Welcome everyone. I'm Brett Iversen, General Manager of Investor Relations. This is the third in our series of videos focusing on strategic areas that are top of mind for our investors. Today's discussion will focus on business applications, including our Dynamics 365 and Power Platform businesses. We have two of our key leaders here to answer your most frequently asked questions. Alysa Taylor, who's responsible for marketing for our Dynamics Power Platform, industry, and our data and AI businesses. Charles Lamanna, who leads our engineering teams for the business applications and platform organization. That includes Dynamics 365, Power Apps, Power Automate, and Microsoft Copilot Studio. As always, after you view the video, please reach out to our Investor Relations team directly if you have any feedback on future topics, the format, or other suggestions. With that, let's kick things off. I'll start with a question for Alysa.
Dynamics and Power Platform have become an increasingly important part of Microsoft Cloud strategy. Can you talk about how business applications broadly fits into the Microsoft Cloud and how that's evolved?
Absolutely. First, thank you for having us.
Of course.
It's great to be here with you today.
Thrilled to have you both.
To your question, how does business applications fit into the overall Microsoft strategy? I'd start with the Microsoft Cloud, and our commitment to our customers is building the most comprehensive and trusted cloud in the industry. We've done that. If you start with our hyperscale global cloud platform, which is Azure, and then you look at all of the investments that we've had in the developer and extensibility services across GitHub, Visual Studio, the Power Platform, and then the app layer, so with Microsoft 365 and Teams. To be the most comprehensive, we also need the solutions that power a business.
Right.
That's where Dynamics 365 comes in. Really creating a set of solutions that power every facet of an organization, marketing, sales, service, finance, operations, commerce, the entirety of what it takes to run a business. With business applications, it's a critical component of the overall Microsoft Cloud.
Love it. Talk a little bit about the journey, like from where we've been and to where we are today. What would you share?
Well, it's been a very intentional multi-year journey. We will be five years, Dynamics 365 will be five years this November. It really started with this vision of how do we help our customers? There's two things that are pretty prevalent with every customer right now, which is no matter what industry you're in, it is rapidly changing.
Right.
The rate of pace and change has just been exponential over the last decade. The second is just the proliferation of data. Data's coming from everywhere, every service, every building, every crosswalk, every device. As a business, managing that data and garnering value from that data. Knowing those two things are top of mind and true for every organization, we set out five years ago to really reimagine business applications. We started with the CRM, the big monolithic CRM and ERP systems, and we knew that those systems wouldn't future-proof any organization. We broke them down into what we call purpose-built applications across every function in an organization. We converged those applications on the Azure platform to be able to garner and harness data and apply intelligence over it.
We really created a completely new class of business applications that were data first and AI first, and really it allowed, and enabled collaboration across every facet of the organization. The Power Platform, obviously, as the extensibility layer across all of the portfolio. It's really been this intentional journey, and it's been a phenomenal one.
Five years, that's gone quick.
It has.
Given where we're at today, how do you think about the opportunity, and people are excited to hear from you both on how we would size that. How do we think about it today?
Well, if we rewind back to that five-year mark, we, as a business, we were persistently in single-digit growth.
Right.
We were in two categories, ERP and CRM. As we've really expanded out to meet every facet of an organization's needs, and we've expanded the portfolio, we've gone from two categories to six categories. What that has done is enabled us to really grow in our overall revenue. We've gone from that single-digit growth to just shy of 50% growth, which is pretty amazing.
Totally.
Our user count is significantly up. We are in each one of those categories. We are both growing above market, and most of our major competitors. That's really exciting. The last thing I would say just on, because it's both about share and growth, but it's also about category leadership. If you look at the Gartner Magic Quadrant, we are a leader in each one of those categories as well.
That's great. Growing fast in big markets is obviously where we want to be, so that's great to hear. Charles, let me bring you into this and talk a little bit about the product innovation and how we ensure that we are leading in these categories that Alysa mentioned.
Absolutely. It's really a continuation of what Alysa was talking about. We really focus on three major pillars when it comes to the product innovation and improvements. Those three pillars are really about how do you go tap into all this immense amount of data that every enterprise has.
Right.
How do you use AI to better understand and generate insights and predictions based on that data? How do you go engage the humans who use these applications each and every day so they can collaborate better and work better together? Data-first, AI enabled, collaboration enabled. Those are the three major pillars. When you look at those data-first applications, what's really unique about them is that they really start by tapping into all the different data that exists inside of any organization or any enterprise. Typical company has hundreds of SaaS apps, hundreds of databases, thousands of systems. These data-first applications need to be able to ingest and integrate all of those different data sources. We have this amazing data connector ecosystem, which has over 500 connectors inside of it today, and it's growing quickly, continuously.
