ANNOUNCER: Ladies and gentlemen, please welcome Rick Devenuti. (Applause.)

RICK DEVENUTI: Good morning. Michelle, thanks for that introduction. I’m happy to be here today to talk to you about Microsoft services and our opportunity to work with you to grow the market together.

Now, over the course of the last few days you’ve heard a lot about People Ready. You’ve seen the products, you’ve seen our messaging, but you know there’s a lot more to making a product successful in the market than just shipping it and putting some marketing behind it. It’s really about having partners who are ready to take advantage of the opportunity, and having customers who are confident in our technology, confident in the value of that technology, and trusting us together with Microsoft and our partners to help them implement that technology. It really is about accelerating the adoption of the technology within our enterprise space and making sure we have partners ready to take advantage of that growth in the services opportunity.

Now, three years ago when I was CIO, if I saw a slide like this, I’d think about the requirements, what business requirements do these products fit, how do I think about building solutions that make my users happier. Today, when I look at this slide, I see something different, I see opportunity, lots and lots of service opportunity.

You’ve seen the great products over the last few days, and I assume you think as I do, that one thing is very consistent about the models you’ve seen: None of these products work out of the box; these are deep solutions that are going to require great service professionals working with our customers to make sure these realities, these benefits come through.

When I talk to our customers, when I talk to CIOs today, they talk to me about complexity. Their environments are more complex today than they’ve ever been. And they worry about their skills, they worry about their ability to put these solutions together to build great benefits for their customers.

We used to do e-mail, e-mail became collaboration, collaboration without mobility is no good to anyone, and now that we’re mobile we need unified communications. These skill sets do not exist in every one of our customers. They talk to me about how they used to just need an engineer for mail, but now they need security, they need deep network expertise, they need to understand telecom providers. The ability to work with all of these technologies and put them together in a way that brings great value to their end users is more difficult today than it’s ever been. And what they ask me about is what our services strategy is and what partners they can use to help augment their staff, because they don’t have they specialization on their teams that they think they need to take advantage of these great opportunities.

We know that partners are necessary to make this opportunity come through for us and for our customers. And our customers also ask me about vertical solutions, knowing that we don’t have answers there within services, which partners will help them come to the table with solutions that worked before in other customers that look just like them.

So this slide to me and the stories of the last three days are all about opportunities, opportunity to help drive service wins and help bring reality to the vision we’ve talked about for the last two days.

Now, I think Microsoft services has a unique role in making this reality true, both in priming the market and building confidence and trust in our customers to be early adopters of the technology, as well as helping partners be ready for this opportunity.

Many of the benefits of the Microsoft Partner Program are delivered by Microsoft services, and here’s a small list of the things we do in conjunction with our Partner Program. From webcasts to mission critical support where over 50,000 times last year you called us with a server down issue, and we made sure we helped you get that up with great satisfaction, to much deeper relationships built in pre-sales where we work with you today in an unlimited way to handle pre-sales technical issues or specific sales issues around programs or offerings, so you can be absolutely prepared when you’re talking to your customers about how to help them implement Microsoft technology. We believe the Partner Program is a great opportunity to help you use our resources to be ready for this opportunity.

I want to talk about how one customer has taken advantage of this. Let’s see how Touchstone, a Microsoft Dynamics customer with great growth, has used the Microsoft Partner Program to help them get ready for customers. Can we roll that video, please?

(Video segment.)

(Applause.)

RICK DEVENUTI: I think this is a great example of a partner using this program to help them grow their business. I encourage you to take advantage of the program. If you haven’t tried us, give us a call. Let us help you meet your customer needs.

If you need to know more information about the program, I ask you to look at the Partner Portal, or to talk to your Partner Account Manager.

The other way we help partners get ready for this opportunity is through the core enterprise services strategy. There are four things we do with partners on a regular basis. The first is co-engagement. The majority of our revenue comes from engagements where we work with partners side by side to meet the needs of the customers. It’s in those engagements where we share our IT, we share our business processes and we build deep relationships with local partners to make sure our local teams understand each other’s capabilities and the best opportunities to work with each other to meet customer demand.

The second is our Partner Strategy Consultants, or the PSCs, a defined role working full time with you on your staff to help you build offers around Microsoft technology, to help you architect your solutions using deep Microsoft technical expertise, and to help you train your people so they’re better prepared to meet their customer needs.

