Microsoft Corporation (NASDAQ:MSFT) J. P. Morgan Annual Global Technology, Media and Communications Conference Transcript May 25, 2022 10:00 AM Eastern Time
Marcos
Rajesh Jha – Executive Vice President, Office Products Group
Analysts
Mark Murphy – J. P. Morgan
Marc Murphy
Good. Hello everyone. I’m Mark Murphy, software analyst at J. P. Morgan and it’s a pleasure to be here this morning with Rajesh Jha, executive vice president of Microsoft’s office products group. Rajesh, thank you so much for participating and being here with us.
Rajesh Jha
Well, thank you for having me.
Q&A session
q-mark murphy
So, maybe we can start looking to put Office in a high-level attitude. We have been through many difficult times in the last 10 to 20 years. People would necessarily assume that Office was quite penetrated, on the right, quite saturated. . We are looking for it today. It’s a $45 billion company. It develops in young adolescents. If you think about the attitude about this, it’s bigger than Oracle, it’s bigger than any SAP, it’s developing faster. So what do you think are the key ingredients or what do you think are the broader phenomena that are driving this Office?business to generate such sustainable growth?
Rajesh Jha
Ouais. Je means, our generation has evolved, but more importantly, the scenarios targeted, as we paint with our clients, let’s take a look at the trends. This has also evolved over the years.
10 years ago, 12 years ago, when we introduced Office 365, our visionArray long before the pandemic, our vision at the time of enabling other people to work from anywhere, anywhere, anytime, while delivering productivity in communications and collaboration solutions, but with enterprise-grade security and compliance.
And I think what we had from the beginning was working with our consumers and getting them to transition to the cloud on their terms. And some chose to move to the cloud a decade later. For the others, it was more of a hybrid setup, whether some users moved to the cloud, others stayed on-premises, or some jobs moved to the cloud.
And then about five years ago, we took a step back and the idea: By the way, the only thing the cloud was doing wasn’t just economies of scale, but capacity savings, because as Microsoft, we take care of it ourselves. keeping our visitor updated and integrated, and that, by having all consumers in the same edition of all our products, has allowed for many new scenarios.
And that’s what allowed us to create something similar to Microsoft Teams. We may have never created anything like Microsoft Teams in an old on-premises world. But in a cloud, all of our consumers were on the same baseline as other infrastructures.
So, with Teams, we took a step back and said, it’s not about apps, it’s not about devices, it’s about other people and groups, and how to combine synchronized and asynchronous communication collaboration.
And then security and compliance, we knew it was a domain that we had to invest in, and as systems of record and engagement systems started to come together, we knew we had to invest in automation and that’s why we have Power Platform.
So, I guess I’d say, Mark, what we took. . . we stick with the word productivity, but we take a broader and broader attitude of that in Office. First it was the data staff and even the data staff, you We’re going back to Office a long time ago, other people had the idea that we were saturated, because Office was about creation, Word, Excel, Power, but then it was about creation, it was about collaboration, communication, security, compliance and automation. .
And then we didn’t arrest any data personnel. 80% of the world’s staff are frontline staff, they are frontline staff. And as corporations go through virtual transformation, those frontline staff are incredibly productive. staff, wisdom staff, frontline staff, small businesses and then MIR.
I think one of the things about productivity is the addressable market. We continue to expand the addressable market where authoring tools, collaboration tools, security, compliance, now think about the fun and productivity of workers, especially in our hybrid world. , how they come together. So I’m incredibly excited to continue this adventure to outline productivity at the individual level, at the team level, at the team level, at the organizational level.
Marc Murphy
It’s an incredible vision. Rajesh, when we take a look at the March quarter, overall for Microsoft, a very counterfeit quarter. They gave us that. We’ve raised our forecasts for Office. By contrast, many software corporations have experienced a slowdown and investors are now worried that all this environmental demand will grow during the pandemic. We got those questions, if reopening caused Zoom to slow down, right?Why didn’t you slow down Teams, for example? From your point of view, what effect has the pandemic and lockdowns, as well as the move to remote jobs, had on all Office activity?