You can tap into all that information really easily. Once the data is available and at the fingertips, we can start to use all these amazing natural language understanding models we have, as well as predictions and machine learning, to really start to make predictions about how the processes will change or even ask questions like, what if this were to change? What's the impact on the business? Really, this intelligent substrate that powers all these different data-first applications. Then last but not least is that idea of collaboration. The reality is every app has a human somewhere using it. How can we go make it so those humans can work better together? Through collaboration and products like Microsoft Teams or Outlook, we make it so that Dynamics 365 shows up across all parts of the organization and all parts of the company.
We've even done things like make licensing changes for it, so Teams users can have access to Dynamics data with no additional charge, which is hundreds of millions of new users. A lot of really exciting things coming together to change how these apps work. To kind of bring that to market, we launched a bunch of new apps. We have Dynamics 365 Customer Insights, we have Dynamics 365 Fraud Protection, and we've also gone back and transformed those core CRM, ERP functions that Alysa talked about, too, with the same type of idea. Really, this type of new generation and new iteration of business apps is why we're so excited about what Microsoft can do in this space right now.
Good, interesting. There's a lot there. Tell me more about the data piece. How's our approach shaping the broader business application strategy there?
Absolutely. In the past, business applications really were all about having humans enter data into a system where it got locked up and maybe you use the data for reporting in the future, and it was a very reactive way of doing business. With our data-first apps, we kind of turned that on its head. Instead of humans putting data in, we have things like IoT or other data integrations and systems which generate data automatically, whether it's from your dotcom or your e-commerce website. Based on that data, we can start to basically invoke or basically make predictions that will cause humans to have to take an action, and it's a little bit abstract, so I like to always kind of map it back to a real example we talk about with our customers. One of my favorite right now is the manufacturing floor.
If you think about the old way of running a manufacturing plant is, you have a bunch of machines, they run, then eventually they break, then a human goes into some system, records the fact that it broke, then maybe you send out a field tech to go repair it. Whole time, the manufacturing line's down and impacted. That's not the way it has to be anymore. Instead, your manufacturing plant can generate a sea of data, which you can understand from Internet of Things add-ons or signals from sensors, like video or audio. Based on that, you can actually predict when things are nearing a breakage or when things aren't performing at their optimal efficiency, and then you can go automatically send out a human to go repair it and take action.
This idea of going from reactively responding to things that break to proactively understanding and acting before they actually break, that's business value for our customers. That's something that just hasn't happened for decades in the business application space. That kind of data-first transformation is why we're so excited, because as our customers go on this journey, that's our opportunity. Many new product categories and opportunities for our features to really stand out in the market.
It makes sense. I'm similar to you. It really helps me to ground it in customer examples. What are a couple other, maybe current customers that we're helping in this sort of a category?
Yeah. I'd say two of my favorite ones right now are GNC and Bank of New York. GNC went through a tough year last year with COVID-19 and a lot of economic impact. They really reinvigorated the company with this focus on knowing their customer across all the channels of engagement, and that means physical retail stores as well as online stores. They did that by using Dynamics 365 Customer Insights and bringing it together with their Azure data platform, so Azure Synapse, to create a single holistic view of the customer profile. They could use that customer profile to change the behavior in the physical world, in the retail store, as well as online. That's an example where being data first just fundamentally changes how you operate.
The case of Bank of New York, they service a lot of large commercial customers and individuals. One of the big challenges they had is they interacted with customers on the phone, over fax, over emails. You kind of name it, yeah, they did it. They introduced this idea of what they call the omni platform, which is a way to have a left to right view of that customer engagement. You can only do that by having all these great data connectors, but also having AI, because how do you extract data from a fax or a phone call, right?
Right.
That actually requires a lot of advanced capabilities. From that data, you can deliver a better end-to-end experience. Not only can the Bank of New York client executives work together more closely, but they can also engage the customer and share information more easily. It's a really new way of working. For a bank with such a storied history, it's amazing to really see so much innovation and reimagining what it's like to actually provide those services.
Now I have that fax noise in my head after that example. No, the omni piece really resonates for me. I just came from the stores business before this, constant dialogue on trying to make sure the digital and physical channels work together and made each other better. That's helpful. Speaking of better together.
Yeah
Alysa, how do we think about all these pieces working together? What's been resonating in the market? What would you share?
Absolutely. That better together theme that we've been talking about, coupled with what we started with, how rapid industries are transitioning, another trend that we see that organizations have to meet to be able to continue to be agile is this notion of blurring the back office operations with the front office. We talk about CRM and ERP, but historically, those systems did not at all talk to each other.
