Who: Robert Youngjohns, President, North American Sales and Marketing, and Corporate
Vice President

When: Tuesday, Decemb...
Dow the previous day, it just seemed so volatile a year ago. It was almost like people came
in to work, and if they heard ...
ISRAEL HERNANDEZ: Would you say that it's your view based on what you're seeing
today is that companies may pull forward t...
ROBERT YOUNGJOHNS: Candidly the enterprise is a phenomenal opportunity for
Microsoft right now. I think we're at the lates...
of the enterprise from virtual desktop to server operating systems. So, we're pretty
confident about what we can do in tha...
states, that can conceive of applications that can exist both on premise, and can get moved
into the cloud dynamically, an...
going to deploy out using that development framework. It's a specific example around
overspill, and there are many others ...
recently, the problem with Microsoft and me working there, it's almost too interesting a
company. There are too many thing...
link to Outlook. Properly implemented it gives people an incredible experience within Office
that is every bit as what the...
think there are different ways of approaching search, and some of those ways are going to
be differentiated.

And one of t...
almost too cheap. I think the alternative was an Oracle solution of some $5 million, and we
were in at $600,000. And the C...
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  1. 1. Who: Robert Youngjohns, President, North American Sales and Marketing, and Corporate Vice President When: Tuesday, December 8, 2009 Where: Barclays Capital Global Technology Conference - San Francisco, CA ISRAEL HERNANDEZ: Good afternoon. My name is Israel Hernandez. I run the Software Group at Barclays Capital. On behalf of the software team, I want to welcome you to the BarCap Global Tech Conference. The first of our two sessions, lunch sessions which we'll be hosting, a fireside format, we are pleased to welcome Robert Youngjohns, President, North American Sales and Marketing, and Corporate Vice President for Microsoft. These are exciting times for Microsoft with a lot of new products out the door. Windows 7 is off to a great start. Bing is taking market share. And 2010 looks really, really strong from a product perspective. So, we're really excited to have Robert with us. In his role, Robert is responsible for a sales force organization of over 8,500 across all the major product groups. Robert brings more than 30 years of industry experience in sales, marketing, and strategic business development. Prior to joining Microsoft, Robert served as President and Chief Executive Officer of Callidus Software, which some of you may know, a leading provider of sales management software. He's also a long-time veteran at Sun Microsystems where he spent 10 years in his last role as Executive Vice President of Global Sales. And prior to that he spent 18 years at IBM. So, with that, I would like to introduce Robert Youngjohns. It's great to have you. I would like to just start out the conversation with an update on current market environment. Obviously, 2009 has been an interesting year for a lot of companies, Microsoft was not excepted. But, as we kind of turn the corner on 2009, can you maybe compare and contrast to where we are today versus where we were a few months ago, and what it means for Microsoft going forward? ROBERT YOUNGJOHNS: Yes. Sure. I would say for the most part right now is things feel a little more stable than they felt 12 months ago. I mean, 12 months ago, my primary comment to my sales force is that our biggest competitor was do nothing. Lots of RFPs came out, lots of RFPs went through significant work, and then the customer either deferred the decision, or decided not to make a decision long-term for budget reasons. What I would say now is that we are seeing significant more stability in that. Customers are coming out with RFPs, issuing them, and taking them through to conclusion. But, that's a very different environment to that that it was 12 months ago. ISRAEL HERNANDEZ: And are you seeing any notable differences or shifts with respect to large enterprise behaviors versus perhaps small businesses, which seems to be lagging in these initial stages of the recovery? ROBERT YOUNGJOHNS: Small business is always more volatile. For us last year, I mean, there was a time where I was just joking, we should do some statistics, and see if we could correlate daily order volumes from our small business segment to what happened on the
  2. 2. Dow the previous day, it just seemed so volatile a year ago. It was almost like people came in to work, and if they heard good news on the radio, they bought some software; and if they didn't, they didn't. Whereas, our large systems business is always more stable, because we have a significant annuity business and that tends to create some inertia effect, which obviously serves us well as the market turns down. And the flip side, of course, it might be a little bit slower before it takes off again because of that same inertia factor. ISRAEL HERNANDEZ: As you look out to 2010, can you share some of your thoughts around, or perhaps some of your planning assumptions towards the business? ROBERT YOUNGJOHNS: You know, I think we're still pretty uncertain as to how this is going to play out. We're focused on good execution. We're focused on where we think we're strong. We're focused on going to markets where we think there is significant upside potential for us. So, we're very focused on cloud computing, and what we need to do in that space. We're very focused on enterprise infrastructure, that's a big play for us. But in terms of how we're building it into our plan, we're still being conservative in the way we think about it. ISRAEL HERNANDEZ: