Microsoft Corporation (MSFT)

Analyst Meeting

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Sep 19, 2013

So this is the first analyst meeting we've had in a couple of years. We made a decision at that time to talk more frequently to you at events like launch events, which we've done to you at events like launch events, which we've done and more recently at build and at E3. With everything going on in the company we thought a focused event focused and dedicated to the investment community was the right thing to do. And so I welcome you here. I also want to acknowledge that for many of you especially coming from the East Coast this is one of Several consecutive weeks you're traveling out west and we do appreciate all the time that you're spending with us. So before we Financials about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors in this presentation and in the risk factor sections of our Form 10 ks, Form 10 Q and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward looking statement. So with that before we dive into the agenda for the day and we have a really great one, I do want to cover a couple housekeeping items. First we are streaming today's Netlife on the Microsoft Investor Relations website at www.microsoft.com/investor. The PowerPoint slides and transcripts from today's will also be available on our website following each presentation. And secondly most of you have already probably received an email containing a link to a survey. Feedback we get from you about the event is really important. We would very much like to get for actually one of our new Xbox 1 consoles at launch. And I know there's a bunch of gamers out here who are eager to get their hands on one. But as Amy and I were planning for the day, she really also wanted to come out and welcome you and share her thoughts for the day and set the context as we start the So with that, I want to introduce Amy Hood, our Chief Financial Officer. Great. Thanks, Amy. Thank you. Thank you. Welcome. I can honestly say it's a real pleasure to have you all come It means a lot that you'll come out, spend some time with us, and we look forward to being able to share with you The journey we're on as we transition this company. You'll hear a lot about that today. Before I do that, I want to welcome John Thompson, So while I appreciate the questions, we're working the process that we laid out and we'll update you when appropriate. With that, I want to talk a little bit about what the agenda today was meant to do. And I want to do it in the context of the strategy that we laid out and Steve laid out in July. Our goal is to This is in our 10 ks a year ago. And so I look forward to you guys hearing from the person closest to the action About what we're really seeing in the market today and where we're taking share. After that, we're going to have an Many of you submitted questions. I appreciate that you put forward the hard ones. And I look forward to Having Tammy ask our engineering those leaders those questions on your behalf today. Then we'll open it up if there's further questions that you can just ask directly. I think that will give you each an opportunity to get a sense of how the devices and services Energy from them on the stage. Take a quick break and hopefully we'll be on time. That would be And the changes in our business model that devices and services with high value And I heard that feedback in my past 5 months on the job and I look forward to giving the first steps in explaining that today. We'll also talk about the impact that's going to have on our reporting statements as I talked about at the end of Q4. Then I'll turn it over to Steve to talk really about how we're setting this company up to capture all the opportunity So with that, let me introduce Kevin Turner, our Chief Operating Officer, who I think is the best Man for the job in terms of explaining what we're seeing and all the progress and success that we're having in the market. With that, let me turn it over to Kevin. Discussion. My mission and purpose today is to really lay out for you where we have strength, where we have faces some headwinds in our PC market. With the PC market growth and with the acceptance of Windows and 8 in the marketplace, we have a full transition that's underway. In fact, we have an incredible transition that's give you some more context around that moment. There's a couple of things that you may or may not have pulled out or delineated in our numbers that I'll share. In the enterprise side, for last year, our enterprise agreement billings were up 13 and I think we're just getting started. Office 365 became the fastest growing product in the history of Microsoft last year, fastest to $1,000,000,000 We did over $1,500,000,000 last year and it continues to accelerate and grow. Bing Advertising grew 32%. Chi Liu and his team did a fabulous job increasing and Center, Exchange, CRM, Link and SharePoint, big drivers of the revenue growth and where we saw a lot of volume. A multiyear initiative for us and one that we've worked very hard on to make sure we can execute towards. Microsoft, China, Brazil, and Russia all exceeded $1,000,000,000 in revenue for the very first time in the history of the company. And there's a lot of significance around that in the brick markets and we like the momentum and where we're going. China incidentally is the fastest growing market in the company done a spectacular job working with our customers, building their trust, developing and implementing solutions at a faster rate than ever. And they're really it's showing up in all of the surveys, both internally and externally. And one of the things that you may or may not know about our business in this transition that we're in is we've made a very graceful transition from our traditional enterprise agreements and the licensing agreements that made Microsoft so profitable for so long, as we transition those agreements and those customers into the cloud, we've done a phenomenal job landing them gracefully from a transition perspective, I feel very good about that. So those are some under the cover highlights that I wanted to share with you about our business. Now I also have a chart here that we don't show much externally. So today, it's been updated for you to be able to see and get the flavor. We don't break our business down too often for you by customer segment. But if you look at our business and the makeup of the company today, well over 55 percent of the business is enterprise. And additionally, there's some OEM business there that belongs in enterprise, but that's how we count it and market. Financial. Again, the Office division is the biggest division in the company at 35% of our overall Financial, so that you can see we have a very balanced and diverse business, not only from a customer segment standpoint, but from a geographic and the theaters of Operations, where we operate and also our products and services. Now another chart that we don't show that often is the productivity and efficiency. In the field, in our field sales and marketing group, we have around close to half the sits in this particular organization that I get the chance to work with. And over the last several years, we've done some incredible things from an efficiency and effectiveness standpoint to continue to drive the productivity up in the field in a big way. And when you look at it and you think about that efficiency and effectiveness. That includes the headwinds that we've got with our OEM partners, with the PC market. We are still driving productivity increases in the field. And a big, big credit goes to the productivity as well as the solutions that our engineering groups are bringing to the marketplace. So efficiency and effectiveness has been alive and well here at Microsoft and continues to is something that we're going to continue to drive going forward. Now let me touch on devices and services. You're going to hear a lot about that throughout And let me tell you from my vantage point a few things about it. Devices and services to me doesn't mean that we're going all the devices. We want a healthy ecosystem. We absolutely love partners and we want that open ecosystem. But it does mean we're going to make some of the devices and some of the hardware. And so you're seeing us get into some of that first party hardware. Are really in the consumer space. And as a result of having those consumer services, we're able to at the seams between hardware and software integration. We know that. That's been exploited against us in the our partners by having 1st party product. And it is when we announced Surface a little more than a year ago, there was a lot of consternation, They would tell you that the progress we made in 8.1, because we have a first party product at Microsoft is far superior to anything we've ever delivered from a hardware software integration to our OEM partners going forward. And again, you're going to see that more and more of those scenes within the technology and the software are going to go away and dissipate as we get better and better and certainly continue to build our capability in this area. Now there are 4 giant megatrends we see in the marketplace where customers are spending money. Opportunities for us to be able to drive growth. And let me start with the cloud. Gartner says that the public cloud market by 2015 is $180,000,000,000 opportunity. We agree with are moving to the cloud. One of the areas that we made a lot of traction on this past year was the progress we made in and our consumer cloud services. In the consumer cloud service space, we had a 13% growth in users year on year. We are averaging now 5 product and we have an application out there called vingiton.com. And for everybody that goes to that site that does side by side searches with the next biggest competitor. We win 2 out of 3 times. And so we've got a lot of traction in this particular area and a lot of momentum members in 41 countries and that business continues to explode. Skype now drives a third of We took Hotmail, made it contemporary and modern and we're seeing a lot of traction and pickup on outlook.com. 1,000,000 people using SkyDrive, which is incredible. The thing I want people to understand that allow us to do a very, very good job on the enterprise services. And we've learned a ton about how to do these services at scale, how to manage the bandwidth, how to make sure that we have the right cost effective solution that we would have never been able to do had we only concentrated on enterprise services first. Now the traction we've had on enterprise services is phenomenal. Office 365, which I talked about, fastest growing product we've ever had, and it continues to be very widely adopted. And I'll talk more about that in a moment. Office 365. And more importantly, we've had some significant wins in Canada, India, Australia, the UK, France in Germany on our cloud as well. So the momentum in the public sector space for public cloud is incredible. 500 now use Azure. And so we've really come out of the gate. We came out of the gate with some advanced technology from our Server and Tools team, as it relates to platform as a service, they've added the infrastructure as a service capability in the amount of pent up demand. And that is a beautiful thing for Microsoft because as you know, we're IP challenged in China. And now in the cloud services world, everybody that uses the service pays for the software and the service. Phenomenal job on this particular product and we're really seeing a lot of great uptake and traction. Now Finance. Now I wanted to share with you some of the details and I won't clear all of this slide, but I wanted to give you the context of this particular slide. Finance. This is a slide we use with customers. This is a slide we use to really go in and show the breadth and depth of the Microsoft enterprise cloud services that we offer today. Ladies and gentlemen, we offer 3 distinct types of cloud, private, hybrid and public across 3 distinct types of workloads and applications. And if you take infrastructure and platform with Azure and SQL Azure and Windows Azure, we also provide a service there with Intune where we remotely Managed Desktops. We have an incredible offering in that space. The business solution sides, dynamic CRM, Dynamics ERP, which Kirill and his team are cloud enabling and working hard on that as well as our partners connectivity and collaboration is something that, again, we're very, very strategically well positioned. This is what we offer in market today. And if a customer has Active Directory and System Center completely deployed, we can take them Management and the development environment is very unified so that the enterprise doesn't have to care whether it's on premise, hybrid or in the public cloud. So we've got a leading and comprehensive cloud. So we've got a leading and comprehensive enterprise cloud offering. And that's backed up with the significant momentum that we have. Now let me give you a statistic. This past year, we grew Office 365 deployed users we added in FY 'thirteen alone, and it's still accelerate. We're only at the tip of the iceberg of this particular opportunity. And I already touched on 200% growth in Azure and 80% growth in Dynamics CRM, CRM Online. So when you think about Dynamics and CRM, you think about Azure and you think about Office 365, we have significant momentum. Some of you asked from time to time though, well, what are you doing about Google and the enterprise? Well, right now, we're winning them back one account at a time, Fintech in FY 'thirteen alone. And that's an incredible complement to the technology and all of the work that our Office 3 important to enterprise customers. And we don't think that's going to change. We only see that accelerating. And it helps that we don't read people's e mails and snoop their Wi Fi and those type things because it gives them comfort to be able to invest in our solution. But that's something again from an enterprise perspective is very, very important for us to continue to drive that. Now here's a slide Consulting company, a car company, a global electronics company and an entertainment company. This was our Microsoft enterprise revenue before they went to our cloud. After our cloud deployment, this is our revenue opportunity. Says we're getting a much richer and deeper share of wallet, ladies and gentlemen, from those customers who go to the cloud with us. And we see this over and over again. So we have a great opportunity to be able to leverage that and continue to leverage that. And you've got both I love this chart because in 'eight, we had nothing. We were absolutely at 0. If you look at What's happened really in the last 7, 8 quarters, it's been an incredible shift of what's happened. VMware peaked its share 54% and they're down to 52.4%, all we've done during that time frame is go from 22 points to 30 plus points. And we're just driving and winning share according to IDC every single quarter. And we're just going to keep doing that. I mean, we're growing at almost 3 times their rate today for two reasons. Ladies and gentlemen, we have better technology. To be able to go in and win this business. And as a result of that, great technology, we also have a better acquisition, it really is a powerful formula to continue to accelerate the growth and we're going to continue to drive that. Now the 2nd big megatrend I want to talk to you about is social. And specifically, I want to talk to you about enterprise social. We see it as a $38,000,000,000 opportunity according to Gartner. And that's a huge, huge potential for us because we have a lot of assets lined up in this space. When you look at what we've got to leverage and lean on in the enterprise social space, 2 out of 3 information workers worldwide use SharePoint today. 85% of the Fortune 500 use Yammer. And the Yammer paid networks, a wonderful company that we acquired a while back, the paid users on the Yammer network last year grew 200%. 300000000 Skype users and now that we've integrated LinkedIn Skype, and I'll touch on that in moment, it's an incredibly effective scenario that we have to be able to take enterprise social to the next level. 