Microsoft Corporation (NASDAQ:MSFT) Credit Suisse 26th Annual Technology Conference November 29, 2022 11:35 AM ET
Company Participants
Alysa Taylor – CVP, Industry, Apps, and Data Marketing
Conference Call Participants
Phil Winslow – Credit Suisse
Phil Winslow
Well, welcome everyone. My name is Phil Winslow. Thanks for coming to the 26th Annual Technology Conference, very excited to have Microsoft joining us, Alysa Taylor. So, Alysa, thanks for coming down. But I think the weather is better here than Seattle right now.
Alysa Taylor
I know it is snowing in Seattle which is — .
Phil Winslow
So I think this is a win, Alysa.
Alysa Taylor
Yes.
Phil Winslow
So but thank you for coming down and joking aside.
Alysa Taylor
Always my pleasure.
Question-and-Answer Session
Operator
[Operator Instructions]
Phil Winslow
So appreciate, Brett, always the IR team for all the work they do. So maybe just a level set of things maybe I mean, your role obviously touches multiple parts of Microsoft, maybe for the audience maybe don’t know you as well, can you give us a sense of each of your roles, responsibilities, et cetera at Microsoft?
Alysa Taylor
Absolutely. So I am responsible for our Azure and our global industry business at Microsoft. And the division that I run is responsible for working closely with our engineering team on what services we’re going to build, and then how we bring them to market. So how everything from our product strategy to how we price license package, and then all the way through to bringing it to our customers and partners.
Phil Winslow
Excellent. Yes, keeps you busy.
Alysa Taylor
Yes.
Phil Winslow
So there’s a lot there. So I think maybe we’ll start this conversation, like a lot of the conversation today was sort of the high-level macro questions, and then we’ll drill in from there. But you’re sitting here today, obviously, there’s more and more questions, you just have to look at the news at the outside about just macro-economic uncertainty. Yes. What are customer conversations like you called over the last month versus the beginning of the year? Have things changed?
Alysa Taylor
Well, I think we’ve all seen a split, there is a variety of things that are happening in the market right now. So everything from obviously, the economic concerns that are happening all the way to the energy crisis that’s happening in Western Europe, and then the workforce transformation is still very much top of mind. There’s a bunch of different facets that are coming converging on organizations that they’re dealing with. I think as the — as organizations are looking to how do they weather these different assets? There’s all that they’re there, how you to navigate through the hybrid workforce, how are they able to make employees more productive, but yet still deal with some of the societal pressures that are coming to bear? So it’s been an ongoing as we’ve come out of the pandemic, we’ve come into these new set of challenges that we’re facing. And there’s a lot that’s happening in the market and across organizations right now
Phil Winslow
Yes, a lot of variables.
Alysa Taylor
Lot of variables.
Phil Winslow
Alysa, let’s stay on this topic. But how are customers prioritizing — prioritizing? And how are the priorities changing really is my question, what products are you seeing the most strength and resiliency versus those that are maybe call it at risk of being pushed?
Alysa Taylor
There’s a number of priorities that I would cite, I would say the first is obviously cost and how organizations are managing costs, particular sectors, right now, technology are under great pressure to manage effectively manage costs. And so for us, when we think about how Microsoft is helping, there’s a lot that we do around helping organizations migrate to the cloud, there’s a fair amount of if you think about just, IT management facilities, energy costs, savings that come from migration. So that’s been at the top of how do we help organizations leverage the assets that they have, but also be able to quickly migrate legacy assets to the cloud and realize energy savings, and overall cost savings? So that’s been a big focus.
The second that we’ve seen is around automation. And this has been prevalent in most of the customer conversations that both I’ve had and our senior leadership team have had around how do you automate things like repetitive tasks? How do you free up resources, T-Mobile’s a great customer of ours, they implemented power automate, which is our PA system, and it saved them 600 FTE man hours just being able to free up those — some of those, again, repetitive tasks to put people on higher value tasks. So cost savings with migration, automation, hybrid work is another big one how does you navigate and hybrid work has taken an interesting obviously, it was all around how do you get the workforce into a full remote was the pandemic, now, it’s what is hybrid look like? And how are you accommodating those that are remote in person? How are you navigating things like people being connected, and the social aspect of that. There’s a big component of that in the hybrid workforce. And then the last I would say is which is still pretty prevalent is around the data story. So how are you aggregating data? How are you getting insights? How are you more efficiently running your organization very data driven culture that hasn’t gone away, that’s still actually very much at the top of the list of priorities.