Great. Great. Perhaps we could touch in the discussion around Windows 7, and we'll follow it up in a discussion around cloud computing, but Windows 7 obviously is off to a terrific start. Can you talk about, can you give a little bit of flavor for what you're seeing in terms of customer adoption patterns? Is that trending PCs versus retail? This pricing dynamic stuff is interesting in the marketplace. ROBERT YOUNGJOHNS: Certainly user adoption in the consumer space has been very, very strong. And certainly the volumes we saw out of that space were very strong after announcement on October 22. I go most weekends into our local Best Buy store just to see how things are going, and the volume of activity around the new generation notebooks, the sort of $600, $500 notebook space was pretty strong. So, I think consumer acceptance of the products has been very strong. I think what's happening in the enterprise is good news in the sense that most enterprises are saying that whereas previously I might have waited for what we call the SP1 or SP2 version of the product to come out before I consider implementation, they're actually willing to go with the current release. They see it as stable. They see it as meeting a very strong need from their users, and they're willing to go ahead with it. The flip side of that is, I think we're naive if we think that migrating 1,000, or 10,000, or 20,000 desktops from XP or Vista to Windows 7 is a trivial task, and those are our long- term projects. They take six to twelve months to do. So that's always going to inhibit the adoption cycle in the enterprise. That's more of the inhibitor than the actual product itself. Most of our CIOs we're dealing with see it as ready for prime time. They're getting significant user pressure to go sooner rather than later. We've got many cases where customers have played out with maybe 50 or 100 trial versions, and then they're talking to me and saying, but it's gone to 500, we ought to be realizing it. But the widespread migration, is going to be connected to the proper project planning cycle, which I think is probably 6, 12, even 18 months in some cases of our largest customers, and also their technology refresh cycle. So I tend to connect the two things together.
  3. 3. ISRAEL HERNANDEZ: Would you say that it's your view based on what you're seeing today is that companies may pull forward their intent to upgrade to Windows 7 versus just waiting to upgrade as part of the normal PC refresh cycle? ROBERT YOUNGJOHNS: I don't think it's so much a pull forward. I think it's just a view that says that we don't need to wait until the second release or the second version of the product comes out. The current version is stable, it's well accepted in the marketplace, and we can go with it. So the determinant is really what is their natural PC refresh cycle, because mostly we'll find it much easier to do the migration as they're bringing in new hardware. Secondly, just how long the project is to make this migration happen. The reality is, people going from XP to Windows 7 are still going to have to do user training, they're going to have to do application remediation in some cases, because they still have XP applications that break the security models in Windows 7. They'll have to get all the work done. And if you have 20-30,000 desktops, that's a very big project. And I think those are the sort of limiting factors here as opposed to anything about the product itself. ISRAEL HERNANDEZ: Could you maybe touch on pricing for Windows 7, obviously that's a major driver, and there are some differences with Windows 7 relative to Vista? So, maybe we could talk about retail first, and then enterprise. ROBERT YOUNGJOHNS: I think we're seeing, clearly, a lot of this is driven actually by the nature of PCs that our customer are buying. I mean, clearly, we see continued interest in the netbook space. And that's been really a success story for Microsoft. I think if you look back 18 months ago, people felt that was a problem and a risk. Actually, we've done really, really well in that space, and honestly because of the strength of the Windows ecosystem, and the fact that people wanted to run Windows applications on these machines. Now, as the market has evolved, I think more and more people are now seeing notebooks in the sort of four, five, six hundred dollar price point. Typically those are coming with some of our more premium products, and that's good news from our perspective. In the enterprise, I think the interest is very heavily on the high end SKUs, as we call them, largely because of some the features included in those SKUs. BitLocker, which is a security feature available in Windows 7, in the Enterprise Edition, is a very powerful driver for enterprises because of the security it provides, and that's tending to drive movement towards that. ISRAEL HERNANDEZ: Great. In terms of assessing the consumer, the OEM versus retail, is retail stronger than OEM at this point? ROBERT YOUNGJOHNS: I think we're seeing activity in both places. As people are -- I think Windows 7 to some extent has unleashed a sense of technology refresh in the home market, as well as potentially in the enterprise market. A lot of people think in terms of buying a PC with the operating system. I think all of us think in terms of people are willing to upgrade operating systems, actually the predominant way people get their operating systems is with a machine they buy. And they're buying those machines now from our retail outlets, and our OEM outlets with Windows 7. ISRAEL HERNANDEZ: Moving on to the enterprise, which you kind of highlighted as an opportunity. Maybe if you just set the stage as to as you look out to 2010, where do you see the best growth drivers and opportunities for Microsoft?