Right.
The scenario that you just talked about with Bank of New York, that's not possible, right, if you just have siloed systems. A great example of this is Patagonia. It's one of my favorite as well. Global retailer, when the pandemic hit, they shut down both their warehouses and their physical stores, but still had to ship to their customers. What they did to be able to react quickly is they took their physical retail stores and created effectively mini distribution centers.
Interesting.
Doing this, they had to completely overhaul their backend commerce system.
Sure
so that they had real-time inventory visibility. They had to put new point-of-sale systems into the store so that their store associates could actually both service those that were coming into stores and ship online and be able to do all of this with the two systems working seamlessly. They did this with Dynamics 365, and it was not something that took them years to do. It was months. Really, being able to real time know their inventory and put that in the hands of the store associates and be able to do things like curbside pickup, that's all within the power of this new generation of business applications and blurring those lines that we've seen between backend operations and front store operations.
The timeline piece sticks to me because it's during a critical period where they need to get this up and running. I'm sure time was of the essence, so it's great that we were able to do it so quickly. I love it. Maybe shifting gears to Power Platform, and Charles, so you were excited about it. We all know why we're excited about it, maybe for those watching online, what would you tell them to help them understand our excitement?
Yeah. We like to always start when talking about Power Platform by explaining what the landscape looks like and why we think it matters so much to our customers. That all goes back to this idea that, over the next few years, over 500 million new applications are going to have to be built.
Wow.
That just is more applications than were built in the last 40 years. Just staggering scale. The reason is because every company has to transform every aspect of their operations and every process to go be competitive. A lot of our customers want to, of course, go hire an army of developers and coders to go respond to it, but the challenge is there just aren't enough developers out there. In the U.S. alone, there's a 1 million developer shortfall. More broadly, 86% of our customers report struggling to hire the technical talent necessary to do their digital transformation. Even though there's this massive demand in every company, there's just not enough people to go actualize it and go realize all these digital solutions.
Right.
What we've done at Microsoft is we've introduced the Power Platform. The Power Platform has four products in it, Power BI for low-code business intelligence and data analytics, Power Apps for low-code web and mobile application development, Power Automate for low-code robotic process automation or RPA, and Power Virtual Agent for low-code chatbots. Each of these four products play in their own big, unique category and big market, and they provide these amazing tools so that everybody in the organization can participate in a development effort. I mean business users like in finance or marketing or customer support, IT professionals and coders, they all get to work together on a one platform. The scale, once this is true, is staggering.
We imagine a future where the same set of people who use the productivity software of today, like Excel for spreadsheets or PowerPoint for presentations, that same population will be able to use these low-code tools like Power Platform to get the job done. That means over 1 billion users are out there ready to use these types of tools to go transform how their companies operate and perform. As we think about what we're doing with Microsoft with Power Platform is we're finding ways to go reach and engage this broader population, and we can see with the phenomenal usage growth rates and so on. One of the big things that we really stay focused on, though, is it's never just going to be enough to use something like Power Platform. Company's going to have to go bigger than that.
It's Power Platform and Azure and Visual Studio and GitHub. Together, that's how every company can actually become a technology company, using all the right tools seamlessly integrated on one hyperscale cloud. That story is just something that our customers really love, because it just makes their job easier. They want technology out of the way. It has to be an enabler, not something that slows them down. That's something we've really seen a lot of the last couple of years.
I like the story. I'm still hung up on the fact that I think you just said I'm a developer, which, although daunting, may mean a pay bump, so I'm excited to check in on that. Thanks. Alysa, your customer use cases, because we've shared some examples on different things before, but Power Apps, Power Automate, what are you seeing out there? What's driving the growth?
The great articulation that Charles just talked about, our value prop, if we were to sum that up, is really putting the tools in the hands of those that are closest to the problem. When you look at things like Power Apps, a great example of that is T-Mobile. T-Mobile, when lots of other retailers were shutting down, they were deemed an essential service. They had limited stores and limited employees that could actually come into the store. They had team leaders that were trying to manage resourcing with an Excel spreadsheet, just as Charles talked about. The best part about this story is that it was actually a store associate that said there has to be a better way.
In 24 hours, they created a Power App that allowed the team leader to actually track which stores needed resourcing and which employees were available. In 24 hours.
That's amazing.