Phil Winslow
Interesting. Yes, I know it’s funny, speaking — I got energy I saw a graph recently is how much a 20-megawatt data center in Germany now cost up power. It’s pretty astounding.
Alysa Taylor
Yes.
Phil Winslow
It’s like, when you talk about energy, it’s like, that was top of mind when I saw that graph was like, Oh, that’s a real number now.
Alysa Taylor
Yes. And you see organizations, they’re wanting to quantify the savings. Like we talked about a 30% savings when you migrate and on-prem application to the Cloud, like these are things that it’s aligning both the client how you quantify those savings with the business outcomes.
Phil Winslow
Exactly. That’s excellent. Okay, let’s drill in on this, then you’re, on the fiscal Q1 conference call, Satya, Amy highlighted the customers focus on what they were calling optimization of their Azure states, and that was going to be impacting your growth in the near term? What are you seeing in terms of optimization? I get that question a lot, sort of like what it –was sort of what are they referring to? And like, what are the areas of focus and why?
Alysa Taylor
Well, I think optimization is not a new thing. If you think about the cycle, particularly in cloud-based workloads, you migrate them, you optimize them, and then you reinvest in new workloads. That’s a normal cycle. I think what we have seen is as cost pressure has come to bear organizations are optimizing faster than in putting that as a priority. And so we are still very committed to making sure that we’re helping customers seamlessly migrate, and then helping them optimize, and then being able to reinvest in things like automation, security those higher value data aggregation type workloads. So I think that is not a new thing. And it’s interesting, because if you think about even in the on-prem world, this isn’t a new phenomenon, like we virtualized servers and an on-prem. So optimizing in a cloud is just it’s a natural IT cycle. But it is happening very, very quickly, right now. And it’s an area of focus for organizations. And so for us, we’re looking at how do we partner with organizations help them optimize, so they can realize those cost savings, and then again, reinvest in things like making sure they’re securing their data workloads, or securing their data centers, they’re being able to focus on analytics projects to get greater insights into their business. So it’s all about kind of taking those savings, and helping reinvest to continue to move the business forward.
Phil Winslow
Yes, reminds me a little bit of sort of those middle quarters of calendar 2020, where there was a similar kind of commentary from Satya and Amy sort of optimization workloads, but then to make way for new workloads in the future, you make sure your state is properly optimized, because then the next one, the next wave comes you need to make room for that. But make sure what you have is properly, we call it resource, et cetera.
Alysa Taylor
Yes, you asked about those priorities. So we want to make sure that we’re helping to optimize the existing workloads, so they can focus organizations can focus on the priorities that they want to expand into.
Phil Winslow
Exactly. Now, industry, let’s flip over to that, is one of my favorite themes. I don’t know, obviously, yours, too. But the obviously there was a big theme at Ignite this year, and Microsoft now has seven industry clouds available. And one of the things that we’ve seen is like customers sort of increasingly want sort of to be agile and future proof themselves particularly sort of on a verticalized basis. Now, what industry specific use cases do you see resonating the most with customers? And what does the future look like in terms of expanding to more clouds?
Alysa Taylor
It’s a great question. So when we talked about the macro trends that are happening, but then if you narrow zoom in every industry has a very specific set of both challenges and opportunities that they’re facing. So if you take healthcare as an example, so how you serve patients in a hybrid environment has been top of mind for healthcare organizations, it was, came to the forefront in the pandemic. But this notion of virtual health sort of came out of nowhere. But it has a real both benefit in terms of being able to make patients be able to read a service be in service and in a variety of different ways, but then also making the physicians more effective. Another thing that’s facing healthcare right now is physician burnout. And that’s been, there’s 50% more, their physicians are reporting 50% more burnout today than they were in the pandemic. And so like that, like that’s something you’re seeing that sort of increases the time pressure along with doing things like routine tasks. So we’ve talked about paperwork inputting patient data. So that’s healthcare.