1 of our biggest assets certainly is Active Directory. And the ability to put Active Directory in the cloud gives us this incredible opportunity that we have on identity and management and single sign on and all of the things for provisioning of the cloud and enabling of Financial Enterprise. Now when you think about the unified communication space, what we're able to do with the link business and the Skype business and Tony Bates formerly and his team have done an incredible job bringing these things together. Link is a $1,000,000,000 product. Skype has 3 grew connected users last year 30%. That's an incredible number and it's only accelerated since they became a part of until Office 365 came along. With the new release of SharePoint, we not only do a great job behind the firewall, together with CRM, Link and Skype, Yammer and the integration of Yammer into SharePoint and Office 360 we've got an incredibly compelling story as it relates to social in the enterprise. And one piece of social that I had to touch on here because it's so impressive is in the Xbox Live space, 48,000,000 users, as I said, in 41 countries. Couple of stats you may The Xbox Live audience in the United States is female. That's a giant change from when we launched our platform. And Xbox delivered over 18,000,000,000 hours of entertainment globally in 2012 alone. And we're excited about Xbox and Xbox Live from a social perspective. Now everyone knows mobility is on fire. Mobility has changed How and where people work and communicate today. It's a mobile first mobile applications and mobility first market out there. And Aces will be spent by 2017. The 2 key areas that we're going to focus on mobility, 1st and foremost is around productivity. We're really driving for the best office mobile experience across all platforms. And we want to provide a great experience on both iOS and Android phones. And when you think about what we've done, we now have Office mobile for iPhone in the Apple App Store. It's free for those Office 365 subscribers and it's available in 135 markets in 29 languages. Office mobile for the iPhone lets you view and edit across Word, PowerPoint, Excel, and you get the similar experience to what you get on a Windows phone. And we have Office web apps available for iOS, high fidelity document viewing in Word, Excel, PowerPoint and OneNote on the iPhone and we have some viewing and some editing available on the iPad. And so we're continuing to work through Financial, how to bring and be the strongest productivity player across all platforms, including iOS and Android in the marketplace. The second big area that we're focused on in mobility is we want to be the leader in mobile device management. And with the new release of System Center, we not only manage Windows devices, we also manage iOS and Android devices really well. Across all devices. So in the bring your own device world, we have a great solution with system center to be able to help enterprises and businesses really and really and deeply manage all devices. We have a great release with Windows 8.1 coming out and I wanted to touch on that for just in a moment. In 8.1, we've got some incredible enterprise features. We've got tremendous IT controls built Connected 8.1. We've got the ability to do remote data business removal. We've got open mobile device management available, so you no longer have to have to have a server at your enterprise to be able to manage the mobile devices. We've got direct access, which require no VPN to be able to get into the network. We've got something called workplace join, which is very exciting. The ability for someone the business data on that personal device. And in the event that employee leaves the company, loses the device, our largest CIO customers here this week at our global CIO event. This was one of the most talked about features we had at the event the ability to really control bring your own device and really have the high powered security now scratched and made progress to be the 3rd largest selling smartphone OS in the world. Now we're a distant third, so we got a lot of work to do there. And Progress we've made globally, Latin America up 900%, India up 400%, China up 300%, Asia Pacific up 300%, Middle East and Africa up 700. Again, the momentum in the marketplace, particularly outside the for us and we're going to continue to double down and leverage that. And one of the things that we're very excited about is the capability that Nokia brings to the company. Not only do we have an impressive lineup of devices, the 10 20 at the high end, which has a 41 megapixel camera, it's the best smartphone camera in the world, all the way down to the Nokia Lumia Financials 521 that is really selling well from an opening price point perspective in emerging markets. This past week, we launched the Nokia 925 leverage the economies of scale that they bring. We're very excited pending regulatory approval of the potential and possibilities of this particular acquisition. 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 Open Ecosystem. And we're going to continue to provide that because we believe that's an important part of our offering going forward. What about the devices? This year, we've got a very impressive holiday set of devices coming out from our And I got to tell you, I haven't been as excited as I am in a very long time gives us the capability to have a fanless device on an X86 platform, which means thinner, lighter, better factors in the marketplace. And again, we're very excited from tablets to 2 in ones to affordable touch notebooks to ultra books all the way through the big all in ones out there that you see. So we're working hard with OEM partners across the board to bring the very best devices we can to the marketplace. But to do that, we've got to improve the retail buying experience. It hasn't been what any of us would have liked. And we've got a couple of rollouts going on right now in Best Buy and Dixons that I'll give you a little color on. In the Best Buy stores, we've done 2 is what we're allowed to do with this new format. And I encourage you if you're in town, the Best Buy here in Bellevue is reset. It's one of the 200 and you should check it out. We're also doing something very similar and Dixons and working our way through the key retailers around the world to really figure out how device buying experience standpoint. The last megatrend I'll touch on is big data. IDC claims this is a $24,000,000,000 opportunity by just 2015. We would agree with that. Our big data assets line like this. SQL, certainly at the heart. Afternoon. So thanks for your patience. I just wanted to give a quick update. We had a little bit of a power outage in the building. Things are coming back online. We're cycling through it as quick as I can as quick as we can back there the teams are running. But I just did want to give you an update. Thanks for your patience. We'll get going very shortly. And as soon as we are up and running with the webcast as well because event is webcast. We'll come back out. We'll start the panel. But hang tight and thanks very much. Okay. Well, it is an interesting when I talk to most of you, tell you how interesting it is to cover Microsoft. And I guess this just adds to the folklore. So we are back. We had power outage. The teams have worked furiously and we're back online. So welcome back, everyone. Welcome back to those on the web. Will be posted shortly to the Microsoft Investor Relations website as you can access the entire presentation in its entirety. We did just take the break and so we're going to go ahead and move straight into the panel. And with that, I want to introduce Tammy Reller, Executive Vice President of Marketing. Great. So it's a great pleasure to be here and we are back to business. I'm very honored to be able to host this panel. I think this will be a very good way ahead, the challenges ahead and some of the priorities that we have as a company. So I'll bring them out shortly. I mean, on July 11, we leadership team working more effectively together. And that was the goal, really to break down barriers and instead of working in any kind of silos to really work as And so that's part of the objective that we have today too is to allow you to see that team in action. So we'll spend the next 45 minutes both answering questions that you have already posed to us and we'll take those on. And then we'll also open it up to your questions. So with that, let me ask the panelists to come on out and we will get started. So panel, come on out. Thank you. Please welcome them. Terrific. So while they're getting settled, let me just do some Introductions, I think you probably have a good sense of who these folks are. We have Julie Larsen Green who leads our devices and studios group. Systems group and that's across PC, tablet, phone and Xbox on the operating system side. We have Kirill Tataranoff who leads Microsoft Dynamics and has for many years. And we have Chi Lu who heads up our applications and services group and that now includes Skype and Office. So I think we'll touch on a number of those topics as we go through this. All right. So I'm going to Some of these questions came from several of you, but let me kick it off. So the first question came in various forms. I'm going to use a question from Kirk Materne of Evercore. And he asked the following. What is the general thought in terms of The availability of some of Microsoft's key productivity apps, keynote Office and Word specifically on iOS, specifically the iPad Thanks, Tammy. Thanks for the questions. So strategically, we use a combination of 2 factors to guide decision makings on what to ship, on what devices and on what timetables. A quality experience that serves our customer needs. The second factor is economics. And financially, it has to make So those are the two factors that guide our decision making. So for example, we have developed versions that are touch first for tablet for some products in our office suite, a link in the OneNote. And we make those products available on non Microsoft devices, such as the iPad. Now outside the Office Suite, we also have Skype and the SkyDrive, and they are available on Android and iOS Devices. Now within the Office Suite, today, we have versions of product that are designed for desktop, of those apps available across all the devices, and those apps are also available via terminal services. Now we are working on touch first versions for our core apps in OfficeSuite, Outlook, Word, Excel, PowerPoint, and we will bring these apps to Windows devices and also to other devices in ways that meets our customers' needs And the customer value those experiences and in ways that economically makes sense for Microsoft and at appropriate timetables. So that's how we think about making decisions as the question is being posed. That's great. Thank you, Chief. And I'll just add that on the enterprise infrastructure, We've been living with these principles for a long time. And if you look at where we are with the hypervisor, we support both Windows ESX from VMware. When it comes to device management, we in fact have mobile device management and system Center and Intune that manages Android, iOS and Windows devices. And then on the development side, again, Linux is a runtime. Products and it really stems from the same principles that Qi talked about and also the fact that enterprises are heterogeneous and we recognize that and that and sort of we are executing on that strategy. That's terrific. Thanks, Satya. Thanks, Chi. I would also note that Kevin Turner had a slide in his deck that really highlighted our offerings today on that front and so that's another good reference point for those interested there. So our next question we also We'll get a lot. We got a lot in submissions for today as well. This one came from Hari at Neuberger and asked how are you going to make progress toward a Obviously is right at you. And I know this is near and dear to your heart. Yes. Thanks. We've been together, brought all the OS groups together is on all of our devices. And all of the apps we bring new 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're branding them Windows or Xbox, we'd only need one core service, which is enabling all devices. And the 3rd belief was that each of our devices require a tailored experience to be really special for the customer. So whether that's a 3 inches phone 9 inches tablet or a 14 inches clamshell or a 60 inches television playing Xbox games. We want to facilitate the creation of a common and familiar experience across all of those devices, but a fundamentally tailored and unique experience for each device. So our team is now organized in this way. We have a core team that will bring those silicon interfaces together, bring those developer platforms together, approach delivery of apps to the customers in a common way. We have one team delivering the core services that will light up our devices. And then we have satellite teams each that will light up our devices. And then we have satellite teams each focused on each of the device categories. So each of them can be reflective of what the customer A quick follow-up directly to you because I do know it's on the minds of the people in the room. And that is can you talk a bit about the role That Windows RT plays going forward. How do you think about that as you just described the vision? Sure. So we have 2 very important chipset families in everything we're doing all of our devices, and that's X86 and ARM. The ARM devices, in particular in phones, have incredible share due to their battery life and the connectivity options available with the systems on chips in the ARM ecosystem. Windows RT was our first And as phones extend into tablets, I expect us to see many more Windows ARM Tablets in the future. With regard to Windows RT 8.1, there's really 2 significant new improvements this year. The first is that Windows RT 8.1 supports the next generation of ARM silicon, so it's really got great performance characteristics. And secondly, the full Outlook experience is now available on Windows RT. So we have the full Office suite is now available for the customer. When we came up with Surface, the idea And that tablet, it was really about bringing the best of a tablet and productivity all in one thing. And we still really believe in that vision and going forward. We have learned a lot. We have 8.1 adds a lot of capabilities and gets us closer to that vision. It was a V1 and we're committed That's great. And in fact, Julie, I'll probably go to you next and ask you some surface questions which I know are in We have a surface event next week. So obviously that'll be a time for us to talk more about the future. But if we say what have we learned from what we've done so far and how are we thinking about how are we thinking about how that's informing how we're going forward? So We're very committed to creating great first party hardware and continuing what we started with Surface. I think what we learned a lot is that you need to have balance to be successful in the market. So you need to have the combination of great hardware, great software, apps and services in order to And we learned this with Xbox. When the first Xbox came out, it was barely hardly any games. It took a while for us to get going with it. And we're very optimistic What we're doing in terms of changes that are being made in the software, the applications that are coming online, the services and improving the hardware, both in terms Speed, performance and the integration with the software. Now something mature like, say, the PC Market itself, Surface Pro we saw an uptick on that very quickly because it was a mature market with a mature software, it's a mature set of services. So I think we're learning The nascent part of trying to create this kind of surface holistic device and we're going to continue forward. We have where we continue to just tune and get better and learn and it is making a difference. And so in addition to all of the product work that we're Both on the hardware and the software, again we just continue to get better and better execution at retail and with our commercial customers And in particular, we're seeing a lot of uptick with students who want that use of simplicity of the productivity of the tablet, but also the entertainment Communication that comes with that. Yes, definitely one of the fastest growing segments there. So that's terrific. All right. So Kevin did a terrific job talking about enterprise and our execution there, our opportunity across enterprise. And so let's talk enterprise panelists. So it seems like not that long That people would say that Microsoft was even incredible in the enterprise. So clearly with all the statistics you saw from Kevin, no one is saying that So we're going to start with you, Satya. And I think there's one part of our business in the enterprise that's definitely been on a roll. And that's our SQL It's just an amazing business for us. I mean, this last fiscal year, we crossed $5,000,000,000 mark and we grew 15 points, which is what, 3x the Financial, Oracle and 2x the market. And so we are now I mean, we always add usage share leaders. But for the first time now, as we become much more competitive on the high end. So SQL premium growth is being fueled by the fact that we have all time peaks in terms of mission critical So in fact, it leads to fueling of the warehouses on the Edge and Excel and SharePoint. And so that loop is something that is really vibrant for Windows Server. This Cloud BI, Power BI service is just an amazing service for us. It's got natural affinity to both Azure and Office 365. So we're very excited. That's going to launch now. And then SQL Server 14 is going to be a pretty big step forward. It's going to have an in memory database, which we've always had when it comes to analytics now in the core engine. So that means you're going to see something Like 7x, 10x increases in speed of your core OLTP applications without having to rewrite them. And that I think is going off of Windows XP. Now we have 75% of all enterprise desktops running Windows 7. And that contributed to double digit growth in the Windows volume licensing business contributing over $4,000,000,000 in revenue last year. For productivity work, bringing back the start button, revitalizing the desktop for that core office user, but also focusing on innovations for enterprise. The great improvements in biometrics for customer IT departments that are looking at adding that layer of security. We also have some great work to support the IT challenged by bring your own device trends, supporting remote business data wipe on all Windows 8.1 devices. So with everything we do in Windows, we have Yes. We see tremendous momentum for Office 35. And just to build on what Sacha said, Terry said, I believe KT also talked quite a bit about we are