SuperComm ’99

June 8, 1999, Atlanta, Ga.

STEVE BALLMER: Thank you all very much.Let me start a little bit with a few comments about some of the activities we’ve been involved with lately.There’s certainly been a lot of press coverage and press attention and interest in the telecommunications world to understand what the heck we’re up to.Whether it’s the relationships we have announced with people like AT & T and Nextel and Quest, or some of the things we’ve done with British Telecom or NTT in Japan or Singapore Telecom, the range of partnerships that we’ve entered into has been very large and certainly of more and more significance in terms not only of the importance but of the financial capital that we’ve put on the table to build some of these partnerships.

All of this reflects our basic view that the future of our business and the future of the telecommunications businesses are increasingly linked.And that customers, both business customers as well as consumers, will increasingly see products or services, depending upon what perspective you come from, that increasingly stitch together what we think of as classic communication services and classic software services into packages for end users.We have certainly tried to cement some core partnerships with people that we think we can do leading edge work in terms of bringing new services, video services, wireless services, to market.But we put a focus on building some partnerships where we can do leading edge work.Our approach will be to build services, or build software, which we can license broadly to telecommunication service providers.But as part of the process of bootstrapping what we hope to see in the next generation, what we would call software products, what the people in this room would call telecommunication services, we’ve decided to put our money where our mouth is, so to speak, and make some strategic investments as well.

And the range and pace of activity in this area, not only for our company but for the whole industry, can only continue to accelerate.When we think about what software products look like, if you will, 10 years from now those software products will increasingly have aspects which exist only in a service form across the Internet.And so the very nature of what a product like Microsoft Office or Microsoft Exchange is will be impacted by this convergence of telecommunications and computing.Our immediate focus in terms of some of the kinds of investment we’re making have been in a couple of areas.

First: broadband.We are very convinced that the nature of what we do is more affected by high-speed access than anything else.If you think today about the kinds of services or software that most companies deploy inside their corporate network and you ask, how do you provide a service that’s at least that good and maybe better to somebody on their personal computer, or any other electronic device in the home?You quickly get an answer that drives you to say that broadband is essential.And so we are trying to do things that help bootstrap and get broadband infrastructure both for business and for the consumer market leveraged up quickly.People ask me oftentimes, do we have a particular bias about cable versus DSL versus potential future wireless modalities.And the answer to that question is no, we do not.We have some investments which will not color our judgment on this topic.We just want to see these markets move more quickly.And we want to have partners with whom we can work to deploy new broadband business services and consumer services.

As part of our remaking of our company for the next 20 years we recognize that the PC is not going to be the only important electronic device.When we started 25 years ago, Bill Gates and Paul Allen talked about a vision of a computer on every desk and in every home.Today we talk about giving people the power to do what they want, where they want, when they want, on any device attached to the Internet.And we’ll see more and more interesting devices.Hand-held computers with wireless communication.TV attached devices that people will use to get advanced video services and entertainment services and communication services from their living room.And so it’s been important for us to help make a set of investments that bootstrap not only the market, but of course our position with Windows CE and Windows NT – providing core operating system technologies for some of these new devices.Our interest in this field is broad.As I said, we don’t have a bias about the communications modality.We’d like to see very strong and healthy competition in that area.The only focus we have is on some core software and pieces that we provide and finding partners whom we can work with to deploy next generation software services to the consumers.

