TAMI RELLER: I’m so thrilled to be here to talk about what I see as your next big business opportunity with Microsoft. And, in fact, Kevin Turner referred to Dynamics yesterday as one of the fastest growing businesses of Microsoft and, indeed, it is. So I want to outline that opportunity for you today.

If you look at this category of business applications, it is the single largest software category out there, US$52 billion is the latest estimate for 2008, and that is for license and enhancements only. I’ll actually talk about the partner services opportunity in just a moment as well, because obviously that paints the picture. It’s not only a big, big software opportunity, and partner opportunity, but it also brings a lot of other very strategic points to you, and to Microsoft. And so I wanted to talk a little bit about that. And it’s why Microsoft is so committed to this category. It’s why we got into this business in a very big way six years ago, both through two big acquisitions, as well as through a tremendous amount of organic and internal development. So it’s a large investment for Microsoft, and it’s a very, very big opportunity for partners.

The one thing that’s interesting about this category is that all businesses need this type of software, ERP software, and CRM software. And the fact of the matter is that there’s a tremendous amount of aging systems out there, rigid systems, non-flexible systems, and so there is a great opportunity for technology or innovation to really disrupt this market. Today it remains a highly, highly fragmented market with thousands and thousands of vendors. There’s been some consolidation, but largely still a highly fragmented market.

The other thing that I think makes it particularly interesting for all of you is that it has high, high relevance for business decision makers. It gets you in to have a very rich conversation with CEOs, CFOs, chief marketing officers, chief sales officers, tremendous opportunity to have that relevance, and so more and more of your services as well as more and more of the Microsoft set of technologies.

And last, it really is a proof point for the Microsoft application platform. Not only is it a proof point, but because when an ERP or CRM system goes in, it’s typically going in for decades. And so you have an opportunity to really secure a rich customer relationship for literally decades. Dynamics is part of the Microsoft Business Division, and as I talk about our strategies, you’ll see that we are very well aligned with all of the work that you saw yesterday from Chris Capossela and Mike Sievert, and all of the work you saw this morning that Steve Guggenheimer and Andy Lees talked about. So there’s tremendous amount of synergy that we can drive across the platform, and really make that a very valuable experience, and easier experience for you, and for you to bring that to customers.

So let me talk about where the business is today. If you look at our third quarter results, we grew 20 percent, so very, very robust, triple the industry growth rate, and that is largely comprised of net new business. So they’re new customers coming onto the platform, but it also speaks to the fact that once you have a customer in this set of software, you really do have the opportunity to go back and provide additional software value, additional services value to those customers as well.

The one thing that we’re finding in the six-year journey so far in business applications is the market is increasingly recognizing Microsoft in this category. And if you look at the various industry analysts, you’ll see that come through quite significantly, especially in the last couple of years. AMR did a significant study of mid-market enterprise companies, and found that Microsoft was the number one choice in ERP for those who were going to look at a new system in the coming years. In CRM, we are now the lead challenger in the magic quadrant. So we’ve made tremendous progress over the last four years in the CRM space as well. So we have a rich array of supply chain management solutions across Dynamics, financial management, and then, of course, customer relationship management, which you’ve seen on stage a few times. And so for this growth, and for this position that we have come to have in the marketplace, I want to give a very, very big thank you to all of you in the audience who represent Dynamics today. Thank you Dynamics partners, way to go. (Applause.)

We had an opportunity last night to congratulate and thank our President subpartners, which are the top 5 percent of our channel, and the top 1 percent, which is our Inner Circle. So a special congratulations to that prestigious group for all that they’ve accomplished in this past year.

Let me talk about the services opportunity. I talked about $52 billion of software and enhancement opportunities. We add into that the services opportunities for partners, this is customization, this is custom development, this is implementation services, this is business consultancy that goes along with that, and in fact I’ll highlight some of those opportunities in a moment, but a $93 billion services opportunity in 2008. And you can see the breakdown across supply chain management, CRM, and ERP. So a tremendous opportunity for you to build not only a very profitable business, but, again, deep value-added relationships with the business decision makers of your customers.

A couple of other points is that if you look out in the marketplace today, and you see the number of aging systems, and the needs that customers have, there is unmet capacity needs in the channel in this space. So there is a need for more businesses to start providing these types of value-added services to the marketplace. And we really see that starting to accelerate. If you think back a number of businesses in this category who are looking for software in this category did some patches, some did bigger changes around Y2K, and we’re now coming into a cycle where they really are needing to look at the next wave of innovation. So we’re on the verge, we believe, of tremendous growth in this category.