  4. 4. ROBERT YOUNGJOHNS: Candidly the enterprise is a phenomenal opportunity for Microsoft right now. I think we're at the latest generation of Windows Server products, and also our database, SQL Server. We're at a point now where we can go beyond where we've been in the enterprise, which is typically providing much of the server infrastructure that sits around the large tier-one applications. The software we've announced in the last few weeks is now ready to take on some of the big tier-one transactional workloads in the enterprise. And given the profitability of that sector, that's a very attractive market for us to tackle in 2010 and beyond. And I think we're beginning to get traction in the -- I still make a number of calls where CIOs will say, we like dealing with Microsoft. We think you have a great client story. We think you're good for our Web servicing, and some of our application layer, but when it comes to the big transactional systems you're "not ready for prime time." I think with the releases we've come out with on Windows Server and SQL, within the last few weeks we are ready for prime time. We've got good use cases of how we can scale those applications, and we're having some really interesting conversations right now with some very, very large customers about potentially porting extremely high volume transactional systems, which only five years ago people would have thought about were mainframe only, or even within the mainframe specialist operating systems, and moving those on to Windows Server 2008. So, to the extent that we can convince our customers that we are now a viable platform for these major tier-one applications in the enterprise, I think there is very, very significant upside for us in that space. ISRAEL HERNANDEZ: How should we think about the opportunity with Windows Server 2008 R2 in terms of the adoption cycle. Is that something that's going to require some time for customers to get used to it, or do you think it's at the point where customers are ready to move forward. ROBERT YOUNGJOHNS: I think customers are ready to move forward with it. I think the bigger issue is making sure that we break through that credibility issue we have with some customers about whether we're "ready for prime-time," whether we're ready for tier-one mission critical applications. We believe very strongly we are. I think we've got an increasingly number of use cases where we can prove that. And we think, insofar as we can do that, then the potential for those products is massive in the marketplace. ISRAEL HERNANDEZ: R2 has some advanced virtualization capabilities. Can you speak to Microsoft's strategy in going after the virtualization market, and perhaps moving into the higher end of the market where VMware is currently playing? ROBERT YOUNGJOHNS: Yes, I think there are multiple plays in terms of virtualization. I mean, there's the sort of raw virtualization layer, and our view over time is that becomes increasingly commoditized, increasingly becomes integrated into the operating system. The real differentiator in terms of whether someone would buy our "server virtualization solution" as opposed to VMware is the strength of our systems management suite. And I think ultimately, as this market moves forward over the next year, systems management becomes a differentiator rather than this raw virtualization layer. So, I think if you look at where we are, we're pretty much now up to par with VMware in terms of the functionality on raw virtualization. But, I think our systems management story is developing much more quickly, and much more strongly, and really embraces every aspect
  5. 5. of the enterprise from virtual desktop to server operating systems. So, we're pretty confident about what we can do in that business. ISRAEL HERNANDEZ: Yes, well there's certainly a perception in the marketplace that VMware still commands the very high end of the market, and that's probably a fair assumption. But, is it your view that with your new management capabilities that you should be able to penetrate over time a larger percentage of the marketplace? ROBERT YOUNGJOHNS: Absolutely. I mean, we take that very, very seriously. We're competing very aggressively with VMware, and we'll continue to do that. As I said, our view is that a lot of the high margin business there that VMware has, we have the potential to attack, because we have a different business model. And the real differentiation comes down to who's got the best systems management solution, and what's the best way to manage this, both server infrastructure and desktop infrastructure within the enterprise. And I believe not only do we have the best story there, but our story is evolving more quickly. And therefore, we take that competition really seriously. ISRAEL HERNANDEZ: Maybe we can touch on desktop virtualization, another opportunity that seems to be getting closer to reality. Can you talk about Microsoft's desktop virtualization strategy in the context of those partnering, as well as in competition? ROBERT YOUNGJOHNS: Yes, we're seeing a lot of interest in desktop virtualization, and I think we have a good story and what we're trying to work with our customers on is to make sure this isn't a one-size-fits-all solution. As