Microsoft Analyst Day Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“CEO succession and search plan. While I know you have lots of questions on that, I wanted to go ahead and let you know there will be no further update on that today.”

“the Office Division is the biggest division in the company at 35% of our overall total; Server and Tools is second at 26%; Windows is third now at 25%; Entertainment and Devices at 13%; Bing and Online at 4%.”

“Gartner says that the public cloud market by 2015 is a $180 billion opportunity. ”

“the capabilities that Nokia brings with us on distribution, supply chain, the ability to continue to leverage the economies of scale that they bring, we are very excited…But I also want to stress the fact that we remain very open with our phone system and we have phones available from HTC, Samsung, Huawei, TCL, Alcatel, we want to continue to have that opening existing.”

“I haven’t been as excited as I am in a very long time around Haswell and the potential for Haswell devices and BEETLE devices and what they can do in the marketplace. Haswell from Intel gives us the capability to have a fan-less device on an X86 platform, which means thinner, lighter, better battery life. And so that is going to open up a whole plethora of new devices, new styles, new form factors in the marketplace.”

“we have got to improve the retail buying experience. It hasn’t been what any of us would have liked.”

“we really should bring – we should have one silicon interface for all of our devices. We should have one set of developer APIs on all of our devices. And all of the apps we bring to end users should be available on all of our devices. The second belief was that all of our devices are becoming more cloud-powered. So whether we are branding them Windows or Xbox, we really need one core service which is enabling all of our devices. And the third belief was that each of our devices require a tailored experience to be really special for the customer. Whether that’s a three-inch phone, or it’s a 9-inch tablet, or a 14-inch clamshell, or a 60-inch television playing Xbox games, we want to facilitate the creation of a common, a familiar experience across all of those devices, but a fundamentally tailored and unique experience for each device.”

“Dynamics CRM also pioneered our approach to the cloud, where essentially our customers can run the same solution, from fully multi-tenant Microsoft cloud partner hosted also deployed on their own services and private cloud on-premises. Now, today two out of three new customers choose Microsoft cloud as their preferred deployment option, but those customers also tell us that, that choice is very important to them, especially those customers who got burned by salesforce.com and switched to Dynamics CRM tell us that. Now overall Dynamics CRM business has been tremendous growth story, 36 consecutive quarters of double-digit growth, over 40,000 customers, 3.5 million users”

“our company’s focus is to deliver high value scenarios, to enable our customers, our users to do things that really they care about, of high value to them. And that central theme is to enable our customers to be able to get more done. Do more is the theme.”

“I have been at Microsoft for 20 years, and one thing that is different is just the leadership team that is up here and how we are working together. And so we are all invested in each other’s success and need to work together to deliver these high value experiences across a set of devices to our customers. And so we are working in a new way.”

“capital return, earlier this week, we announced a 22% increase in our dividend and a $40 billion buyback program. I think you will continue to see that as a key focus. I know it’s a priority for you. It is certainly a priority for me and for the board and for the company.”

“The model we are already shifting to which Kevin really talked a lot about this presentation was moving to a device business that’s still royalty-based, but also gross margin based, an enterprise service business that’s licensing and subscription and a consumer service space that’s advertising and subscription based.’

Steve Ballmer:

“we understand the shift that’s going on in the market. We understand the superior value that a PC brings to other devices in many forms of use. And we understand that there are reasons why people also like and appreciate tablets and phones, and those devices will continue to proliferate.”

“Google does it. They have this incredible, amazing, dare I say monopoly that we are the only person left on the planet trying to compete with.’

“So we said, look the place you create real money is when you do something that is really important to your customer. If you are not doing something that’s really important to your customer, there is probably not a chance to make a lot of money.’

“he PC was a new user interface and a new form factor. And Intel and Microsoft made a lot of money. If you will, touch and low power was a huge change in the way the user interface paradigm worked. And Apple and Samsung and Qualcomm made a huge amount of money. We are not done seeing fundamental shifts in the user interface and kind of hardware approach to devices. And I believe that too represents a form of high value activity.”

“How do you monetize high value activities? Amy talked about the three bubbles: devices, consumer services, and enterprise services. The two that are most easily monetized, in fact, are devices and enterprise services. Consumer services, as we say, are tough. Other than phone companies, there really aren’t many technology, large subscription consumer services, and outside of Google and maybe Facebook it is hard to find a business that is significant that is ad funded. ”

“UI innovation is critical, because inventing the next hardware-software paradigm does create an opportunity to make a ton of money.”

“Machine learning, at scale, it’s hard to argue that, other than Google and Microsoft, anybody is making an at scale investment in helping develop technology that studies the world and studies the user and tries to help computers learn about people and serve them better. It is a scale game. It’s a moat. There are really only two people who are making the investment. The investment in the cloud infrastructure, the investment in the technology, and I think it will be one of the defining characteristics of the next generation of device and user interface.”

“. Cloud infrastructure to me, and this has become clear really over the last 4 years or 5 years, it’s a pretty fundamental investment and it’s not as simple as saying, let’s go build a bunch of datacenters. It’s really learning how you architect these things to be low cost and at scale. We used to design datacenters by thinking about servers. Now literally we designed the buildings as the unit of compute work in order to take cost and complexity out of the equation.”

“Google, there is sort of this almost Dr. Strangelove kind of arms race that goes on, at least amongst people who operate datacenters. How many megawatts are they buying this year, that’s sort of the way in which datacenters are rated. How many megawatts will Google put in? How many megawatts will we put in? And in a sense there is only really a couple or 3 companies that are really pursuing that at scale. Amazon is, we are, and of course Google is.”

