1. Who: Larry Orecklin, General Manager, Virtualization Marketing
When: Thursday, December 20, 2007
Where: Live Meeting
OPERATOR: Ladies and gentlemen, good afternoon. I would like to welcome you to
today's Webcast titled Microsoft Virtualization from the Datacenter to the Desktop.
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would like to hand it over to Kevin Green. Kevin, you now have the floor.
KEVIN GREEN: Welcome everyone, and thanks for joining us today. Before we
begin, I would like to cover the following details. This presentation may contain
statements that are forward-looking. These statements are based on current
expectations and assumptions that are subject to risk and uncertainties, which may
cause actual results to differ materially because of factors in this presentation, and
management's discussion and analysis section of the company's 2007 Form 10-K, or
in other reports and filings with the Securities and Exchange Commission. We
undertake no duty to update any forward-looking statements.
As always, a replay of this Live Meeting, and a copy of the slide deck will be made
available at Microsoft Investor Relations Website, www.microsoft.com/msft. I'm
pleased to be joined today by Larry Orecklin, General Manager of Virtualization
Marketing for Microsoft. Format-wise, Larry will walk through a presentation
summarizing our strategy for virtualization, and we will then have a short Q&A
session. Please note that only those participating via the Live Meeting will be able to
see the presentation slides, and submit questions. We ask that you submit your
questions via Live Meeting, you also include your name and firm. I will then read
these questions for Larry to answer.
We may not have time to answer all your questions, so if you have further questions
after the call, feel free to call Investor Relations and we'll be happy to follow up with
you. So, with that, I would like to turn the call over to Larry.
LARRY ORECKLIN: Thanks, Kevin. Good afternoon everyone. Pleased to be with
you here today. What I want to do is spend about 25 minutes or so walking through
2. virtualization. First an overview of the market, what is virtualization for those that
may not be intimate with it. The opportunities we see for virtualization technology
within our customer environment, and then the strategy Microsoft is taking to really
drive leadership to help customers take advantage of this. So, as a starting point,
there's a lot of excitement and hype in the market today about virtualization. And
there are really a lot of good reasons for that. And it can have tremendous impact,
positive impact on a company's cost structure, as well as the agility of their IT
What is virtualization? So here on this first slide, on the left, is a view of today's
non-virtualized IT stack, and what you have is a stack that is really tightly coupled
and static with one layer being connected to the next. Starting at the network,
assigned to a specific location, the storage assigned to a specific hardware, the
operating system tied to that hardware, and the application tied to both the
hardware and the OS, the traditional way that we've gone about delivering IT
services. If you look on the right and think about what does virtualization bring for
you, in its simplest form it's about isolation, isolating one resource from another, and
that could happen really at any layer in that stack, be it at the network, or storage,
machine virtualization which is what you're hearing a lot of noise about in the market
today to applications and finally to the actual presentation of an application. All of
those are real opportunities.
So given this sort of view of what virtualization is, in this isolation, I thought what I
would do is really give you a demonstration of the power and value that it could
have. And to do that, I'm actually going to take a look inside Microsoft, in our data
centers. Microsoft today, as you know, is probably one of the largest operators of
data centers globally. We've got about 13 data centers that today we manage about
100,000 servers within our data center. And as we've been managing these data
centers, have really put a lot of effort into how we really get efficient at operating
those data centers. And so in terms of how they're architected, and how they're
cooled, and the power, and the automation that we do with our software, we've
gotten it now down to the point where we can operate one of these large data
centers with normally 35 people, which is really great on a cost structure.
But as you make all these improvements what comes to the fore pretty quickly is
that power and cooling become the number one issue that is faced by a lot of
corporations in their data center, and to get after that it's the little things that really
make the difference. And it's gotten to the point where, within Microsoft, they now
know that if they paint the roof of the buildings white, and they scrub them and
clean the roof four times a year, they can actually get the cooling down to a point
where they can throw in more racks into that, get density higher, and get that much
more of value out of the data center. So a lot of thought has gone in this.