And then if you move over into retail, curbside pickup was something again, that didn’t exist pre pandemic and had to quickly come into the vernacular of every retailer. They’re also now looking at how do you do frictionless checkout? Manufacturing is all around automation that building the agile future — new factories. So digital twins are now a big thing of how do you do sustainable factories. So each one of these industries has these very different, what I would say coupled with the macro trends, these very specific industry trends that they’re dealing with. And so we at Microsoft have always served, we’ve served organizations in all industries. But what we realized is that we had to make sure that the Microsoft cloud, so every aspect of the Microsoft Cloud, from our application layer all the way to our infrastructure layer was had a way to verticalized it to be able to help organizations realize these trends faster. And so we took a pretty unique, I think, approach to our industry cloud. So other organizations have separate systems that are designed for industry, what we have done is we’ve taken first party assets to verticalized, the Microsoft Cloud. So things like starter applications, data models, connectors, APIs that will actually take the scenarios like curbside pickup or virtual health, and allow an organization to bring the virtual health capabilities into Microsoft Teams, allow them to organize their data in Microsoft synapse, be able to then pull all of that relevant data that is patient specific into things like dynamics 365. So it’s the — we’ve taken these very, very specific industry use cases. And we’ve built technology that will actually enable those use cases within the existing Microsoft Cloud horizontal assets.
Phil Winslow
Yes, exactly. I mean, it’s sort of like a natural progression of software, you start with sort of the horizontal suite get all the assets, and then you accelerate time to value by verticalizing them, the other functions of packaging, to your point, the first party applications on top of it. So it’s great to see that that’s like I said, one of the things that we’ve gotten a lot of feedback on was just how differentiated Microsoft and Azure is in the industry side. So that was a great detail. I’m going to stick on the industry cloud for a little bit, because, like I said, one of my favorite topics, I mean, obviously, it’s built on the strength of just Microsoft Cloud, as you were saying it. What are you think, sort of across the breadth of your offerings? You’ve touched on this a little bit, but what Microsoft offers that horizontal suite is so broad, what are you seeing there? And then put it in a sort of vertical context?
Alysa Taylor
Well, if we, if you look at the Microsoft cloud, so if we start with Azure as the global hyperscale platform, then we look at what are all of the developer assets, the power platform Visual Studio, that we have to be able to build on top of our cloud platform. And then you have the application layer. So we have Dynamics 365, Microsoft 365, that sit on top. So that’s and then security kind of wraps around all of that. So that’s the Microsoft Cloud. As I talked about, we’ve released and you mentioned, we have seven industry clouds then verticalized that stack, and we continue to look at where are the industries that have the greatest at scale need for that verticalization? And what are the use cases that are most prevalent? And one of the things that we’ve seen, we actually just our most recent industry called offers around sustainability. And being able to bring sustainability, especially as there’s new regulation coming to market, the Western Europe, or the European regulation around sustainability and carbon emissions, it was just announced at COP27. How do you then use the Microsoft Cloud for sustainability, to meet your sustainability goals and regulation that is coming? And so these are areas that we and again, the sustainability is all around taking all of that disparate data, when you think about carbon emissions, that how do you track carbon emissions, there are 1000s of different data sources, it’s about bringing in those data, bringing in that data, being able to organize that data, and then actually be able to report, record and report that data. And so that’s the capability that we have enabled with the Microsoft Cloud for sustainability. And again, it’s using assets, like our data services are being able to have out of the box connectors to things like standard ERP systems, and then being able to do the reporting directly into a system of record, and then use things like Power BI to do the analytics on top of it. So that’s an example of with the industry clouds, how we are taking a very specific thing like sustainability, and bringing that to the market.
Phil Winslow
Great. Let’s switch gears a little bit and talk about just sort of the go to market approach. I mean, what makes the Microsoft’s approach just different? Is it more about just call it the product itself? Is there something about truly just go to market motion, the sales and marketing process or perhaps even some of the unique partnerships that you’ve all discussed in sort of these specific verticals?
Alysa Taylor
Definitely. So when we think about our go-to-market we start obviously, very similar to what you and I have been talking about here, which is what are we hearing in the market? What are we hearing from customers? What are we hearing from our partners? We start there. And then we go through what is called a semester planning cycle. So we actually work very closely like in collaboration, my team, with the engineering team to say, what are we prioritizing? Where we build by and partner? Where do we partner in that, and then bringing the actual probably the newest thing. So that’s we’ve been doing that for years. The semester planning is something that is new, and we’ve gotten more rigorous around, but the actual, how we bring it to market, I would say the two facets that are new and where we continue to invest. One is our account teams are now all vertically aligned. So that’s a very big change for Microsoft, which is having both the deep, deep industry expertise at the account level, and then having all of our specialists at the technology layer. And so it’s this marriage of industry plus deep technical capabilities that we brought together across the all of our subsidiaries across the world.
