Ray Ozzie

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Ray Ozzie

  1. 1. Who: Ray Ozzie, chief software architect, Microsoft When: Wednesday, May 28, 2008 Where: Bernstein Strategic Decisions Conference - New York, New York CHARLES DI BONA (Host): Thank you all for coming. I think there's still a couple open seats in the back perhaps, but we're really happy today to have Ray Ozzie here with us, who is the Chief Software Architect at Microsoft. And it's sort of traditional that we do a quick bio of people as an introduction here, but if I were to go through Ray's whole software history, we'd be here through lunch. So let me just hit a couple of the highlights. His software record goes back even to Data General where he worked on some distributed operating systems, and on VisiCalc later on, and Lotus Symphony. And then as the founder and president of Iris Associates, he led the development of Lotus Notes. And then subsequently, in 1997, founded a company called Groove which worked on sort of next generation collaboration software, and that company was subsequently acquired by Microsoft in 2005 when Ray joined Microsoft as the Chief Technology Officer. Since June of '06, Ray has been the Chief Software Architect. That was the time when Bill Gates announced that he would, in two years, at the end of this June, be stepping out of an operating role at Microsoft and focusing his attention more on his foundation. So we're about a month away from that. And according to the company Web site, Ray's responsibilities "include oversight of the company's technical strategy and product architecture," which is an extremely insightful job description. So maybe that's a good place to start, Ray, maybe in your words could you tell us a little bit of the framework here for how you view your job, sort of the kind of things you think about on a daily basis, and how you interact with the operating executives at Microsoft, and with Bill, and with Craig Mundie and others. RAY OZZIE: Sure. Well, Microsoft is a big company. We have a lot of products. Microsoft is really broken down into three divisions, kind of one that has Windows and Online Services, one that has our productivity activities, and one is entertainment and devices. And these groups concentrate on growing those businesses. They understand their markets, they understand exactly what next steps to take with their products. The role of Chief Software Architect is kind of an interesting role relative to the divisions, because in essence it's one where one can step back and look externally at trends, and do pattern matching as to what's happening across the entire environment. This is kind of an important role in our industry because our industry moves quickly, and it moves progressively over a long period of time. I've been in the industry, as you've said, for quite a while, and I've been fortunate enough to have been through a number of fairly significant transitions because of the steady progress of technology from mainframe to mini, mini to PC, PC to graphical user interface PC or LAN, and then the Web, and now we're undergoing a number of transformations, a transformation toward cloud computing, a transformation toward mobile devices. There are just a number of things that are happening.
  2. 2. This transition toward cloud computing and toward services is really what I've been spending the vast, vast majority of my time on since I joined Microsoft and that has only really stepped up since I assumed the CSA role. When I came onboard, much of the company, many, many of the developers of the company were working on what would eventually become Vista, what would eventually become Office 2007, and I began by kind of writing and communicating to various groups in terms of the macro level trends that I saw happening. As time went on, as those products shipped, I've spent a lot more time much more hands-on, much more directly with the product teams trying to map out what specific scenarios are important, how those product groups' products would fit in with one another in this transformation toward services. The interrelationship with myself and the division presidents is kind of very interesting. We're more or less partners at the senior leadership team level. Craig Mundie and I, Craig and I both split Bill's role. I have taken on more of the here and now, Craig has taken on research and policy, which is more longer term. He's got more of an external role, I'm more kind of the man behind the curtains so to speak, but I spend a lot more time hands-on with the product groups. CHARLES DI BONA: Just so I don't forget, there were on your seats question forms, so if you have questions, please write them on those, and I guess pass them to the -- to the outside aisle or the center aisle -- the center aisle, and we'll sort of work them into the presentation as they come up. So feel free at any time to do that. I guess what you've been talking about here, there's a lot of speculation about cloud computing, and about software as a service, and about computation moving onto the Web. And clearly Microsoft has articulated something of a different vision about software and services, where you blend sort of the more traditional forms of computation with the new service-based offerings. Before going to the Microsoft vision, maybe it's helpful to sort of circle back to cloud computing, and software as a service, those are terms that get thrown around a lot, and in very loose ways, and I think that they've taken on multiple meanings, and maybe it's helpful for you to sort of say how you think about those trends and what they really mean? RAY OZZIE: Sure. Well, it really comes back to understanding what's going on with the technology and projecting out and kind of pattern matching what's happening in different segments of the market, or what might happen based on those technology trends. What's going on right now is really based on the confluence of cheap storage, cheap computing, and probably more than anything cheap, ubiquitous communications amongst businesses, or homes and businesses, and data centers, and so on. And the confluence of all of these things gives us, as architects, the opportunity to kind of figure out exactly where is the best place to put computation and storage to solve a given problem for specific business customers or for consumers. When I'm working with different product groups, how these things impact their customer bases really may vary, so I've really come up with three principles that I use to talk to the groups that help them understand and help us kind of have a great dialogue about how these things might impact specific solutions. I've come up with kind of three principles, the first of which is that the Web is really the hub of a device mesh, and a mesh of people. And what I mean by that is,