growing at the very, very rapid pace. And last quarter, our run rate was about $1,000,000,000 Now this quarter, it's already moving up at the run rate of $1,500,000,000 at the annual run rate and it's continued to In size business, we grew 150%. And some of the specific product, for example, Yammer, now it's fully integrated as part Office with DeFi. Worldwide, we have over 200,000 organizations signed up for using Yammer, and there's more than 8,000,000 product innovations for the generations to come because that's part of beauty of cloud. And we have this concept and the machine learning capabilities, there's so much more we can drive based on what we learned from our enterprise customer base to drive future product innovations. And one more thing I want to emphasize is the engineering muscles. And this is truly one of the great story that are Because our engineering teams is going through this massive transformation. They have deep know hows, years of knowledge on how productivity how enterprise workloads, how our customer use our product. Now we're going through the hard journey of moving them to the cloud and building strong service muscles. And we're going through this transformation so that you technologically go to next generation, our customers are going through this very smooth migration path. So the net this is truly a strong, strong locomotive. I really want to leave with you Microsoft with a lot of power and with engineering muscle with new way of driving innovation for enterprise and they can this locomotive for the company. And as Kevin noted earlier today, we have pretty phenomenal assets in the market, and Financial. We also see tremendous opportunity for the future. Dynamics CRM was essentially one of the first services we delivered in the cloud to the enterprise. In a way it blazed the path to all of the Microsoft moving into the cloud. Dynamics CRM also pioneered our in private cloud on premises. Now today, 2 out of 3 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 for us today, we actually see small organizations increasingly looking for cloud as a deployment option. And that's why we have Dynamics GP and Dynamics NAV, our SMB these solutions now delivered on Azure with our partners who essentially put their industry vertical solutions on Dynamics on Windows platform, great win for platform, for our applications, for our partners, for our customers. And yet again, it's a full flexibility of the mode of the deployment. And next year, actually Dynamics AX will be offered in the same manner for larger organizations. So overall, I would say it has been a great story. Windows 8 is tremendous opportunity for us to bring business solutions in a modern application fashion to the enterprise is in fact next month, Dynamics CRM 2013, which is a major user experience release for us, Enterprise getting much stronger. We see our overall share of wallet in the enterprise grow very significant and overall opportunity That's great. That's great. Thank you. Very complementary to what Kevin talked about in terms of trusted advisor. All right. So Rick Sherlund had a question which is also on a lot of your mind and that has to do with apps. So as a leadership team, this is something we talk a lot about for sure. Terry, I'll have you take this one and maybe start by talking about some of our progress and how we're thinking about the opportunity ahead. I think Talking about both would be good. Well, as Tammy said, this really is a significant area of focus for our leadership team and my team in particular. We understand where we're The signs of progress are pretty significant though. With Windows Phone, we now have 49 of the top 50 apps. The Windows 8 platform as they bring their apps to both tablets and PCs. Our developer programs just keep going, keep getting better. We just released Windows 8.1 to the web. Great tools are coming, but surely facilitate differentiated apps being for developers to recognize publicly those ISVs that have shown the capability to produce great Windows apps. So we really are working all angles on this locally, globally. We're working in all domains for ISVs. We're looking at consumer apps. We're enterprise apps. We're looking at how the virtuous cycle works on other platforms, how it should work on our platform. And it really is for the developers, which is very, very important for us. But there's no application that gets built today in the enterprise or in the consumer space that doesn't have a huge cloud element. In fact, even Office 365 is a programming surface area. So we are really building out our tooling across all of our assets and enabling these developers to exploit our broadest platform. And I think that's another source of innovation around our platforms that I think will translate into sort of unique app experiences for our platforms. Well, then we have all that work going on for game developers as well to take advantage of the cloud. So multiplayer gaming is incredibly important and you have very powerful endpoints that people can play their games on, but you need the truth in the cloud. And so Azure now helps developers take advantage of that and create these very high quality applications that can use the power of the cloud both for state and keeping a sense of the universe between these multiplayers but also to offload computing. Great. And speaking of Azure, that was also a common question through all that you inputted. Brent Thill had this one. He said, how will you differentiate your cloud infrastructure versus Amazon? So Satya, that's yours? So when we think about Azure, in fact, Qi said it well, when he sort of started talking about Office 365, we really don't conceptualize Azure and its isolation. In fact, we think about the Microsoft Cloud coming together. If you think about it, any customer who has signed up for Office 365 effectively has also signed up for Azure because the Azure AD or the Active Directory gets populated for every tenant of Office 365. SharePoint extension. So you build a SharePoint application in Office 365, all of the extensions are in Azure. You buy any of our server products, you get Azure with it. So you have backup, you have Hyper V replica for disaster recovery. If you buy SQL Server, you can have read only secondaries in Azure. You get Visual Studio. You get to do source code control in the cloud. You do build in the cloud, project management in the cloud. And not only that, We also package up all of what we do in Azure as part of our server products. In fact, that's what's driving some of our server products premium growth in build out of private clouds because we really want a vision where distributed computing will remain distributed going forward. And that means we need to be able to even support people who want Azure functionality in their own data center. So we are pretty unique in all of these fronts when it comes to in comparison to Amazon. In fact, Amazon also carries a bunch of our workloads and is a reseller of some of our workloads. But as far as we are it's about really coming bringing the assets I talked about together in unique ways for both IT as well as developers. That's great. Good. All right. I've got one more question that I'm going to ask of you. So I will tell the audience that if you want to think about We have microphones that will come to you. So if you just raise your hand, when you ask your question, if you wouldn't mind just standing up So we can see you and introducing yourself briefly that would be super helpful. So get ready. This is the last question. We've got a number of different questions asked in a number of ways, but essentially all asking about the Nokia deal and how we're thinking about that. And so no Surprise that that's of particular interest. And so maybe we'll tackle this in a couple of different ways. Terry, I think it'd be good for you just to talk about it From an engineering perspective, you're closest to that have been closest to that team. So what will be different? How do we think about what the advantages will be Having the team part of our team. Well, I'm pretty excited about having the Nokia folks as part of our team, really just from a point of view of accelerating and really trying to produce some truly epic devices. When it comes time to collaborate on creating these great devices with any of our partners which is what my team does. It works with all of our partners to try and bring their innovations on to Windows. There's times where you get to that hardware software boundary where sometimes having 2 companies, there's just the company boundary gets in the way of the collaboration. And removing that theme. And we have this proven ability to work together with the Nokia team. It's a great team. But sometimes that theme between the companies has slowed progress or sometimes hindered in what we could get done. And so removing that same I think really will enabled new things and not just for them to first party devices from Microsoft, but also as we invest in that software, all of that software makes way back into the platform, at least the platform components, which we then make available to all of our partners. So I foresee even better, more compelling, more innovative hardware support coming from our platform and more epic devices coming from Nokia as a result. Right. And I think on the integration side, I would just remind folks that at the time we announced We actually had integration executives that had already been named and have been mobilized. And so we think that's a great running start just make sure that everything is successful once everything closes. On the marketing side, I think we have tremendous opportunity to not only be more efficient, Whether it's sort of brand synergy that can just be cleaned up and taken care of or whether it's just more effective marketing because the teams are working together and really going after this family of devices that we talk about this Windows family of devices. I think it actually shows a lot about improving our commitment and capacity to hardware. I don't know how many of you know, but one of our very first hardware products was in 1980 called SoftCard. And not too long after that, 1983, we did the mouse. And Those were always in the service of completing a software experience. And now we have the opportunity with the acquisition of Nokia to go and to hardware first based experiences and really deliver our software and services through the hardware. And so instead of Turning it inside out instead of being in service of the software, the hardware is leading where we're going to go in innovation. Great, thank you. All right, it's up to you now. Questions? And we've got numbers and I think I will just go to those Hi, it's John DiFucci from JPMorgan. I have a question for Carol. Kirill, I know you don't break out the Dynamics business within MBD. But along the way, some of the information that's been given by Microsoft gives me an idea that you've had significant growth in this business. I guess, since it's a time of change at Microsoft, even with that growth, I wonder if that business can ever be meaningfully profitable. So since it's a time of change, has there been any thought to the go to market strategy for the Dynamics business at least to, I don't know if there are any channel partners listening, but taking some of the support back, which is hugely profitable. So, Kirill sounds like just a good direct point. Sounds like it's great for our question. I think it's you. I know this group has been asking the question about profitability of Dynamics business for the longest time and I can only ask sort of quoting you this business is meaningfully profitable And there is a way to run this vibrant partner channel that we have, channel that is really an envy of all of our competitors. There is really a way to run the channel at scale and at the same time run this business as a profitable business for the company. Right. Corporate overhead. It's still I mean I mean our channel has given us scale and And our channel has given us an amazing marks. Our partner satisfaction in Dynamics has been growing dramatically in the course of last 2 years and it's actually at its peak right now. And every Dynamics sale is a sale of our entire stack of Microsoft and that channel is a pretty vibrant channel for a lot of our infrastructure products as well. Great. Thanks, Let's go to 1. Walter Pritchard from Citi. Just wanted to follow-up on the first question that was asked about the Office business or the MBD business. And you talked about the strategy around moving that to other devices. And Everybody that uses Ipads, Notes, there's new information worker type applications being used, whether it's Evernote, Dropbox, whatever it may be. And you put up stats showing SharePoint and all these businesses growing nicely. But it does feel like under the covers, there is kind of a groundswell of a competitive alternative building around your MBD sort of stack of products for lack of a better word. And I'm wondering how you think about it. I understand how thinking about it, you explained it earlier, but I guess the risk in my mind is 5 years down the road, you may find yourself in a situation where there's been sort of a competing ecosystem that's been built and is now heavily entrenched, maybe fragmented, but heavily entrenched in this area. And the slower you move with your own products as 1st class citizens on those platforms, the more you sort of build that competitive ecosystem. I'm just curious how you think about it from that perspective because we hear quite a bit of that thought process from investors. Well, I mean, I do think that the way that she outlined it at the beginning really does describe how we think about it. We think about it from a Customer perspective and we think about it from the economics from Microsoft's perspective. And that will always be the lens through which the team looks at it. She also So added in timeline. And we just we will make sure that when there's a time for us to talk further about the roadmap, we'll make sure we do so. But I think you covered everything And your first answer on that one. All right. I will go to 4. Hi. Thank you very much. Kash Ranganathan, Merrill Lynch. Sorry, if you didn't hear me. Yes. You wanted me to stand up. Okay, let me stand up. Yes. Kash Ranganathan there, Lynch. Yes. Thank you so much. My question is directed to Chi and Trey. Maybe you could talk about what exactly you're seeing with respect to the reorg. I mean, that's a pretty big step. It doesn't happen that often. How are you handling and coping with this? What are the specific actions you're taking in your individual businesses as far as the Reorg is concerned? And secondly, if you could I'll just comment on both of you come from more of a consumer background, but you're going to be running enterprise scale products as well. And historically, the issue that investors have and I have thought about is the enterprise. You've got enterprise tech companies, you've got consumer tech companies. Only Microsoft tries to do both. And I wonder what thought you've given to being able to release products at the right cadence for the enterprise market while not missing a beat on the consumer side. It would seem to be a fairly complicated exercise and you've got a wonderful opportunity, but I wanted to get your thoughts on Thank you. All right. Nice job packing a lot into one question. So let me maybe start with you Chi and get more And at a high level I would say as a common theme across this entire lineup is there's been this balance which Terry talked about which is executing on current business and product delivery while we get ready to set up to really take the next big transformation. So do you want to bring that to life, Qi? Yes. That's a terrific set of questions. So I would just take maybe the 3 parts just to briefly comment on each of the areas. First is with regard to this reorg. It's important for us to remind there's 3 key components for my new group's Office, which is really the productivity suite on prem in the cloud clients and services. The second is communication, Skype and the link. And the third is the search engine information category suite of products. And they are very much having a commonality why these groups fit together, because If you take a step at the high level, as KT talked about, 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 enable our customers to be able to get more done. Do more is the themes. And certainly, Office is at the center of do more. And we always do things in conjunction, in combination of collaboration with somebody else. So communication is always also at the center of do more activities, high value scenarios. And then what about Bing? And it's important to emphasizes being from get go, we took a different point of view. We said people search with a purpose in mind. You never search out of blue just for search You have something, some purpose, some task in mind. So we want to change the search paradigm, drive innovation so that we enable our users to get things done. And there's infrastructures, there's data, there's machine learning, all these assets can come together to truly enable us to deliver the next generation workloads. So that's the common themes. With regard to how they all come together, it's a combination of the 2. So each of our teams, they all have strong roadmap. We ask all the teams to stay focused, drive full speed ahead, because we all have strong, strong products in the world and we want to ship all those. At the