you look across desktop virtualization it ranges from the task worker whose only job may be to put a part number into an inventory systems, to the knowledge worker, and they are different virtualization solutions that apply across that space. We're also finding a lot of companies that have gone down this route thinking they're going to save a whole bunch of money on infrastructure, finding it's not actually the case. And that other costs are coming into this, refreshing their server infrastructure and so on to support it, is offsetting that cost. So, while we're seeing a lot of interest in it, there are relatively few projects right now. We're engaging very heavily in those projects, because we think we do have a good story. ISRAEL HERNANDEZ: Do you view Windows 7 as the potential catalyst for desktop virtualization? ROBERT YOUNGJOHNS: In many ways the discussions are very, very separate. I mean, Windows 7 is typically seen as a discussion in its own right. And then the VDI story, or the desktop virtualization story is seen as something they would do independent of whether it was Windows 7 or an alternative release. ISRAEL HERNANDEZ: Cloud computing, obviously that was the hot buzzword of the day. Microsoft certainly has a play here. So, can you talk about it and lay out Microsoft's cloud strategy and how it expects to compete with some of the other vendors that are -- ROBERT YOUNGJOHNS: I think Microsoft's cloud strategy is fundamentally differentiated from anyone else in this industry. And I actually believe it's the right strategy. And that's probably a contentious statement to make, and I'll tell you why I think that's the case. I don't think this world is a world where on the one hand you have cloud applications, in the other completely separate world you have on-premise applications. I think anyone who is developing a cloud strategy needs to develop a strategy that embraces both those two
  6. 6. states, that can conceive of applications that can exist both on premise, and can get moved into the cloud dynamically, and back again as business requirements demand. And I think that requires a different way of thinking about it, and a different architecture. And Windows Azure, that we announced a couple of years ago at our professional developer conference, and we made more announcements about two weeks, really as the instantiation there of our strategy, and that is to have a common set of development tools and a common application framework that allows you to develop applications that can either exist on-premise, can exist in a private cloud, or it can exist in a public cloud, and move dynamically between those three states. And actually, at a level of increased sophistication individual services within those applications can exist in any of those three states. And I don't think that's a way that most of the rest of the industry is thinking about it. They're thinking about it in terms of you make a decision in principle whether you want on-premise or cloud, and that then determines your application choice beyond that point. We don't think that's the reality of how most customers think about cloud computing. They think about hybrid solutions. They think about trying to spill workload, for example, from existing on-premise solutions into the cloud temporarily. They think about building applications that to some extent they have to run on-premise, because of regulatory or security concerns, whereas other applications may run into the cloud. And I think Microsoft is the only company that's built that end-to-end strategy that embraces on-premise, cloud, and has a consistent application development framework for allowing people to work in that world. ISRAEL HERNANDEZ: Can you talk about maybe some of the initial successes that you're seeing with some of your products as you move them out to the cloud? ROBERT YOUNGJOHNS: As we move products to the cloud there's multiple layers to this. I mean, at one layer we're moving finished product to the cloud. For example, if you want to take Microsoft Exchange 2010, you can buy that as a complete cloud service. It's the same version that you'd run on-premise. So, if you as a customer had some part of your organization that was doing a contract with the Department of Defense, or something like that, and as a regulatory need to run that mail infrastructure on-premise, that's fine. You can also deploy some part of your mail infrastructure in the cloud, and get those to co-exist in a seamless way as far as your user is concerned. So, we're seeing very heavy interest right now in hosted Exchange, hosted mail, and actually rolling out some customers now with 300,000-plus desktops in that space. In terms of the Azure framework, which really takes that down to the application development layer, we had a lot of examples we talked about on stage at our professional developer conference. I mean, one of those which was an over-spill, it's like what do I do when I need more capacity example, was actually Dominoes Pizza, who had a fascinating discussion of the dynamics of the pizza industry, much of which I didn't know before, and some of the peaks and troughs they see in load, and particularly how they handle those peaks and troughs, and how they provision for them. And they rewrote their application using the Windows Azure framework, which means that on the whole they run their application on-premise, but on certain key nights of the year like the Super Bowl, they're able to offload that application up into the cloud and handle the incredible peaking of load they see. And that translates into more pizza orders and more revenue. That's an example of how people are actually