I talked a little bit about the fact that software will evolve, and if you were sort of to stretch things out on a spectrum from traditional telecommunication networks on one end and traditional package software on the other end, you could ask yourself, what do these two things have at all in common?But as the range of services that people are trying to build into the network, cable networks, the Internet, telephony networks, as those services get built out more and more, and as software increasingly acquires a dimension where you’re not just delivering a package or a box but an ongoing set of updates and services, you’re trying to help people work not only inside their companies or their homes but across home to home and home to business and business to business, the range of services and the convergence grows.And with the technologies that we see today that let you mix video and audio as well as text in traditional software applications, the borders between what telecommunications providers and software providers do get increasingly intermixed.An example I’ll point to is our Hotmail electronic mail service.We’ve got 45 million people using Hotmail within the last 90 days.It’s a free email service, if you don’t use your account after 90 days you’re gone.But the range of new services that the Hotmail customer wants — calendaring, unified messaging, hosting services — that starts to grow.And as we see people adopt streaming media technologies it’ll become harder to distinguish the difference between some of these so-called Internet services and traditional audio and video services.So these two worlds are growing together.Our goal is not to enter the world of telecommunications equipment or telecommunications services, but to form partnerships with companies in both of those spheres who share this vision of what’s going to happen and are interested in working together to stitch these two things together in the right way.

Independent of Microsoft, I think this is an important phenomenon.It will happen.And in each of us in our own ways, service provider, equipment provider, software company, we will all look for ways to put these things together.Just yesterday we announced the new version of our Office software product.And traditionally people would say nothing could be farther away from the telecom world, nothing could be farther away from the Internet world than Office.But with the version of Office that we introduced yesterday which adopts HTML protocols as its native basis for living, we also announced partnerships with Verio and Concentric where they would host Office documents and discussions so that lawyers and their clients and their client’s clients and their client’s lawyers could literally create an Office document that was an application hosted in the Internet — with the appropriate security they could all comment, they could all discuss various aspects of the document with voice annotation in addition to text annotation.It’s a good example of how even at the extremes the world starts to stitch together.

Our goal as I said is to be a partner in this activity.We have a few core investments we’re making.The first one I’d highlight is MSN.MSN is a product or service that I think has been a little bit hard for us to explain because it’s really two things today.It’s a narrow band Internet access service with about two million subscribers, but more importantly it’s a set of technologies and portal services with which we desire to have a close partnership with other telecommunications providers, with Hotmail, with a variety of electronic commerce services that we provide, with a new wireless implementation of MSN that we’re doing.That was the basis for our partnership with Nextel was to do a co-branded version of the core portal and communication services in a wireless environment.There was a lot of focus then on taking our MSN portal and making it something that we can tie into the fabric of what telecommunication service companies do.At a more basic level we also want to be a provider of a platform and, at least in the case of messaging, where our Exchange product and our Hotmail product are a strong foundation, we want to be able to provide technologies with our platforms to both the equipment providers as well as the telecommunications providers here in the audience.

There’s been a lot of discussion about the role of NT and PC servers and I want to come back to that because we certainly do see the PC server and our software efforts as very focused in on the demanding needs of the telecommunications industry.I said there’s a need for broadband and I’m very, very focused and serious about that need.In every consumer experience, in every small business experience, we know bandwidth is critical.

We’re working now on thinking through what it’s going to take to change the way small businesses manage their information technology needs.The small business market still lags behind the rest of the economy in the adoption of PC technologies.And I think one of the critical reasons is small businesses today don’t have the capability to touch other small businesses.The Internet opens that up but then the bandwidth is, in many cases, a limiting factor.We are trying to do a number of things in our product line to support people who want to provide high bandwidth services.In Windows 98 and Windows 2000 we’ve done a bunch of work to optimize those clients for DSL.We have formed partnerships with people like Cisco and others in order to have more complete solutions — hardware, device drivers, client side support — that will support these higher bandwidth modalities, DSL or cable modem.We are targeting to work with people who want to be aggressive about DSL.Our investments in both Rhythms and Northpoint key off of our desire to get going and do some things on an accelerated basis to provide DSL access.In the case of Rhythms we’re really focusing on the small business market and the opportunities there for tele-work and a number of others.In the case of Northpoint we’re very much focused on customizing some of our portal services on MSN to do a better job of exploiting and showing off the capabilities in DSL.So there’s a range of things going on.There’s work that needs to happen in Windows, at the server level in Windows NT server.We certainly see the need for portals like MSN and it’s competitors to provide new and optimized services for this world and we see very large opportunity on both the DSL as well as the cable side.