same time, we do need to work together in a thoughtful process, say how these assets can come together in a very, very organic coherent way, so that we can truly deliver the next phase of high value experiences. So we're in the midst of going through all those activities, the team stay focused and my leadership teams, myself, we spend a lot of time coming to us to say, what are sort of new opportunities in front of us we can do? So that's on the real side. And that also may briefly cover the previous question about what about the new scenarios. And that's really on our radar screen. We watch very, very closely about what's going on. On the silicon battery, for example, there's a lot of startups innovating the new type of productivity scenarios, we pay full attention to all those because we believe these are our opportunities to take our current core customer base and not only take that customer base, give them new experiences, but enable us to find, discover those new scenarios that you can use phones, tablets using natural interaction models to have different way of doing productivity scenarios, whether it's note taking, meeting, communications, Expressions reading, there's all kinds of different opportunities on our Red Us game. As part of this all coming together, we really think there's great opportunities for the new org, in particular, in collaboration with Terry's teams and Sato's team to take that out. So one last thing, I do want to briefly comment about The leadership question that you mentioned, because Terry and I, as you said, come from more of a consumer focused background because we've been building products in those areas. And the simple thing I would just briefly mention is, one is, you always start with a strong leadership team. I can say this, I'm truly blessed with has very, very strong leadership teams. They're truly fantastic. They're all well versed in enterprise workloads and are learning a ton. And as I said earlier, Office 365 is involved such a powerful locomotive that will drive many generation of new enterprise product for years to come for our companies. And I'm spending a lot of times reviewing with technologies, working with the teams because learning is important. It's always about teams, and I would learn as much as we can because it's core to our company in the future to have strong, strong Cloud Infrastructure's strong, strong way of orchestrate businesses on the enterprise side. At the same time, it's always about building strong teams so that the collective wisdom, the collective experiences, particularly in partnership with KT, Corel and Satya, They all have a lot of enterprise experiences. So the narrative is learning as fast as we can, onboarding, work with the teams and unleash the team collecting power, so that we can truly deliver the next generation of high value experiences and take our product and businesses to next level. That's at the high level kind of answer your 3 aspect of questions. If I could add on to that. One thing I've been at Microsoft for 20 years and one thing that 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're working in a new way. We all have various amounts of enterprise experience. Terry has worked on Exchange. I worked in office for a third of my career. So we all have things to offer to each other to help us be stronger in our own individual parts that we're working on, but how it comes together is really where we see The magic and the synergy going forward. And as far as getting into the enterprise, we do believe that consumers drive a lot of what's coming into the enterprise. When I was in office, Excel was brought into the enterprise because consumers liked Excel and brought it in over Lotus Notes. We see the same thing and we've seen the same thing with the iPad. Consumers have the iPad and bring it into the business. So we think these endpoints of these desirable high quality devices combined with the power of our high value scenarios and services is what's going to propel us forward into reaching customers the way we'd like to. This is sort of ironic for me because I think 5 years ago at FAM I went someone walked up to me and said you're an enterprise guy, why would you be working on phones now. So I mean it just shows I think in this there's so much about at least it's true pretty much so many things whether it be the applications or the devices that is common between the Consumer and the Enterprise Environment. And It's really the key thing. I think there's so much applies to both, whether the user experience, the reliability, there's just a lot common across there. And so I think we're fortunate to be able to apply both domains across and certainly for Windows. Windows is very much an enterprise product I would say. And it is very much an end user product. There's so much of our effort. The Windows we build is used on the client. It's used in the cloud. It's used in data centers. And so having that diversity is to delivering the Windows franchise for Microsoft. That's right. That was a rich question you asked about cadence and clearly 8.1 is a good example of what great cadence can get. Let me go here and then I'll get these three questions. Number 1. Hi. This is Phil Winslow of Credit Suisse. This is a I appreciate the fact that some of the learnings from the consumer Internet side have helped probably things like Azure and the build out of that. But when you think about the profitability of the OSD division on a standalone basis. A couple of fans ago, you gave out this target of, hey, if you hit 20% share, that's when we hit breakeven in OSD. Wondering if you could just walk us through what sort of the new thinking sort of path to profitability is there and sort of what targets we need to hit or just high level just kind of how you Think about that path. Thanks. Maybe very high level, Chi, just given time, just high level view. Briefly, we are making good progress. Thank you for that question. So one is We're gaining shares. Number 2, we're driving innovations. We have a set of product ideas, which truly differentiate our search experiences. In Windows 8.1, for those of you who haven't tried it, we have a complete new way of seamlessly integrating search with information rich on the devices. Terry's team, Julie's team used to be our former teams, we're able to build that. We have very good set of ideas to truly disrupt today's search model. Your question is about profitability. For my organizations, we're hardcore. Essentially, we're absolute commit, always rate. Last year, one of the best story for my division is we're growing year over year So great question. The teams have the call executing with full confidence we're going to get there. Good. Thanks, Chi. One last question. We'll go to Hi, it's Ed McGuire from CLSA. You've articulated how you've harmonized all of your enterprise services. So it's actually very simple for your customers to move from one product to the other. But in the consumer, There are a lot of different constituencies, Xbox, Skype, you have the Windows Store, a lot of different ways to get your services to consumers. And I'm interested How the team is thinking about harmonizing that experience or getting a more consistent experience across all of your different offerings and how you can that into a business model that may go beyond devices where you control the platform? Do you want to take yes, Terry do you want to be able to take finish before I start. Yes. I mean we want to deliver the family of devices with a family of services and this family of devices. And when we think about delivering that family of services Manager. Likewise coming out top down adopting common design language, adopting common navigation, adopting common taxonomy. We're absolutely committed to that and are making great progress across all the application and services we build. And so Skype just joined our family recently bringing that in. I think the integration has actually gone fabulous in terms of that technology and that team but takes a little bit of time to integrate an asset in that scale. But that's how we're approaching it and we're making good progress I think. And as we go to market we really think about consumer services. The Skype CMO is now CMO for all of our consumer services and really thinking How we make that more seamless as we go to market as well. So a lot of opportunity. The one thing I would sort of say is I think this is referenced earlier, but there is this graduation process, right, which is from consumer to enterprise, that is actually the thing that we are probably the most focused on, which is what does it mean to have SkyDrive, SkyDrive what does it mean to really have these experiences where there's wider adoption even in the enterprise that of our consumer products. And that's a place where things like Yammer have thought of a lot. And that's something that I think you'll see in a lot of our product design. This notion that this is an enterprise product and this is a consumer product, I think is the way we will approach things. We'll think about these products as sort of meeting end user needs and enterprise IT needs and how to balance that. Great. Well, please help me in thanking our panel. Thank you to Chi, Kirill, Terry, Satya and Julie. Thank you very much guys. I also want to thank you for the questions that were pre submitted and the ones we were able to get to here. These guys will join the reception. So I know you may have some additional questions which I invite you to ask them at the reception as well. So it is now my great pleasure to introduce Our next speaker who I would say has hit the ground running as the Microsoft CFO. She's a terrific partner to marketing very pragmatic and hands on which I think you will see. So please help me in welcoming to stage Amy Hood. Thank you. Thank you. Thank you. Hi. I have I wasn't envisioning a power outage when I thought about things to be worried about in our communications with you guys today. So Thanks for your patience as we worked through that. I do have a lot of ground to try to cover The first step in how we communicate the transition we're going through. It's a first step in how we communicate the accountability we see and feel at the business and I And so I want to sort of set that groundwork before we start. Really, I'm I'm going to give a little bit of an introduction, a little bit to me and a little bit about how I think you should expect and hear from me and how I talk and accountability. And I think other than telling you math numbers, it's probably one of the most important ways we have to start building our relationship. Talk about business model transitions and try to give you two good examples, that you've been asking for in terms of helping you know where we're making progress and be able to see it more clearly and understand the gross margin opportunity we have in that transition. And finally, I'll talk about the changes we're going to make to our reporting segments. To give you more insight and accountability in terms of the new businesses we're getting into and the gross margin profiles of those businesses. So with that, let me kick off. I'm probably not the 1st CFO to stand up and say I'm focused on shareholder value. So let me tell you uniquely what that means to me. At Microsoft and at many tech companies, The greatest shareholder value has always been created by great innovation, where technical innovation and business model innovation come together. The thing I call that is strategic resource allocation. That's a word a finance person uses to say Invest in the right places where you see those opportunities and do it thoughtfully. Prioritize, look at ROI, look for economic value and invest behind it. It certainly should also be noted that day to day execution and excellence and operational and financial management matters. It matters just about execution. Achieving great technical and business model innovation requires great day to day execution. You don't have to just do one or just do the other at a company like this. And of course, cost discipline. I think about cost discipline as really being how do I get the most out of every dollar we spent. The reorg is a great example. We're already seeing it By making centers of excellence otherwise known as a functionally organized team, you can see even after a few months You probably would have seen 3 ads in succession not terribly related to each other. The ads you're already seeing after 8 weeks are about 1 single Windows experience, 1 single consumer experience. And capital return. Earlier this week, we announced a 22% increase in our dividend and a $40,000,000,000 buyback program. Now let me turn a little bit to me, not the company. I want you to know what to expect day to day from me. Engagement. I think if you ask a lot of people inside the company, they probably make the same list for me. So you should know I'm probably the same here as you'd find me in my office a mile or 2 away. I do believe in engagement inside On product plans, capacity planning, I believe in meetings to make decisions, to drive outcome. And I also believe in engaging with you all in a consistent way. In a business that changes as quickly as ours being able to make thoughtful but quick decisions is important. It's my job as the CFO to think every day about how I can have can to move forward, to drive the strategy we're trying to drive. Accountability. Sometimes when we reorg, I often heard, gosh, it seems like where did accountability go? Well, the answer is, I think everybody feels deeply accountable to run their function in a world class way. And I feel an accountability to report on that progress both to you and to my peers. It's important because it builds credibility we have, our ability to execute on it and the actually ability to show you in our numbers, The insight into the day to day environment we see. So with that, my guess is you're more interested in this for each of you and on the calls and in my old job. Help me understand where you are Microsoft in this model. We know the Microsoft that was on the left, a company that made a royalty on PCs, generally made a license from consumer software and sold licenses into IT departments and the enterprise. The model we're already shifting to which Kevin really talked a lot about in his presentation And a consumer service base that's advertising and subscription based. Where are we? We're on our journey. And I think our goal today is to point out where we are in some very important examples. When you think about the importance of moving from the left to the right, It's because the opportunity is larger. There are more devices than there are PCs. There's more services in consumer applications than Office and there's certainly more enterprise services than we can provide than even our $12,000,000,000 businesses that we've already created achieve. There are 1,000,000,000,000 of dollars spent today in IT. The model on the right allows us to access far more. And so that is why when we talk today I want to introduce our new vocabulary here at Microsoft. We're sort of used to using different words, But I would say this is the language we now use. It's a language about everyday excellence and opportunity around operational excellence. Operational excellence Every day, every week, every month, every year, these are the words that make it great. This is the language we use in the field that Kevin uses. It's the language we use in engineering. It's The language we use in finance. I think if you expand and say, gosh, looking back over the past year, where are some things we could have done better? There are probably things on this list and there are things we're focused on. But we have to be great at these as we go through these business transitions we're going to talk about. Let me move to the Consumer Services section. You may not realize it, But currently in consumer services and applications today, there's a $15,000,000,000 business. It's an incredibly strong base far beyond that of just Office to move to the future. We built Xbox Live and a gaming business. We built a communications business, a search business. We've clearly grown our productivity business. We have a storage business. But the future and is actually asked in the Q and A today was around combining many of those experiences to create end to end solutions. When you sell end to end solutions and you do it in the cloud, You give day to day value that people want to subscribe to. They see your latest innovation in the moment. They know that you're an innovator. They understand where you're going as a company. Putting these assets together creates a big opportunity to move our subscription business forward as we complete some of the core scenarios you've heard us talk about today. Whether it's social, whether it's task completion, whether it's a better way to express yourself beyond simply PowerPoint or even As a consumer, I think I'm 2 things. I'm a consumer and apparently a worker and I'm supposed to use different things. I use one thing and I want that thing to be the same whether I'm having a meeting at home, meeting at work, these are the tools that are going to let us do that. There are the tools that are going to let us be successful both in the enterprise and outside of it. By combining these experiences, you heard Terry talk a little bit about it. It will let us grow both the consumer business and the enterprise business. The example I get asked to talk about the most is Office 365, the transition from Office consumer to the home premium