  7. 7. going to deploy out using that development framework. It's a specific example around overspill, and there are many others which use different things. We had a so-called Web 2.0 company talking about a blogging application that, again, they wrote on-premise they tested on-premise, and when they were ready, because they expected very high load volumes, they deployed that application into the cloud, exactly the same application. So, the key thing here is this is about business choice, not about technology. You make business decisions where you want to run your applications. You're not driven by some sort of technology ultimatum that says, if you're cool, and hip, and get it you stick the stuff in the cloud and if you're dull and boring and don't get it, you leave it on-premise. The truth is, that's an artificial distinction and an unnecessary one in our view. ISRAEL HERNANDEZ: And if you look at the evolution of cloud, how do you see the market moving over the next three to five years, just from a vendor perspective? ROBERT YOUNGJOHNS: We see very, very strong interest right now in what I would call the commoditized applications. And by that I mean those applications where the complexity of the application is really not a function of scale. In other words, you can argue that an e- mail application is an e-mail application, irrespective of whether you're supporting 10 users or 10,000 users. And we see those applications will move into cloud deliver pretty quickly. And we're seeing huge interest from our customer set on doing that right now. I think as regards some of the more complex applications, where scale is very much linked to complexity, an ERP application, for example, is a great example of that. I think the adoption will be rather slow. But, even so, the interest is really strong, and our view, as I said, at the end of the day is we see the boundary between software and service as delivered by cloud breaking down. And we want to be agnostic to that. We want our customers to feel they can either take this stuff and run it on-premise, or they can take this stuff and run it as a cloud service. It's a business decision, not a technology decision. And that's the way we'll drive it. And I think that's the way the industry will evolve over the next three to five years. ISRAEL HERNANDEZ: And does this have any inherent implications for your own business model, in terms of how you generate revenue? ROBERT YOUNGJOHNS: There are all sorts of sort of subtleties to the business model, but what we're trying to do is, from our sales perspective, make it pretty much agnostic between those two states. And the good news is, because we already sell long-term annuity agreements to many of our large customers, it's not that hard a transition. A customer that currently has an enterprise license agreement with us has an annuity agreement over three years. And in some cases their subscription deals, they're longer- term than that. So, transitioning those deals, or parts of those deals to be partly on- premise partly in cloud isn't that hard for us to do. There's all sorts of wrinkles, as you might expect, in terms of how you make sure sales compensation matches onto the way you actually want to drive strategy, and we're working all those pretty aggressively every day. ISRAEL HERNANDEZ: Would you talk about the 2010 product roadmap, and the upcoming releases. What gets you most excited for us, or for next year? ROBERT YOUNGJOHNS: You know, the nice thing about our product set is, we've got so much happening next year, I mean, I actually said to Steve Ballmer in a one-on-one
  8. 8. recently, the problem with Microsoft and me working there, it's almost too interesting a company. There are too many things to follow and get interested in. But, the one I'm most focused on right now is Office, and Office 2010 and Exchange 2010, which goes with it. And here I think we sort of have a unique end-to-end story to offer to customers. One of the things that concerns me as I'm spending time in the field is that a lot of our users see the world of Microsoft through basically old Microsoft products. They go into their work and they see Office 2003, or Office 2000. They see old versions of Outlook, and they contrast that with increasingly what they're seeing at home, and in their sort of leisure environment, which are often new collaboration tools and so on, and so forth. One of our challenges, frankly, is to get our customers more excited about deploying the latest releases of our software. So, those two experiences get more matched up. And I made a call very recently on the COO of a retailer, who started the call by complaining to me that there was a whole bunch of things they couldn't do with my software. We couldn't connect to a VPN, couldn't get into the corporate firewall when they were