These numbers do not represent the tremendous software plus services opportunity that is out there today as well. So you add on to that the work that you can do around Office Business Applications tied in with Dynamics, the work you can do around CRM Live, and other Live attached services that we have with Dynamics. So this, again, understates that opportunity that we’re really on the verge of as well.

Let me highlight a few partners. It always comes to life when we get a chance to talk to partners and hear the journey that they’ve been on, and the success that they’ve realized. So I wanted to talk about three of our great partners. Vox Wireless is a great story out of Canada. They were a Microsoft advanced infrastructure partner, and just started hearing a lot of demand and rumbling in their customer community around CRM, a lot of aging systems, complaints about the salespeople of these organizations not using the systems, so management not getting what they needed out of the system. And so Vox Wireless picked up Dynamics CRM in our early releases, so they’ve been with us four years, have grown 100 percent each year, and now have 100 Dynamics CRM customers, and were our 2006 CRM Partner of the Year. So a great opportunity to add a practice, and build a rich set of customers from there.

Cyber is also a very, very interesting case. A long-time Gold Microsoft Partner. This is the UK Division, which is part of a global IT organization headquartered here in Denver. Their UK practice actually acquired a partner who was doing ERP, specifically Phase and SAP. And when they did that, they realized they had a gap in their product offerings, and so they picked up Dynamics, and they’ve really been able to build a rich practice. And how they did it was to really focus on a vertical. So they honed in on a vertical in the UK, and have had really a tremendous amount of success. So much so that their practice is now 30 percent of their total business is their Dynamics practice.

Charteris is another interesting case, because this is  this principles came out of a large global systems integrator, and they formed a business consultancy practice, and really did not have a software business per se. And what they found is they were just getting increasingly involved with customers wanting their advice on ERP systems, and CRM systems, and so they then picked up Dynamics and are able to provide that full circle. And both in the case of Cyber and Charteris, they really do have multi, multi-year engagements with customers, and are achieving the customer for life type of dream that makes for a beautiful business, and a very rewarding business. So some great stories.

So I just want to say congratulations to these partners and thank you for allowing me to share your success on Dynamics. Thank you very much. (Applause.)

I want to talk briefly about the difference that we believe we can make in the market together with you, with Dynamics. We talk about this, as the connected business vision, and it’s really tied around these three key themes. And I’ve been in this business for a long time, more than 20 years, some of these ideas have been around for a while, but really bringing them to reality with the great innovation we have today is a very, very exciting concept for all of us to embrace.

So let me talk about these three ideas that really do operationalize the People Ready vision of Microsoft. The first is business vision and business software. If you look around at customers today, particularly on the ERP side, you’ll see that they often have to change their processes or conform their processes to fit their business software. And that’s not the way it should be. Software should be able to enable, to allow businesses to implement the strategy that they want, implement their vision, do what they want to do. And so that’s what we’re driving towards in the design we have today, and where we’re placing our innovation investments.

The other one is people and processes. It’s fascinating, if you look at ERP systems today, they only touch about 15 percent of the people within an organization. Yet, if you look across an organization, whether it’s sales processes through CRM, or more detailed supply chain processes through ERP, many more people in the organization need to touch that software, and engage in those processes. And so we need to make sure that the work that we do touches that. And that’s the deep integration work we’re doing with Office. So there are some great things there that we’ll actually show you here from the stage.

Then helping our customers develop their ecosystem. Increasingly in this flat world that’s an absolute requirement, allowing them to have outreach with their customers directly, their vendors, their partners. How do they build a rich community, and a rich ecosystem? Our software enables that.

So this is the dynamic vision around a connected business. I wanted to do a demonstration today, and I’ll Darren Laybourn to come out to really bring this next generation of a role-tailored UI to life. Darren.

There he is, magic. Welcome.

DARREN LAYBOURN: This stage is so cool.

TAMI RELLER: This is very cool.

DARREN LAYBOURN: Big props to the production team who put this together, because this is really cool.

TAMI RELLER: Welcome.

DARREN LAYBOURN: Okay. I’m really excited to talk about our role-tailored user experience. To do that I’m going to walk through two of the personas. We have about 60 that we’ve identified, to do a purchasing agent, and I’m going to do a production planner.

The first one is the purchasing agent. So we’ve added a gadget inside of Vista, in the sidebar, that shows me information that’s happening in the system. So here I can see that I’ve got 100 pieces of white oak board that’s delayed. And now what’s great about this is I can actually go in and take action. I can go to the purchase order, I can go to the vendor, I can go directly to the home page.

TAMI RELLER: So this is a supply chain manufacturing scenario.

DARREN LAYBOURN: Exactly, supply chain manufacturing company, we deliver furniture, actually.

