls their family of products together and gives them something to talk about in terms of a family of products, but it has no real meat to it, there’s no technical criteria to it, it doesn’t mean anything from a value-totheend-customer perspective.

And that was one of the core objectives that I had personally going into the definition of Windows Server System. And establishing that core engineering requirements and criteria is something that we’ve worked very hard on and we announced at TechEd and we’ll be communicating that more broadly, I’m going to do it here this morning and we’re also going to be publicizing it publicly about each of our products, so how well each of our products meet a given criteria for Windows Server System will be made public. If it’s green it means we’re meeting that requirement. If it’s yellow with some description it means, no, we had to take an exception, we’re not there yet and we’ll get it next release. But I want transparency around this, I want you to know when we’re succeeding and when we’ve got more work to do. I don’t think it’s a problem when we tell customers where we are. When there’s a big problem, it’s when we just fundamentally don’t tell them.

So we have to review each product milestone. I sit in a room at 4:00 to 6:00 p.m. every Thursday, and we go through a product of the week and we make sure that they’re achieving their Windows Server System criteria, and we do that at a given milestone. We’re trying to focus on consistency across the product line and integration between the servers so that the customer gets that integrated experience.

The engineering criteria around those same kind of initiatives, managed costs, common technology for installation and patch management so every product can use Windows Update support, command line for remoting, MOM packs, so we’ve taken the knowledge from our support people and our engineering people and put it back into the product, Virtual Server Support, which is a super important technology for server consolidation, every product needs to use these things.

There’s much more detail to this, I had to summarize it in a big way, but I wanted to do it at some level so you could see that the brand has to mean something. High availability in enterprise, so enterprise has a definition, standard edition has a definition and any product name that we put in or version of a product that we put out has a clear definition so that you understand what you can expect. So 3D or SE3 are designed for security, developed and deployed, a standard methodology that all products must adhere to for security and make sure that we adhere tightly to that. Integration test scenarios and then moving down, training, core scenario that customers want to be trained on coming in that’s consistent with the release criteria, so a lot of thought and effort has gone into actually defining the brand and the value of that brand to end customers.

Now, we’re not done. This is the calendar year ’05 criteria, there will be more in calendar year ’06 and more in calendar year ’07. Any product that releases in that year, so SQL Server 2005 will have to meet the Windows Server 2005 criteria, and again that will be made public in the September timeframe to customers to see so they can see how well we’re doing against that specific criteria.

Now we’re going to jump and give some progress reports. Windows Server 2003 is a great product for us; 60 percent less exposure surface, that’s just services shut off so that customers don’t experience that exposure if they’re not using that service.

Thirteen vulnerabilities, which is always 13 too many. We understand that each time we have a vulnerability in our code, that’s a breach of trust with our customer. And even though it’s less than other platforms might have, that’s not the point. The point is that we have to reduce this, it has to get down to zero and we know that and we have to have technology to support every aspect of that.

The reliability is certainly much better. Interoperability with UNIX and Novell we’ve worked hard to improve.

And then, of course, a platform for Web services, which is the ultimate in extensibility.

Performance and scalability, we’re still doing extremely well in that space. There’s been some leapfrogging and we’re a little bit behind and we’ll have to do some catch-up with 2005 of SQL Server but we’ll get there.

And then, of course, remote access and the ability to manage your distributed environment.

The run rates of 2003 have been phenomenal for us. I think the NT 4 market was ready for the upgrade and this has been the fastest launch over the last year that we’ve had of any of our server products. So we feel great about our position there.

R2 is the same core server as 2003 and will be serviced by the same set of service packs, that’s very important, but yet will have a new set of services around it: simplified branch management so you can actually see easily from a central console what’s going on in the environment, what’s the health of the servers, what’s going on with the printers, how is the bandwidth of the network being utilized, a lot of efficiencies and improvements in the replication protocols of files, the ability to restore a server from a central site down to a remote site; all things that we heard from all of you about the inability to easily manage remote servers.

Network defense: We use this technology today at Microsoft. Each client that tries to log into the environment, we can scan it: is it the right level of patching, does it have active virus detection running? All of those things can be done upon the initial logon.