traveling, et cetera, et cetera. And I did a quick ad hoc demo of Office 2010 of unified communications, of presence, of the ability to get into the firewall without a VPN using something called Direct Access, and the nice thing about the call is all the pressure moved from me and onto the CIO. And I just became an observer in a debate as to why they hadn't deployed the software. I think we have a great end-to-end story there, and the way it works is this. Is that, if you take out the sort of tier-one apps, the manufacturing, ERP, resource planning type apps, and you look at what most companies really do, they hang around two anchor points. One is collaboration, and I put e-mail in the collaboration space, and the other is workflow and relationship management. And I think we have a great end to end story with Office 2010 that really goes across those two pieces. It starts with Outlook, and within our new mail client we have a really, really good, rich feature set now, things like conversation thread management, built-in social networking that allows you to see instantly who sent you the mail, what mail they sent you before, how often they e-mail, what communities they're in. It allows you to link to those communities, a very strong picture there, but the really important point is that bridges into SharePoint and our collaboration framework, which gives people the ability to see enterprise class, enterprise robust version of the things they expect to see, like the enterprise versions of the things they expect to see, like the enterprise versions of Facebook, and bridges into that from there into our XRM product, our Dynamics CRM, which allows for the automation of relationship management workflows. And the really important bridge between all those two things is we build a common and consistent user interface to them from Outlook. So, everything looks like an extension to Outlook. If you want to collaborate, it's an extension to Outlook. If you want to use a workflow management tool, it's an extension to Outlook. So, we use an interface that people are very familiar with, and just use naturally every day, and then bridge from that into unified communications, into collaboration, and into relationship management workloads. I find that story in Office 2010 is very compelling. When we talk about Office 2010, we often get dragged down into the feature-to-feature comparison, and I get the conversation, who needs 2 million lines in their spreadsheet, who needs to be able to resort their spreadsheet in sub-second responses, who wants to be able to edit MPEGs in PowerPoint and things like that, valid questions. The truth is, some people do. But, the real story on Office is that end-to-end collaboration framework, and relationship management framework
  9. 9. link to Outlook. Properly implemented it gives people an incredible experience within Office that is every bit as what they're becoming increasingly used to outside. ISRAEL HERNANDEZ: Maybe we could touch on Microsoft's mobile strategy. It's an area where there have been competitors who have taken the leadership position here. Microsoft has lost share over the last couple of years. Can you kind of outline the importance of the mobile strategy to the long-term? ROBERT YOUNGJOHNS: We see the mobile strategy as really, really important. We talk a lot about the three screens of which mobile is one of those screens. And as I look at where we are today, I actually think we undersell our story, frankly, on Windows Mobile in the enterprise. Windows Mobile 6.5 with some of the latest devices that we're seeing out there from Samsung, and HTC, and others, is a very, very powerful enterprise story. I'm running an HTC Touch HD2, which I got recently, and I think it's one of the best handsets I've ever, ever had. With 6.5, with Exchange 2010 back end, I have the best possible e-mail experience on the road that I've ever had. And that includes using Blackberries in the previous job, and so on. So, I think our enterprise story is already pretty strong. And if I have a complaint, or an observation of our own organization, we're not doing enough to sell that enterprise connectivity story back into e-mail and collaboration, and so on. Now, we clearly have a different issue in terms of the consumer market, and I think we have work to do to get there to a point that we can say we have as good an operating environment as, for example, the iPhone does. But I want to make sure as we look at competition, we see RIM, we see Android, and we see iPhone. And I think our story against RIM and Android as far as an enterprise platform is concerned is already strong. We've got more work to do on the third. And with Windows Mobile 7, which is due to come out next year, I think we get to the point where we can actually compete on the third. But the core of our strategy is to enable our whole bunch of partners to produce multiple form factors in terms of the device. Not to go for one homogeneous device that we manage end to end. It's a huge bet we're taking in the company that we think that's the right strategy. But I think whether it's with Windows 6.5 now, and enterprise connectivity, or whether it's consumer space with Windows Mobile 7 next year, I think the ability to go