So that’s new, and then our ecosystem, our partner ecosystem. So continuing to make sure that we have when we think about even on the industry side, or on the Azure side all the use cases that we’ve talked about all of the scenarios making sure that we have both system integrators that can bring to bear that very custom solutions, and then an ISV ecosystem that brings to market the extended vertical and micro vertical solutions. And so investing in that, and there’s new capabilities we brought to market, our marketplace is a great example of being able to bring all of our partner solutions to our customers very quickly through an integrated marketplace. So those are some of the new areas of both investment and focus and our go to market.
Phil Winslow
Yes, that’s something that I’ve heard too, just on the go to market, particularly sort of verticalization
of it that, especially call it in these times that having somebody that sort of speaks the language of the vertical, somebody that speaks sort of financial services, selling to financial services, and saying, sort of this is how you even sell the project internally, actually helps you Azure sales cycle, your sales process, when sort of the salesperson speaks the language of the customer, you can almost help the customer sell it internally so to speak, you’re, call the champion, you’re selling internally.
Alysa Taylor
Yes, if you sit with the chief medical officer and try to talk to her about the data center him or her, that’s not going to go very well. So you have to, you actually have to deeply understand what a chief medical officer is facing everyday things like physician burnout and patient engagement, and being able to enable frontline workers. So it’s a very, very different orientation for how you actually serve customers.
Phil Winslow
Right time to make that change that vertical alignment, it’s now as good as ever. So wrapping up here in the last couple of minutes here. Let’s say we’re sitting on stage two, three years from now. What technology change or trend, do you think we’re going to look back on and say, hey, this was more widespread or more transformative for Microsoft’s customers, and maybe people were given a credit for back in 2022.
Alysa Taylor
I think there’s two areas. The first is there’s a lot of buzz in the market right now about the metaverse, and I think most people think of Metaverse, they think of gaming or social. But there’s actually an industrial side of Metaverse that is emerging, that I think is one that is, has a ton of potential. So if you think I talked a little bit about digital twins in the manufacturing, but if you think about being able to blend that physical and digital world in a way that allows you to do things like replicate entire buildings, replicate entire factory floors, being able to then remotely monitor those factories, as an example. So being able to replicate monitor, and then actually drive efficiency. When we talk about the industrial metaverse, that’s what we’re talking about. And so it’s a great Coca Cola, their Australian Bottling Company is a great example of, they actually would have to go out and have routine maintenance, which is you don’t know, if the factory needs to be maintained. But they actually stood up a digital twin, they can zero in to all of their different bottling companies around the world. And they actually can then maintain, so actually monitor and maintain that bottling facility. So they can look at things like water output, they can predict where there might be breaks in the line.
And so then they aren’t doing the costly fly out to that Bottling Company and do the standard 30,60, 90-day maintenance. They’re doing maintenance as needed. And then they’re doing predictive maintenance. And they’re able to also have their experts from around the world troubleshoot without having to fly them in. And so if you think about that, like then you are both saving costs on things like maintenance, being able to be in a proactive state, you are actually able to do things like lower your carbon emissions, because you’re not flying people all around the world to maintain that factory. And you’re able to do things like understand where there is automation that you can apply into the factory to make it more efficient. And so I think the industrial Metaverse is something that has huge potential. And I think we’re on the very early cusp of realizing that. And so I think that’s one that I would say is we’ll sit here and however many years and I think it’ll be a much more prevalent set of technologies that companies are using because they can be more efficient, they can save costs, and they can be also more sustainable. I put that at the top of the list and then I think just a bridge on that. I do think mostly because of where the world is going and coupled with regulation, sustainability and how you do not only just carbon emissions, but water and waste is another area that is going to be more and more I think at the top of everyone’s list from a priority standpoint.
Phil Winslow
100% on both those two, great well, appreciate the time. Like I said thank you for your coming down, it was great conversation and we’ll maybe check back in two or three years and we’ll check on the metaverse and sustainability clouds.
Alysa Taylor
I love it, right. Thank you. Thank you for having me.
Phil Winslow
Awesome. Thank you very much. Appreciate it.
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