Rajesh Jha
Ouais. La pandemic has definitely accelerated the move to the cloud for many of our customers. That is, the expansion that we have noticed in Office 365 and Microsoft Teams, even small businesses, have had to reinvent a new way of running, so we brought in a lot of other people who are migrating to the cloud and who maybe were on the sidelines and maybe didn’t make full use of the cloud. so we create things like tests to allow them to integrate very quickly.
We’ve created specific offers for small businesses like Teams Essentials, collaboration, assembly tools, but our usage has never been higher, even at the end of the pandemic, it’s never been higher.
So when other people think, why is that so? Well, with Teams, it’s multimodal. Teams is just an assembly solution. With Teams, what we said was, hey, how do you get an organization of other people to collaborate, whether it’s an assignment team or in the boardroom or a frontline employee working with their managers?work? It is synchronous and asynchronous. It’s in other time zones, in other shifts. These are other people face-to-face or distributed.
And so, even though the actual number of minutes and meetings decreases, collaboration, especially when looking to go through a virtual transformation, digitizing business processes, the need for collaboration has never been greater and, therefore, the use of Teams continues to grow.
But it’s not just about Teams and Office 365. Si I observe the current use of Office 365, it’s never been superior compared to other modules. Our consumer would use 4 modules, maybe now six of our modules.
But it’s not just the number of modules. The intensity of the use of these modules continues to grow. So if you’re wondering why, I think in a hybrid world, virtual teams are: that’s where the paintings will have to be represented, the paintings will have to be made. , this is how collaboration happens. This is how you work flexibly in other time zones and across speed and time.
So, and I think now that we have a forged baseline and an expanding baseline of use and consumption, we continue to expand our scenarios with which we need to serve our customers, whether it’s the system phone in teams, whether it’s a house space, a chat room, or an open collaborative space, from a convention hall, small, medium, giant to other jobs, how we involve the teams.
We think about the worker experience at Viva. How productivity, well-being, learning and experience are balanced. And then the incredibly vital devices and we try to virtualize devices with Windows 365. So, usage has never been higher and I’m excited. about how we can continue to serve our consumers in this hybrid world.
Marc Murphy
So, it’s wonderful to hear that the usage has never been greater and I need to go back and touch a lot of the products you just mentioned. . .
Rajesh Jha
I do.
Marc Murphy
. . . adding phone groups and devices. The — let’s start by assuming for a moment that remote paintings and hybrid paintings are permanent social adjustments and that they will be with us for a while. What are those types of differentiated reports that you’re creating right now that we probably wouldn’t even be contemplating yet, right?As you seek to unite and collaborate with staff around the world?
Rajesh Jha
Ouais. Je need to say a few things I would like to point out. Just a few things I’d like to point out. First, I think this hybrid work, where people, one of the things we recently published, our most recent index of hard work trends, so we surveyed 30,000 data employees and frontline staff in 30 other countries. And then the other thing we have with Microsoft 365 or Office 366 is a lot of signal, so we can see a lot of data, usage patterns, and communication patterns.
And so, you may have heard us talk about what’s called a hybrid paradox, where three quarters of painters need flexibility in how they paint, whether they’re painting in their area or somewhere else. But at the same time, two-thirds of those painters also need more face-to-face time with their colleagues. So that’s the paradox, three quarters, they need flexibility, two thirds, the same two thirds, they say, hey, I need to be face to face and harness the energy.
The other thing, I’ll just say that it caught my attention, although in the third quarter, thinking about it, makes sense, remote paintings, hybrid paints have a tendency to strengthen ties and weaken weak ties and that’s important.
And why is that? So when you are not — and the serendipity, the water cooler, you’re coming out of a conference room, meeting, talking to somebody, who is not in the immediate work group, an immediate work group being a strong tie. But no matter how an organization sets up the org structure, what is not always done in a hierarchical manner, what has to train and send these boundaries. That’s all weak ties.
So what we are thinking about here is, just take Microsoft Viva, for example, it’s an application that’s built on Microsoft Teams, because Teams is about putting groups at the center, people at the center and bringing the right apps, the right data, the right AI, the right automation to people.
So the Viva we have — and hybrid work, you’ve heard about the triple bump of the day where people took three peeks, one before lunch, one after lunch and one in the evening before going to bed. It’s like productivity has to be balanced with their well-being. At Microsoft alone, a third of our employees started during pandemic.