The explosion in interest in the United States in mobile data is unbelievable.Absolutely unbelievable.If we take a look at what we’re trying to do today with the palm-sized computers that our licensees are building with Windows CE Embedded.If we take a look at some of the projects that we’ve got going in the auto industry to embed computer technologies in automobiles.Some of the work coming from our company and others in terms of low end microbrowsers and even more advanced intelligence built into cellular phones.The demand for mobile data is incredible.And I don’t think we’ve begun to scratch the surface.The number of new application ideas that I hear about in the mobile space dwarfs even what we hear about and talk about say in the video services space.More new ideas.More new applications.And I think this area will absolutely blow up.As I travel to Europe, which I get a chance to do three or four times a year, I find many ways in which our European partners and our European customers are leading this revolution.But the development of new data services is still something which I think even in Europe we see in its infancy.We did recently tender for a company in Sweden which would provide us richer technologies to integrate corporate electronic mail networks with wireless data services provided by the carriers.We think we’ll get that company.But one of our core reasons for tendering wasn’t just to pick up some technology, it was really to invest in a core R & D team in the Nordic markets to help us do some of the pioneering work we are doing in the mobile space.This is the family of platforms that we provide.And I refer to all of these in a way as platforms.Starting with the PC itself.The television through our WebTV technologies.This is really what’s at the core of the relationship we announced with AT & T.Not Web TV itself, but some of the core Web TV technologies licensed to AT & T both for their new advance set top boxes as well as at the server side, in order to conduct a trial of next-generation services where your TV is a communication device, it’s an advanced TV viewing device, it’s a device that can mix advanced content, video feeds plus HTML content coming from the broadcasters, as well as the next generation gaming device.I talked a little bit about wireless and what we’re doing with Windows CE and then of course the core portal and communication services that we provide.Our strategy for delivering this next generation of software cum service is to base our internal efforts on the PC model.To bet on the future of PC hardware servers.To bet on the future of Windows NT.And to bet that that hardware running the kind of operating system software we provide can provide the kind of availability and reliability needed for telecommunication services which need to be available seven days a week, 24 hours a day.Some people in this room would probably consider that bet crazy.I don’t.And I want to make clear why.We talk at Microsoft about the PC model.The PC model is a model in which chips, systems and software, come from independent vendors.It’s a model in which there’s very much a what we call positive momentum loop.Success begets volume which begets R & D which begets improvement which begets more success.And if you look at the kinds of things that have happened in the PC industry over the last 20 years that’s certainly a valid reason to believe.This year there’ll be over 100 million personal computers sold.A personal computer today doesn’t look anything like the personal computer in years past.The kind of very high-end super servers that people are building today, multi-processor clustered systems running on top of Intel based architecture with operating systems like Windows NT is amazing.What that has opened up in terms of ability for developers to target a large market, to build skills in the right area, to fund based upon volume but with low prices, new R & D has been amazing.The key is for that model to translate well into the high end of the market.And I think there are two keys to that.There are some hardware players doing a very serious job on these high end machines, and if you look at the investments that companies like Hewlett Packard and Compaq and Unisys and others are making, we will have hardware platforms that go beyond anything that you can find in today’s mini-computer or Unix world.We will have those hardware platforms built on what I might call industry standard architectures.The other thing that is required is an operating system that really has the kind of carrier ready attributes or carrier grade attributes that the equipment manufacturers and the service providers in this room would demand.We formed a specialized group as part of our reorganization three months ago just designed to do very high end, high availability, lights-out operation versions of Windows NT.The team is peppered with ex-Tandem people, ex-Digital people, ex-IBM people.And I think we have quite a good roadmap for products in that area.We have been fortunate though even in the past to have been able to put together some partnerships and work with some people already on translating Windows NT into a platform that’s carrier grade.With Hewlett Packard and Marathon Technologies we’ve announced both systems and services which will allow you to run with five 9’s up time on HP and Marathon assured availability platforms for NT.With Motorola we’ve worked on getting you very high availability Windows 2000 systems, which will be available the end of this year.With Compaq we’ve worked on specially suited systems with software applications, hardware, operating system, all tested together.And in order to put together systems that are designed to be intelligent network nodes and telecommunication networks.With one of our ISVs, Pulse Point, we’ve also worked on similar high availability systems.And so today people are building and deploying carrier grade solutions for the kinds of services I talked about as well as more traditional telecommunications and video services.But we know we’re not done.We’ve got a lot of work to do to continue to improve the reliability of NT, the fault tolerance of NT, the high availability of NT and as we ship our Windows 2000 product the end of this year you’ll see us take yet another giant step forward in terms of making these PC server and NT systems appropriate for a higher and higher percentage of all of the services that you build or that you deploy inside your network.