TAMI RELLER: Got it.

DARREN LAYBOURN: So we’re going to go in and look at the production purchase order tabs page, and you’ll notice a couple of nice things. We’ve got integration to Office communication. I can see that Patricia, who is a vendor here, is available. I can directly give her a call, call her up, talk to her and see what’s going on. Why hasn’t this order come in. I’m going to go ahead  she said, she just can’t get it to me until next month.

TAMI RELLER: You’re directly in Dynamics, but yet you have a direct link to the unified communications work that we saw yesterday.

DARREN LAYBOURN: I can quickly talk to her, I’m right there, so we’re leveraging all the technology. We can collapse the band, so you can see that we pull information forward, something we call fast tabs. I’ve got one for shipping down below that gives me key information off of that tab, but I can also expand it back up, see what’s there, and go in and change my dates. I can see that I have to go to August, that’s when she said she’d get it, and changing dates has just never been so fun.

TAMI RELLER: That’s right.

DARREN LAYBOURN: So, okay, we’ve made the change, it’s in there, and so that’s about all I have to do as a purchasing agent. I have to talk to the person who is on there. I’m going to go and look at the production planner’s world, and what he can do.

So we’ll jump in over here, find the page. Here’s his homepage. He’s got all kinds of information pulled together on his homepage. He can see the produced orders. He can see what the production throughput is. He can get notes from other people, high cost production orders, something I really care about work on, I can do that.

I can also get direct access into Outlook, as well. So I can see information that I should make sure I do as I’m going forward. So the key thing is I’ve also got a set of activities at the top here. The planned orders, what’s released, changes that have occurred in the system, and so delayed supplies, something I really care about as a production planner, I’m one click away from the 20 items that are delayed. I can filter in here to pull the list down to a smaller list. I’ve got additional information on the right hand side. So I’ve got the connection to item information for each of the items, connection to Patricia, again, if I need to talk to her. I can navigate directly to the production orders that are delayed the most. And so I’ve got here the white oak boards.

Now, I’ve got a list, you’ll notice it’s very familiar to the Office ribbon. We’re calling it the action pane, it gives me the key things that when I’m in this situation where I’m trying to deal with delayed supply, what are the key things I might want to do?

TAMI RELLER: But this is customized for this company, and then customized for this role.

DARREN LAYBOURN: It’s customized for the role of being a production planner, and for even further than that, when I’m dealing with delayed supply. So I’m going to go up and pull up a new experience, and Sanjay just talked about visualization. Here’s an example where we’ve done what I think is some really nice visualization.

Typically this would show up in lists, and you’d have to look through what’s going on, but now I can actually see the network of effects that are going to occur from this happening, 100 pieces of white oak board, top right area, their selected quantity is 100 pieces. When is the date that it was due. I can see that that was going to go to 80 cut oval tabletops, in assembly for 40 Sidney desks, to a sales order, and then on to one of our gold customers.

So we’ve categorized our customers gold, silver, and bronze. We’ve got those going across the top. We’ve got the ability to see whether or not we’ve allocated inventory. The blue means we’ve allocated inventory, the orange means we haven’t. Now, it’s great that I can see the lines and how it’s connected, but if I just select on the white oak boards, it shows me that this is a pretty big impact on my production order, and I really need to do something about it.

On the left hand side I can see that I’ve got 60 pieces of white oak board that’s in stock, if I click on that I can see that most of that is going to bronze customers, and silver, and gold, and also to the  some stuff that’s going into stock, which that’s a waste of resources, I could do better.

So the nice thing is, great, I can see this, if I want to see it a little bit better, and understand what the quantity is on each one of these I can go into a 3D view. So this is where we’re taking advantage of Windows Presentation Foundation, and the cool things you can do. And this might be a pretty complex thing, so I might want to be able to look in this, zoom in and out, and understand what’s going in, how much do I need to move, what’s the situation that’s going on.

Now, it’s great that I can look at it. I could never do this before. It’s a huge improvement. But, it’s even better if I could take action and change things. If I pick up the 40 pieces here, I could reallocate it and move it somewhere else. It gives me indications of places I can reallocate it, just drag and drop it over here. It shows me where I can allocate that. I’m given a couple of those tabs, I don’t have to move it all if I don’t want to. I can just move part of it. And you can see, when I make that decision what occurs. And so I’ve got 40 pieces, I’ve moved them over.

Now, there were two places that 40 pieces could go. If I click to the right, you can see there’s two different places, and I can reallocate, and see what the ramifications is of those happening.

TAMI RELLER: That’s great.