Identity federation so that you can pass credentials from one partner to a trusted partner, and you don’t have the rigmarole with all that in your application.

Anywhere access, similar to what you get today in Outlook and Exchange with RPC through ACTP, so for given applications you can give permission to that application through the network without having to VPN in, which opens up the entire network, so you can very much isolate individual access.

And then RMS, rights management, so a particular document or piece of mail, you can give specific instructions about who you want it to go to, they can’t forward it, all of that.

All of this, as I said, will be built on Windows Server 2003 SP 1. The servicing of it and sort of the timeline, the fact that we’re working hard to give incremental customer benefit each year is something that we’ve heard from customers, especially our SA customers and SA customers will get R2 at no incremental cost.

So you see the roadmap there, and all of it focused on making sure that we can continually give customers some value each year and you’re going to see that with a lot of our products.

DSI, the Dynamic Systems Initiative, this is our comprehensive, end-to-end management strategy, really trying to focus on TCO. In order to do management correctly you really have to start way back in the development phase. Most management vendors today spend their development cycle, and a lot of their operational cycles, trying to find the attributes of the applications so they can figure out what to watch for alerting and that sort of thing, monitoring.

With the new Dynamic Systems Initiative all of the products at Microsoft will participate in what we call this SDM, System Definition Model, so that when the application is developed, when the application is then passed over to Windows and installed, Windows knows about the attributes of the application, it understands how to deploy the application, it understands where things have to be monitored from and then, of course, you have to have the monitoring technology that Microsoft will put into the market but other vendors will have the opportunity to do as well.

So it’s important that you think about this incredibly comprehensively because it’s the only way to get your attention and focus on TCO as a lifecycle.

SMS has a great story. We’ve really worked hard, as I said, on this product. Asset management, inventorying, application deployment, the new features that are coming out in Q4 are some feature packs around operating system deployment so that you can deploy the image of the operating system to a client and then you can do machine migration so you can get all the information for the user’s information also migrated to that machine. And also mobile device management, the ability to go out and manage all those devices that you’re putting out in the network today, how you get those provisioned, how do you get security set up, all of that will be available to be remotely managed through SMS 2003.

You can look at the performance statistics there. The team has made some important breakthroughs in scalability and perf. All these performance improvements allow you to deploy to much larger deployments in your environment, so it’s super important in terms of scale.

And MOM, a lot of improvements on just usability, ease of deployment, ease of setup, ease of operations, a simple, single, consolidated console with a to-do list so that you can really think through what it is you need to do, deeply integrated with SQL Server reporting services and a lot of work has gone into just making this a much more effective environment.

In our own ITG shop at Microsoft, we’ve implemented this product and we’ve seen this alert-to- trouble-ticket ratio decline dramatically. So we used to get about 35 alerts to any one trouble ticket, so that’s 34 different alerts that would have to be investigated by the operations staff and then determine, ah, that really isn’t a problem and let’s skip it, down to three things that they’ll have to investigate to get one trouble ticket, so sort of 35 to one with the previous version to three to one with this version, so we’re feeling very good about this product and this will be shipped in the next about a month or so, in the fall timeframe.

MOM 2005 Workgroup Edition: This is a product that we’ve really got targeted for small and medium businesses or departmental use, again much simplified in terms of usability, targeted for environments with ten servers or less and at a much reduced price point.

So we feel good that we’ve got the overall management and comprehensive management strategy in good shape. You can see the roadmap there all up, a lot going on in the ’04, ’05 timeframe and then certainly as we move towards Systems Center, which is yet another level of consolidation above MOM and SMS and other products with consolidated reporting and alerting.

SQL Server we had talked about previously. It’s super important to overall owning the data, and being the provider of data is critically important all up to honestly controlling and being the one to provide the application platform.

And the value proposition with SQL Server has always been to be an integrated platform and providing all the data needs for OLTP and BI. And you can kind of look up the services, the relational database replication, notification services for those OLTP applications and built-in data transformation analysis, which is OLAP and mining and reporting services. The reporting services and notification services are extra value that we delivered after we shipped 2000, and all of this obviously moves forward into 2005.