out there with multiple handsets, and multiple vendors, multiple form factors is a differentiator, and one I think we can exploit. ISRAEL HERNANDEZ: And maybe with Yahoo! having closed last week, maybe we can just have a quick comment there on the status of the partnership? ROBERT YOUNGJOHNS: You know, I wouldn't want to comment certainly on Yahoo! particularly, largely because I haven't been that closely involved with it. But I would comment really on our general strategy on search. A lot of people ask me, you know, why are you in this game? Why don't you just concede it to Google? And there are a whole bunch of reasons for doing that, not least of which is the ability to attack someone who is trying to attack us, and make sure we can take some of the profitability out of that business, because right now that's cross-funding a whole bunch of other stuff. But I also think very strongly that the search market is by no means over. I
  10. 10. think there are different ways of approaching search, and some of those ways are going to be differentiated. And one of the benefits of being the sort of up and coming contender here, is that you can try out different things that may be the big player can't. So, we're looking at contextual search. How do we work out what it is that someone really cares about when they put in the search argument as opposed to what do the advertisers want us to put back in terms of search. Looking behind the syntax of the search query to say, what's really going on behind this. And we're putting a lot of work into that to try and product contextual, relevant results of what we think the user is really asking. If you type in Hyundai, or Jaguar, or Ford, you probably want to know something about the car. And you want things like MPG and car features. You don't want a list of the nearest 800 dealers of the Hyundai. But those are the people paying for the advertising, so typically you may get those on alternative approaches. We think we can change the rules around search, and that's why we're driving so hard with Bing. And we believe, you know, we're gaining market share, slowly will be it, but I think we can get there. ISRAEL HERNANDEZ: Let me just ask you for a quick comment on Google and Chrome OS, and just your thoughts as to their plans? ROBERT YOUNGJOHNS: As I look at Google, clearly a major competitor. I mean, when I look at my top three competitors in this business, I look at Google, I look at Oracle, and I look at VMware, and they're very different players. I think with Google it's a mixed play as they want to steal our lunch, that's fine, and we want to steal their lunch. In Oracle, it's the case that we can go and steal their lunch. I think it's a highly profitable business, and any business that brings in the margins they bring in the enterprise space I think we can attack. And with VMware, I think it's still relatively an emerging market, so I think we have opportunity there. We clearly are concerned about Android and Chrome at the low end, and we will compete vigorously, particularly in the low end netbook space to make sure we preserve what we've achieved now with Windows. We think our ecosystem is really the differentiator there. One of the reasons people wanted netbooks on Windows as opposed to Ubuntu Linux or whatever it was they were choosing was partly because of familiar user experience, but also because of the access to that ecosystem of applications. I think that's really a really important differentiator to us, and we need to continue to drive that in order to protect our flanks. ISRAEL HERNANDEZ: Great. You have about five or six minutes here. So, since we're not having formal breakouts, I would like to offer the audience the opportunity for a question. Certainly there has to be a few. Going back to the server market, maybe from the high end, do you see the server environment starting to improve, and is that why we can start to see an acceleration in the server and tools business as we look out to 2010? There's a lot of talk about a server refresh. ROBERT YOUNGJOHNS: Sure. And what we're seeing are the technology refresh cycles, and with some confidence they'll follow through to conclusion. We've been bidding recently on a couple of deals to re-platform, for example, SAP. Somewhat ironically, I made a phone call yesterday where there customer said, I think your solution looks great, but it seems
  11. 11. almost too cheap. I think the alternative was an Oracle solution of some $5 million, and we were in at $600,000. And the CTO said, look, I believe you, I think it will work, but in a way I sort of wish the price was $1 million, because it would be easier. That's an easy one, I can fix that. But I think there is potential there to get those replatforming, and I think people following through with those projects. Whether that's going to kick in in the first half of the year or the second half of the year, frankly, I don't know. All I'm seeing is those projects are developing, and I think there's a greater chance that they'll go through to completion than there would have been a year ago. ISRAEL HERNANDEZ: Questions? All right. We'll wrap it up if there are no questions. Thank you very much. ROBERT YOUNGJOHNS: Thank you very much. (Applause.) END