Steve Ballmer Speech Transcript – Retail ’98

Remarks by Steve Ballmer, Executive Vice President, Sales and Support, Worldwide Business Strategy Group

Retail ’98
June 15, 1998, New Orleans, LA
Note: Extremely Poor Audio

STEVE BALLMER: Well, thank you all very much for the warm welcome.I guess we have the City of New Orleans to thank for the warm weather, or not to thank, depending on your point of view.I think I’m going to need a new suit between shuttling back and forth between hotel and conference center, and I’m sure some of you feel the same way.

Before I start, we’re going to have chance during the course of my remarks today to hear from a few other folks, let me introduce them.On my far left, Dick Watt (sp), the vice president for Hewlett-Packard; Dan Roddy (sp), vice president of technology for Tricon; and Michael Dexter Smith, president of VenturCom.


MR. BALLMER: What I thought I would try to do today, in my own remarks and through some of the comments of our partners and our customers, is to give you a little bit of a perspective of how we see the requirements coming from our retail customers, the kinds of things that we think we need to do and respond to in the retail industry, and how we mesh that with the rest of the vision that Microsoft has in terms of strategic imperatives for Windows and our platform of products that sits on top of it.

What we’ll do at the end, also, is open up for questions and answers.I find sessions like this are every bit as interesting both from the audience and certainly even more interesting for me as we get into feedback.And, after all, that’s what brings us here today is to try to tell you a little bit what we think we’re hearing in terms of the feedback we’re getting from our customers and partners in the retail industry.

I certainly want to start with a little bit of a history and a view of Microsoft’s focus and commitment to the retail industry.Our company, as it grew up, starting in the late ’70s, early ’80s, we made very horizontal building blocks, very horizontal tools, and those tools have fanned out and found their way many places over the course of the years.And, frankly, our company hasn’t always stayed on the leading edge of every application for the PC.Our focus initially was on the general-purpose facility that software developers needed to harness our operating system platforms.We got interested in personal productivity.In the mid-’80s, we brought our Office product to the marketplace, and we learned a lot about that.

As we introduced Windows NT in the early part of the 1990s, the initial focus was on basic networking infrastructure, electronic mail, et cetera.But we found that customers really were pushing in the retail industry, first with DOS, frankly, a little bit with Windows 3.1, but particularly as we brought Windows NT and Windows CE to market. Our retail customers and our partners have wanted to push these products into a variety of retail applications, whether that’s at the point of sale, the in-store system, the distribution center, the merchandising systems, or increasingly today in terms of the electronic commerce activities that virtually every retailer has either embarked on or is seriously struggling with what to do strategically.

What we’ve tried to do over the last three or four years is put a very specific focus back on the needs against both the products and the standards around Windows that are appropriate to support the retail industry.And we’ve had a lot of feedback; we’ve built a group in Redmond

to focus in on the retail industry.We’ve built people or put people in place around the world to collect your feedback and to help us understand what we really need to do.And the focus of our effort has really been on product improvement and in working with key partners, systems integrators and applications developers, who really build the retail specific solutions that will help many of you take advantage of the capabilities of the personal computer, and of Windows, and of Windows NT based systems.But we need to make sure that we’re playing the right role in promoting standards on top of our platform that really help, help the retail software developers, and help our customers take advantage of the platform.

Certainly, we see that the retail industry is every bit as demanding, frankly in many ways more demanding, than the kinds of things that we get out of our customers in a variety of other spaces.And particularly with the Internet having such potentially large impacts on what’s going to happen in terms of the way goods and services get retailed around the world, it’s a time of particular interest.We had about 125 CEOs visiting at a conference that we conducted in Seattle two weeks ago, and I would say the retail CEOs were among the most active in really wanting to push and understand what’s going to happen.

But following right behind them, frankly, were many of the manufacturers in the audience who have products that get sold through traditional retailers today who are asking a lot of questions.And whether it was the folks from Cole Meyer, or Gap, or Rite Aid, or the people from Johnson & Johnson, and SmithKline Beecham, and some of the other packaged goods/pharmaceutical manufacturers, we certainly understand, I think, a little bit better every day the kinds of competitive pressures and customer service pressures that people in the retail industry are under.

Microsoft has a unifying vision under which we try to wrap the broad set of initiatives in which our company is engaged. And the work that we are doing and the focus in the retail industry, I think both fits very well and, frankly, can be shaped very well, and vice versa, into this overall vision that we refer to as digital nervous system.And it takes a little explaining, it’s not a word that means anything per se, but I think it helps to encapsulate what the personal computer is uniquely good at.Certainly, mini-computers and mainframes are wonderful processing systems, and personal computers have been wonderful tools for personal productivity.

But if you really ask, where has the PC delivered value in terms of the ability for the organization to do operations, to analyze, to think, to plan, I think there’s a lot of upside in that process.We asked the CEOs who we had together in Redmond two weeks ago, if a competitor changes a price, how automated is the process of reporting that, collecting that information, how easy is it to understand and analyze that information, how easy is it to communicate price changes, how easy is it to change marketing plans, to train employees?In the retail world, some of these processes are very well understood and very well automated.But I think there’s a frustration from the business community overall that the computer systems don’t seem to have kept up with the need of the business in terms of delivering the business intelligence and knowledge that’s really essential and vital to running the business.

In the retail world, we hear constantly from retailers about the importance of being able to provide electronic training with the kinds of turnover rates that many of you face in your employee bases.And what role can the personal computer play in that knowledge management activity.Data warehousing is a big topic, and one I’m going to talk about in a few minutes.But the whole area of data warehousing I find fascinating.Many people have invested a lot of money in building sophisticated data warehouses.But there are very few businesses that I meet where the average marketing person who is trying to make decisions every day has the kind of convenient, friendly, easy access to the data warehouse that they say they want and need to effectively do their job.