Basically, one of the core points that we want all of you to think about is business intelligence, there are big opportunities in the market there today. Reporting services opens up a lot of opportunity. We’re going to demo that here in just one second and we hope that lots of customers will be able to get everything they need for their BI platform between SQL Server and the Office System and certainly many, many third-party apps.

We’ve heard a lot from our MBS customers that SQL Server runs great with the old Great Plains technology but it needed a lot of tuning with Axapta, and we’re working closely with the folks in Denmark to make sure that we can get the right tuning and make sure that the Axapta product is also highly tuned for SQL Server, and you’ll see a lot of that work that will go into SQL Server 2005.

One of the things, the benchmarks that were pushed by our enterprise competitors, Oracle and IBM, is, yeah, SQL Server is fine, but it’s really a departmental or small business database, they don’t scale to the highest, most demanding applications. And to that we’d simply say phooey, you know, phooey. Here’s the terabyte customer references. I can’t keep track of them anymore, we see a new one each week. SQL Server 2005 will continue to grow our overall multi-terabyte customers. This isn’t even the largest one. Verizon actually had over five terabytes. I just heard last week that the USDA, the Department of Agriculture in the United States, has now got one over seven terabytes. They have over 3,000 field agents that log in and track conditions of soil and flood plains and all that sort of thing.

So we continue to grow rapidly across the market in SQL Server. We have a CE Edition of SQL Server that’s at no cost, we have the MSDE product for developer and desktop and then we, of course, have the standard and enterprise editions that scale through the market.

And now, as I promised, we’re going to do a quick demo. Alex Payne is going to come out and he’s going to talk about our Best Practices Analyzers and combine some of that technology with business intelligence in SQL Server. Alex? There he is. (Applause.)

ALEX PAYNE: Thanks, Paul.

PAUL FLESSNER: How are you?

ALEX PAYNE: Not too bad. I just want to see if I can use the term “phooey” somewhere in my demo.

PAUL FLESSNER: Phooey — you work for that!

ALEX PAYNE: So, Paul, last year after the Partner Conference in New Orleans, our partners came to us and said that your customers were looking for help, help in getting their hands around operations, help in implementing best practices. They look at us and they say, Microsoft, you guys have a lot of information about the optimal way to configure servers, optimal ways to see servers run, so help us help our customers.

And so what I’m going to talk about is Best Practices Analyzer, and let me just open up one to just get it started here so that you see what I’m talking about. But think of Best Practices Analyzer as part of the Windows Server System Common Engineering Roadmap. The Best Practices Analyzer, we have release 1 for SQL Server, and I’ll show that in a minute. And this is a prototype and this will be in the future part of, like I said, the Windows Server System, so all of the server products will have a Best Practices Analyzer tool.

Now, you might ask the question just before I jump into this how is this different than MOM?

PAUL FLESSNER: Right, exactly.

ALEX PAYNE: So the first thing I want to say is that this is different than MOM. MOM is more about monitoring day-to-day operations whereas Best Practices Analyzer is more of a point in time leveraging the knowledge that Microsoft has about server technologies so that you can be more successful with your customers in making sure that their operations run more optimally.

So to just show you how it works I’ll show you Exchange.


ALEX PAYNE: Now, this is a prototype, as I mentioned, and think about this. We have a set of rules that we can then apply or you can apply in your customer environments against their Exchange environment. So I can look at an entire organization and I can look at a specific server, but what I’m going to do is I’m going to go run these rules against the entire Exchange organization in this demo, looking at 19 Exchange servers around the world, and I’m going to get a report that says kind of a gap analysis; this is a best practice, this is where these servers fit, and I can see a report for each individual server.

PAUL FLESSNER: So you’re not monitoring alerts in any way, they’re just looking at the configuration?

ALEX PAYNE: Not monitoring alerts, just looking at a configuration at a point in time. And this is something you can schedule. You can set this up to run Sunday night so you have a report when you come in Monday morning, for example.