“And it’s quite clear to me that by this time next year we will overwhelmingly have the most popular paid service in the enterprise, bar none. And we will have an engine really with Office 365 to which we can attach new services and new options”

“The second area of focus is Windows PCs. We must do the job to ensure that the PC stays the device of choice for people when they are trying to be productive in life. It doesn’t mean that people aren’t going to buy some tablets to be productive, but if you look at the bulk of the tablet market today, it’s moving actually to smaller tablets. Our OEMs in Asia oftentimes refer to those as entertainment tablets versus productivity tablets.”

“Mobile devices, we have almost no share. I don’t know whether to say that with enthusiasm or kind of uncomfortable tension, but I am an optimistic guy. Anything we have low market share sounds like upside opportunity to me.”

“If you look at the total base of consumer PCs that gets sold, about 60% of them get sold to consumers. Of that population, about 15% to 20% actually pay for Microsoft Office, some don’t use it and some don’t pay for it and I will be kind of silent as to what percentage is what, but let’s say, piracy is certainly quite high.”

“we still get plenty of customers for certain applications and workloads who are not prepared to fully embrace the cloud. So our ability to deliver on-premise private cloud and public cloud is very important.”

“Amazon is all about the public cloud and has really no on-premise solution. Google is relatively quiet outside of productivity. Even though they have solutions they are relatively quiet. And frankly we have been handing it to them pretty resoundingly in bigger accounts”

“then if you take a look at VMware and Oracle, they are playing primarily with on-premise solutions and not with public cloud solutions. So somehow magically there is this enormous opportunity for us to be the unique player who can bridge this world of the public and private cloud.”

“we don’t have our heads in the sand. We are working away on all the things you think we should be working away on.”

“We have surprisingly less religion than you would think we probably have.”

“The reorganization that we did was more than just let’s move some people around. It really was a fundamental shift from running a set of separate business units, where we tried to make connection points to running a company that is essentially one integrated entity. Now for those who wish that some of the units would go away that probably doesn’t sound very good, but for those of you who really want us to get more agile, more focused and in a sense simplify, it really forces that.”

“Hardware and software will need to kind of evolve together, somebody whether it’s wearables or what’s going on with screen or input technology without the right hardware and software skills, without the right machine learning and cloud infrastructure, without the right focus on applications and platforms, without the right appreciation of consumer and enterprise, I think it’s hard to do. And when you write down the list of companies that have the capabilities that I listed, you would certainly put Microsoft, you probably put Google. We all have certain different strengths. And then after that you might say, hey, Apple is there in many dimensions, but they don’t have the investment in cloud infrastructure, they don’t have the investment in machine learning, and then it just starts to slide from there”

“You will be able to use our services without our devices, but our devices will absolutely honor and respect our services.”

” device is – particularly to the consumer – particularly to the consumer, consumers just don’t spend the lot of money after the device and the subscription with the operator. Consumers never did. If you look at our Office business today, our Office business is 15% maybe from the consumer 20%. So maybe 20% of our Office business kind of looking back into a licensing world, maybe 15% to 20% came from the consumer, despite the fact that the consumer buys 67% of the systems.”

“ne of the key reasons, in fact, that we bought Skype was to have a high volume visible consumer service, we probably need – and its cross platform as could be and we probably should use it to capture more functionality. And I will remind you Apple kind of has rules in their stores. You can’t have suites. They know they have to avoid people getting too much traction with their services on their devices, but we are working away on it and it’s very, very important to us.”

“Google does which means they have more money to pay for distribution on Samsung devices or Apple. Rumor has it that they probably pay each of those guys $1 billion to $2 billion to $3 billion a year for distributing their search product.”

“I do believe that Google’s practices are worthy of discussion with competition authority, and we have certainly discussed them with competition authorities…suffice it to say that I think they need pressure from competition authority.”

“we have a high share of searches on Windows Phones. And it is a reminder, just take a look at the share Apple has of maps on their own phones and I know they had all the celebrated hullabaloo but if I remember the numbers correctly, about 65% of the map usage today on iPhones is Apple Maps. So in a sense, probably one of the best ways to get some share in search is to get some share in devices.”

“Google happens to say let’s not have any profit be in the device. Let’s move it all into search. We and Apple kind of have a different view of the world. Amazon, I don’t know where they want to put market profit. They don’t seem to put the profit anywhere and that’s not a shot. It’s just I can’t tell you what profit stream is important to them the way we can about us or Apple or Google.”

“If there is one thing I guess you would say I regret, I regret that there was a period in the early 2000s when we were so focused on what we had to do around Windows, that we weren’t able to redeploy talent to the new device form factor called the phone.”

“Apple was what essentially zero market cap in 1997? And now its enterprise value is close to – and I’ll use enterprise value because that’s kind of how I think. Enterprise value is close to $300 billion. That’s $300 billion a new market cap created on touch and microprocessors. And it happened to be created in that case is through a devices approach. But at the end of the day, if we are not investing in those new opportunities, then it is assured that we have no opportunity for that growth. So I think you should hold us accountable, and I certainly as a shareholder will hold us accountable for continuing to focus in on good short-term results, and at the same time making investments that give us an opportunity to generate someday another $10 billion, $15 billion, $20 billion, $25 billion of incremental profit, which would be great to be able to dream about and certainly a few companies have created those kinds of profit pools in the last 10 years, 15 years.”