Here’s just an example of one customer that’s doing something today, that’s a carrier grade service from US West, it’s their service for signing up and configuring a new DSL service.This set of applications is built on top of Windows NT.It goes out, it has to query a lot of data that is stored inside mainframe systems at US West.It pulls that information together and responds in real time to requests for provisioning of DSL to come in over the Internet.They need high availability for the application.It’s essential to the very aggressive DSL strategy that US West has been supporting. [ .] Another area I want to highlight that I think is important is the area of unified messaging.From our perspective this will be one of the most important growth areas over the course of the next several years.We have been talking for the last several weeks, and certainly I had a chance to talk until I was blue in the face yesterday when we launched Office 2000, about the future of information technology as it serves the knowledge workers.The knowledge worker accounts for about 60 percent of all PCs sold and in use in the world.People who use their brains for a living, who need to communicate, who need to think, analyze, plan, those folks are heavy users and have a lot of unrealized information technology needs.They want to make sure that they have no limits and part of having no limits on what they do means they have to be un-tethered.They have to be un-tethered in terms of being able to use any input modality they want — a pen, a keyboard, their voice — and they want to also be unfettered in terms of their ability to roam and move.All of this implies not only new device types but unified messaging.And we’re making quite a focused investment across not only Windows but our Exchange product and now our Hotmail products, in unified messaging.It is very important to us that Exchange be able to serve as the platform for the next generation unified messaging products, and that when people access their electronic mail they can also access their voice mail.The kind of partnerships we have with both Lucent and Nortel as well as Active Voice and many, many others are instrumental licensing those equipment manufacturers for core technologies to support the knowledge worker and give an integrated experience at the end node, whether that’s a PC or a device like a Windows CE based palm computer.

Today we’re going to give you a sense of some of the kinds of interesting software telecommunication services being built around PC servers. We’re announcing with Sprint something that we call Communication Solutions for Small Business.In this solution Sprint provides a complete data and voice environment on a single PC server for small businesses.It provides PBX functionality, it’s the LAN server, it’s the Internet connection, it’s the communication server, it provides unified messaging integrated with Microsoft Exchange, it supports a variety of different connection modalities, and we have integrated the solution business applications, that means accounting, manufacturing, etc., for a number of important vertical markets.It all lies on top of Small Busines Server and Sprint’s BusinessFlex Service.And I think it’s an example of the kind of next generation integration we’ll see not only at the software and service level, but also at the hardware level in terms of telecommunications offerings.So I’d like to invite John Wilcox, one of our technical evangelists from our Network Solutions Group who’s been working with Sprint, to come on stage and just show you a little bit of the kinds of things that we think will be very important.John.