With all of that thought, with all of that effort, with all of that innovation, if you look
at where our data centers are today, we're still at a utilization of about 7 percent,
and decreasing, although some applications, such as Exchange have very high
utilization, many applications today, be it Microsoft or all of our customers, have
extremely low utilization, 90 percent of servers out there run at less than 10 percent
utilization. So given that, what a tremendous opportunity if you can take advantage
of new technology, virtualization, to allow you to drive that much higher. So cost
efficiency is clearly one of the benefits that virtualization can bring.
3. The second is in terms of agility. As I now isolate one resource from another, I'm
able to now more quickly and easily move around different resources within my data
center, or within my infrastructure. So disaster recovery becomes much, much
easier in those kinds of environments. So it's a ton of value. Given all that value,
though, the thing to keep in mind is that it's very, very early. Today, according to
IDC, less than 5 percent of servers are actually virtualized today. And so the far
majority, about 95 percent, are still an opportunity if you think about the market
that way. And in that environment, Microsoft has really been investing in a broad
set of technologies to bring to bear to help our customers take advantage of that.
And when we think about virtualization, we really are trying to take a holistic
approach, both in terms of the technologies and products that we are bringing to
market, as well as to all of the investments around the product, be that support,
pricing, licensing, interoperability, and some things I'll talk about in a bit. But as a
starting point, I mentioned that virtualization is isolating one resource from another.
So as you do that, you can think about using different kinds of virtualization to solve
different kinds of problems. On the far upper right, server virtualization, that's what
you hear most about in the market today. So that's where Microsoft has been in
market with our Virtual Server 2005 solution, and our next version coming out will
be coming out with Windows Server 2008, called Hyper-V, and I'll talk more about
that in a second, but a lot of excitement going on there.
Next, going down to the lower right, application virtualization, this is really about
isolating an application on a client machine that allows you to do great things around
application compatibility, and the ability to stream applications on demand to
desktops, a very quickly growing area. And this is an area that actually Microsoft
entered via an acquisition of the market leader a company called SoftGrid, Softricity.
Here, in this area, Microsoft has actually had over three-and-a-half million seats of
application virtualization sold in just the last three quarters, the fastest growing
product in volume licensing history at Microsoft. Desktop virtualization, lower left,
this is really about creating multiple images of an operating system on a PC. Our
offering here, Virtual PC, which has been in market for several years, we've had over
2 million downloads of Virtual PC in the last year alone. And then, upper left,
presentation virtualization, this is really about isolating the presentation from the
actual application running in the data, which can occur back in your data center,
which has security benefits, it has benefits for different kinds of users like call
centers that you might want to deploy. We have been in this market for over 20
years with our Terminal Services product, and here we have over 70 million users of
Microsoft Terminal Services today. So really when you take a step back and think
about the broad set of virtualization that customers have been using, we have been
investing across the board.
What's critical, the more and more you go down this virtualization path, is that really
it becomes about the management of these environments because less and less you
can identify the specific resource, or the specific hardware that you can put your
hands on. And so the ability to manage in this virtualized world is absolutely critical.
For Microsoft, our investment here and our solutions is about our System Center
suite of systems management tools, and there we believe and the approach we are
taking is that one solution set to allow me to manage the broad array of
virtualization that customers are looking to do from a single pane of glass and do
that across both my virtual environment, and my physical environment from the
same pane of glass. And that's critical. Customers do not want to have to be
investing in different infrastructures, different technologies, and different skill sets
4. for their physical and virtual environments. So that's really the holistic view we're
taking across the technologies. I just want to mention two of them quickly in a little
bit more detail. The first is our next version of our server virtualization solution.