So, this vision of the digital nervous system and how it can help empower not only the operational processes of the business, but also the knowledge processes of the business, I think, is an important one in general. I certainly think it has broad application in retail, and I think the kind of demands and issues that our retail customers are raising with us are helping us effectively shape where we take this vision in the future.

At the core of the digital nervous system as presented by Microsoft is a set of Windows systems.We understand that you all have many systems that are not Windows based, that are UNIX based or mainframe computer based, and certainly it is important that we provide in Windows and our other platforms the technology for great integration with the legacy systems that you own today or may invest in in the future.But at the core of our chance to integrate, to interoperate, to add value, is the Windows platform, which has really exploded in terms of the kinds of options that I think it gives customers in terms of the deployment of Windows-based applications.

If you go back just five years, Windows NT at the desktop, Windows NT at the server, Windows NT at the super-server, Windows CE down in smaller hand-held style devices, none of those products existed five years ago, or at least were sold much in the way of volume.And today, we’re in a place where the Windows architecture really does span a very, very, very broad spectrum of the computing need.We just recently brought our new palm-based computers based on Windows CE to market, the first of those are shipping.We’ve seen a lot of interest in doing applications for that style device inside the retail industry.We’ve seen a lot of interest in the headquarters operation in Windows NT Workstation and Windows NT Server.We’ve seen increasing interest at the point of sale and in store systems in Windows NT.

I had a discussion earlier today with one of our partners, NCR, about the role of Windows NT in the data-warehousing world.And while I won’t claim today that we could scale up Windows NT Servers to take on the biggest data warehousing problems in the world, I will make the bold prediction that between our work and the work at Intel, and the work at many of the systems — HP, and many other systems companies — you will agree with us within four or five years that the PC server based computing platform is the most powerful form of computing in the world.And while you may not throw out all the legacy applications tomorrow, new applications will increasingly be built, even at the highest end, on top of PC platforms.From our perspective, I’ll say, hopefully based upon Windows NT Server.

So, we are absolutely targeting the biggest problems, the biggest transaction systems, the biggest data warehouses.I’m not sure I would push an NT Server data warehouse much over 100 gigabytes today, but certainly our goal with every step forward we get from the hardware community and in our own work as we keep scaling up and up and up against those problems.So, there’s really quite a broad range now of design points that we can help you target with the same application programming model, the same administration model, and hopefully where it’s appropriate, even the same user interface model.

I mentioned a little bit about some of the work in data warehousing.And I want to stress this a little bit because the next six to 12 months will be important ones for us from a data-warehousing standpoint in a couple regards.

Certainly inside the retail space this is an area of clear focus.If you believe passionately as we do in digital nervous systems, one of the heart and souls of the digital nervous system inside retail is the data warehouse.But, I’ll bet, if we were to do sort of an honest poll amongst ourselves about how many people can really take good advantage of that, with tools and in ways they understand, there is still a long way to go.

In our SQL Server 7 product, which we’ll make available by the end of this year, in the new version of Microsoft Office, specifically in the new version of Excel, which ships the beginning of next year, we have built core capabilities in to help you build, manage and maintain data warehouses, but also to get essentially instantaneous real-time access to aggregated data, directly from within Excel and its pivot table capability.And I certainly think that this will hopefully be a real step forward in a wide variety of ways, in terms of how people can think about not only building the data warehouses, but really giving end users the kind of access from tools like Excel that they’re very familiar with, and comfortable with, in the course of the rest of the work that they do.

And I know a number of you have built great data warehousing systems, we just need to continue to provide the tools sets to push further and further up.Particularly as we bring Windows NT Version 5 to market, which I think will be some time in the first half of next year.I won’t exactly take a religious oath on that right now.But, I’ll say early part of next year, but it’s a product that I think will also extend, on the high end, the scalability of the Windows NT architecture.NT 5 is a very important product for us.It’s a product that we will not ship until it is absolutely ready, from a quality standpoint, although we’re feeling very good about the first half of next year.

It’s also a product that’s designed to go squarely against another key issue that we’ve heard from the retail industry.And that’s the focus on total cost of ownership and manageability, particularly in the kind of distributed environments that the people in this room run, we’ve been getting constant feedback.You’ve got to make it simpler and cheaper for us to manage software centrally, to manage security centrally, to keep track of what’s going on centrally, and with innovations like the Active Directory, the WBEM Management infrastructure, the Intellimirror software distribution infrastructure that we’re building into Windows NT 5, we think we provide really a lot of great capability that will help take cost out for you, in terms of the management of the retail environment.

We have tried as we approached the retail industry, as I said earlier, to really reach out and work with the leading companies in the industry, not only the leading customers, but the leading providers, the leading software developers, and systems integrators, hardware manufacturers, that are serving the retail industry.We have found that to be an efficient way to learn, and also a very important way for us and our partners to bring together hardware, software, application and services technology, in a way that really lets you address the kinds of issues that you have.

Here is a set of some of the partners, and some of the companies that we’ve had the great opportunity to work with very closely in the retail industry.We announced today the sort of completion, I would say, of phase one of ActiveStore.Dan Roddy from Tricon (sp) is going to talk about how they plan on using ActiveStore technologies in Pizza Hut, Taco Bell, Kentucky Fried Chicken around the world.But, that kind of technical infrastructure is designed to stimulate the building of software components that can work across vendors.There are over 350 independent software vendors who have announced support for the ActiveStore framework, and are part of the important outreach that we are making to partners in the retail industry.