How in a world where our consumers have greater wear and tear, new people are joining remote work, how is wisdom discovered, and how is wisdom created?How is this discovered?How to balance well-being?How is learning positioned in the workflow?How do the other groups align with your core mission?
And those things, how does a frontline employee join your leadership?So those things that we think expand employee enjoyment in this world where strong bonds tend to get stronger, weak bonds tend to weaken, with things that want to flow.
So I would say, Microsoft Teams and Viva, but there are other things we think about, Documents today is super monolithic. How to make documents communications, but also grouped as a document with elements like Microsoft Loop. So we have a lot of things to do and we’re going to be informed and we’re going to become literate.
Marc Murphy
You discussed Loop at the end, didn’t you?
Rajesh Jha
I do.
Marc Murphy
Me just to be sure. Okay. We’ll come back to that too.
Rajesh Jha
Yes. Not bad.
Marc Murphy
Therefore, Office 365 advertising is the main component of the business. We recently conducted a survey and it showed us that O 365 is going to exceed 60% penetration of all workers in the company, okay, in the coming years, which is a very high figure. It has had a job expansion of about 16% of that in recent quarters, and then shared that it reached $345 million in Office 365 positions. Let me start with a very undeniable question: how much path do you see now for job expansion?
Rajesh Jha
Ouais. Je means, just growth, we think about it in 3 other dimensions. Then we can think of 3 other dimensions. First, let’s communicate what he said, the growth of seats. The headquarters is growing, there are a billion data Array projections are like 20, 25 data and wisdom Array There are a few billion more frontline that are on the front line of this transformation of business processes. There are small businesses. There are industry-specific feature offerings. There is education. So overall, we think we have a lot of room here to expand the seats with Office 365.
Then the other size is the addressable market. So with Office 365, it’s not just about building teams, collaboration teams, or communication teams, it’s about security and compliance. It’s about the worker’s experience. It’s about education: learning, wisdom control, content control, and how, even industries like phone systems, are evolving for the future. How is the area evolving to enable hybrid work?Therefore, we believe that our target market is quite broad. I mean, it’s kind of smart about productivity, it’s like it’s the center of the fashion economy, so we’ve tried to take a step back and take a closer look at productivity. .
But finally, I’m just saying, I talked about usage and our usage has never been higher. And the more usage there is, the more our consumers, they see that it’s going to be worth it and the renewals, the less discounts, and then we have things, like E5, which is a main point where we bring everything together for our consumers and the early days of seeing that game for our install base.
Marc Murphy
So, its openness is broader than a billion data workers, right?It goes much further. You just talked about E5 and just wanted to mention that for a moment. There’s a sense that there’s so much price on those SKUs, E3, E5, that there’s been hypotheses about E7 at some point. Where do you think you will?be in the procedure of integrating more price into SKUs and monetizing?
Rajesh Jha
I’m just saying that last year we said that 8% of our installation base advertises offices, whose installed base had been moved to E5 and I liked that from the beginning. And remember, here we are talking about the data staff.
But we have, as I said, our goal is to expand the offer of express roles for SMEs and frontline staff and industry. And so combining how E5 develops over time depends on how much FLW we have, they’re probably not E5 users. . Personal information at the beginning of the — in this cycle.
The price: In terms of the price of the E5, I agree with you, I mean, there is a lot for our consumers, no, our consumers may decide not to get the package, they can choose to get only the security or the fulfillment offer or the phone formula offer or the analysis offer. They may decide to delete them separately. But we think the price is taken in combination for our visitor with all the E5 SKUs and many of them really need to get the full suite for its incredible price.
Marc Murphy
So, Rajesh, Teams is a component of this value.
Rajesh Jha
I do.
Marc Murphy
A few years ago, Satya described Teams, I think he said it was the fastest development app I’ve ever seen. We take a step back and come up with it, that’s a pretty big statement, right?Because Office grew rapidly, Outlook grew fast, Exchange grew fast. Earlier this year, I think you said that Teams had surpassed 270 million per month of assets, right?So it’s not far from the Office 365 sales headquarters. How do you see the importance of teams, if we take a step back and say, let’s put this in an old context for us?And what about that, this Teams delights in what you think is fundamentally different from other competing products around the world?
