Fireside Chat

Sep 29, 2021

Welcome, everyone. I'm Brett Iverson, General Manager of Investor Relations. This is the 3rd 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 2 of our key leaders here to answer your most frequently asked questions: Alyssa Taylor, who's responsible for marketing for our Dynamics Power Platform Industry and our data and AI businesses and Charles Lamanna, who leads our engineering teams for the business applications and platform organization. That includes Dynamics 365, Power Apps, Power Automate and Power Virtual Agent. 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 Alisa. So Dynamics of 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. And first, thank you for having us. Of course. It's great to be here with you today. Real to have you both. So 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. And we've done that. If you start with our hyperscale AIL 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, but to be the most comprehensive, we also need the solutions that power a business. And that's where Dynamics 365 comes in and 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. And so with business applications, it's a critical component Of the overall Microsoft Cloud. Love it. And so talk a little bit about the journey, like from where we've been into where we are today. What would you share? Well, it's been a very intentional multiyear journey. So we will be 5 years. Dynamics 365 will be 5 years this November. And it really started with this vision of how do we help our customers. And there's 2 things that are pretty prevalent with every customer right now, which is No matter what industry you're in, it is rapidly changing. And the rate of pace and change has just been exponential over the last decade. And then the second is just the proliferation of data. I mean data is coming from everywhere, every service, every building, every crosswalk, every device. And so as a business, managing that data and garnering value from that data. So knowing those two things are top of mind and true for every organization, We set out 5 years ago to really reimagine business applications. And we started with the CRM, the big monolithic CRM and ERP systems. And we knew that those systems wouldn't future proof any organization. And so we broke them down into what we call Purpose built applications across every function in an organization. We converge those applications on the Azure platform to be able to garner And harness data and apply intelligence over it. And 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. And then the Power platform obviously as the extensibility layer Across all of the portfolio. So it's really been this intentional journey and it's been a phenomenal one. 5 years, that's gone quick. So, 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 5 year mark, we as a business, we were persistently in single digit growth. And we were in 2 categories, ERP and CRM. And so as we've really expanded out to meet every facet of an organization's needs and we've And the portfolio, we've gone from 2 categories to 6 categories. And what that has done is enabled us to really grow In our overall revenue. So 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. And we are in each one of those categories. We are both growing above market And most of our major competitors. So that's really exciting. And then the last thing I would say just on because it's both about share and growth, but it's also about Category leadership. And so 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. So 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 Alisa mentioned. Absolutely. And it's really a continuation of where Alisa was talking about. And we really focused on 3 major pillars when it comes to the product innovation improvements. And those three pillars are really about how do you go tap into all this immense amount of data that every enterprise has? How do you use AI to better And generate insights and predictions based on that data. And then how do you go engage the humans who use these applications each and every day so they can collaborate better Work better together. So data first, AI enabled, collaboration enabled. So those are the 3 major pillars. And 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 100 of SaaS apps, hundreds of databases, thousands of systems. But these data first applications need to be able to ingest And integrate all of those different data sources. And so we have this amazing data connector ecosystem, which has over 500 Connector is inside of it today and it's growing quickly continuously. So 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? So really this intelligent substrate that powers all these different data first applications. And then last but not least is that idea of collaboration. The reality is every app has a human somewhere using it. So how can we go make it so those humans can work better together? And 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. And 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 100 of millions of new users. So a lot of really exciting things coming together to change how these apps work. And to kind of bring that to market, we launched a bunch of new apps. We have Dynamics 365 for customer insights. We have Dynamics 365 Fraud Protection and we've also gone back and transformed those core CRM ERP functions that Alyssa talked about too with the same type of idea. And 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. Interesting. So there's a lot there. Tell me more about the data piece. Like what's how's our approach shaping the broader business application strategy there? Yes, absolutely. So in the past, business applications really were all about having humans enter data into a system where it got locked up and maybe use the data for reporting in the future. And It's a very reactive way of doing business. With our data first apps, we kind of turn that on its head. So 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. And 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. And 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 Fact that it broke, then maybe you sent out a field tech to go repair it. Whole time the manufacturing line is 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. And then 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 and take action. And 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. And that's something that just hasn't happened for decades The business application space. So that kind of data first transformation is why we're so excited because as this as our customers go on this journey, that's our opportunity. So many new product categories and opportunities for our features to really stand out in the market. Yeah, Makes sense. I'm similar to you. Like it really helps me to ground it in customer examples. So what are a couple other maybe current customers that we're helping in this sort of a category? Yes, I'd say 2 of my favorite ones right now are GNC and Bank of New York. GNC went through a tough year last year with COVID-nineteen, a lot of economic impact, But 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. And 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 then use that customer profile to change the behavior in the physical world and the retail store as well as online. And that's an example where being data first just fundamentally changes you operate? In the case of Bank of New York, they service a lot of large commercial customers and individuals. And one of the big challenges they had is They interact with customers on the phone, over fax, over emails, you can kind of name it. Yeah, they did it. And 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. And 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? Like that actually requires a lot of advanced capabilities. And 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. So It's a really new way of working. And 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. I now have that fax noise in my head after that example. So, no, the omni piece really resonates for me. I just came from the stores business before this and constant dialogue on trying to make sure the digital and physical channels work together and made each other better. So that's helpful. So speaking of better together, Alisa, how do we think about all these pieces working together? What's been resonating in the market? What would you share? Absolutely. And so that Better Together theme that we've been talking about, coupled with what we started with, with how