Probably the area where I feel most overwhelmed by the interest of our partners is in the area of handheld devices.Handheld scanners, point of sales terminals, frankly, there’s more interest, more demand, from our partners and from our customers than we’re currently even staffed up to provide technical support for.There’s just a wide range of interests from literally thousands of companies, both retailers and the companies that serve them.

I want to highlight a couple of those, we’ll have a chance to hear directly from Dick Watt, who runs all sales and marketing for Hewlett Packard around the world.But, I want to mention a couple of the other alliances that have been very important for us.The first is the alliance that we have with NCR.NCR has been a partner of Microsoft’s for, well, at least 10 years.I can, frankly, and maybe somewhat ashamedly admit, the first marketing event I ever did with NCR was done around OS/2.We did a promotion with Kentucky Fried Chicken that said OS/2 really cooks.Our partnership, I would say, has evolved quite a bit from those days.We don’t talk much about OS/2 anymore.On the other hand, the partnership with NCR has stayed very strong.As we have worked together to provide a foundation on which I think NCR is doing a lot of great leadership work, across a variety of retail applications.

We had a chance to talk with Tony Fano (sp) from NCR today, and he was walking me through, you know, printing labels, point of sale, in-store systems, scanners, the range and quality and depth of work going on in NCR is really quite amazing.And we’ve won a number of great

— of great customers, where we’re doing, I think, leadership work together, people like the Office Depot, and a number of others.

The second one I want to talk a little about is our alliance and partnership with ICL.ICL, too, has been a partner for a number of years.ICL is the company, in fact, who was our co-development partner on the original multitasking technologies for MS DOS, that wound up eventually integrated into Windows 1, 2, 3 — eventually we got them right, not any fault of ICL.

But, we’ve also had a chance to work not only with ICL, but we also had a chance to work with PSI a lot over the years, before ICL bought them.And we’ve done, I think, a lot of interesting work supporting one another, getting feedback, and trying to continuously improve the role of Windows in the point of sale environment. I had a chance to meet with some of the folks from Dayton Hudson today, that’s a good customer where we’ve done work together with ICL, Marks and Spencer in the UK, and a number of others.

I’d now like to invite a new partner of ours to come join me here at the podium.This is Michael Dexter Smith, CEO of VenturCom.VenturCom is a company that provides tool sets for embedded and real time applications.We are making an announcement with them today about the licensing of a part of VenturCom’s technology set, and certainly a number of our customers in the retail environment have taken advantage of VenturCom’s technologies around Windows CE, as well as the Windows NT environment.But, I’ll invite Michael to come talk to you a little bit about that.

MR. SMITH: Thank you, Steve.

Thank you very much, ladies and gentlemen.Steven, thank you very much for the introduction.

Indeed, my name is Mike Dexter Smith, and don’t let the accent put you off, I am based in Cambridge, Massachusetts.I just can’t get rid of this damned accent.But, welcome indeed.I was here

— asked to today just to speak briefly about some of the applications that we’ve got across the world, in retail, but I think it’s important for all of you to understand just how pervasive I believe the change, or how pervasive the change is, towards NT and CE.They make a very nice, comprehensive solution for the embedded and real time marketplace.And I believe they’re going to be absolutely pervasive inside three years.

Our application sets, certainly you see some up there in the retail point of sale marketplace, but our applications are truly across the world, 45 percent of my business is outside of the U.S.I do everything from helping the space agency in Russia use NT for simulators, all the way through to China, where they are starting to install NT in weather monitoring systems.We do any number of

— any number of vertical markets in the United States and across the world.We actually started in industrial automation.It’s probably the most rigorous.If you can get a spray paint machine on a General Motors assembly line to use NT in real time, then you can pretty much use them in most stores, use NT in most stores.It is a robust and reliable operating system today, as is CE.

I spoke briefly about industrial automation, but now it really goes across every vertical — communications, we have applications in medical now.We have flight simulation which seems to be a big and hot marketplace.Games, we are starting to see games being deployed on NT.We have a company called Illusion who are doing a massive race car game for all the hotels down in Las Vegas.You’re going to see NT absolutely pervasive in my opinion.We’ve got two up there, TEC in Japan.Japan, a very hot market for me.There is a massive movement there towards NT.They are doing the next generation point of sale system, using our technologies that allow NT to be used without the hard drive, i.e., from flash, allow it to be sized.So now we can get NT down actually to about 9 meg, not that I suggest you probably want to go that low, but somewhere in the 20 meg range is where NT would really start you with some networking capability.

So you can get down now.We have those extensions that NT and CE don’t provide.We also now, with the relationship with Microsoft, can provide you all those support services.I think this is a terrific day for the embedded and real time marketplace.Microsoft really moving in now, to ensure that you’ve got the support and services, and the tools and extensions for the next three to five years.

I always say to people, it’s not if you’re going to move to NT or CE, it’s really just a matter of when .The floodgates are opening.We see 275 customers there across the world, they’ve essentially come in the last 18 months.You’ll start to see those applications coming out in the next three to six months.And behind that, we have 2000 new ones.I know Steve is going to mention how many hits Microsoft got on their Web site.But, we run close to 100,000 a week on ours as well.So this is absolutely pervasive.

I thank Steve for his investment, and also look forward to working with Microsoft in the next three to five years.

Thanks, again.

MR. BALLMER: I want to emphasize a couple of things about the relationship with VenturCom, because if you go back four years ago, it would not have been the kind of relationship we would have built up.You know, Michael went through and not just retail specific, but a very broad set of application types, in which CE and NT are being used.But, they’re not

— none of those applications people are using off the shelf CE and NT.They need

— these are customers who need small configurations, who need to get rid of a hard disk, who need to operate in somewhat constrained or unusual environments.And we were really drawn into thinking through the embedded market, in large part because of our contact and connection in the retail industry.