That's an incredible story of not a developer, not a central IT, but a person really tackling the problem at hand and making the organization both more efficient and more productive. If we think about it on the Automate side, there's just so many legacy processes that are overhead for organizations, and how do you automate those? A great example is Coca-Cola and their bottling operations. They had, in interacting with their suppliers, a very onerous 11-step process, and an agent had to work with the supplier, input into a legacy system, wait for that to clear, move to the next one. You can just imagine the time that that would take for an agent to do that. Using Power Automate, they automated that 11-step process.
What that does is it, again, it not only makes the organization more efficient, but it actually frees the agent up to do the more high-value tasks, like working with the suppliers, making sure the inventory is shipped and ready and on time. It's just the Power Platform really has this unique advantage of really moving organizations forward and empowering individuals. That's why we're so excited about the growth of the Power Platform.
Yeah. Again, the examples really help me, and I like both of them, but the point you made about someone on the frontline doing that, I mean, that spreads culture, where all of a sudden everyone realizes, I can help solve some of these problems as well, to Charles' points earlier. One last one maybe for each of y'all. Alysa, I'll start with you.
Yeah.
We've talked about, I think, a lot of this, but maybe you could summarize. I know we're confident in the future of Dynamics and Power Platform, but how would you kind of bring that all together for folks one last time?
Well, I think many of the examples and what we've talked about on the innovation side is the power of the Microsoft Cloud and how important business solutions are in building the most comprehensive and trusted cloud.
Right.
We're going to continue to innovate there. There's four areas that I would say we will make sure that we continue to invest in. One is just continuing to deliver, Charles, continuing to deliver on all of the great innovation and product releases. We ship hundreds of capabilities and features every semester, we'll continue to do that. We'll do that, secondly, in a customer-centric way, learning and listening from our customers and making sure that we continue to invest in the next generation of business applications.
Third is, we've talked a lot about, every industry is unique, we have to be able to tailor not only Dynamics 365 and the Power Platform, but the Microsoft Cloud with very specific processes that are unique to each industry so that we can really scale out that time to adoption and allow organizations to have a greater impact. Lastly, just to make sure that we are investing on the Microsoft side, we'll continue to pour investment into engineering, marketing, sales, to really fuel both the end user adoption and the growth that we've seen.
Yeah. I mean, the opportunity's there, we have to continue to fund it, for sure. You, Charles, maybe I'll piggyback on one of Alysa's. There's always tons of innovation coming out of Santa's workshop, and I know you've alluded to some of it that's in the market now, but is there anything you would flag that's on the way or that people should be excited about that's coming?
Yeah, of course. I think there's two main things really worth paying attention to.
Yeah.
The first I hinted at a little bit, but it's really this idea of that collaboration and the business application user experience. What that really means for Microsoft is we're breaking down the barriers and boundaries that exist between Office 365 and Dynamics 365. The reality is that people spend a ton of time in Outlook or Teams or Excel. That's where they already work each and every day.
Right.
We're finding ways to go blend and fuse Dynamics 365 applications right into those experiences and right into those canvases. Users love that because they're able to get their job done faster and easier without having to think about switching to different applications or change their way of working. This idea of really a collaborative, immersive experience that spans all the Microsoft applications, that's something that we think is going to be really unique and really resonate with our customers over the next 6 months or so. I say stay tuned for later this year with a bunch of big announcements. The second piece is really about how we bring together applications and platform.
If we look at what so many of our customers have to do is, you can't just take an application right off the shelf to go get the job done, to really transform. It's never that easy. There's always customization.
Right
Some components you have to build. The fact that at Microsoft, we have both Dynamics 365 and the Power Platform and Azure and Visual Studio and GitHub makes it so all of our customers are able to go build these amazing solutions that work for them and work for what they're trying to do with their business. Of course, we sprinkle in some industry flavor on top of that, like Alysa talked about, so that if you're in banking, you can not only get a banking-tailored experience of the Microsoft Cloud, but you can then go that extra mile and make it work for exactly how you work as a company. Whether it's faxes or phone calls or anything else like that, we'll support it and enable it inside of the Microsoft Cloud.
Yeah. That's great. There's a lot of banking and financial institution-related people probably watching this, so they'll be happy to hear that. You mentioned the three apps I use the most in terms of Outlook, Teams, and Excel. Well, great. Let's end on that. I think it's an exciting time. I mean, the growth already has been tremendous and accelerating, and it still, to me at least, feels very early given the size of the opportunity that I know we all view ahead. Thank you both, certainly for your time today, but also your insights and sharing some of the customer stories. We thank everyone for watching. The Dynamics and Power Platform is a critical part of the broader Microsoft Cloud, and we're glad we got to take some time with you to talk about it today.
Thanks again, and I look forward to the next one.
Thank you.
Thanks, Brett.