PAUL FLESSNER: Many of you may have seen this when you go out to a customer and they’re having trouble with their server, somehow it’s gotten out of configuration or out of what at least the customer intended it to be configured as and, boy, I’ll tell you it’s a lot of support calls for us.

ALEX PAYNE: So this is a common report that you might get as part of the Exchange BPA.

Now, let me jump over to a Best Practices Analyzer that actually is shipping today. So you can go to the SQL Server Web site, you can download this for free; the same concept, a set of rules, a unique set of rules is you can actually run this so that you can get an idea of what you need to be looking for as you upgrade to SQL Server 2005.

So in this example I’m going to run this against the SQL Server instance and I’m going to get a very similar looking report that’s going to go out, it’s going to scan the SQL Server instance, it’s applying these rules and then it’s going to come back and say this particular instance is missing something or it’s good. And again it can be scheduled, say, to run on a Sunday night.

Now, part of the good story of Windows Server System is the integration with other products. And so you mentioned reporting services, you actually highlighted reporting services last year in New Orleans. And so what I’m going to show you is that if I jump over to reporting services I can actually go to my BPA folder, my Best Practices Analyzer folder, and open up this scan that I just ran. I’ve actually got a report out here that’s going to show me the last scan I just ran.

Now, because you’re in the reporting services environment you have the subscription capabilities, you have all the caching and security, so I can envision an environment where you for your customers have BPA running on, say, SQL Server and then on a Monday morning have an e-mail sent to your inbox telling you how your customers are actually running their operation, so it could be of huge value.

Now, after the conference last year when Paul showed reporting services, the number one thing you guys asked us for was end user, self-service, ad hoc reporting. And I want to say that we will be providing this capability in SQL Server 2005. So let me show it to you.

PAUL FLESSNER: So today that didn’t get quite the reaction we were looking for. (Applause.) No, that’s all right. Today you have to build these reports in Visual Studio, and that was kind of a high bar for lots of customers and the big feedback was, gee, we’d like reporting services, but we’d like to be able to have end users have easier access to defining, tweaking and changing reports, so that’s the technology that we’re going to show you now.

ALEX PAYNE: Exactly. So let me show you this report that’s in reporting services, somebody built this one that maybe uses Visual Studio, and you see the report, it’s a good report. It’s all of my customers across the world sort of by country. It’s showing me the number of orders and the order total or the grand total of all the orders. But now you had this thing up here where it’s edit report. I can go in and I can modify this report but when I modify this report think of your end users that are business users that want to look at a report and build a report, not understanding database connections, they want to look at it from a business layer. And that’s exactly what this Active Use technology is providing us.

So here’s that report and I can envision an example where I can come up, I’m a product manager in Germany and I don’t want to see all the countries, I just want to see for Germany. So I can come here and I can choose Germany and what I’m doing is I’m going through and adding criteria in this example.

Now, I could also build a report from scratch using the same business layer and in this example I’m going to choose customers in Germany that have order total over $1,000.

Someone mentioned I might type like Steve Ballmer.

And now I add number of orders, I’ll give it five, and now I’m going to view this report.

Now, what’s going to happen and what you saw was that I didn’t have to understand database connections, I didn’t have to do outer joins and sorts and group by; I looked at Germany, orders over $1,000, very business focused, and there’s my new report, very ad hoc. (Applause.) There’s the applause. Thank you.

PAUL FLESSNER: I was going to say, this was a lot of work. If you guys didn’t want it, you should have told us.

ALEX PAYNE: Yeah, and we’re not done yet.

So the other thing that you asked us for, the number two thing you asked us about reporting services, was that you wanted embeddable report controls so that you can now add reporting to your applications. And so we will also be providing that in SQL Server 2005.

Now, let’s say this report is of value and I actually want to get it out to the reporting services environment, so I’m going to go out here and save it as I’ll call it Test. And if I jump back out to reporting services and I refresh this, let me refresh it there, there is my new report, that report I just built. It’s now part of reporting services. So all the subscriptions, security, caching, all those great things are now available there.