This was code named Viridian, and now the name of the solution that will be entering
market is actually Hyper-V. Hyper-V is a hypervisor-based architecture, which is a
thin layer of software that sits directly on the hardware that the operating system
interacts with. And it is a role of Windows Server 2008, so when a customer deploys
Windows Server 2008, our hypervisor virtualization technology is there enabled as
part of that implementation. With that, you get enterprise class features around
high availability, migration, dynamic resource balancing, integrated data protection
that all come as a part of Hyper-V, and as a part of Windows Server 2008. That is
well integrated into our systems management tools, Systems Center, to allow you
really the best in class management of that entire stack. And then for customers or
OEMs that want to provide that on a standalone basis, we have announced the
Microsoft Hyper-V Server, which is just that Hyper-V role that will be available at a
price point of only $28. Originally, Hyper-V was due to come out in beta Q1 of next
year. We announced last week that we were actually shipping and making that
available to customers publicly, and did so last week. And so now customers have
been significantly going and trying to download, and take advantage of installing,
testing, and beginning to work with our Hyper-V technology. A lot of very positive
feedback that we're starting to get from that. The RTM of Hyper-V will be within 180
days of Windows Server 2008 RTM, which is due early next quarter. So that's
The next key component of the solution then is Systems Center. And Systems
Center is that holistic solution that allows you to backup, configure, monitor,
distribute all of your infrastructure software and applications, be that physical or
virtual from a single pane of glass. With Systems Center Virtual Machine Manager,
which is our specific solution for managing virtual machine technologies, and Hyper-
V, that's currently available in market, and when Hyper-V releases to market, we will
have the Systems Center solution that manages both Hyper-V, and we announced
management of VMware ESX as well. So from a single pane of glass, I'm able to
manage my physical and virtual, I'm able to manage multiple hypervisors, and I'm
able to manage deep into the application, which is what customers are really trying
When you think about the market, and we think about adding real value to
customers, and helping them take advantage of this technology, the approach that
we're taking is about four things that you can see on the left. The first is that we
want to make it a feature of Windows Server 2008. We believe that having
virtualization as a feature of the OS really will provide for the broadest adoption
within the customer base, the broadest adoption by all of the ISVs that are writing
applications to Windows, the thousands of ISVs out there, as well as taking
advantage of all of the work that Microsoft does with the ecosystem, the hardware
vendors, all of the drivers that are there in Windows, and therefore available to take
advantage of Hyper-V as well. Built on top of that feature in Windows, we have our
comprehensive management solution, and that's System Center, and I talked about
really why we believe that's so unique, physical and virtual, managing deep into the
applications, and managing multiple versions and technologies from multiple vendors
from that single console.
Critical to broad adoption is ensuring that it's available to customers really at a good
price point. And in Microsoft the approach we want to take is a low cost, high value,
5. high volume offering. And so the combination of having it as a feature of our OS,
and a very low cost, easy to buy, single license for management makes it, we
believe, the lowest cost solution in the market, which can really help drive broad
adoption from where we are today at the 5 percent.
And then, finally, on top of a world class server virtualization solution, recognize that
virtualization is one important technology, but just one of a broad set of technologies
that customers are looking to deploy to create and get to that dynamic state where
they have highly agile, low-cost infrastructure across both their desktops and their
data center, and Microsoft is making investments both in the platform, in
virtualization, at the application layer, in the model layer, as well as in the
management layer, that we think will uniquely position us to allow customers to
drive down that cost of infrastructure, and take advantage of this technology. That's
how we believe we get to leadership.
Technology is one thing, but on top of the technology is we recognize that
virtualization really needs to fit into a customer's environment, and the rest of their
infrastructure. And so to that end we have been investing in a number of areas.
The first is interoperability, and where we want to ensure that Microsoft is number
one, the best platform to virtualize from, be that Windows, or other platforms such
To that end we have been working with the industry, have been making our format
available, our VHD format, and working with a number of industry players to make
that the industry standard, have announced several relationships with companies like
Novell, with companies like XenSource, to ensure that Windows is the best platform
to manage from, as well as ensure that Windows runs as a first-class citizen on other
virtualization platforms. Then ensuring that with our virtualization validation
program that Windows is really -- customers feel comfortable putting it into their
environment, and running Windows on different virtualization platforms.
From a licensing perspective, we recognize that it is causing the industry to think
about how they approach licensing. We have tried to be on the proactive side in
helping customers take advantage of this technology. Some examples of that are
what we've done with our Windows Server pricing, where we have editions of
Windows Server, at a very cost effective rate that allow you to manage both single
instances, but also multiple instances of Windows Server on a single price point, or a
single box, as well as unlimited number of instances on a single server at a very
cost-effective price point.