business. Let me jump into that. I think most of you guys know this. Office today sell license. We generally sell it at the time you buy a PC. You kind of buy it every 5, 7 years depending on how often you get to a store to buy a new PC, you may buy a new PC and use your old disk back in the prior world. And we recognize all that revenue technically upfront. With Office Home premium, I'll start with the most important thing, which is why it's a better product. The way you make actually more money is you make your customer really happy. The best experience from office home premium comes The fact that it's always up to date. You get our best stuff the fastest. And like someone asked, why don't we do a better job of integrating our products? When you buy an Office Home Premium subscription, you actually get rights to SkyDrive, Storage and Skype Minutes. And we're already seeing increased usage from SkyDrive today from the deep integration into the product. It just works. You're able to go from device to device finding your place in a PowerPoint deck that you had to close on a different machine. That actually brings meaningful value. And it also makes us otherwise known as a disk that's years old. You get our best stuff fast. So what does that mean economically? Economically, even over a very short period of time, a little over 2 years, we're better off in this model. But it does mean as we said and I give you an example for Q1 in our guidance that we gave in July $150,000,000 of revenue that we otherwise would have recognized in the quarter goes to the balance sheet. Now I'm happy it's on the balance sheet. These are more profitable long term customers than we have today. And they're going to be more engaged and ultimately happier with Microsoft the product and with their experience. To me This is sort of the easiest way to explain the benefit in this Again, I have to go into a short history lesson, which is that we were a company that basically sold Windows and Office into the enterprise. Then we used to come to these meetings and get asked if we could be a serious enterprise contender. We've built $12,000,000,000 businesses in the enterprise, many of which Our multi multi $1,000,000,000 businesses that you heard both Satya and Kevin talk about. That is such an impressive base We can continue to offer hybrid solutions and we can monetize at a higher rate. Let me actually give you the first framework of how I'll walk you through this enterprise transition. I would say, I think about it in sort of 3 key buckets. What things can you achieve by moving people to a service? Number 1, And you'll hear me use this framework quite a bit going forward. I've used it on Office 365 for a long time. First, it allows you to increase reach. What do I mean by that? New customers and new seats within existing customers, both opportunities. We've seen 150% increase in small business customers in the past 12 months. We've already had 15% increase in our kiosk attach. Think about that as a new user within an existing entity already proving the first point. Next, This is transactional someone who purchases once every now and then. But the outcome is the same. In a service model where we prove and create value every day, you should expect us to do better than our current 75% license renewal rate every time an EA subscription comes up for renewal every 3 years. We should do better than that because we add new services. We should do better than that because it's deployed. We should do better than that because we show value. If you do that, even from existing customers, you make more money. And by the way, they're happier. Next, small business. They tend to purchase, as we said, either infrequently, right, or not at I already covered not at all. So 5, 7 years ish maybe longer. In the service model, we should be able to do better than that for the same reasons and probably more opportunity here on this particular dimension than there is in the enterprise. And next, Increase the yield on an existing seat. We have 2 ways to do that. 1st, We can add services. You might say you've been able to do that forever. You keep introducing new products. The difference is in a service model is far easier. Deployment is different. Adding services is different and it's easier. So the opportunity to do that more frequently and to continually add services with reduced cost because we run your IT for you is improved. We can also sell more premium versions of the workloads once they're deployed. So 75% as you can see of our enterprise customers have more than one workload. We can continue to do better than that. And we certainly have opportunity in selling our premium workloads. If you think about all three of these dimensions and you classify our customers into them, That's the best way to in your framework think opportunity opportunity opportunity. With that, which is if I take an annuity customer currently on what we call core Cal. The core Cal gives you rights to Exchange SharePoint and Link on the standard versions of those SKUs. There's many things that are actually quite similar here unlike in the consumer example. Build annually, that's still true. Recognize ratably, Still true. We've always recognized our annuity contracts that way. No difference here. They're generally still 3 year commitments often and then a renewal. So not really an accounting statement. The difference comes in our ability to up If we can actually take this customer and simply sell them the premium SKU of their existing workloads In Office 365, our gross margin percentage goes up 50% per seat. Gross margin, the new language of the service business. Revenue also goes up gross margin 50% growth. And that doesn't represent, it only gets better than that if we do any of the following. Do better on churn renewal, add other new workloads, Azure Identity, the new BI Power View that we've just added as a module, incredibly powerful given Excel, Excel Services and SharePoint that Kevin touched briefly on. And so if you think about that, it's why I grade, I don't know, blue at the top. We know we get a 50% gross margin improvement and it goes up from there. The next example I'll talk a little bit about is Azure. Azure is in a far earlier state of the transition than Office 365. So here we know that we have a 3x improvement in our addressable market. We also know that business is a bit different. You have to address the opportunity And I would say 3 buckets for us. There's a consumptive model. Pay as you go. It's optimized to take advantage of elasticity, of availability in data centers, capacity, people who simply want to try That commitment helps us with capacity planning and demand planning. And so the discount makes sense. And we've And in fact, I think we may not talk about this, but we have 2,500 EAs currently with Azure that's been attached That is an incredibly helpful model for try, use, buy. And that model then as we add new services adds more value. In Azure, it's clear there are some commodity workloads. And Sasha did speak a little bit about and we'll probably have longer discussions at some point about some of the high value ad services. If you compete at the commodity layer with an opportunity to Sell at the high level and we know those activities are connected. You can improve the gross margin profile of this business and move further and further up the stack. This is what we know how to do well opportunity to grow this business the fastest. I would also say this is one of the places And I want to really be able to explain what we're doing. All the growth that we've talked about for Q1 And now for FY 2014 is investment directly in data centers and servers. It's directly in the data centers and servers globally to increase our footprint, to be able to take advantage of the Azure, Office 365 and consumer services opportunities we just talked about. This is required for us to grow the opportunity as fast as I think we can because of our competitive advantage. I do think it's important to remember With that $2,000,000,000,000 opportunity being the first to China, being the first with this type of global footprint, With the Office 365 services we have, the Azure services we have, with the Office consumer profile we have, I think we'll have a good return on this investment. With that, I want to sort of change speeds a little bit from our examples. So what does all that mean? We have a lot of opportunity with this new model. We're investing to capture it but more importantly we're creating economic value by doing it. And I think this is an example we'll have to continue to walk you through as we make more progress in each business. But we will and I think that's the lead into the operating When you think about introducing operating segments, financial reporting, No one changes their reporting segments slightly. I know it's a lot of work for you. It is a lot of work for us. There's obviously the requirement. You should report the business the way your CEO manages the business. But beyond that, beyond that principle, Our goal is to show the transitions in the business model we've just talked about clearly. The goal is to show the progress we're making on devices and services more clearly. And the goal is to show more accountability to the gross margin profiles we're changing. So with that, let me move on to our 5 new reporting segments. We'll have 5 just as we did before and we'll continue to have a corporate bucket which I guess doesn't count as a real segment but would make 6. We have hardware licensing other under a And other with others being enterprise services plus our enterprise services part 2. 1 is people, the other is actually Office 365 and Azure. What's important about this? Each of these categories have similar gross margin profiles. Our hardware business is a different profile than our licensing business, is a different profile than our services businesses here. You'll see a disclaimer. There's far more information than I could ever cover in this presentation about what's in each segment. And so that will be available. We're also filing an 8 ks to help explain some of this. But I think more importantly is for us to talk about what you should expect. We'll report revenue and gross margin for each of these segments. We will then report operating income for the 2 aggregations. Operating income where it is clearly and fully attributable to one of these areas will be Directly put in that important segment where it's shared resourcing our new reorg It'll be allocated by gross margin. What I didn't expect you guys to get all that down in 2 minutes. However, I want to make sure we're all clear on what to expect from now till the earnings announcement in October. On September 26, we'll host the call. On the call, we will, before that, provide quarterly restatements for 2 years and walk you through those. We'll do a more complete list of the new KPIs we'll provide to help you understand both the transition as well as some of the new businesses we've entered and the momentum behind We'll also provide a Q and A session, ask away. We'll have Between that and Q1 earnings, you're obviously welcome to ask as many questions of either me or the Investor Relations team as we need to for you to feel ready for October 24th. October 24th, all the financials, My commentary will be reported in the new reporting construct as will my outlook. However, we will also report all Q1 results in the old model as well as supplementary information as opposed to primary. That should allow us for a transition period as we continue to of all your models and our guidance. We won't provide any additional impacts on Nokia just because it won't have closed. So I wouldn't expect any more guidance on that in Q1. So I wanted to just be clear in terms of setting expectations on how to listen on the call for the numbers. So why make a change this big? In some ways, to our progress in all those areas, adding accountability to the gross margin of the investments we're making in It really reflects many of the questions I've been asked in the past 5 months. We can't see what's happening. We can't see when you're moving licensing dollars to services dollars. We can't see in the Windows business The commercial revenue versus OEM. This should be able to make many of those health indicators more clear. So what does that mean for FY I do expect FY 14 to continue to reflect the ongoing transition to the cloud. We said that from the beginning, that's not new. We have expanded our device portfolio and by the end of FY 'fourteen, I hope we're the owner of Nokia. And we will continue to make the investments in the global data center footprint that I outlined today with full confidence that capacity will be utilized by very happy customers. And finally, I'll remind you that our FY 14 OpEx guidance is here. I sometimes think that We've had a lot of change in the past 5 months. I say that as the new person. But I would say I stand here more confident than I did when I took the job that we're making the changes we need to make to drive economic value. We've added insight, we've added accountability, we've added clarity of our purpose and we put leaders in charge of businesses that can drive them forward. At this point, I have the pleasure of turning the stage over to Steve, who I would say has been a great partner for me personally in these 5 months. I think there's no one who cares more about the success of this company than he does. And there's no one who's put more effort into setting us up for the future than he has. I greatly respect his leadership in my time and More than that, I respect everything he's taught me about being excellent at something. So with that, Let me have you welcome Steve to this year's fam. Thanks. Well, thanks. I'm glad to have a chance to be here. Not exactly on schedule, but close to on schedule. We had that Super Bowl moment there earlier. And I was kind of wondering whether we were the Ravens or the 49ers in this event. I hope we're the winning team, so to speak. I want to talk to you today about the kind of state of Microsoft and my enthusiasm for where we are and where we're going. And because we have called this thing at least my whole time at Microsoft, the so called Financial Analyst Meeting, I thought I'd start with some numbers. And the numbers aren't designed for any one purpose, although I think they will serve 3 purposes. Number 1, we built a heck of a good company. Number 2, we're aware that there are challenges in front of us. And number 3, we're actually very well positioned for the biggest and most incredible financial upside that the company could dream about. And in some senses, you've got to embrace all three of those things. You've got to embrace success. You've got to embrace the fact that there are headwinds in certain areas and you've really got to just at least in my case, I am incredibly motivated and excited about the financial upside, let alone the upside for doing great new products. What I did here was sort of to collect information on 7 companies and these are all on the website. You can all study them later and I'm not going to crawl through every number, but I'm going to make a few points. There are 7 companies up here. Microsoft is the one that is very carefully boxed, so you can't lose it if you try. And then I wrote down 3 companies essentially who were born somehow on the consumer side and kind of what they look like financially. And I've got 3 companies that are born and live primarily on the enterprise side. I picked a couple of companies on both sides that actually make a ton of money. This group of people actually expects us to make a ton of money. I'm not sure how much credit we get for something that grew quickly and made no money. But for completeness, I'll show that it's a path to creation of market value. If you will, all 3 of the companies on the right are real enterprise companies. In no way shape or form would I say they touch the consumer. The 3 companies on the left were all born with the consumer. And yet particularly when you look at both Amazon and Google, both of those companies now are actually what I might refer to as 3 tool players. They're trying to be device companies. They're trying to be consumer services companies and they're trying to be enterprise services companies. In the case of Google, we certainly meet them with Google apps in the market every day. They obviously are in consumer services business with search and with what they're doing with Android and Chrome and their own devices, let alone third party devices, they're trying to compete in all three of those bubbles that Amy talked about. Same thing with Amazon. They compete in all three places. Microsoft successfully actually competes in both the consumer market today. You saw a chance you had a chance to see some of the numbers that Amy showed you on profitability of our devices and consumer services business, and we compete in a way that generates a lot of profit on the enterprise side. If you take a look at some of the numbers, I'm proud that we've made more money than anybody in this list in the last 10 years. If you take a look at the last 5 years, it is a great reminder that there is huge profitability in our industry in the devices business. Not everybody may make it, but it is a huge source of our profitability through Windows. It is a huge source of profitability for Apple. I don't list Samsung on here because I never quite sure how everybody else would view kind of Korean accounting standards. So I just left it out for complete well, let's just say it's too complicated for me. The last year, with the exception of Apple, we're the most profitable company on the list. If you look at dividends, Until Apple started a dividend, we are the biggest payout. Now they've passed this. We just made our most increase. If you look at cash return to shareholders, last 10 years, we kind of blow everybody away. And if you look at the last several years, IBM, particularly through buyback, has chosen to return cash. CapEx, you can take a look at this and you say whether we're a devices company or a services company, CapEx levels are higher in the future than they were for us as a software company, acquisitions, certainly the biggest thing we did in the last 5 year period was the acquisition of Skype, but acquisitions have played a role for us and our competitors. And then you can see enterprise value, which to me is kind of a job one indicator. Cash, we're obviously moving to return increased amount of cash back to our shareholders, but we still nonetheless manage it knowing it's your cash. It's not our cash, it is your cash. Some challenges. For the first time over the last couple of years, Windows has done something other than just grow. And 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. You can see it here. It's a sort of stark reminder that if we're going to continue to grow and prosper, we can look both to, if you will, the right and the left of us on this chart and say both devices and enterprise services companies make a lot of money. The one thing that's actually is understanding how to make money as a consumer service company. 