ALEX PAYNE: So what have I shown you? I’ve shown you that we’ve listened to what you had to say about things we needed to do. We are providing Best Practices Analyzer, we will be providing them for all the products of Windows Server System, it is available today with SQL Server. We also showed you what we’re bringing in reporting services, end user, ad hoc reporting, as well as embeddable report controls.

And so with that, I just want to say thank you very much. (Applause.) Thanks a lot.

PAUL FLESSNER: Thanks, Alex.

We just did a first for you here in Toronto. That’s the first time we’ve demoed Active Use work. It will be in SQL Server 2005. Beta 2 is imminent. I’ll be back tomorrow morning at 9:00 going through final ship room triage and you can expect to see beta 2 very, very shortly.

So the other thing we talked about was this integration. I just want to hit quickly — I’m going to get one of those hockey players to knock me off the stage here if I don’t keep moving — the integration between SQL Server and Visual Studio. You are going to see, I think, something that will be very impressive in terms of the integration that developers will experience between SQL Server 2005 and Visual Studio 2005. Visual Studio 2005, you open a data project, you go in and you start editing and working, you can write your stored procedures in C# or VB, you save it, you can get source code management through Visual Studio and all of that is applying to SQL Server 2005. When you’re in SQL Server 2005, if you’re defining a cube or a database or building parts of your data warehouse you’re in the Visual Studio shell.

So the interplay between these products and the seamlessness of this integration, even though it’s taken a long time to get there, we think will be very impressive to the marketplace when we ship it next year.

This is process management, something that we’ve heard a lot about from all of you. A lot of times you go into a customer account and they’ve got all that existing code and they want to build a new application but yet they want that new application to easily interface with the existing applications and you spend a huge amount of time trying to get those sort of brittle connections to work.

And that’s what BPM is about. Sometimes you need to reach out to legacy information and that’s why we have Host Integration Server and we’ve got a new release coming shortly, a 2004 release that has the TCP/IP connectivity into the IBM environment so you can go out and get that AS-400 data and the mainframe data. You can define those business processes right in BizTalk 2004. You can use the runtime version of 2004 to manage and orchestrate those business processes or the interaction between legacy systems, utilize BizTalk for the conversion, utilize BizTalk to project out new Web Services utilizing XML and, of course, there’s much tighter integration between exposing all that information into Office so customers can use very familiar Office tools to do BAM, Business Activity Management.

And to show you a little bit about this, Mike Lewis is going to come out and he’s going to talk to us about kind of a scenario and hopefully it’s one that all of you relate to and some opportunities for your customers as well. So, Mike, why don’t you come out and show us what we’ve got? (Applause.)

MIKE LEWIS: Thank you. Thanks, Paul.

PAUL FLESSNER: It’s kind of a steep set of stairs but you did well.

MIKE LEWIS: Yeah, I made it up. That was the first step that I needed to take for the demo.

Well, first I’d like to reiterate a story that one of the partners told me yesterday in one the structure meeting room. I’ve got to tell you those structured meetings have been incredibly valuable to me and this story I think will help to set up what we’re talking about with Business Process Management.

She told me this story where it was about a recent engagement. She told me that when you folks go into an engagement what you’ll do is you’ll get the specifications of the business process that your customers want you to build out, and the business process she told me about was actually very similar to this demo that I’m about to show you, where we’ve got a time sheet task uptake multilayer process, so there’s a multilevel approval process.

She told me that she went ahead and got the specifications, she went back to the shop, built out the specifications and created a VB .NET proof of concept that she took back into her customer. Now, they take a look at the proof of concept, the business folks liked it, the IT liked it, everybody agreed that’s exactly what the customer needed.

So then they went ahead and signed the contracts, they figured it would maybe be a four-week engagement, go ahead and build out this relatively simple business process.

So everybody is ready, they start the project, they get on site and they start to build it out and then all of a sudden the gotchas set in. And by gotchas I mean little scope creep types of things. So, for example, here I’ve got a form which sends an update into my line of business database. I’ll go ahead and submit that. Now, when I did the proof of concept or when you do the proof of concept, what was decided was you’d have this nice, clean, Greenfield architecture of this business process but when you get onsite the customer says, “Well, you know, we’ve just installed Office System 2003 and we’re really happy with it. We would like you to go ahead and start the approval process, the pre-approval piece in an InfoPath form that’s exposed in SharePoint Portal Services.”