DARREN LAYBOURN: That was great. We were really excited when we got this done, and we said, you know, we could do better than this. I’d like to know, if I really made an improvement by making the change or not. So I’m going to go ahead and cancel that. I’m going to bring up a couple of  one more piece on the right hand side, to establish this set of KPIs. So what’s my percent of profitability after this change, what’s my percent of customers? What have I done about the percent of orders getting delivered, and how many items am I using?

So in this case I’ll go ahead and grab the 40 pieces, I’ll move it over again, and you’ll see in the chart, boom, I’ve got much better execution against profitability, customer satisfaction, and everything else. So that went great. I’m going to go ahead and commit those changes, and I can continue to manually go through and tweak this, and I get great visibility of what’s going on.

TAMI RELLER: And, again, all this is customized, based on what the customer wants to see, what the role wants to see.

DARREN LAYBOURN: What the customer wants, what metrics they want, they could add additional metrics. So this was great.

Then we started thinking about this and said, wouldn’t it be great if the system could just do all this crap for me? And actually it can. So we’ve written optimization algorithms. So if my goal is to get the most orders out of the system, I click on most orders up here in my action pane, and I’m given the most orders. I can see the results of the KPI. I can pick on most items, see what happens with the most items, get the most items out. Fulfill my customers, I can grab those, I can look at the maximize my profit, and I can see on each one of those scenarios, as a starting point that I can start to work from. But, it would be even better if I could see these side-by-side and do a comparison. And luckily, I can.

I can just click to a side-by-side view of each one of those. Did you guys see that visualization? It’s really nice the fact that you can see how things transition, because you can understand where the information went, where it came from.

TAMI RELLER: What do you think? (Applause.)

DARREN LAYBOURN: The hard part about this is I might actually forget which one of these scenarios does what to my plan. Luckily we made this a hot chart, so as I select on each of the columns, maximize my profit, do the most orders, select the most items, I can go in and see that. Now, most items would be  most orders, let’s look at most orders. It’s only two orders, we can see all the different changes that have to occur. So there’s the allocation changes that would occur on that part of it. But, what I really would like to do is look at this from a point of view of, what happens if I have different values to each of these KPIs, because customer satisfaction is great, but sometimes I want to make some money, too.

TAMI RELLER: Right.

DARREN LAYBOURN: So I might have different values for those. So I can move it into a stacked KPI and view what those look like with different metrics on each one of those. But, the really great views, I think, the visualization, how we can change the way people think about their business, and how they can create a great role-tailored experience.

TAMI RELLER: Very dynamic, thank you very much.

DARREN LAYBOURN: Thank you, Tami. Thanks, a lot.

TAMI RELLER: Thank you, Darren. (Applause.)

So business applications are coming a long, long way, and this is a great example of the next generation that we’re working on for this concept of role-tailored UI, which really brings people and processes together, extends it out to many more people in the organization, and obviously highly customizable, and highly dynamic. So that was a great peek into where we’re headed.

You had some indication of the amazing amount of innovation that we’ve been working on. One of the things, when Microsoft got into this business six years ago, we decided we were going to bet big on innovation, and really spend disproportionately in research and development to get that result. And if we look at FY ’07, it was our strongest release cycle ever. Every one of our product lines had a major release in FY ’07, our CRM solution and each of our ERP solutions, major releases in FY ’07. If we look at FY ’08, it’s an equally impressive year, and we’re adding some additional things into the lineup. Yesterday, you saw Dynamics Live CRM, we’ll talk a bit more about that in just a moment. We’ve also introduced Microsoft Dynamics Entrepreneur, which is a light ERP solution which will be introduced in four European markets starting in the second half of this year. So we’re doing more to expand our reach into more and more customer segments, and really bring this great innovation to more and more customers. So another great lineup of innovation coming in this next year, which we know has a direct positive impact on your ability to be competitive, and to have another interesting conversation with existing customers.

I wanted to re-highlight a few of the elements that were touched on briefly yesterday around Dynamics Live CRM, and specifically it ties very well into what Allison talked about earlier this morning, software plus services plus partners. Dynamics Live CRM is absolutely a partner-based model. We have a specific partner business model that you’ll be able to engage in. The early customer access program which starts in Q3 of this calendar year will be exclusively through partners, and you’ll have a great opportunity to engage directly as an organization, as well as bring customers into the early access program. We also have very attractive price points, and we will have two editions, both Professional and Enterprise, and we will also have a promotion going for all of calendar ’08 for even more attractive pricing on Professional. So we want to get out there in the market with you with this exciting software plus services opportunity, and we want to do it in a way where customers immediately see the value and are able to come on to the solution.