As we talked to people about the kinds of devices that they want to put in, whether it’s in a retail type store, or frankly for petrol and gasoline dispensing, at the kinds of outlets that, you know, British Petroleum and others put in.There is a broad set of application types where people want to be able to use the Windows programming model, but want to have a lot of flexibility in configurations.And so in a sense, I thank everybody in the audience here for the kind of feedback and needs that you communicate that led us to get to know the VenturCom guys, and license a core piece of their tool set.And hopefully, we continue to learn from you and from them about the needs of NT in yet another realm of endeavor.

I’d now like to invite Dick Watt, who is vice president of Hewlett Packard, to come join me at the podium.We are announcing today with Hewlett Packard, I would say, a very broad set of new initiatives, targeted at the retail industry.Particularly around the ActiveStore framework.And so I’d like to have Dick talk a little bit about his views on the issue.

MR. WATT: Thank you very much, Steve.And thank you everybody.

Yes, indeed, HP is really delighted to be a part of this rollout of ActiveStore.We think it is truly a breakthrough for the retail industry, for the food service industry, and potentially for other industries, too, because it really does provide the ideal framework to move from the constraints, the inflexibility of proprietary in-store and point of sale systems to a much more open, flexible and powerful environment based on Windows NT.

HP’s role in working with Microsoft in that space is to really be the solutions and services leader in capitalizing on this new opportunity, and in addressing the very real needs of how to take this powerful framework, this ActiveStore initiative, and really put it to work given the constraints that exist with legacy systems or existing investments that you have in place, given the challenges of rolling out massive deployments across multiple replicated sites potentially around the world, and really making sure that the environment is manageable, is controlled, and delivers the return on the investment that you plan to make in it.

We’re making ActiveStore a primary part of our retail offering.We think it is right for the times, as it rolls out and gathers more momentum, and is enhanced and encourages even more than the initial 300-plus ISVs that have already signed up for it, we think it will become a truly pervasive environment for the solutions that make stores more efficient and more powerful to meet the needs of their customers.

As a result, HP and Microsoft are engaging in a number of marketing initiatives to promote the ActiveStore framework, but it goes a long way beyond just marketing.I’d like to mention a couple of key initiatives that HP is taking to support the overall ActiveStore thrust.First of all, in this effort to provide true end-to-end implementation based on ActiveStore, HP is launching worldwide integration capabilities, integration centers around the globe to bring together the hardware and the software pieces that comply with the ActiveStore environment, and make sure that they work in specific implementations and installations for our retail or food service customers.

And, secondly, HP has stepped up to be the exclusive compliance tester of the ActiveStore environment.This is a critical ingredient to make sure that we can, if you like, give the Good Housekeeping Seal of Approval on software applications that are in the ActiveStore environment, compliant with the ActiveStore environment.So, we’ll have testing facilities that we can open up to ISVs, to software vendors, to come and check out on hardware, a variety of hardware implementations, the performance and the compliance of their applications.Again, assurance of end-to-end performance and the full solution is our goal.

The ActiveStore solutions that we’re going to provide really leverage off a long-term commitment HP has to solutions, meaning more than just hardware and software, but actually understanding the application environment, whether it’s supply chain or manufacturing, or in this case retail.A commitment to the retail market, we have tens of thousands of NT based servers, the HP Net Server family, already in place in a variety of in-store and BackOffice applications.The excitement we feel here is that ActiveStore enables us to extend that presence out to the point of sale.

HP is worldwide and, as I’ve said, our integration capabilities around the ActiveStore initiative will be deployable worldwide for those of you that have international installations you’ll be worried about.

Last, but not least, we are a leader in the Windows NT offering, in both the desktop and server space.Specifically, we’ll be providing a range of services.

I’ve touched on the compliance testing and integration, but we’ll also be working with local partners in many cases to provide specific site installation at large and small replicated sites in chains, in retail chains.We can also provide financing services.A very important part of an overall plan of a major deployment of an IT infrastructure is to work out some sort of an equitable payment scheme, including perhaps what we call technology refresh, which is the ability to essentially lease hardware, and guarantee that as new technology becomes available we can replace that hardware and keep the state-of-the-art platform in place at a fixed price per seat, or price per platform.

And last, but not least, for those elements of the ActiveStore environment that require it, we offer high availability support.Clearly, the store servers and the mission-critical platforms that have to report the information that keeps the store running, that perhaps are not duplicated at an individual site have to be up and running all the time, and we can provide the remote diagnostic capability, the onsite support capability, and last but not least the reliability of the hardware to make sure that those systems are available around the clock.

And, finally, of course, it runs on a set of products.We’re known best perhaps for the hardware, and printers, and PCs, but we offer a couple… I’d like to draw your attention to management tools: the HP OpenView framework is a critical ingredient for making sure that these complex deployments are, indeed, performing at the level that they’re expected to, whether that’s in terms of network integrity, response time for the user, application compatibility, data integrity.The OpenView Suite comes with a complete set of tools for managing all of those characteristics of a highly distributed network.And the Verifone payment solutions coming from our acquisition last year of Verifone, offering a very rich set of interfaces to a number of existing perhaps credit card or check-based payment systems and, more importantly perhaps down the road some future implementations of smart card, or debit card implementations as they become the more pervasive way of paying.

Along with the fundamental payment systems, we offer services to enhance the customer interaction, such as loyalty programs, or other services that can track the repetitive behavior of customers in the store environment or their tendency to come back to buy additional products and services.