So that update that I just sent it shows up in a SharePoint Portal Server site where my managing consultants can go in and see it. They go ahead and click on that InfoPath form and right here they can go ahead and approve it. That’s what the customers wants.

The next thing they ask is that when you save this form back to the SharePoint site your business process automatically picks it up and takes it back into the process to continue the approval.

Now, the next thing that needs to happen is my practice manager has to go in and do a final approval of all these tasks. So the practice manager certainly doesn’t want another application that he’s got to load up and the end of the day and remember to do so what the customer told you is that you need to send these InfoPath final approval forms to my practice manager in e-mail. So now in e-mail I get these e-mail messages with a form. Again, it’s an InfoPath form that allows me to make that final approval.

So now this customer is actually a forward-thinking customer so they’re thinking about service-oriented architectures and business processes that they can expose as services. So they want this InfoPath form wired to a Web service which will go ahead and take the approval and turn it back into the business process. So by clicking the submit button I’m actually calling a Web Service that’s exposed on the back-end that can be exposed to other applications.

So that’s the overall business process. There is a lot of enterprise integration stuff that needs to happen. Do you think there’s a way that we might be able to help folks be able to put all that integration together in one place?

PAUL FLESSNER: I’m hoping so or this is really going to drag.

MIKE LEWIS: Yeah, we do have that solution for you and that solution is based on BizTalk Server 2004. What you’re looking at here is the BizTalk Server 2004 Orchestration Designer in Visual Studio .NET.

Now, I’m not going to dive into a bunch of code because we don’t have to here. What we’re doing is we’re configuring this application by grabbing shapes from the toolbox, putting them onto the design surface and then configuring those shapes and wiring them up to adaptors that talk to systems. So what we’ve got here is the SQL Server adaptor, which goes ahead and creates an XML document that gets sent into this received shape in the BizTalk application.

Now, the next thing we need to do is we need to take that SQL information and map it into something that resembles our InfoPath form, and the way we do that is by grabbing that message of the source, declaring a destination as our status message and then using the BizTalk Server mapper to transform data.

Now, one of the things you’ve told us is that it takes a lot of time and effort to transform data from one type to another, so what we’ve done is we’ve built into the mapper a graphical tool that allows you to very quickly and easily transform data.

So what I’m doing here is I’m grabbing like data from one side, dragging it over, and automatically connecting that data.

Now, if we look in the toolbox in the mapper, there are about 70 of what we call “functoids” that allow you to do things like database lookups or extracted values from tables that allow you to go ahead and create data as well as grab data from other locations and move it across in your map. So the mapper is a great productivity tool to quickly and easily transform data from one type to another.

Now, similarly what we’ve done here, what we’re doing here is we’re using configurable adaptors to communicate with enterprise systems. So once I’ve mapped that InfoPath form, I send it out to the Windows SharePoint Services adaptor and then grab that information and bring it back into my business process, BizTalk Server correlates that for me to bring it up to the right process. Once the pre-approval is done, we need to send it out to our practice manager in e-mail and again we use the SMTP adaptor to take that InfoPath form and send it out through e-mail. Then we’re using the Web Services adaptor to again take that information and bring it back into the process, finally taking it, building the response message to update our line of business database and send that back into the SQL adaptor.

So this is how we’ve built this application, relatively complex logic even though it’s a simple process using BizTalk Server.

Now, one of the key differentiators with BizTalk Server over other BPM offerings in the market are that you can start small at this level with a small application. BizTalk Server Partner Edition is a very attractive price point and it gives you the enterprise capabilities to configure these things together.

Now, I don’t know if you know, Paul, but I’ve been talking to our partners and they tell me that over 50 percent of their BizTalk services business is repeat business so they go in, build a BizTalk business process based application and show what their expertise levels are and what they can do and then once that’s implemented and deployed they go back into their customers and sell more services into the same customer. This is a common strategy that worked very well with BizTalk Server applications.