JOHN WILCOX: Good morning Steve.It’s great to talk with you and the folks here at Supercomm about our work with Sprint and this integrated platform that’s about the take the market, it’s actually available today.What we’ve done is taken the very best of the PC server environment with Windows NT server, small business server, and integrated Internet, PBX, and Comp 2001 and combined that with Sprint’s communication services, Sprint PCS Wireless, data and Internet access, and local and long-distance voice.So now for the first time a small business customer can get all integrated communication services in a single server for their environment very effectively.

STEVE BALLMER: Just this little refrigerator right here?

JOHN WILCOX: That’s all I need to have.

STEVE BALLMER: Okay.

JOHN WILCOX: So what I’d like to do now is step you through some examples of how a small business could use this for working with their customers, serving their customers in a unified way across different data types. For a small business it’s been a challenge to have really advanced PBX capabilities, but it’s all in here.So the first thing I want to do is show you a typical customer call and how they, in fact, interact with the system.

STEVE BALLMER: When you say small business, give me a sense of what you mean by size.

JOHN WILCOX: It can be everything from five employees all the way up to 100 employees.

STEVE BALLMER: Okay.

JOHN WILCOX: So let’s start out with an example of a customer call.

<customer call>

JOHN WILCOX: So this is an example of a customer calling in and we’ll hear the attendant will come in and he’ll be able to find a resource.

<customer call>

JOHN WILCOX: So that was an example then of how they’ve used NT’s IVR capabilities and system to enable the customer calling in, if they don’t know the extension, to just ask for the resource or the person and they’re automatically routed there.It’s certainly a common feature in the high end systems now it’s available for very small businesses.So that customer gets his voice mail now, but because it’s both on Small Bsuiness Server they’re using Exchange for unified messaging, like you talked about.This allows me to manage all my customer information from one tool.So let’s go into Outlook.I’ll start Outlook.You’ll see now I have a number of types of messages, including a voice mail that this customer has left me.If I want to listen to the voice mail I can simply click on it just like I do with my email.I’ll open this up and I can in fact listen to the voice mail.

<customer call>

JOHN WILCOX: So it was very easy now for me to manage this.You can imagine the customer’s called in, we’re in the process of closing an order.Now imagine I’m a reseller in Seattle.I’m about to get on a plane for Supercomm.I don’t want this just sitting here not being serviced.So what I can do is I can easily forward this now to somebody in our support group, ask them to take a look at it so they’re working on it while I’m traveling.

STEVE BALLMER: So it’s just a standard email message.

JOHN WILCOX: Now it’s like voice mail but just a standard email message, exactly.But because I’ve combined these I can now take the voice mail and add other data types.So we’ll go ahead and we’ll attach a fax and the contract that’s part of the proposal.So now we can send this of to Tracy, she’ll work on it for me while I’m traveling.

STEVE BALLMER: And that voice mail message was only 56KB.With compression these things get smaller and smaller, easier to download, etc.

JOHN WILCOX: Absolutely.This is great if I’m in my office on the network but what about when we’re traveling, how do we get access to that.So let’s exit out of this and we’ll assume now that we’re leaving the office.So I’m closing the regular Outlook.Now I’m on the plane.I come into Atlanta.I still need access to my customer information to the PBX.How do I do that?Well from any browser device now we can come across the Internet or come in through access and using a browser login to the system and have all the capabilities just as if I was in my office.

STEVE BALLMER: So whenever you need, you’re on the Internet someplace, you’re just going to dial in using a browser to the Small Business Server from Sprint, and you’re off to the races.

JOHN WILCOX: Yep.And we can now integrate all Sprint’s capabilities.For instance their wireless services.So I’ll tell it where I’m located here in Atlanta and give it my wireless cell phone number, for example.Now you notice I logon.I now have a Web based version of the tool you just saw.I can listen to voice mail streaming across the Internet.So no matter where I’m located I in fact can be productive.I can be at home.I can be traveling.I have access to all the tools.

STEVE BALLMER: So this has the streaming audio capabilities you need to just broadcast that out to any browser on the Internet?