Everything I’ve talked about, and that which Microsoft is providing as well, is based on some fundamental principles of openness, embracing not just software vendors, but compatible hardware vendors as well.The solutions have to be scalable.We’re not talking just about small store implementations, but perhaps large multi-chain.It has to be highly available to ensure that it’s up and running around the clock as the store needs to do business, and as I’ve said manageability and cost of ownership are the integral ingredients to make sure that these solutions deliver on the financial promise that they offer the retail or food service industry.

As I said, we’re delighted to be a part of this program, and I’ll turn the podium back to Steve.Thanks.

MR. BALLMER: HP has been an important partner in a variety of different industries, not so much in retail in the past, and that’s why we’re so excited about HP’s focus and commitment, and the opportunities that we have to really push things going forward.

As you could tell from Dick’s remarks, the real heart and soul of the announcement and focus today is on the ActiveStore.We have seen a lot of enthusiasm.We ran some sessions which I know a number of you had a chance to attend today about the ActiveStore, which we’ll hear more about from a customer perspective from Dan Roddy from Tricon in a minute.

But certainly I think there’s a lot of enthusiasm at both Hewlett-Packard and Microsoft.In addition, extending on the theme of manageability and cost of ownership that I struck earlier, I think the partnership with Hewlett-Packard around OpenView is an important part of what we need to get done to deliver a platform that can give you lower cost of ownership.I I think we and HP, I’ll speak for Dick on this, see nothing but opportunity in terms of the way we really integrate NT 5 with not only the traditional network management capabilities in OpenView, but the extensive system management capabilities in OpenView that HP augmented when they bought the ManageX (sp) framework which is really well targeted on the NT environment — I guess it was the end of last year.

We’re proud of the level of success that we’ve had in the retail industry.We have a lot of customers who have moved beyond using PCs for headquarters operations, and traditional office productivity and electronic mail.We have over 500 top retailers that we have worked with on a worldwide basis, and over 120,000 NT Servers sold out of a total, just for perspective, of about 1.5 million NT Servers in the last 12 months.So almost 10 percent of NT Servers worldwide went into the retail industry in the last 12 months, and we certainly appreciate the vote of confidence, and we’re proud of the success that we’ve had so far.

There are a number of leading retailers, some of whom I’ve already had a chance to mention, who have Windows-based systems deployed inside the store environment.The guys at Marks and Spencer. Over three years ago now, I remember, I came to London, I was going to visit Marks and Spencer, and I thought we would sit around, talk technology.I wasn’t sure what.The first thing they did is they grabbed me, I think it was fairly close to noon, they took me to their Oxford Street store, which is their busiest store.And Keith is here in the audience somewhere, he can correct me if I make any errors.The turnover is incredible, I remember it in the hundreds of millions of dollars a year, and they made me stand for half-an-hour and look at what the checkout looks like around noon.

They wanted me to be absolutely 100 percent understanding what the peak load problems are in checkout, what it means if a register goes down, and what it would mean to me personally if we got into the position where those systems weren’t working at any particular point in time.And while there have been bumps and bruises along the way with Marks and Spencer, and some of the other customers, I think we’ve gotten now a wealth of experience that has let us really deliver core infrastructure with our partners to those of you for point of sale and in-store systems that is really very, very robust.

The ActiveStore initiative is off to a strong start.We’ll hear a little bit more about that in a minute.And we’ve had very good acceptance of our products in the electronic commerce space.Not only does, for example, Dell’s Web site, Dell is a retailer of a sort, I guess you could say, the largest e-commerce seller in the world, run entirely on Windows NT and Microsoft SiteServer, but the work that we’ve done with companies like Barnes and Noble, with Eddie Bauer, the Gap, they’re also based on Windows NT Server and our SiteServer add-on product.And I think there’s a very strong foundation with which we can work together, not only from a technology perspective, but from now I’d say a shared learning about the problems and issues that you face and our sensitivity to those.

As part of getting to know retail, in addition to the ActiveStore, we’ve gotten involved in the industry standards body including ART, and a number of the other

important communities.We think that is essential, and certainly the feedback from customers is absolutely, what shall I say, loud and clear on that point.And so, despite the fact that we think we’ve got some great ideas and great ways to add value, we know we’ve got to fit in the context of other things you own, and in the context of a standards infrastructure that’s already in place in the retail industry.

I had a chance to talk to a couple of our customers about JPOS and OPOS, and how we can kind of bring those things together through the standards efforts, and I’m certainly excited about the opportunity to have our company participate in reducing the complexity and building standards inside the retail industry.

What I’d like to do now is to invite to join me Dan Roddy, who is vice president of technology for Tricon, which I still have a hard time saying, I still like to say Taco Bell, Pizza Hut and Kentucky Fried Chicken.Dan and I got to know each other now a number of years ago, when Tricon was still a part of Pepsi.Tricon has really been a lead developer, I would say, as much as a customer, and certainly a great source of input and feedback and inspiration for the ActiveStore, and I want Dan to tell you a little bit about Tricon’s plans for the ActiveStore, and where their enthusiasm is around this standards initiative in the Windows area.


MR. RODDY: I’m Dan Roddy.I’m the vice president of technology for Tricon Global Restaurants.And the announcement that Tricon is joining into with Microsoft today is basically to say that we’re beginning deployment of ActiveStore technology on the NT platform.So, we’re real excited to talk about that.

What I’d like to do is tell you a little about what that deployment is going to be about, tell you a little of the business problems in Tricon, or business opportunities that a lot of the ActiveStore development is helping to solve, and also tell you a little about our relationship with Microsoft in the process.

The essence of the announcement is that we’re in a position to begin deployment in test mode across our system for NT and the ActiveStore architecture.We’ve completed our backup pilots application, sort of a Beta Two kind of mode, and we’re ready to go in-store, and basically are in the process of figuring out business priorities on deployment schedule and location across our system.