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. But other than that, most of the consumer services companies just don't make enough profit to really register at this scale. Maybe Facebook will, people mentioned Dropbox, I noticed in the Q and A and Evernote. But one of the things that we have really kind of taken note of from a profitability perspective, we will be led by our work in enterprise services and devices. We think that the greatest profit growth, it doesn't mean the greatest innovation, it doesn't mean we won't do consumer services because they are important. They're important to the customer. They're a path to enterprise services. They're a path to device success. But in some senses, we will lead as we go to market, and we will certainly lead in terms of how we hope to generate profit through devices and through enterprise services. When I say devices, you should always hear virtual devices. I'd refer to Windows PCs as a virtual device since we don't actually make them. And you ought to hear physical devices like the Xbox, like the Surface and with the Nokia acquisition like the Lumia and other phones. So in a sense, that's how I think about the business economically, I think we can grow. I'll talk about what I think it takes to have us grow successfully and why I think we're well positioned. But that's kind of the mental framework that I'd encourage you to at least engage with me in to make your own evaluation. When we talked about our reorganization, in a sense, the word reorg almost understated what we were doing. We were really clearly laying out a strategy that we want to pursue. We spent the last 6 months as a leadership team, next slide. But really fundamentally honing the strategy, the strategy first and foremost of focusing in on high value activities. There are actually high value activities and low value activities, although sometimes you'll find that somebody's low value activity is somebody else's high value activity. I certainly know teenagers who think using Facebook is a high value activity, and yet that's not If you're not doing something that's really important to your customer, there's probably not a chance to make a lot of money. Finance. Well, I talked about development, IT and Data Management, task completion, task completion. You say, what's a task? And I said, task is anything that people feel like they really have to get done. Now you could say that could be as simple as checking the weather that might not be a high value task, but then you can think about things like, hey, I really have to figure out where we're going to go on this vacation and how much money I'm going to spend. We really need to figure out who we're going to go see for this disease that some family member has been afflicted with expression. We talk about serious fun around here. I know a lot of folks in this room have a lot of opinions about the Xbox, but it is a high value activity to a certain community of people who spend hours and hours and hours. I was talking to a senior government official today and they would like us to provide public service advertising on the Xbox. And this senior U. S. Government official said to me, I don't really know much about the Xbox, But my Chief of Staff is 28 and he said, don't worry, I spent at least 25 hours a week when I was in college on the Xbox. It's a place we need public service advertising. But in a sense, I'd call that serious fun, a place where people will really spend dedicated and purposeful time, IT and information assurance, customer interaction. There's one probably underlying thing that I should highlight as a high value activity, And that's getting the fundamental user interface for the device in the system right. Even routine tasks are facilitated by getting the basic sort of construct of the device right. And I might argue that almost all the money, a huge percentage of the money in our industry has been made on those transitions. The PC was a new user interface and a new form factor. And Intel and Microsoft made a lot of money. If you will, touch Qualcomm made a huge amount of money. We're 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 3 bubbles, devices, consumer services and enterprise services. The 2 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. So we look at these 3 bubbles, if you will, as places to land these high value services and ways to monetize these high value services. We're also making behind the scenes for all of these things core investments in fundamental technology. The operating system, Terry talked a little bit about it. It's a core technology investment. There just aren't that many people left making fundamental operating system investment. UI Innovation. As I pointed out, 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, and 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 2 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. And last but not least is cloud infrastructure. Cloud infrastructure to me and this has become clear really over the last 4 or 5 years, It's a pretty fundamental investment. And it's not as simple as saying let's go build a bunch of data centers. It's really learning how you architect these things to be low cost and at scale. We used to design data centers by thinking about servers. Google, there's sort of this almost Doctor. Strangelove kind of arms race that goes on at least amongst people who operate data centers. How much how many megawatts are they buying this year? That's the sort of the way in which data centers are rated. How many megawatts will Google put in? How many megawatts will we put in? And in a sense, there's only really a couple of 3 companies that are really pursuing that at scale. Amazon is, we are and of course Google is. But without these core technology strengths in the cloud, in machine learning, in hardware and software user interface design and without operating systems, I think we're a very different company. And the thing as I'll talk about later that makes me most excited is I think we're making the core investments, we're building out the applications that are most important And people could say, okay, well, that's a great framework, Steve, but it's here and now, baby, and you guys have to deliver. So let me give you kind of 4 clear priorities. And at the end of the day, when we want to put up the kind of slide in front of our 100,000 employees at a sales meeting or a company meeting, you got to simplify. And over the near term, there are 4 things we got to get right. Number 1, Office 365 and Azure have got to be a touchdown. They've got to have the innovation. They've got to have the differentiation. They've got to have the value. They've got to have the sales and marketing energy and support to really, really, really kick ass. They just have to. And the surge in Office 365 is actually quite amazing. We started this enterprise Cloud Investment about 8 or 9 years ago. We took over running the knowledge worker infrastructure for Energizer, the battery people. And we use that as a test lab and we built and grew from that position. And it's quite clear to me, but 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, both for the IT department as well as for end users, marketing departments, etcetera inside our customers. 2nd 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're 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. Improvement and we're going to have to put time and energy, not only into Windows PCs, put into brand Windows overall. Our device brand more than anything is brand Windows, Windows Phones, Windows PCs, Windows Tablets and we have to make absolutely clear to people what the value proposition is and by the way, how they can also get some of those same high value services on non Windows devices, on iPads, on iPhones, on Android devices, etcetera. Mobile devices, we have almost no share. I don't know whether to say that with enthusiasm or kind of uncomfortable tension. But I'm an optimistic guy. Anything we have low market share sounds like upside opportunity to me. We're paying to do it all day every day. It's in all that OpEx that Amy talked to you about. So now it's just boom. It's getting after it and really making sure that we deliver the kind of revenue and gross margin upside that's certainly there. The Nokia deal is a lot of things. One of the things that it certainly is, is a way to make sure that we can actually capture the gross margin upside because we are making most of the investment today that we need to make even owning Nokia. So we're very excited to have a chance to capture the gross margin upside by actually being the device provider, particularly given that Nokia already sells over 80% of the Windows phones that get sold around the world. And last but not least, we need to continue to innovate in high value activities. When we get together as a leadership team, we're sitting there and talking about what are we going to do this year to improve the meeting experience? How quick is it for people to Connect people remotely. How good does digital whiteboarding work? How good does the pen work as a tool for annotation and drawing and exploded and you had a chance to hear about some of those from the panel. That is absolutely at the end of the day, the thing that's going to allow us to sell more enterprise services and the thing that's going to help suck through our consumer services and devices. When I take a look myself, now this is me as an investor and I'm preparing to be an investor here in the not distant future, I say, what does Microsoft really look like? Devices, We talked about PCs and Windows 8, but tablet and Surface, phones and Nokia, Xbox in the living room, The work that we're doing with this acquisition we made about a year or so ago called PPI to do wall size Computers for offices, I think is very powerful in terms of what it can mean strategically and economically. I look at all that and with perfect awareness that there's some headwinds and risks in the PC business, I look at that and say we have amazing, amazing short term opportunities in devices. In consumer services, it really gets down to 2 major monetization opportunities, Bing Our search share continues to improve. We're getting smarter. We used to invest a lot of money in customer acquisition, some of those deals were not as good as I wish they would have been. We're actually now saying what's our number one customer acquisition vehicle for Bing? It's actually Windows devices. We're making sure that we really get Bing well designed into Windows and Windows Phones and Xboxes. We're making sure that those are first rate experiences and we're making sure that they monetize better and better and better. So I'm very pleased with the opportunity to improve our search advertising business. Amy talked a little bit about Office And Kevin talked a little bit about Skype for consumers, but essentially the way to think about it is through Office 365, do home edition. Do we have a way to not only convert the business that we've been doing with high end consumers for office for productivity on PCs. But do we really have a way for people who really value their time and energy to pay us more money. I'll tell you a couple of stories. If you look at the total base of consumer PCs that get sold, about 60% of them get sold to consumers. Of that population, about 20 15% to 20% actually pay for Microsoft Office. Some don't use it and some don't pay for it. And I'll be kind of silent as to what percentage is what. But let's say piracy is certainly quite high. But when people are making that investment, whether it's a student, whether it's somebody who works out of their home, whether it's, I don't know, somebody like my wife who's very busy and not for profits, the chance to get that customer to stay current, to pay us more money, We're probably not going to get the least affluent person in the world to come with us on that journey. They'll use the free stuff. But to the degree that people value their time and energy for productivity and communications, it's a heck of an upside. And then last, but certainly not least, is the cloud and hybrid services. This is really important because while the cloud is valuable in all the ways that A. B. Described, 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. The ability for us to offer value added Azure services to people who primarily buy Windows Servers is very important. The possibility to help a customer build a transactional application on SQL Server and yet do the business intelligence in the cloud is very important. And you can go on and on and on, not just in people who want 1 or the other, but in the complement in those scenarios. And our ability to sell those and get them sold in now because frankly, competition is not very active in the game. Amazon is all about the public cloud. It has really no on premise solution, relatively quiet. Even though they have solutions, they're relatively quiet. And frankly, we've been handing it to them pretty resoundly in bigger accounts, Office 365, Kevin talked about how well we've been doing. Even I'm impressed and I'm not easily impressed losing one account is losing too many and yet we don't lose too many. Storage solutions that we can provide, if you will, in conjunction with Windows servers or Linux servers, frankly, that are on premise. And that thing has really exploded for us and it helps our customers really understand why to double down on us as a hybrid cloud vendor. I heard the questions that came up and I addressed them briefly about non Microsoft platforms. Those all do represent upside to us. And we don't have our heads in the sand. We're working away on all the things you think we should be working away on. The most important things first to have is communications and notes. They have to be on every platform and we've done that. Doing authoring correctly on other guys' platforms without a keyboard and a mouse, it's tough enough to do it on a surface where we do have a keyboard and a mouse in a tablet infrastructure. We're investing in building those things in an absolutely first rate way. It's not clear to me what kind of opportunity financially our competitors are going to allow us to have providing email on their platforms. But even that is interesting to me. It's interesting to me, although both Google and Apple do a pretty good job of kind of clamping down on the default email experience in their 2 platforms. So we're building the things that you would have us build. We have surprisingly less religion than you would think we probably have, but we do know the following things are true. We can lead with our enterprise services, but our customers will require us to support other platforms and we're doing so. Or we can lead with our devices, particularly in the We're always Windows lovers. We love Windows. Windows is first. Windows can be best because we have the capability of doing so. Next question you can get to is how well will we execute them? The reorganization that we did was more than where we tried to connect 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. The old world, we could dream about doing thousands of things in a very small way in the new world because we have to get marketing, sales, everything aligned across the company. What I would probably tell you is we can do fewer things than we could have dreamed about in the old world, but we will should be able to do them more successfully by training everybody in the organization on those things. I don't want to create some expectation that there's some major thing that's going away. A, that's not true and B, That'll be for somebody else to work on here in the not too distant future. But I do tell you that I think one of the grand opportunities now is to take the big things that we talk with you about all the time, the things that Amy is going to highlight in these KPIs that we talked about and really stay very focused, simple