The third is MSPA or the Partner Advantage Program, an opportunity for you to get technical support or short term consulting services added to your team for the needs you think are required. And this is a flexible program that allows you take the hours you think you need into your projects.

And finally SKUs: Last year at this conference I introduced the concept of SKUs, the idea of packaging our IP in definable production, definable requirements with definable outcomes at a fixed price. And frankly, it’s been harder than we thought to put these SKUs together. Most of the SKUs we created this year are around productive use, helping customers who are running Microsoft technologies to run it better. It’s not generated a great deal of revenue for us, but it has proven the ability to take IP, package it together in a repeatable way, and it’s had great response from our customers in terms of their ability to run our technology better. We’re going to continue to invest in this.

And I’ve got to tell you, I was somewhat flattered to see IBM just recently announce that they’re moving in the direction of trying to package IP, and I wish them the same learning curve opportunities that we had as we move through this journey. (Applause.)

But it is important to us to continue to move and taking IP into repeatable opportunities and sharing that with partners. We’ve just recently started our first pilot with two partners, Siemens Business Systems, and Covestic to look at how they can deliver these SKUs to their customers.

And we’ve got a lot to learn in how to manage the IP, how to think about the licensing, what the business relationship is, but we’ve started with these two partners so they can, in fact, take this IP to their customers.

I look at fiscal year ’07 as an opportunity to grow out our suite of SKUs, and the end of fiscal year ’07 and ’08 as a real opportunity to scale this business model with partners. We’re still investing and we’ve still got lots to learn in this area, but I’m convinced it’s the right way for us to move forward, and a great value to the partners as we build it out.

So we talked about enablement; what are we trying to enable for, what is the opportunity? We worked with Gartner over the last couple of years to define what is the services opportunity around the Microsoft platform, and using Gartner’s terms, we’ve defined development and integration, IT management, and support as those things they can define around specific platforms.

And this picture shows that in their view fiscal year 2006 there’s about a US$295 billion business around those three IT disciplines. And about half that business goes on the Microsoft platform, the other half on other platforms.

Now, to Gartner the future looks a lot like today. This green picture in 2009 suggests that about half the market will still be on Microsoft, the market will grow, the pie will grow, but the percentage on Microsoft will remain about the same as about half. Our challenge as a company, our challenge with you as partners and the ecosystem is to say can we change our piece of the pie, this shaded area here, can we move from the pie being 50 percent on Microsoft to a much bigger percentage. The products you’ve seen this week, the opportunity we have suggests to me we’ve got lots more room in this pie for the Microsoft platform and the services that are going to be required to make People Ready real.

Now, this purple slice of the pie is Microsoft services, the service work we do directly. We believe it’s about 1.5 percent of the total pie. And I know that’s the percentage of the pie that builds a lot of discussion with some of the people in this room, so let’s talk about that piece of the pie.

Last year we defined theater of operations, and theater of operations is how we think we can best grow the pie and how we can best be transparent and predictable to you. It’s what we do and where we do it.

What this slide shows, and there’s a lot on this slide so I want to go through it, is where we do work and what kind of work we do. We’ve defined the work that Microsoft enterprise services does into five buckets: relationship services, new technology, lighthouse, SKUs, and customer demand or customer solutions, customer satisfaction solutions.

And we do the majority of our work in the major accounts. Our strategy as an organization is to do our work in the top 2,500 or so accounts.

Let’s talk about relationship services, this blue cylinder here. There are two things that make up that volume, and it’s about half the business we do. That’s premier or support to our enterprise customers, and Enterprise Strategy Consulting. Enterprise Strategy Consulting is a new offer or a small offer of dedicated resource onsite in major accounts only to help them grow the implementation of Microsoft technology; architecturally how does our technology fit in with their stack, and how can they accelerate the adoption of the technology they purchase through volume licensing agreements.

The majority of this bar is around premier, and our ability to support customers. And I want to be clear, we want every enterprise customer in the major and corporate account space to have a direct support relationship with Microsoft. We have found where customers have a relationship service agreement with Microsoft, either Enterprise Strategy Consulting or premier, those customers have a 17 point higher satisfaction with Microsoft, they buy more products, they implement the product more quickly, and it gives us and our partners much more opportunity to bring value to those customers. So continuing to invest and win to build confidence, trust and loyalty on our platform and on our products is core to what we do in enterprise services.