Rajesh Jha
That’s a wonderful question, Marc. Es, I’ve been in the workplace, in and around the workplace for a long time, and I would just say that Teams is extraordinary. But I think the basics: you said what makes it Another?What makes it another is the fact that it is multimodal. It is not an assembly mode, nor a chat mode, nor a creation modality.
Is. . . With Teams, we take a step back and think, what if we didn’t start with the tool first?What we start with other people first and teams first. And then when other people come together, whether it’s in a casual chat or in a formal organization or in a channel, how do we bring the right chat and meeting modalities and phone formula and documents and files and dashboards and business automation, how do we put all of that together?For the team to locate it, it hasn’t gone from one tool to another to do its job, and if there’s an organization, a running organization of 20 other people and they’re all independently looking for other teams, it’s not going to work.
And so, with Teams, what’s remarkable is that we see it as applicable in boardrooms, for a CEO and his leadership team in business functionality and having a shared context like that of the studio.
And we see a success, a success. A recent CIO survey showed that 50% of CIOs are standardized on Microsoft Teams and by age 3, that number is expected to increase to about two-thirds.
But what stands out about Teams is rarely the multimodal app, the usage, is the fact that it’s a platform. Which is a platform in an ecosystem that transcends a given device. So if it’s an ISV or even Microsoft, for example, we create things like Microsoft Viva as apps in Teams.
If you write an app for Microsoft Teams, your app runs on Windows, Mac, the web, mobile, iOS, or Android. So, we have ServiceNow and Workday and Adobe and Monday. com and many, many other ISVs.
In fact, if you take a look at the number of traditional and third-party apps that were built on Microsoft Teams, two years ago it was multiplied by 10. And so the ecosystem is the real difference with Teams.
And an ecosystem is also developed on the device side. We have Poly, Logitech and Zebra and all those other people were building devices optimized for Microsoft Teams. We have telecom operators connecting their backplane to the Microsoft backplane. So, a visitor who needs Microsoft Teams Phone or a collaboration or convention has no settings to access.
And then I think it’s just the baseline and then we have a differentiated attitude about how the area evolves: the area of companies evolves with team rooms, how their phone formula evolves, how the worker experience evolves, and so, yes, Teams is special.
Marc Murphy
Then you said that the team will.
Rajesh Jha
I do.
Marc Murphy
And Teams Phone has been. . .
Rajesh Jha
I do.
Marc Murphy
. . . Can you perceive the strategy there?How far do your ambitions go with Teams Phone and what do you think of the magnitude of this express opportunity?
Rajesh Jha
Ouais. Je I mean, you see, it’s very interesting, as it is evident now, however, the Phone course no longer makes sense to be anchored to an office. Especially in hybrid work, phones are around the individual, they are around the person, not on the desk. Therefore, many consumers need to move from their old PBX systems to a much more person-centric setup for the world of hydropower.
The other thing about the telephone is that it is (other people don’t) when you’re running with someone, as if 3 of them are chatting, you need to temporarily transfer to a phone call. Transfer quickly to a synchronous mode and you’re good to go. back to asynchronous mode. So, there has to be a continuum between the teletelephone formula and collaboration.
Even when you start with a phone call, you need to integrate a whiteboard, you need to be able to share a split screen, so you can talk quickly. it is based on VoIP or PSTN, either within an organization, or the organization.
And so, we’re seeing strong demand for phones in other industries of all shapes and sizes. And so, we have over 80 million other people’s Teams phones in all those other flavors. What fascinates me is the time to set the price for customers.
Once they leave their old PBXs for the phone system, the valuation time is in weeks, in weeks they can be configured, because again, the backplane is the same. Teams is multimodal, it’s set up for Teams, it’s set up in your directory to charge your phone, it’s a matter of weeks, it’s not years of preparation. So incredibly cost-effective, flexible, multimodal. So, I think we have a genuinely differentiated attitude here with phones.