and agile against those targets. I also want to tell you we have incredible talent. This is something I actually think I understand probably better than almost anybody on the planet. We work with almost everybody in the technology industry. The people we don't work with because we compete with them, guess what, We're competing for university talent with all of our competitors. And I'll take our team just hands down versus anybody in the business. It doesn't mean that there aren't some other good teams out there, but we have a phenomenal team, Starting with the leadership team. About 3 years ago, I think it was the first time I put in my personnel review with the Board that I actually was thinking about the day I might not work at Microsoft. And I agreed with the board that I would spend some time getting to know all of the top people at our competitors, if I could, so that we would have some knowledge base whenever I was to decide to retire, we kind of know the people from outside Microsoft who might be candidates. Now, Right now, we're in a board succession process, but I've spent 3 years getting to know a bunch of people. I know senior leaders at all of our competitors at this stage. I've spent time talking to them, interviewing them, getting to know them, talking about Microsoft. And there's a lot of good talent out there. But when I come home, I'd tell you, there is just an incredible group of talent at Microsoft that is competitive with everybody else in the industry, full stop, period. The third aspect I would say of execution really will be the new CEO and that does matter. At least I believe that matters so deeply and heavily as the current CEO. And I know our Board is in the process going through a thorough process to evaluate candidates from within and outside of Microsoft to be open minded. We made this decision to announce before we had a replacement so we could run the absolute best succession process on the planet. I got to say it's kind of a little weird for me to come to work and have that kind of known. And yet when we talked it all through, we said this is absolutely the best way to ensure that the company gets the leader that it deserves for this incredibly talented team, whether it's one of our people who works here or somebody from outside, we wanted to make sure to be able to do that that I think will still need to be improved, but can get us there. But the other thing I want you to understand just before before I move to wrap up is how uniquely poised I think Microsoft is to drive the next big thing. Now what is the next big thing? Well, it's the next big thing. And you'd say, well, tell us, Steve, what is the next big thing? And of course, there aren't that many next big things. I mean, I know people say our industry changes all the time and blah, blah, blah, blah, and something's always flipping. But if you look at it in a Microsoft context, Bill Gates and Paul Allen recognized that software and microprocessors went well together. We bet and succeeded on graphical user interface. We got serious about Intel architecture in the data center in about 'eighty eight. And today, people say we're an enterprise company after about 15 years of saying we'd never get it right in Enterprise. And almost all the value in our company was created essentially on those three insights. Even if you look at our competitors, Most of the wealth and value were created on 1 or 2 key insights, getting search right first, really understanding the power of small form factors and low power processors, really understanding the value of an enterprise relationship, getting databases figured out before anybody was there. Each company in our industry probably has 1 or 2 or 3 really big things. But I think that the next The big thing that will create value in this industry will probably require companies that have certain capabilities. They'll have to understand natural user interface and hardware. 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'd 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. So with Microsoft, not only do you get what I would say is incredible short term upside, albeit with some managed and kind of focused areas of risk, But you also get a company that has unique capabilities to shoot the moon, if you will, for the thing that would really create something that might generate $30,000,000,000 $50,000,000,000 $100,000,000,000 of new economic value, which at the end of the day, when you invest in a company with enterprise value of $200,000,000,000 plus, those are the kind of opportunities that have to look interesting and attractive to you. So we talk about creating a family of devices and services for individuals and businesses that empower people around the globe at home, at work and on the go for the activities they value most. How we get there, how we create that economic value in the short run is clear. In the long run, we have the tools. I tell our people we're like folks who like athletes who've been in the weight room. We've been training, we're skilled, we're ready. And we have people thinking and coming to work every day saying, what is that thing? And it may not happen next year, it may be 2 years, 4 years, 6 years from now. In the meantime, there's great economic upside here. And in the long run, we're almost uniquely or just a couple of us poised to I'm the long Microsoft. Now I'm going to switch. I won't talk as CEO anymore. I want to talk not really as an investor because after I retire, I'm just a guy who owns 4% of Microsoft. And that's about 65%, 70% of what I've ever owned. I think I've sold 5 times in my life and I bought once and I hold on and I treasure my Microsoft stock and I treasured it. I know some of you wonder if I treasure it like one of these crazy company, I'm a believer in what we can do. I don't normally give you the sales pitch, right? It's been my tradition to try to highlight risk factors and bloody, bloody, blay. Not today. Today I'm speaking as an all of you get up. You all own Microsoft stock. Cheers for it for God's sakes. We all want it to go the same direction, up. And certainly, I am very long. 3 no, that's not true. 70% of what I own is in Microsoft. 70% of all the Microsoft I've ever had, I own. And I believe in everything we're telling you here. And we'll bring in a new CEO, and that new CEO will have opinions and ideas and thoughts. And my greatest desire will be to see the company be so much more successful 4 or 5 years from now than it is today. And that'll be grounded in 3 things. Number 1, we picked a great new CEO. Number 2, we made fundamental bets before that new CEO came out. The strategies that we put in place, the approach that I put in place that the Board has endorsed, those things are important. The new CEO is important and the leadership team and the I'm not making any specific comment about buybacks and dividends and blaydy blaydy blay. But the fact that we have the financial strength and the wherewithal to really consider the things that will create fundamental new large economic value, that's a reason why you should want to own the I believe in the company as an investment. I believe in what the company can do. I believe in the people and talent that are here. And at least this one shareholder will absolutely be cheering every day from the day I'm not working here I'm MSFT, if you will, all over. It's in my blood. It's in my heart. And I'll have been glad to have Thank you all very much and we'll go to a panel discussion. Go ahead and move to our Q and A session. Much like earlier in the day, and members of the IR team are going to be out here with paddles. If you have a question please raise your hand and one of the team will come over and with the mic and then we'll get started. So with that it looks like we're set up. So let's go ahead and get started. Okay. Let's start here in the middle with Paddle too please. Just a real quick tactical question for Amy. Yes. The $6,500,000,000 CapEx that you highlighted for fiscal 'fourteen, obviously a big step up from previous years. Is that a one time step up and then back down or is that a sustainable level for the next several years? Well, what I would say is that if you're in the devices and services business and you're successful. I would hope that we continue to need to invest capital to build out the infrastructure and the server capacity over time. So that's how I would think about it. Yes. I mean I don't know what really happens in all the Telecom companies, but at least the myth of the telecom companies from 20 years ago, we should make the investment, huge CapEx and then it all goes away. Success would actually, as Amy said, breeds new CapEx here. There's no sort of point of saturation if our customers continue to buy more stuff promise, we would consider that a first wait problem. Right. Okay. Let's go to the back panel 3 please. Excellent. This is Keith Weiss from Morgan Stanley. Thank you guys for Analyst Day, very useful information. Steve, you walked through 4 clear priorities that you guys are going to be focusing on. Can you give us some benchmarks to how we should look at success against those clear priorities? What would mean success in Office 365, Azure, Windows Mobile Devices and those high value activities? I'm going to let Amy actually answer. Kevin and I know what the answer is because We got that bond, baby. We know and we've got to pump up the troops on it, but I can't remember what we said externally. So So I'm going to let Amy maybe handle the question. Was that a setup? That is something. That's what I'll use as a word for it. I would say it's this way. Kevin has set very clear targets On those four goals for the field this year to execute on. I think if you and next year for 2014. I would say if you went out into the field and asked the 40,000 people who work for Kevin what those four things are, they would all know them. And they would all be able to say what their role is in making that successful. They're quantitative. They're comped on them and that's the best answer I have to say that we're clear about what they are and that we're putting our money In comp, where are or Steve's mouth was? 1,000,000,000 and billions would be the answer to the first, I would say, we have clear targets of what we want to do on 365 and Azure. And In a sense, cloud revenue cries out like a beacon in the night on the scorecard for our sellers. 100 of millions of mobile devices would cry out. We know we got our work cut out to get there, But that's the way our field would be thinking and we've had our field and our headquarters staff. PCs, we know we want to arrest and then grow in new form factors like 2 in ones and tablets, which means we like we love to stay north of the $300,000,000 line, but we're going to have to work hard to get there. And the way actually we talk about high value activities that we have with our field is selling new workloads. I would say when Kevin started this 7 or 8 years ago, there were always products on people's scorecards and they'd say, This product is too small. Why do you put it on our scorecard? And Kevin said because it's our future. And so it was the emphasis that When was that, probably 5 years ago, 6 years ago, you first put link on the scorecard or we first put on Azure in the scorecard a few years back, building kind of field experience with those high value workloads with the enterprise and marketing those high value workloads in our advertising, etcetera. We need to do those, if you will, before necessarily they're generating a lot of revenue and profit. Yes, absolutely. Okay. Let's I see panel number 2 in the back. Kirk Materne with Evercore. Amy, just along the new disclosures, are we going to also get subscription model. Yes, you should expect to get that will be you happen to ask us a specific one on unearned. That will be on the list of KPIs that we walk everybody through Next week, but that's a good one and you should expect to see it. Just a really good one for Steve. There's the perception that you need different types of skill to operate both an enterprise and a consumer business. I guess as you see this leadership transition coming in, I guess, do you feel that internally you have the skill sets to manage both a very large enterprise customer company as well as a very large consumer company? And does I guess how does that impact, I guess your view or the Board's view of who makes sense to take over for you? Thanks. Yes. Let me look I mean this is one people like jawbone about and I don't quite get it. We've been selling to consumers and enterprises basically since about 1985. And used to be people thought we were better at the consumer side and worse at the enterprise side. Now people think we're better at the enterprise side and worse on the consumer side. I'd love everybody to say you're good at both sides, but I don't see the fundamental disconnect. I really honestly don't feel it even in the culture of the place. People were asking questions to the panelists. Well, Terry moved from Exchange as much an enterprise product as we had to Windows Phone, which is much consumer product as we have, and yet skills and talents transfer very well. Somebody said, well, she's just a consumer guy. She's run data centers at scale that no one else on the planet has ever seen. No CIO has ever seen. His deep expertise in the back end, I'd say that's probably most of the dialogue he and Kevin grew up having in the company was kind of about data center operations and that kind of thing. There's so much shared technology. This is the thing that people miss, machine learning technology, operating system, cloud infrastructure, All of the things I highlighted, they're so shared. Then the question is, can you bring those alive for both the consumer and the enterprise? And we think we have and we think we can. I would note that if you take a look at it, Google think they can. I would tell you Amazon thinks they can. So there are certainly a number of companies out there that want to Absolutely recognize this consumerization of IT world and play on both sides. We grew up that way. I don't feel like it's a sort of big deal, if you will. I just don't. Even Satya sort of grew up on the consumer side of the business and then moved to the enterprise because he's been working on server and tools for a few years, he gets PEG, but he worked on Bing before that and Dynamics before that. In terms of what any of that means to the succession process, Our board is open that they're running a succession process and isn't going to say anything about kind of factors and thinking. When there's something to say, You'll hear it from our full board, not from me. I do think that whoever you put in this seat, my seat, will have some things they're stronger on and some things they're less strong on. That's just kind of inevitable. And the key will be For the board to evaluate who it thinks can be most effective. And I'm sure when there's something to report, you'll hear it. Okay. Let's go to the Frontier on Paddle 1, please. Hi. It's Brent Thill with UBS. Amy, on your new reporting structure. Do you envision giving more simplified targets to the Street? I think we've all been a little frustrated with so many different metrics. Is there going to be a clear mile marker that we can look at in this new structure as you look out and forecast Yes, I'm hopeful that I can provide more insight with some clarity on the outlook. I recognize that sometimes our methods of providing guidance or outlook in the past has been a teeny bit hard to work So I recognize the feedback and I think we'll work hard on that and appreciate your input. I'll give it a good shot in Q1 And then you guys can give me feedback if it got better. That's great. Okay. How about we go is number 3 over there in the back. This is Emily Chan from Sanford Bernstein up here. Mark, unfortunately, is unable to be to come here today. The question is on the cloud. You talk a lot about the revenue upside and the transition. So how should investors monitor the growth The cloud business and the transition going forward, any data and any metric that you will provide on an ongoing basis? Thanks. I mean, I think it starts are reporting. I think that if you looked at the other buckets, most of those are cloud services, both consumer Commercial. So I think the clarity and granularity you're going to have from a precision standpoint around those services is going to be incredibly richer than you've before. So I think it starts there. Yes. I think the title of other is not incredibly helpful to realize what's in that bucket is more important. That's really more of an issue from a reporting standpoint. But those really are our enterprise services will be in the other bucket and a lot of our consumer services are in the other devices and consumer bucket. And I think you'll really be able to see the progress we're making Okay. How about we go back to number 4, please? Hey, Steve, it's Jason Maynard, Wells Fargo. Back here. So I'm totally with you, consumer, enterprise, we're all people, we use technology, both cases, no argument there. But the thing that I'm struggling with is it's harder to make money selling hardware. It's harder to make money selling software and licensing in a mobile world. And there's this shift obviously to generating, if you will, revenue around cloud services and data for consumers. And the thing that I see is when you vertically integrate your cloud services to your devices, right, It's a similar model that you employed in the PC era where you were successful