Then what we're doing with our management tools, where I buy a single license for
my box, my server and I'm able to manage unlimited numbers of virtual machines,
whether they be physical or virtual. So a number of things we're doing around
How do we ensure customers are actually getting value for that, and so have
invested in best practices, what we call solution accelerators, which are best practice
guidance and tools that customers can download for free, to actually help them take
advantage of new technologies, as well as service offerings that both Microsoft and
our partners can offer. Then the ecosystem, which is the Windows Server Logo
program, to ensure that Hyper-V, as part of Windows Server, can get broadly
adopted by all of the ISVs writing to Windows, and ensure they're Hyper-V
6. compliant. And then taking advantage of the long-standing OEM relationships that
can help us drive broad adoption.
If you think about the fact that IDC projects that Microsoft, Windows Server 2008,
will ship over 10 million units over the next three years ,that's really giving
customers the ability to get that adoption of the Microsoft technology very, very
quickly, and very, very cost effectively.
As we go forward, just a moment on sort of the roadmap, we're in 2007 now, so we
delivered the Hyper-V beta of the server, the RTM, as I mentioned, comes within 180
days of Windows Server 2008 RTM. We've been continuing to innovate on the
desktop, through our Softricity acquisition. And trying to make the right pricing
available, and licensing. As well as SoftGrid 4.5 coming next year, which will allow
customers to take advantage of Vista 64-bit, and a number of other enhancements;
and then the management, which is System Center, to manage heterogeneous
The interoperability, I mentioned several of those deals, Novell, XenSource, the work
we've done with the industry standards bodies, the Sun deal we announced recently,
and then I would expect a number of other announcements, as we continue to drive
for broad adoption across the industry, as we get into 2008. Obviously we can't
announce those ahead of time, though. We feel very good about the roadmap. We
feel very good about the solutions that are in market today, and the customer
experiences we're having with Hyper-V, and believe that that really sets us up well
as we look to drive for leadership this year, and going forward.
As we do that, keep in mind that virtualization is a really important technology, it
really helps with my cost, really helps with my flexibility. But, it is one of several
investments that customers need to make, and it's one of several investments that
Microsoft is making today to ensure customers can really get to that end state, which
is that low cost, highly agile, focused on getting the impact of the people, delivering
the right kinds of solutions. So that's virtualization, that's the work we're doing on
our application platform, modeling, the service enablement, SOA, software plus
services, all come in to delivering that dynamic platform. And that's what we
believe, long-term, will differentiate Microsoft, and help customers really get to that
So that's an overview of how we see our strategy, some of the products we have in
the market today, and how that plays into the broader strategy that Microsoft has
been driving around both the desktop and the datacenter With that, I will actually
turn it over, back to Kevin, for questions.
KEVIN GREEN: Thanks, Larry.
We'll now turn to the questions that have been submitted via Live Meeting. Again, if
you have any questions, please type them in the Live Meeting Q&A box, and we'll
respond to them in order.
The first question is really, how are you positioned to address and manage
heterogeneous environments, specifically of the datacenter, specifically the fact that
most datacenters have both Linux and Windows. How are you addressing those
7. LARRY ORECKLIN: The way we are addressing that is really a couple of ways. The
first is that we have been active in working with partners and the industry to ensure
that Windows Server is the best platform to virtualize from, be that Windows, which
is the predominant operating system that companies are virtualizing today, or Linux.
So our work with Novell, and the deal we announced with them, the work we
announced with Sun, the work we announced with XenSource are all examples of
what we're trying to do to ensure that Windows Server is the best platform, and that
Windows Server runs as a first class guest on other platforms.
The second piece of that is, it's about management. So we have the -- you can have
the platform, but you need the management tools that allows you to manage a
process cost effectively from a single platform. System Center and the investments
we're making there, we believe positions customers to really take advantage of that.
KEVIN GREEN: Thanks. The next question is, how do you think about the market
opportunity for your products, given Windows Server market share is 60 to 70
percent of the overall X-86 market, and the subset of that question is, and where do
you view virtualization on a whole will be? In the market rates you've seen from IDC
or Gartner estimating in the next few years you'll see a 50 percent penetration rate.
Is that something that you agree with?