The thing that’s allowing us to do this, frankly, is the ActiveStore architecture.We’ve been very involved in the articulation of the requirement that led to that, but have also been very encouraged by the participation of lots of other folks in the space.If you look at some of the statistics in our system, we basically have 30,000 stores across three brands, but it’s also a domestic system as well as an international system.We also have a variety of ownership models, so we have branch IVs, licensees, and company-owned stores.

So, when I looked at the challenge, in fact accepted this job, which was to define our next generation in-store architecture, I really had to step back and say, wait a minute, what are the issues that have to be resolved for us to make progress here.

So, as we really looked at it, we said, okay, we could at a point in time define a system solution but migrations in our kind of environment, you know, happen over a period of time, and once they happen, they’re going to be in place for a long time.So, we really need to think about the business issues that are probably going to be most relevant over the next decade before we decide on what our strategy is.And we really came to a statement that said, we want to make sure that we’re focusing on driving operational excellence in the store.That is the heart and soul of it, making sure that our GM, that restaurant general manager, is successful in the store in responding to his customers.We want to make sure that that value chain, the process of getting product to the store and information about the customer response to that product back out of the store is optimized.We want to architect for that.

And maybe more aggressively, but probably more interestingly is, we want to make sure that we’re prepared, as the consumer expectations of being in control and empowered in the process of interacting with us are escalated, we see ATM machines in banking, we see pay at the pump at gas, and we said, it’s just a matter of time before the quick service experience there’s an expectation at least in some consumers’ minds that they could be more in control of that experience.

So we wanted to make sure that we had an architecture that not only met all of those other criteria I described, but positioned us for the future, because we knew once we changed infrastructures in our system, we were going to be living with it for a while.

That was the opportunity, that was the challenge.The relationship

getting to the relationship to Microsoft piece, I really give them credit for being involved with us at a very, very early stage in the articulation of that problem, and the response in thinking about how they could help engage us in solving that problem, not just in the short-term, but also in the long-term.And we’ve been very excited about our opportunity to get in with Microsoft and think about product architecture, to think about services in NT that frankly weren’t there that we needed to manage a distributed network of retail environments.But one of the more interesting things that happened in the process is an understanding that with as many stores as we had, in as many countries, and as many different ownership models, we were not going to be able to define the application solution at one point in time, or with one vendor, or even custom built.

So, the most aggressive dimension that I think ActiveStore bit off was how do you really get to interoperability?How do you really provide a framework that allows solution providers, within retail, within any vertical segment, to operate?

And all of us know, that’s the opportunity, that’s the challenge, and to be aggressively attacking that was something that we didn’t do lightly.But, we had early encouragement, we had early participation from ISVs that said, you know, I’m spending 70 to 80 percent of my resources integrating with other solutions, because I can’t solve the whole business problem.I am interested in doing this.Yes, I’m a little worried, I’m not sure exactly what it means for how I differentiate.I know I need to differentiate higher up the value chain.I’m willing to do that, you know.But, there are some tentative moments there, and I’m sure there are going to be a lot more.But, the excitement about providing value to their customers, rather than spending all this time in the plumbing, you know, was generally well received.

So, you know, as we’re able to do that, as we’re able to put together the first betas, or the framework, as our developers, and just so you know, I put a firewall between our application developers and the ActiveStore technical people, because we rejected things that didn’t work on real applications in a real store.As we started working with it, though, we really saw our productivity in our development group increase incredibly.The set of services that ActiveStore provides for, whether it’s the ability to provide alerts, or have help-alls in the same place, or consistent UI.They’re provided in an architecture that’s externally focused, where the interfaces are defined.Once our programmers, whether they’re C++ or VB, J++, hook into those services, their productivity in building business-value-added apps just skyrockets.So there’s a lot of excitement in our development community about that possibility.

I guess I would say, you know, again the critical part of the announcement is, we’re the deployment message.Okay.We’re the message that in retail or food service, it’s not real until it’s in a store.We take that very seriously.We’re not here to promote something that we don’t believe in.But, you know, we’re ready to start on that process.There’s a lot of questions, still.I’m really, really happy to see a Dick Watt from HP come up here and talk about services that would support a global deployment, because certainly we’re going to need that kind of service going forward.

So it’s real exciting to see the vision come to life, to see the number of participants that have contributed to it.And to sort of get us to this point, where I actually could say to my boss, hey, I think we have a solution that meets not only domestic, but international, not only company owned, but franchise and licensees, and also takes advantage of the business benefit applications that our community of solution providers provide, and keeps us tightly linked in a very strategic way with our core technology platform provider.

So it’s been an exciting ride.And I definitely appreciate all you folks that have been involved.

MR. BALLMER: Well, certainly the ActiveStore is an important initiative, which in many ways we’re starting deployment now at Tricon.But, we’re really very much still in the early phases, I would say, of the work that needs to be done.Whether that’s standardizing, the standard, you know, business transactions, or taking some other steps down the path, we certainly encourage and welcome your feedback and participation, with that initiative, and with the value chain initiative, which we have also put in place on top of NT, that focuses in on the supply chain, and how we can allow interoperability among applications that you may use up and down the supply chain.

I want to turn briefly to electronic commerce before I wrap up.And maybe start with some facts that are probably well known to you, but I’m still going to emphasize them anyway, and that is the whole notion of selling things over the Internet is still in the very early phase.I’ll bet many of you have heard from the CEOs in your company a lot of questions, because of the
of Amazon.Amazon is a fine company that’s done a great job.But, the fact that it’s also built a market capitalization of over a billion without doing much in sales, and never making any money, I found has intrigued virtually every retailer I’ve ever met, CEO, to try to understand whether there was something that maybe they were missing, by not being more involved in electronic commerce, and selling things over the Internet.