Additionally, I wanted to highlight that Steve talked yesterday about Titan, and Titan really represents a pretty amazing innovation in this category because this release of Dynamics CRM is not only about a Live offering, but it brings an on premise solution that is multi-tenanted to the market, and has a lot of new capability. It also gives additional capabilities to a partner-hosted model, and the beauty is that a customer can start with whichever delivery model they’d like, and they can move as their business changes, or they can stay put. You can choose to represent multiple of these offerings in CRMs, and so there is a tremendous amount of flexibility, and capability, and that is unmatched in the marketplace. That value proposition in this category is unmatched in the marketplace. Not only do we want to be aggressive in a number of licensing ways, we also want to make sure that we’ve got the best value proposition across on premise, partner-hosted, as well as a direct Live offering. So some exciting things happening in software plus services with Dynamics CRM.

If we look at the Dynamics strategy, partners are not just part of our strategy, they are our strategy. And so building out the ecosystem, and making deep, and rich, and thoughtful investments across the Dynamics ecosystem is critical. And there’s really four key areas we look at as we make these investments. The first is on the innovation side, for example, we’ve announced mobility here, mobility offerings for Dynamics here at WPC to make sure that we’re extending out to that community of our partners, and making other technology innovations with Office 2007 including deep investments in SharePoint and business intelligence.

We also have additional ways for ISVs and partners to not only engage with us, but for the community to be able to see what solutions are out there. We have thousands and thousands of solutions today in Solution Finder. We have an additional certification for ISVs, additional testing so that partners can see which solutions have gone through that level of rigor as well. We have two million users in the Dynamics community today, and we want to build a set of online resources for that community to engage. We have a new finance community, we have a global customer source community, which brings tremendous value to customers, and for partners to be able to engage directly with customers as well, so a big bet on community.

Competence is one of the areas where we’ve really dialed up the investment. Partners continue to tell us that finding good people, and getting those people ramped up is a critical growth factor for them. And so we will be making additional and new investments targeted at our President subpartners to help them build out additional competence, and add that level of value, and get that additional profitability within their own businesses.

So I wanted to provide a few more metrics, and talk about some of the specific opportunities within Dynamics. We did and have done now for multiple years in a row an extensive economic study of our partners, and what we find is that for new partners, they do typically achieve profitability by year one, which is great, because you can get started, get the competency built, and get profitable customers in the first year. There are attractive, sustainable margins. If you look across the channel, which we have about a 9,000 strong channel today, 9,000 organizations, if you look at the top path of that channel, the average operating margin for this past year is about 28 percent. So some very strong operating margins coming out of the partner channel.

If you look at an average new deal size across all customer segments, all product lines, about 130,000, and that’s for the Dynamics piece only. If you add on to that the fact that for every dollar of Dynamics sold, you’re typically going to bring with you another 57 cents of Microsoft license across Office and across servers, so a tremendous opportunity not only with Dynamics, but then selling the additional areas that you represent across the Microsoft stack.

If you look across the key opportunities, and this is really grown over the past couple of years as we’ve done deeper integration, but not only are you able to provide implementation and customization services, but vertical IP comes at a high value to customers, and we see our vertical partners really driving additional levels of profitability. Mobility, I noted that, business intelligence, we have Dynamics partners building a rich array of services across that. So a tremendous set of services that you can continue to grow, and to build, as you engage, and build your Dynamics practice.

I wanted to talk about a couple of next steps, and one is to use Dynamics CRM internally. So not only do you get free access through a license offer to use CRM internally, but we also have a number of partner verticals that are available on solution finder that further customize Dynamics CRM to fit the type of organization that you represent. And so great opportunities for you to get more productive internally, and do a better job.

Chris Capossela, as well as Sanjay, talked about Office business applications. There’s a great opportunity to build those that extend Dynamics. So if you’re thinking about that business opportunity, look at the Dynamics opportunity alongside of that. More and more ISVs are building out rich businesses within the Dynamics community. If you’re an ISV I encourage you to take a look at that specific opportunity, across either CRM or ERP. We’ve designed a number of breakouts for you to be able to deep dive and look at this opportunity. I encourage you to do that. Of course, we’d love you to really engage, and get a business solutions competency. We’re very, very convinced this is a rich business opportunity for each and every one of you.

I’ll just end with a reminder that this is the single largest partner opportunity across all of the competencies, the business solutions competency is the largest competency opportunity. It’s $52 billion in software in 2008, and an additional $93 billion in services. It’s been a tremendous pleasure to tell you about this great new business opportunity. I hope to see all of you at the awards ceremony tonight. And I wish you great, great success, which I hope includes Dynamics in 2008.

Thank you very much. (Applause.)

END