JOHN WILCOX: Wherever I’m at I can choose a browser.So imagine I’m working this and a customer called.David calls in while I’m traveling.So let’s get a call from David.

STEVE BALLMER: Let’s do.

JOHN WILCOX: It would be great if David would call.There we go.

STEVE BALLMER: Thank you David.

JOHN WILCOX: It’s on the Web.Now what happened is I got a prompt that popped up, I’m in Atlanta, it’s telling me David’s called, it’s transferred the call to my wireless phone.Hi David this is John.

<customer call>

JOHN WILCOX: Well that’s terrific David.As I mentioned I forwarded off to our support group to look at that.If you hold on a second, I’ll conference them in and we can close this issue.So now what I can do again across the browser, I’m now into the conferencing functionalities in the PBX, it’s very easy for me to remotely conference in our sales support.So I’m going to do that.So now back at his office, we’re conferencing our sales group.

<customer call>

JOHN WILCOX: Hi Tracy, this is John.I have David on the line.Did you get a chance to look at the proposal for him?

<customer call>

JOHN WILCOX: That’s terrific.Is that good with you, David?

<customer call>

JOHN WILCOX: We’ll ship it tomorrow.Thank you.So that then shows you how we’ve leveraged the best of the server with Exchange and BackOffice.We’re doing work to get a line of business applications.Like I mentioned, accounting, physician’s offices, who now knowing all the capabilities they can integrate in their services.

STEVE BALLMER: So what they can now build into those applications is rich integration of their customer systems with the call management capabilities in this offer.

JOHN WILCOX: And a great example of that would be the size of this call center.Imagine a doctor’s office.Today they have somebody who calls down all the patients to remind them about their appointments tomorrow.Now the system can automatically query the Outlook calendar and place those calls for them automatically.So we’re taking the best convergence in PC environment with Sprint’s capabilities and offering now this platform to businesses of many sizes.It’s really a corporate communication server for small businesses.

STEVE BALLMER: But this is just the good old PC server.It looks a little bigger than your average PC.

JOHN WILCOX: This is just a pre-built Dell server just like anything else.They put the PBX right in it and it’s ready to go.

STEVE BALLMER: That’s great.

JOHN WILCOX: Thank you.

STEVE BALLMER: Thanks John.In a small business you might say well you have a different set of requirements.In a small business, the notion that this thing needs to be lights out, take care of itself and run all the time is even more important.Most small businesses will buy one of these solutions and have it configured by one of the up to 100,000 VARs that we have in the United States alone who focus on this kind of small business server solution.But once that system’s in it’s just got to be there.It’s got to be up.It’s got to be working all the time.When it’s being depended on in the very fundamental ways that John just had a chance to demonstrate.Nothing about that availability or reliability requirement is news to people in the room.But we and Sprint are already pushing this kind of solution into the marketplace in what is, I think, perhaps the richest segment of the market which will be the small business area, which as I said earlier is still reasonably underserved with information and communications technologies.

I want to just summarize by issuing a bit of a call to action.We see a really incredible opportunity in what will happen in the telecommunications industry over the next several years.The way in which telecommunication equipment manufacturers are increasingly looking to Intel and other PC industry technology suppliers brings us closer together.The degree to which customers want to see traditional voice and video communication services integrated with data services brings us all together.The way in which the software business is becoming a service industry brings us all together.We don’t have bias.We just have a core set of technologies.We welcome the opportunity to work with and partner with as many people in the industry as possible.I’ve chosen this speech, given the visibility of some of the investments etc. that we’ve made recentl,y to talk a little bit more about our strategy as opposed to industry trends.But I think our strategy mirrors the important industry trends that we see and we’re certainly super enthusiastic about the opportunities we all have in front of us.I thank you very, very much for your time this morning.It’s been my great pleasure.

(Applause.)

EDITORS’ NOTE, December 30, 2004
— This page has been revised since original publication.