The good news is, things are still early.If you look at the 50 million vehicles, automotive vehicles that got sold last year, only about 4 percent of those got sort of sourced and referred over the Internet, less that 1 percent of travel was booked on the Internet.Less than 1 percent of the world’s advertising dollars were

a lot less than 1 percent were spent on the Internet.Real estate and banking transactions, less than 1 percent on the Internet.And of the roughly 2 trillion dollars spent around the world in retail, less than 1 percent of that was actually spent over the Internet. In no way, shape or form has anybody sort of inextricably missed the opportunity of the Internet.But, I do think we’re at sort of a critical juncture point over the next couple of years.

We do think that the consumers of tomorrow, particularly young consumers, coming out of high school, coming out of college, are going to grow up with an expectation that they can lead a Web lifestyle, that is, they can turn to the Internet as a fundamental source of information, and news, and buying information, for a broad set of things that they want to do.And with PCs now in 50 percent of U.S. households, and that number is growing, with students graduating from college, and university, and high school, where really, go on the average college campus today, you can turn to the Internet, and find course schedules, pay bills, blah, blah, blah, blah, all on the Internet.

We are at the time where I think leading edge customers are going to start making their decisions.And while it might not hurt you in the next year, two years, three years, you can be opening up a source of vulnerability in your business without the right strategy for electronic commerce on the Web, over the near term.

Some people think the Internet is all about lower prices, and people are going to just shop, shop, shop until they find the absolute rock bottom lowest price.I’m not as convinced of that.I think the Internet is also going to be a place in which you can dramatically enhance customer service.We had a very interesting panel again at the chief executive thing where the folks from Sendent (sp), who have got this thing called Net Marketplace, we’re talking about buying services and pricing, and the people at the Gap were talking about service.They were talking about sending you reminders, you know, before your relatives and friend’s birthdays, reminding you what their sizes are, helping you find that just perfect new pair of pants, that would fit even perhaps a wide body like my own, where you can’t find the right sizes in the Gap stores.They don’t carry my waist size, which will remain anonymous, in their normal stores.So they have an inventory expansion play, a customer service play, a lot of other plays that are really build off of the additional service that they can provide.

When people do talk about Amazon, part of what they’re talking about is price, but not much.Mostly what they talk about is convenience and the customer service.The notion that people can recommend, and suggest and promote the right kinds of books to people.And so I think, both from a price and inventory management standpoint, but also customer service standpoint, now is the right time to really think through your

if I can use the word — Web lifestyle strategy.

Some people ask, is Microsoft

— what is Microsoft on the Internet?People wonder, are you a bank, are you a retailer, are you a commercial lending organization, what are you?We are an information services firm.Our job is to provide tools that help people find things, information, and other people, and other businesses, that they want to communicate and do business with on the Internet.So we have our mail service.We’ve got MSN, our connection and navigation service.

Boardwalk is a new product that we will launch, that helps people go through real estate listings.And we have partnerships with a number of the biggest mortgage lenders, that would be also a perfect time, I might point out, to buy advertising, to sell people home supplies.I saw Ron Griffin in the audience.I guess I ought to mention that a second time.But, we have a number of venues, where we’re not competing with retailers, but I think we are in the business of providing services and information, that we capture people right at the time they’re making important decisions. Not just us, there will be other people who do this.

When people are making important decisions, and have money to buy, money to spend, they’re changing house, they’re changing car, they’re deciding to go take a vacation.That’s the time you want to get the right message in front of the right person.And so if you ask me, are we friend or foe?We are friend.We provide not only standard, traditional software technologies, but also a great set of, if I could use the word advertising opportunities, to help you get your message in front of consumers at exactly the right time, electronically, to close a transaction.

Right now we’re the second

— we have the second most active site on the Internet, behind only AOL, by the time you add up and aggregate across the variety of services that we provide.

One of the most interesting, I hope, to a number of you in this room will be our joint venture with FDC that we call MSFDC.This is a service that we offer in conjunction with billers and banks.And it would allow a customer to receive a bill over the Internet, and pay that bill over the Internet.We have formed alliances with a number of banks, and it is a service that we sell to billers.We think we can deliver a bill far more economically than the paper based bills that many people deliver, and certainly for retailers who have that kind of relationship with their customers, I encourage you to take a look at that on a very partnership oriented basis.

There’s a lot that we’re doing in the e-commerce space, not only built around our SiteServer product, but also around the ActiveStore, the value-chain initiative that I talked about earlier, Windows CE and a variety of other important technologies.We do think of electronic commerce as a critical part of this digital nervous system vision that I talked about earlier.The best part of a digital nervous system, the best part of business intelligence, particularly to the people who run your company, that’s when they can learn more about their customers.And there is so much more information that you can capture and learn, and analyze and use for targeted marketing, when you have somebody online.It is, frankly, amazing.

And so your ability to do targeted direct mail, I’ll just take our company as an example.We used to send out roughly $70 million a year in the United States of paper direct mail.We now send more electronic mail than we do direct mail.And with our customers’ blessing and support, we are sending out roughly 20 million pieces of electronic mail at a cost of less than a penny per piece of mail every month, well less than a penny.And that conversion got made

— you know, our customers are computer literate, et cetera, et cetera, but it’s all part of thinking through how you re-engineer the relationship, how you capture more information, how you get to know your customers better, et cetera.And I think it’s an important step forward.