Marc Murphy
So when we look at how Office 365 is acquired, 45% of that acquisition is made through Microsoft 365. And I think most attendees would probably think of Microsoft 365 as this very finite set of applications and services. But I Heard that he talked about this as a rich progression platform, he referred to the component of that underlying foundation, Microsoft Graph, Fluid Framework. Is there a way to make this tangible for this type of non-technical audience?some of the differentiation?
Rajesh Jha
Ouais. Je think it’s a very important point, Mark. I mean, Microsoft 365 is a set of installations securely finished. It’s time to make consumers profitable, whether in terms of creativity, solution, productivity or collaboration. We need the assessment time to be calm.
But first and foremost, it’s also a platform, because Microsoft is rarely going to create each and every productivity app mapping control app. Teams is set up as a platform, as I mentioned earlier. You’ll locate Zoom in the Team Store. You will find RingCentral in the Team Store. You will find all kinds of slate and task control corporations in the Team Store.
So just at the point of the UX layer, the UI layer, we’re a platform that other people can connect, because that’s our customers’ selection at the end about how they connect. But even under the UX layer, Teams has a knowledge: layer platform and we call it the Microsoft Graph knowledge layer.
And Satya said it once and I think it’s a clever characterization that Microsoft Graph is the ultimate vital database for any business. Because this database has all its – it has all the workers of the company, with whom they work, the meetings in which they participate in, the documents that are shared, the documents that are fashionable, the projects and for other people.
And it’s the database where Microsoft can run a lot of AI to give you insights: detailed data and the right advice and workflow. And Microsoft Graph is an extensible platform. Therefore, each of the Microsoft 365 programs that write on the chart gets the price from the chart. But we allow third parties to also write on the chart and get the price of the chart. The Chart, of course, belongs to the visitor and the correct permissions will have to exist and the correct IT controls will exist.
The other component of Microsoft 365 that is a platform is how the user experience can be composed. And so we did ourselves today, with Microsoft Loop, we talked about Microsoft Loop, I’m excited about Microsoft Loop. But documents have a tendency to be somewhat monolithic and users access Documents, of course, with Teams you can hang all the documents around the group. But with Microsoft Loop, we allow document decomposition.
So, for example, I won a task update and there’s a dashboard that many of us want to update, to tell everyone, hey, can you go through and update the table?I can take that table, that fragment of the document, put it in the chat or by email and send it. And as other people begin to complete it, it is still active. And when I go back to the document, it shows the same status, if I’m in discussion, it shows the same status, in the email it shows the same status, if I had to take this component and put it in a Word document, it’s still alive and connected.
It is now extensible, so third parties can also participate. So, with Microsoft 365, no more services, focused on time to generate value, but we must make it extensible and turn it into a platform at the UX layer and the knowledge layer.
Mark Murphy
So, with this canvas and this surface that it has, it describes to us the knowledge of the graphic, the AI, it seems that it has an opportunity for advertising. And he made that comment in January, advertising corporations have more than $10 billion in profits more than 12 months. It was a statistic. You are making an investment in this area. Can you tell us what you think of your advertising strategy?
Rajesh Jha
As you know, it’s a big market and I think we’re well positioned to play in that market. So some things. Let’s start with LinkedIn, LinkedIn Marketing Solutions. Now, LinkedIn is like the most trusted social network. And for clients, for advertisers, for B2B advertisers, I mean, they have a very large and engaged audience.
Now let’s take a look at Windows, 1400 million active devices. With Edge, we gain in sharing. We have more room to grow. And then with Microsoft Start, it’s like this traditional source that’s used among 0. 5 billion more people, so you’ve organized the content and the content consumption, the commerce, now we’ve introduced the origin agreement. We invest in scenarios.
What other people do on their PC, PCs have never been more relevant. People go shopping, learn, play, navigate. So, we’re investing in those scenarios, either on Windows and with Edge.
And then, as you know, we recently finalized our acquisition of Xandr. And then if you take the deep intelligence that we have and Xandr’s data-driven platforms, we think we can push it even further.
Those are the things that are not unusual, but it is also exploring advertising on other surfaces such as Outlook, dotcom, our Consumer Mail offering or games, games are a main commitment and we think it is attractive to see their new business models possible. , yes, I think we are well located here.