Now, the green then represents the core of what Microsoft consulting does. Let me make sure you understand this business. The average engagement for Microsoft consulting is 251 hours, the median is 111. We do a lot of very small transactions where we’re brought in either by partners or by the customer directly to give them architectural help or quality assurance discussions.

The majority of this work is done around new technology or lighthouse. And in our financial system this year for the first time, fiscal year ’06, we’ve defined every engagement as needing to fit into one of these four buckets.

New technology: That’s engagements around a very specific set of technology, a list created once a year, based on products we introduced last year or will be introducing this year. This is where we want our people to focus, on early adoption of technology. It’s the place we think we can have the most confidence in getting our customers to move quickly and the place we can get the feedback to the product group on the scenarios that customers are really trying to implement.

Secondly is lighthouse, opportunities which have high customer risk, and great visibility to move the market, to teach the market that the Microsoft platform really can be used in a mission critical way, at a scale or in an environment that people haven’t thought about Microsoft. These are engagements that have to be greater than 1,500 hours, and they have to have clear visibility in the marketplace to make sure we have the opportunity to move the market.

SKUs, as I said, has been a tiny piece of our business and really focused right now around productive use. We know this is going to grow for us.

The rest of the work then fits into customer demand, scenarios where the customers ask us to become involved, the account team has agreed we should do that work. This is about 24 percent of the model today, and the story here should be very clear; we want that piece to go down, we want to increase our investment and opportunities around new technology and moving the market.

These numbers that you see here are from our financial system. This is as transparent as I can be about where we do work and what we do, and every time we get together we’ll show that. In fiscal year ’07, which started a few weeks ago, our people are measured by this, we measure it monthly in our rhythm of the business discussions, and we govern it monthly by subsidiary to make sure people are working on the right kind of engagement.

Now, I don’t pretend everybody in Microsoft services understands this slide or theater of operations, but I am absolutely certain that our engagement managers, our salespeople and our service leads not only understand this slide but they understand how their compensation is impacted by this.

So I ask you to talk to your service salespeople, talk to the engagement managers, make sure you can have open discussions about where we think we should be working and what type of work we should be doing in your geographic area.

So theater of operations is what and where; let’s talk about how. One of the core issues is, is Microsoft servicing prime or not prime. As I said on the last slide, it really depends on the situation. Where there is new or innovative use of Microsoft platform, where there’s an opportunity to really accelerate the adoption, that’s an opportunity that we’ll think about priming, where there’s an opportunity to grow the market, to take a high risk position and make sure we can showcase that as a lighthouse opportunity that will help the market accept Microsoft technology as a core way to think in that marketplace.

But often it comes down to customer decision. Ultimately it’s the customer decides who decides who the service provider they use is. Now, a customer decides for a lot of reasons, sometimes for price, sometimes because of given skills that a partner might have, sometimes it’s because of the risk or the accountability they’re looking for, what I used to call a single throat to choke.

Now, we talk often about account control or account ownership, but the reality in my mind is the only person that owns the account is the customer.

I’ll share a story we had a few months ago where I was on the phone reviewing a deal with Western Europe, and Nino, who runs Western Europe for services, was explaining a deal. I review every deal over a million dollars for approval from a risk perspective. We’re going through the story with Nino as for a telecom operator, and they wanted Microsoft to prime an engagement that very much looks like a strategic integrator pull. They had an application, it was built by a partner, they wanted it put together with the hardware and delivered.

And I went through this scenario, there was very little work for Microsoft to do. It wasn’t new technology. And so I got on the phone to Nino, I said, Nino, what part of theater of operations don’t you understand? What part of our thin, prime model rules do you not understand? And, Nino, as he always does, he very calmly said, “Rick, what part of customer satisfaction do you not understand? This customer is very specific; they’re making a bet on Microsoft technology. We have a long relationship with them. They’re taking risks on this technology with a partner they’re not familiar with, and I’ve committed that we’d make sure it works. If we don’t do this deal as a prime, they won’t do the deal.”

That’s an example of what I mean by customer satisfaction, completely aligned with our EPG sales team, and an opportunity we want to have for Microsoft.

We will always take a look at those opportunities. And we don’t do every deal a customer asks us to do, but I do want to be clear, priming is part of the model where it drives new accelerated adoption, where we have the opportunity to truly move the market, or where the customer just won’t do the deal unless Microsoft risk is part of the model.