There will be some tension, I think, between manufacturers and retailers in the world of the Internet.Will manufacturers move to try to sell more things directly?Certainly a number of the manufacturing companies that we talk to have expressed an interest in hosting their own direct selling site, and bypassing their channels of distribution.We as a company think both models can make sense.In fact, on our own Web site, we will sell you our software, we just sell it to you at a very high price.The first thing we do is refer you to a number of participating resellers, who will offer the product at a lower price, and with a wider range of delivery options.But, I know that will be an important set of issues in every industry, and in every retail segment, to really work through and understand.

It’s certainly been my great pleasure to have a chance to talk with you today.We’re a company that this financial year, we’ll probably finish at about $14 billion in sales, we’ll spend about 43 billion in R & D next year, and we do have a very clear commitment, focus, and seriousness about the retail industry.So it’s been a delight to have this opportunity to speak with you today, and if we can turn the lights on, I’ll go join my co-speakers.We’ve got microphones that will be going down the aisles; we’d welcome your questions, your comments, and your feedback.

Thanks very much.

Put your hand up and one of our folks with mikes will reach you.

MODERATOR: Ken Brean from Service Merchandise.

QUESTION: I guess my question, Mr. Ballmer, we’re making a commitment to Windows NT for our future for our store systems, the second phase of that would be going to a Windows based probably client in terms of our cash registers.My question is and challenge is that we in the retail business, because of the numbers of locations we have, numbers of registers we have, find it very difficult to go out and totally replace our registers and upgrade their capability every two or three years as you come along with the latest, greatest version of Windows that requires more and more computer to run on.What can you do to protect my investment in my registers in the future to give me the five or ten years that I’m traditionally used to getting?

MR. BALLMER: I would say three things are probably important.Number one, we do need to provide better facility to let you simply upgrade an existing installation with new software.And our tools aren’t very good at that today.That’s an important step, with the kind of interoperability and low-cost of deployment that you would like.That’s one issue.It may not be the first issue that was on your mind, but of course it’s a big issue on our mind.We’d like you to be able to take the latest and greatest.

Number two, I do think it is important that we give better guidance and advice about the kind of hardware requirements that we think our software and our partners’ software will require over time.One of things

— one of the great frustrations people have is hardware change.If we could tell you with absolute certainty what the hardware would be that would run the latest and greatest seven years from now, I think most of you would actually probably buy it, even if it looked a little bit expensive today.But, since nobody can make you that promise, or we don’t make you that promise, people wind up buying what looks to be economical, but can go out of date perhaps faster than you would like.

The third thing I think we need to

— we will do more of, although I won’t say exclusively, is provide upgrades to

more upgrades to existing products back on old releases.We tend to move things along quite quickly.A lot of that I feel is absolutely right, and spot on, and some of that we get some, what shall I say, feedback that we should do differently in the future.I don’t want to imply the market should stagnate, because there will be a point in time at which you want to move, or this customer wants to move, or some customer in another industry, and we need to make sure we continue to move the Windows platform at a pace that works for all customers, not for just any one customer.So, we need to do a better job.But the pace of innovation and platform development will continue quite quickly.

QUESTION: My question is about a single server scalability timetable.You talk about right now single service is below 100 gig, and can you give us a timetable of what kind of time frame do you have for a single server over 100 gig, 400 gigs, maybe even more?

MR. BALLMER: Actually, I was focused on big data warehousing applications.We actually just posted to the Internet today an application that is over a terabyte of data, I think it’s today or else next Monday, Terra Server.It’s a terabyte of information, and it literally has overhead aerial maps of all parts of the world online.And it’s about a terabyte of data, but you’re accessing that data in a certain way where we can provide very good response time.So, it depends on the specific application we’re looking at, at a given point in time.

SQL Server 7, we have a clear target for that, particularly on the transactional side, that literally the biggest SAP, the biggest Baan, the biggest PeopleSoft installations in the world must be able to run on SQL Server 7 before we’ll ship it, and we may not get to 100 percent, but unless Baan, PeopleSoft, and SAP say, yes, we can run 97 percent of all of our customers entirely on NT and SQL Server, we won’t be done until then with SQL Server 7.So you’ll get the kind of big database support and transaction support that you’re talking about.

A big step, and then we need, I think, one or two other big steps around high availability, and some of the other core issues in the database arena.

MODERATOR: Does anybody have any questions for Dick Watts, Dan Roddy, or Michael Dexter Smith, any of the other co-presenters?

QUESTION: Hi.I’m Michael Junas (sp) from Staples.This is a question for Dan.I noticed on some of the slides that your deployment, it looked like it was going to be on NT 5 and SQL Server 7, is that correct, or was that or are you on a beta release of those products?

MR. RODDY: No.We’re basically starting with NT 4.

MODERATOR: Any additional questions?There’s one in the back there.

QUESTION: Hi.I’m David Gantner (sp) from Irving Oil.Mr. Watt, I’ve been hearing HP with their 59 strategy.Where does Microsoft NT fit in there?

MR. WATT: The 59s that we’ve announced is a 99.999 percent uptime, which has currently been engineered in our UNIX platforms for release in the year 2000.We are, however, engaged with Microsoft on the NT and Intel-based products which, in that time frame, will be probably IA-64 based.So we’re bringing a convergency of the hardware about to offer the same kind of availabilities in the NT space as well.So the current implementation plan is engineering currently a 99.95 percent uptime to a 99.999 uptime with a commitment to move in the UNIX space, and you can expect more similar announcements in the NT environment as well.By the way, 99.999 percent uptime equates to five minutes of unplanned down time for the year.

MODERATOR: We have time for one more question.We’ll make this the last one.Any additional questions?Okay.Well, I’d like to thank the panel and everyone for coming.And we hope we see you at the Microsoft and HP booth.

(End of presentation.)