rapid industries Our transitioning. Another trend that we see that have to 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? And so we talk about CRM and ERP. But historically, those systems did not at all talk to each other. And so like the scenario that you just talked about with Bank of New York, that's not Possible, right, if you just have siloed systems. And 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. And so what they did to be able to react quickly is they took their physical retail stores And created effectively many distribution centers. And but doing this, they had to completely overhaul their back end commerce systems 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 services that were coming into stores and ship online and be able to do all of this with the 2 systems working seamlessly. And so they did this with Dynamics 365 and it was not something that took them years to do. It was months. And 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 kind of this new generation of business applications and blurring those lines that we've seen between back end operations and front Store operations. And the time line piece sticks to me because it's during a critical period where they need to get this up and running. So I'm sure time was of the essence. So it's great that We're able to do it so quickly, I love it. So maybe shifting gears to Power Platform and Charles, so You were excited about it. We all know why we're excited about it. For those watching online, what would you tell them to help them understand our excitement? Yes. So we like to always start when talking about Power Platform by kind of explaining what the landscape looks like and why we think it matters so much to our customers. And that all goes back to this idea that over the next few years, over 500,000,000 new applications are going to have to be built. And that just is more applications than were built in the last 40 years, just staggering scale. And the reason is because every company has to transform every aspect of their operations and every process to go be competitive. And 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 United States alone, there's a 1,000,000 developer shortfall. More broadly, 86% of our customers Reports struggling to hire the technical talent necessary to do their digital transformation. So 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. So what we've done at Microsoft is we've introduced the Power Platform. The Power Platform has 4 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. And each of these four products Playing 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. And I mean business users like in finance or marketing or customer support, IT professionals and coders, they all get to work together on a single platform. And 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 We'll be able to use these low code tools like Power Platform to get the job done. And that means over a 1000000000 users are out there Ready to use these types of tools to go transform how their companies operate and perform. And 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. So And 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. Companies are going to have to go bigger than that. So 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 1 hyperscale cloud. And 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. So that's something we've really seen a lot of the last couple of years. Yes, 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 made me in a pay bump. So I'm excited to check-in on that. But thanks. So, Alisa, your customer use cases, what 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. And so when you look at things like Power Apps, a great example of that is T Mobile. So T Mobile, when lots of other retailers were shutting down, they were deemed an essential service and they had but they had limited stores and limited employees that could They come into the store. And so they had team leaders that were trying to manage resourcing with an Excel spreadsheet, just as Charles talked about. And the best part about this story is that it was actually a store associate that said there has to be a better way. And 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 24 hours. That's amazing. And so 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. And 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 interacting with their Suppliers are very onerous 11 step process and an agent had to work with a supplier input into a legacy system, Wait for that to clear, move to the next one. So you can just imagine the time that that would take for an agent to do that. And so using Power Automate, they automated that 11 step process. And what that does is it again doesn't 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. And so it's just the Power platform really has this unique advantage of really moving organizations forward And empowering individuals. And so that's why we're so excited about the growth of the Power platform. Yes. Again, the examples really helped me and I like both of them, but the point you made about someone on the front line 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. So one last one maybe for each of you. Yolisse, I'll start with you. And We've talked about, I think, a lot of this, but maybe you could summarize, I know we're confident in the future dynamics in Power Platform, but how would you kind of bring that all together for folks one last time. Well, and 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. And so we're going to continue to innovate there. There's 4 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. So we ship hundreds of capabilities and features every semester. And so we'll continue to do that. And we'll do that Secondly, in a customer centric way, learning and listening from our customers and making sure that we are building the next we continue to invest In the next generation of business applications. And then 3rd, as we've talked a lot about, every industry is unique. And so 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 up that time to adoption and allow organizations to have a greater impact. And then lastly, just to make sure that we are Investing on the Microsoft side will continue to pour investment into engineering, marketing, sales to really fuel Both the end user adoption and the growth that we've seen. Yes, I mean the opportunity is there. So we have to continue to fund it for sure. So Charles, maybe I'll piggyback on one of Alyssa's comments. There's always tons of innovation coming out of Santa's workshop that 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? Yes, of course. I think there's 2 main things really worth paying attention to. The first I hinted out a little bit, but It's really this idea of that collaboration and the business application user experience. And what that really means for Microsoft is we're breaking down the barriers and boundaries that exist Between Office 365 and Dynamics 365, because 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. So we're finding ways to go blend and fuse Dynamics 365 applications right into those experiences and right into those canvases. And 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. So 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. So I'd 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. And 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 and some components you have to build. And The fact that at Microsoft we have both Dynamics 365 and the Power Platform and Azure and Visual Studio and GitHub Makes sense. 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. And Of course, we sprinkle in some industry flavor on top of that, like Alisa 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. And whether it's faxes or phone calls or anything else like that, we'll support it and enable it Inside of the Microsoft Cloud. Yes. That's great. There's a lot of banking and financial institution related people probably watching this, so they'll be happy to hear You mentioned the 3 apps I use the most in terms of Outlook, Teams and Excel. So, 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's still, to me at least, feels very early given the size the opportunity that I know we all view ahead. So thank you both certainly for your time today, but also your insights and sharing some of the customer stories. And we thank everyone for watching. So the Dynamics at 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. So thanks again and I look forward to the next one. Thank you.