Marc Murphy
Then, new business models, he discussed the topic of citizen developers employing Teams and Power Platform at one of the recent build conferences. Personally, I’ve been a bit skeptical about this total issue of citizen developers. I would say for most of my career. , isn’t it? Because we haven’t noticed, we’ve never noticed, we’ve never noticed compelling symptoms and traction, from some other software company, and that’s until now, right?So with Power Platform ranking number two in the momentum of our product, Microsoft Partner Survey Work, on the right, we lead. The symptoms are very clear. Can you put that in context?Why is there so much momentum and do you think that, despite everything, you have cracked the code of this trend with Power Platform?
Rajesh Jha
Ouais. Je means, it was Microsoft Built and some really exciting announcements about our platform, an Azure infrastructure, data and artificial intelligence. But even in Microsoft Teams, we announced multiplayer sharing. with you, you consume it passively.
Now we have genuine multiplayer games, like sharing as a main platform and other things in Microsoft Teams. If you’re an ISV, write an app for Teams, it also runs in Outlook and Office, new team in Visual Studio to create Teams apps.
But let’s talk about Power Platform. Very exciting announcement yesterday, where, today, Power Platform has the ability to analyze with Power BI, so that other people can drive knowledge, you can attach all business knowledge in attachments and generate data. Like Power BI, you can create new programs and act on them through Power Apps.
Yesterday we announced that it is now even less difficult to create a Power App, you can only point to a symbol of how the app looks. And it will: the AI will do the most of the paintings to create the app for you. automation, the way to automate business processes.
And then we announced a new member called Power Pages, which is a data-centric approach to building a website. Now, listen, why does this resonate, Mark, you said? It’s simply not. I mean, I’ve noticed some staggering statistics, and that is that as consumers go through virtual transformation, it’s expected that in the next five years 500 million new applications will be created. That’s more than in the last 4 years.
So where are those developers going to create those 500 million apps?IDC now says it is missing four million developers. So, the concept of Power Platform is that virtual transformations happen. These programs will have to be low-code, no-code. With Power Platform, we create all connectors for all registry database systems.
So, the entrepreneur closest to the business procedure can create information, create those applications, create those Power Pages, automate the business procedures. I mean, I’m very, very positive about how Power Platform can help our consumers with virtual transformation. those Power Apps, again, are, when I say, Teams is an extensible platform, you can write a business procedure in Power Apps and consume it directly in the feed. There is an update of your trading procedures posted in the chat from the internal teams. You can consume it on your phone or on your desk.
Marc Murphy
So, at the last moment, here, we can ask a quick question. And I sought to address the issue of security and make sure that. . .
Rajesh Jha
I do.
Marc Murphy
. . . in which we have woven this, it is intertwined from the smartest to the lowest in the total product stack. We’re seeing incredible momentum, safety ranks first in our spouse survey work. of Azure and is above Teams, which is interesting. Can you explain what differentiates this Microsoft security solution from other products on the market?
Rajesh Jha
Ouais. Je can happen, but you said lightning. So, with Microsoft, we’re in the security cloud. Running in the clouds, not only on Azure, but also on GCP and AWS, our Deffinisher product works not only on Windows, but also on all cellular and desktop platforms. -platform, multi-device. But genuine differentiation is what it’s like from start to finish. Speak as our security cloud deals with identity, compliance, privacy, and security.
And I would say, if you double-click on a level, what’s the differentiation?Differentiation is scale. We receive 24 trillion signals every day in our security cloud where we can run AI and we can help our consumers deal with those risks. And the risks have never been more numerous, today Microsoft tracks more than 40 state actors, another 140 persistent risk actors and even a few years ago, it was a handful.
So, the point of scale, the point of information, accept as true with what we have in the security cloud with more than 785,000 consumers betting on Microsoft Security Cloud, so I would only say, from beginning to end, accept as true with, information, scale.
And one last observation I’ll make, other people think that end-to-end integration means, and yes, though, with Microsoft Security Cloud, the individual parts are also in class. We want to be those of the race and those of the suite.
Marc Murphy
Rajesh, thank you so much for being here with us and sharing all those glorious and thank you. . .
Rajesh Jha
Thank you, Mark.
Marc Murphy
Good to see you. Thank you.