LARRY ORECKLIN: I would say, in terms of penetration, there is a wide set of
views out there that have been articulated by the analysts. And that ranges from 15
percent in three years to upwards of about 30 to 40 percent in three years. And we
believe that's it's a technology that really customers can get a lot of value from, and
so we're certainly helping, and we believe trying to drive that broad adoption in the
industry, both from a cost perspective, but as well form the impact that it can have
on flexibility, agility, business continuity. So there's a lot of reasons why we see
customers looking to adopt it as quickly as possible.
KEVIN GREEN: How do you think virtualization will impact the traditional
management software vendors? Will they follow Microsoft's lead and offer solutions
that manage both physical and virtual environments, or do you think they will rely on
companies like Microsoft or VMware and continue to manage -- focus specifically on
the physical aspects of the management toolset?
LARRY ORECKLIN: There are a broad set of vendors out there in the management
space, and I think you will see all of them need to respond in one way or another.
What it will really come down to, I believe, is what is their ability to actually deeply
manage the virtualization platform, and the ability to integrate that into the rest of
their management portfolio. In some cases what we see today is that the
management of the virtual infrastructure in some of the management companies are
also owned by hardware companies, and it's actually the hardware divisions of these
companies that are taking a lead on virtualization management, with the
management tools continuing to manage sort of at the -- above that, at the process
layer, and at the automation layer.
So it's going to be important, though, they're going to need to respond, and they're
going to need to ensure that they integrate it in some way. We believe that we are
best positioned, with System Center, given the close work we do with the platform,
and what we do to integrate our toolset above and across the virtual and the
physical from that same tool, that will give customers the ability to do that very
8. KEVIN GREEN: Next question is, what do you think is holding back the adoption on
desktop virtualization? Is it a lack of ROI, given you don't have the same server
consolidation metric, or is there something on the technology side?
LARRY ORECKLIN: I think it's important to understand what someone means by
desktop virtualization. I think there is a broad set of scenarios that customers could
be looking to solve. And I would argue that today they actually are solving many of
those with technologies such as application virtualization, which allows for much
better isolation of an application and compatibility issues on a desktop, or terminal
services, which allows for the aggregation and managing, running of an application in
the data center, versus out on a rich client.
So I would say a number of those needs are getting solved today, with different
types of and forms of virtualization. Where I think the market will evolve is the
recognition of where it needs to get to is not all scenarios and users are created
equal. And we're going to need to get to an environment where there is sort of
customer choice, that balances some of the needs for a rich client to do heavy,
compete-intensive kind of applications, or heavy display-oriented kinds of video-
based applications, with the needs for security and cost.
So you will get to a model where, depending on the application, depending on how a
user is connected, you will actually -- it will vary, and there will be different types of
virtualization used to actually deliver that experience to a user at any given moment.
And that's how we think about the evolution of the desktop, and how we are trying
to pull together, at Microsoft, the different technologies we have, as well as the
partners that we work with.
KEVIN GREEN: The last question we have in the queue right now is, how do you
think customers will deploy Hyper-V? The predominant assumption will be that it will
be part of a server replacement or refresh cycle, but do you think there is an
opportunity for deployment on existing boxes?
LARRY ORECKLIN: Again, I think it's going to depend. If you look at -- we look at
Virtual Server, our solution in market today, we certainly saw a number of customers
that deployed Virtual Server and consolidated workloads onto an existing box. I
think there will be a number of customers that do that. There will be another set of
customers that will look to, as they're driving a consolidation project, or a disaster
recovery project, which are really the two drivers of adoption of virtualization today,
they may opt to put in larger hardware, beefier hardware, multi-core, larger
memory, to take advantage of some of the benefits that virtualization can bring. So
I think hard to say at this point, but both scenarios, we're seeing in the market today
with the customers.
KEVIN GREEN: Thanks, Larry. And unless there are any further questions, I'd like
to thank Larry for your time, and thank you everyone for participating today. As I
mentioned earlier, a replay of this Live Meeting and copies of the slide deck will be
made available on the investor relations Web site, at www.microsoft.com/msft.
Thanks again for joining us today, and I'll now turn the call back over to the
9. OPERATOR: All right. Thank you so much. It's been a great Webcast. Thanks,
everyone, for taking the time out and joining us. That concludes the audio portion of
this Webcast, have a great afternoon.