So I hope the next time that you’ve got either a simple or even a very complex enterprise integration project in your customer base, that if that enterprise integration problem creeps in and starts to jeopardize your delivery dates, it certainly pays to have a couple of BizTalk Server guys on staff that can come in and get that back under control.

Thank you.

PAUL FLESSNER: Great. Thanks very much.

MIKE LEWIS: Thanks, Paul.

PAUL FLESSNER: Thank you. (Applause.) He made it look pretty easy.

In terms of the application roadmap, we have some good deliveries this year with BizTalk Host Integration Server and there’s a feature pack for Commerce Server. You can see in 2005 there’s an awful lot happening with Visual Studio 2005 and SQL Server 2005, R2, Commerce Server and Host Integration Server. A lot of that work is going to be around 64-bit and a lot of other features.

And then further out, which is basically what we’re saying now, further out, is Longhorn Server and you’ll hear more about that as we go forward.

So this is another huge opportunity for all of us. Go in and talk to a customer about, gee, what’s your strategy around spam. Some estimates are as high as $8 billion — that’s with a B, billion dollars a year in lost productivity, network utilization, software, hardware, services are invested in spam.

We did a capture period of a couple of days just before Christmas out at our Hotmail site with MSN. We saw that 3.2 billion pieces of mail came through Hotmail and 3 billion of them were spam. It’s an unbelievable onslaught into the marketplace. Fifty percent is the industry numbers. At Microsoft we monitor incoming through About 85 percent of the mail is spam. So these are huge, huge costs.

And the idea is you can filter the spam out but not block any of the mail that’s supposed to get through, and there are all kinds of techniques to do this. Some of this is a combination of IP blocking and DNS blocking, and you’ve heard this term of spoofing where people say they’re somebody that they’re really not and that’s how it gets in and that is sort of at the very edge of the firewall to try to block as much of that mail as you can.

The next step is more sophisticated and also more costly checking. If you’re looking for denial of service attacks or repeat messages or sending IT authentication lists and those that aren’t valid either inside or from a valid person outside, again another set of screenings.

And then the most sort of resource intensive is actually screening of the headers of the message or things that are going on potentially in the message, that’s our IMF technology, the Smart Screen technology, which we took from our research team and implemented it and gave it to all Exchange Server 2003 customers at no cost so that they could continue to help improve the spam facility.

We’ve gotten some feedback from customers that are utilizing just Exchange 2003 and the IMF technologies, that they’re blocking over 90 percent of the spam with zero false positives, so there’s been a lot of improvement in this space and there’s an awful lot of opportunity for you to get out there and work with your customers on setting up a plan for both antivirus and for spam protection.

One of the things that we heard about Exchange Server is a lot of times it is used as an edge server for mail routing and SMTP but we have the Active Directory access from Exchange and a lot of customers don’t want the directory exposed outside the firewall. So we will be delivering a new service in Exchange and it will be available to SA customers at no cost when we ship it at the end of next year, calendar year 2005, and that is exactly what it says, it’s an edge server. So it’s a place to do all this filtering for spam and it’s a better host for antivirus products, it’s also our SMTP products and it will also do some relaying to various mail systems inside the company without full exposure to the Active Directory. So that’s an important step forward for us in our Exchange technology.

So all up and in conclusion, it’s all about reducing that complexity. There’s a lot that’s going on. We’ve got a long way to go in the evolution of Windows Server System, but we believe it is the right step forward. We’re anxious to hear your feedback about it. We will start to market it and push it more aggressively as we go forward.

There are lots of calls to action here: 2.1 million left, let’s knock them down. Next year I hope to give you a great number on those NT 4 servers. Small Business Server, 40 million small businesses in the world, only 7 percent have a server, lots of opportunity there. BizTalk Server, you’ve seen it, it helps customers integrate, it makes customers reduce that cost of ownership and leverage the existing assets. And SMS and MOM, the first step toward really getting a handle on the total cost of ownership monster that plagues so much of the consumption of IT budgets today.

So that’s it for me today. Again, it’s my pleasure to be here and I hope you have a great conference. Thanks. (Applause.)

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