in bundling Office and Windows, right? And we made an amazing use case. But guys like me, and I think a lot of people, we've got multiple devices. And however you cut it, I don't see how Windows devices defined as PCs, smartphones, tablets are going to have enough share for me to reap the benefit as a user of all your great cloud services. I mean, I'm going to have some iOS. I'm going to have some Android. And it's just too much of a heterogeneous device world platform. And if you log me in, not lock me in, maybe I'll buy a Lumia device at one point. Yes, you said something that was exactly the opposite of what I said. So I'll say it again, but I mean this respectfully actually. You said you're going to bundle your cloud services with your devices. Let me no, let me say what I said. Yes, our devices should come with our cloud services. The reverse, I fairly deliberately said is not the case. You will be able to use our services without our devices, but our devices will absolutely honor and respect our services. Now I know we can do a better job on our own devices because we can also worry about real integration, which is harder to do with the kind of closed nature of the Android, the Google Play Store and the Apple Store. But just put that aside. The truth of the matter is our devices carry our services and our services will be available on a number of people's devices. I'm going to say it a third time. I tried to say it in my speech, I said it here. And I think the order is important. A device is only particularly to the consumer, particularly to the consumer, Consumers just don't spend a 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. So that's always been smaller. What we're telling you is we're going to integrate our services with our devices. We'll also make our services available on other people's devices, both to the consumer and to the enterprise, SkyDrive, OneNote. Now, how do we get our services to be popular on non Windows devices? With the enterprise, we kind of know how to do that. You walk into the enterprise, you say sign up for Office 365, say we're going to embrace your Ipads and We know how to do that. We know how to get paid. Life feels pretty straightforward. Will manage those things for you. Satya and Kevin both talked about managing those devices. With the consumer, It's a lot trickier to have a high popularity service with the consumer. Our highest kind of highest visibility consumer service right now is probably Skype. And one of the key reasons in fact that we bought Skype was to have a high volume visible consumer service. We probably need and it's cross platform as could be and we probably should use it to capture more functionality. Now 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're working away on it and it's very, very important to us. So Let me say, am I in a different spot than you? If so, the answer is marginally a different spot. Devices come with services, services have to find their way onto non Microsoft devices and we certainly have to support that without religious bias, if you will. Great. Thanks so much. Okay. We're going to come up here to the front and go to Paddle 2, please. Hi. This is Ken Copley with Capital Executive. I realize this might be off the wall question. But at a time when Microsoft was even more dominant in the market than it is today, Google strategically made a decision to attack you guys by giving away the operating system, calling it open source. And any way you cut it, it's been successful. It garnered about, what, 79% of the market. And Right now, they're generating about 83% of their businesses in search related advertising or search related services. It's a highly concentrated revenue stream. And I think when you get a highly concentrated revenue stream, that creates a weakness or a vulnerability, so to speak. And And I'm just wondering if you can talk about any kind of strategies that might be in play where you might take advantage of or attack that vulnerability within Google. Thank you. Well, first of all, we're the only guys in the world trying. And that starts with a great product. We've invested in Bing, particularly in the United States. Some of the new investment in Bing is to make it as good outside the United States as it is in the United States and that requires more investment because you have to index more of the web, you have to know about more about local events and information, etcetera. So number 1, got to get the product right. Number 2, you sort of have to be a critical mass. This is a scale game because the market for advertising is auction based economics. So if we have exactly the same quality of algorithms, but a lot less scale in search algorithm in search advertising, We will get less revenue per search than Google does, which means they have more money to pay for distribution on Samsung Devices or Apple, I know rumor has it that they probably pay each of those guys, what, dollars 1,000,000,000 to $2,000,000,000 to $3,000,000,000 a year for distributing their search products. So we have to generate volume in order to step up. I do believe that Google's practices are worthy of discussion with competition authority and we have certainly discussed them with competition authorities. I don't think their practices are getting less meritorious of discussion. We've highlighted some of their bad practices in our advertising, in our discussions with regulators, The bundling that they're doing with YouTube and Google Maps and some other things. Anyway, suffice it to say that I think they need pressure from competition authority. I think any pressure in the marketplace, I think with product, with investment, with scale. How do we get scale? The easiest place for us to get scale is on our own devices or on somebody with whom we are closely aligned. We're very pleased to be providing Bing results that Apple hasn't. We found a way to partner with them and we're excited about that in this dimension. So there's a range of things that we're doing. And I do believe that's an important pressure point. That advertising Marketplace right now, Google has pretty well defense, but I think we've got a pretty good attack strategy. It will take a little bit more time and a little bit more patience. I think it will have great economic return for our shareholders and at the same time changes a lot of the competitive dynamics overall between our companies. The one thing I'd amplify there on the compete strategy is the search arms that we've got in 8.1 are certainly an accelerator to Bing as well. So Qi touched on that when he was up here. That is We see a game changer both from a usability perspective and a search perspective in that particular piece of technology. Yes, just let me just build on what Kevin said. With Windows Phone, I know we have small market share in phones. I'm not confused. But 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 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 profit, they don't seem to put the profit anywhere. 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 and Google. So we see what Google is trying to do between combined economics, between consumer services and devices. And part of the reason why the segment we're reporting is devices and consumer services is because we don't want just sitting there saying, well, geez, Microsoft decided to monetize through search or advertising as opposed to through device gross margin or royalty and think that there's something wrong. We constructed it as a segment precisely because we do see the same competitive dynamics And we see the same technology opportunities that Kevin referenced. Okay, let's go with number 3, please. Thanks. It's Ross MacMillan from Jefferies. You made a commitment with Azure to match and Amazon for compute, storage and bandwidth prices. And Amazon has a strategy of running their business at retail margins, very low single financial margins. So as Azure grows, how should we think about that margin structure? Is there a reason why your margins might be different from a server and tools on premise business or do you think ultimately it will be somewhat cannibalistic and it will take over some of those on premise workloads. Thanks. On your first question, I think the look, the infrastructure as a service economics are some of the lowest margin in the cloud. And clearly Amazon has been tough and we've been in there matching and competing with But if you'll remember back when we started Azure, we didn't start with infrastructure as a service. We started with platform as a service. In the platform as a service, which we I believe have leading technology, leading edge technology versus any competitor, including Amazon in that space. That's where we see the ability to get to really take advantage of what we call modern IT when people really rewrite their applications for the cloud to be able to leverage a pay as you go service to be able to really light up a full cloud service in an enterprise. The margin structures on the platform as a service are much more favorable than they are as an infrastructure as a service. So that our on ramp would be to on ramp people to infrastructure as a service upgrade them, upsell them as they reinvent their IT departments. And hopefully, we're facilitating that in the platform as a service world. As it relates to the go ahead. No, go ahead. As it relates to the cannibalization question, as we move people from on premise to cloud, Yes, we're willing to cannibalize ourselves to do it. And we've embraced that. And when I said that transition is underway, it's We've had the Office 365 formerly not so sexy name of BPOS on the our store dashboard and store card for a while and we've been driving that volume. It's finally hitting scale. But we put in a few years there of good toilet and work to be able to get it there. And I think the cannibalization stuff is imminent. You're going to there will always be some on premise out there. But the reality is we want as many of those customers as we can get in the cloud all in because number 1, I can keep them current. And I can get them up to the latest and greatest level without them having to worry about it because as I've said before publicly, I think one of our big liabilities in the old world was the amount of products that people owned that they didn't have deployed. In this new world, they're deployed because we're deploying it for them. The second reason I believe that that cloud accelerants is we can keep them more safe and secure than they can. And everybody has come to the realization of that. And cybersecurity and all of the issues that go along there, I think is for those customers is much different than anything we've had in the past. Just a reminder, we're not new to the world of commoditization. There were kind of Linux servers in the old world and we competed against them. And there are there's always going to be something that looks like a commodity that is low margin or in the old world people just used free software. So the key is again this notion of high value activities. If we can support something that is of great value, believe me, IT people, saving their company money is important, sleeping well at night because of security, reliability, availability, speed and agility of deployment. There are a lot of places to change what looks like a commodity game right now for storage. You may not do it for a Silicon Valley startup. They're going to sit there and get the fine pencil out, but the average enterprise is looking at a total cost of ownership just like in the old days when they were looking at free office and free windows. I think there's a chance to again have a value proposition that is better and lower total cost of ownership even if on some specific item, the commoditized workload might look cheaper from either Amazon or Microsoft. Okay. Let's stay here in the front of panel 1 please. Thanks Rick Schreeland. Steve I thought you were pretty explicit There's a version of Office 365 optimized for touch coming for other platforms. So congratulations on that. I think will be a big step in delivering on your strategy. And Windows platforms. Yes. Touch is a different interface, a different version, I'm sure. So could you update us perhaps on where you stand in terms of the restructuring? Is this already taken place? Is it going to number of quarters for everyone to know kind of what their structure is, who they're reporting to and to make all those changes. You can sort of update us on the status there. And maybe for Amy, I'm a little confused about how big the cloud is for Microsoft. We've got a piece here, a piece there. Is there a number you can give us that gives us an idea of how big your I think the actual cloud business is today in aggregate. Yes. On structure, of course, the first thing to do is the 1st layer and then the 2nd layer and then the 3rd layer and things kind of progress. The first layer is obviously done. There's not a lot of change in Kevin's world at the next layer. Tammy's mostly done. Tony Bates who runs our business development and evangelism is mostly done, I would say so on the business side. On the R and D side, Terry made some moves. He probably has a few more over time has his guys figured out, but he's put in the structure below him. Satya has perhaps fewer changes that he will make. Obviously, with the acquisition of Nokia, there'll be a set of work that needs to go on that Julie will work on with Steven Elop, who will run that area. Carol's group because of the kind of special nature in that very profitable business called Dynamics. We're mostly kind of leaving things as is and just matrixing into marketing and some of the other functions that's working. And Chi, Chi is taking some time. There's nothing to report. He's sort of developing his unified thesis of what to do in order to get kind of the Max productivity, the most high value kind of the most application effective application development out of his team and taking into account what we're trying to do. So when there's news, there'll be news, but he has not done anything at the layer underneath him. His structure looks exactly like it looked before the reorg and it could stay that way or you could choose to change it. None of anything I said has Financial ramifications. I'm just talking to you about where things are. And Amy has already given guidance separately and maybe I'll let you finish the question. I think You asked me to give a cloud revenue number. Why don't I take that as guidance on what you'd like to hear from me as a KPI? I don't think I'd probably give one off the top of my head. It's probably not the best way of doing it. So let me take that as a KPI input. Okay. Thanks. I think Thank you. So, CGM has actually paid that Microsoft is ambitious and make big bold bets with big economic upside. And that's increasingly rare in IT. And frankly, you've been consistent in that over many years. So the question is, why do you think financial markets haven't And does that make you do anything differently? Financial markets should recognize it when it leads to profit growth. So what I basically said is I have a thesis. The company needs to produce every day and we've got upside and we've got a little headwind. Kevin and I both talked about it, but we got plenty upside. In the meantime, We will continue to sustain in investment in the technology, the talent, the approach that gives us the skills to seize on the next opportunity. If there's 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 foreign factor called the phone. That would probably be the thing I would tell you I regret the most because The time we missed was about the time we were working away on what became Vista. And I wish we probably had our resources slightly differently deployed, Let me say during the early 2000s, it would have been better for Windows and probably better for our success in other form factors. So should the market just believe? I can't argue that. What I can say is the ultimate measure of the place has got to be what happens with profits. It's got to be the ultimate measure of any company. On that dimension, We've made bets. The bets have worked and we're making new bets. And when they work, I'm sure people will give us credit, whether those are incremental upsides to our current profit pool with some exposures on the downside, but incremental upside or whether that's really the next big thing. Apple was what essentially 0 market cap in 1997 and now enterprise value close to 3 and I'll use enterprise value because that's kind of how I think. Enterprise value close to 300,000,000,000 That's $300,000,000,000 in new market cap created on touch and microprocessors. And it happened to be created in that cases through a devices approach. 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 $10,000,000,000 $15,000,000,000 $20,000,000 $25,000,000,000 $25,000,000,000 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, 15 years. That's great. Thank you. With that, that concludes our financial analyst meeting for today. Thank you all for joining us today, taking the time to come out. We do hope that you stick around for the reception. We're going to move next door and many of our executives and presenters will stick around and we'll have a chance for some informal conversation. Again, thank you. For those that have already submitted the survey, thank you. Again, we'll pick the winner and we'll announce it next week. And we look forward to talking to you soon. Thank you.

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