When we do get involved, what roles do we play? There are three key things that we do in services from the consulting side: the architectural role, making sure the architecture of a solution will work in our minds and the minds of our product group. Making sure we have project management control over anything where we own the risk, because project managing that risk is core to making sure the risk doesn’t get out of our control. And finally, providing subject matter experts. We don’t have large staff for deployment, for implementation; we can’t be successful in any engagement we prime over a few hundred hours unless we’re co-engaged with a partner to make sure we’ve got the right resources at all the skill levels to deliver a full solution. Our model is really around architecture and project management.

And then which partner do we work with. This is a tough one, because there’s always more than one qualified partner that we could work with on a given opportunity. And we know there’s only one partner who ever thinks we get the decision right, and they rarely think we get it right often enough. So it’s very difficult for us to always go through the process with the local account team, based on local experiences, as to what competencies a partner has, how can we best work together to put this solution together.

And customer input is always important. I got a phone call from a CIO friend of mine from a prior life, says, “Rick, I want you to prime an engagement.” And this customer is in the CAS space, and I explained to him what our business model was. There was actually a great ISV partner that he wanted to bring into the company. But I said here’s my problem, this is a line of business application. The decision is really being made by the line of business owner, I as CIO am supporting the technology win. I want it to be built on SharePoint.

So we’ve got IBM coming in with a given solution, and we’ve got a partner that nobody in the line of business has ever heard about. How can you help put that together? We want you to do it, but we want this partner specifically to be the solution provider; again, an example where the customer input has to be core to how we go to market with them and how we win their solutions.

These are the principles we use, these are the roles we use when we’re thinking about priming an engagement.

I want to show you another video about how this can work. This is a scenario where we won a large deal. We led the first two phases, co-engaged with the partner, and after phase two the partner took over the prime role and now owns the customer relationship going. Please let’s roll the British Telecom video.

(Video segment.)

(Applause.)

RICK DEVENUTI: That’s a success story, that’s our business model. BT backed in with core, mission critical work for British Telecom to offer value to their subscribers. They wanted Microsoft to lead because they were concerned about the technology, they were concerned about whether we could scale. (Al Nor ?) and his team wanted to make sure we were involved in the project.

But we always knew we couldn’t scale to the size of that project, and once we got the pilots done, once we got the proof of concept and the initial implementation, TCS now owns that relationship with BT, and we’re looking for another opportunity to accelerate adoption of technology.

Microsoft and Microsoft services is committed to the ecosystem. We know we can’t scale without you. Here’s my commitment to our partners. We will continue to drive the market. We’ll continue to drive growth and move that piece of the pie that Gartner sees to the right on top of our platform.

We’re committed to co-engagement. It’s where we share our IP, it’s where we build our relationship, it’s where we can together take the best of our organizations and the best of our knowledge to meet solutions for our customers.

Partner satisfaction is very important to us. Last week, we got back the results of the services partner survey. We sent that out to 900 partners we worked with this year; 60 percent of those responded, I want to thank everybody who did that.

We’re still going through the data. Net-net the overall satisfaction is unchanged, but the feedback was very clear: Our partners want increased transparency. The reason for the theater of operations and discussion today was to be as transparent as I can about where we work, what we do, and why we do it.

We’ll continue to be transparent, and you can continue in your local geo to talk at a very crisp level about what their theater of operations is and what percentage of our work is being done in which of those five buckets.

We’ve also asked to communicate more, and so we’re creating a Partner Advisory Council. It was one of the many mistakes I’ve made in this role was to think that I didn’t need a partner, direct partner relationship, because between the Partner Program and the enterprise partner team, we were talking to a lot of partners. We recreated our partner team this year, we’ve got a great team of people working with our partner communications group, and I hope you’ll see more of us. I’ve asked that team to significantly increase our information flow on the partner web, and to make sure we have more and more opportunities to get in front of you. And I look forward to meeting more of you today at the lunch session.

I’m very excited about the opportunity in front of us. I’m very excited about working with you to make that pie move to the right. I’m absolutely confident that our services team is clear about their role and our reliance on partners. If you have any concerns, I’d ask you to let me know directly, either at [email protected], or for those of you who don’t remember the name, Rickde.

Thank you for your support, thank you for your loyalty to the Microsoft platform, and I look very much forward to working with you to make People Ready come true. Thanks for your time. (Applause.)

END