  3. 3. formerly or traditionally when we bought a PC, we bought it as a standalone device. When we buy a phone that phone is connected to the network, but it's kind of independent of other phones and the PC. When we would buy a TV that TV is separate from the various other things that we have. In essence, now that we have the Internet as kind of the global thing that can connect us all together, and now that many, many of these devices are coming with wireless networking built-in, with Ethernet jacks built-in, it gives us as architects the ability to actually bring them all together. And many of us have challenges configuring these various devices, many of us have multiple PCs, where there's the PC at work and a PC at home, a couple of PCs at home. You try to get media from one to another, you might want to get applications from one to another, or data. The Web, the fact that we have global connectivity, it affords us the ability to kind of think of things a little bit differently because we can use the Web as a hub to bring it all together. The other thing is that it wasn't too long ago that we really didn't have a way, electronically, for all of us to communicate with one another, and to connect, and to rendezvous with one another. I spent a large part of my career working on collaboration software, and one of the most fundamental elements is getting people within a company or people between companies to talk with one another. It used to be extremely challenging. Now we all take for granted the fact that if you just have somebody's e-mail address, you can send them something, you can get something. And just by reassessing offerings and saying, if we have the Web as the one place to bring all of our devices together, and all our people, all the people who use them together, it enables you to reframe the solutions that you're trying to do across a number of different markets. The second principle is really something that I refer to as the power of choice as business is transitioning from using just data centers to being able to use cloud- based computing. Many, many years ago, when I started programming back in '68, I used a time sharing system, GE 400 computer on some time sharing system in Chicago, and it was a 300 baud line, you know, with a teletype going to that computer. And you can't do a whole lot with a 300 baud line. And so companies have built up over the years data centers so you could have co-location of the people who were using the solutions and the computers themselves. But now with this ubiquitous bandwidth that we've got where we have these really, really high speed, low latency networks amongst businesses, and between businesses and potentially large scale shared data centers, we can now choose what do we put up there in those data centers versus what do we keep onsite. And enterprises now have the power of choice. They can decide what are the strategic systems that they really need control of, what are the things that are more infrastructural in nature that they might be able to get some economy of scale by treating them more tactically and offloading them to someone else to manage. That's a very big transformation that impacts our company and our industry and our customers. The third real trend is something that I refer to, it's for developers, and I refer to it as small pieces loosely joined, and what I really mean by that is that traditionally developers have built programs as big, monolithic hunks of software, a big program that you install on your PC, a big a program you install on a server. And the world that we're moving into is fundamentally different. It has many, many computers, little processors, on one machine. It has many, many computers up in the cloud in order to get broad scale and robustness. And the tools and the techniques that developers use to build software, to target a user using multiple devices, not just a
  4. 4. single device, are dramatically different. And that's new opportunities for a company like Microsoft in order to serve developer tools and platforms to those developers. So fundamentally, I just think that kind of stepping back to the role of CSA, one of my jobs is to kind of look at these trends, and to say where are there threats because of inflection points, competitive threats, or threats of disruption, and where are there opportunities. And this is one where there just seems to be tremendous growth opportunity from the user standpoint, from the enterprise standpoint, and from the developer standpoint because of those transitions. CHARLES DI BONA: And so maybe it would make sense to sort of now delve into software and services, and how is Microsoft sort of addressing these opportunities, and these threats, specifically how is your architecture differentiated from competitors, obviously Google springs to mind? And sort of what is the value, ultimately, to the IT department, I guess, would be a large buyer, but also to the consumer, and to the other users, why would they buy it? RAY OZZIE: Well, kind of going back to the principles, if you take these principles of what's going on in terms of using the Web as a hub, and the power of choice, and these architectural principles, you can see how it would net out to opportunity if you kind of go on a market by market segment, because we are a broad company, we're very diversified, we have different products for different markets. On the consumer side, you know, it really is powerful in a number of ways. Actually, let me just back up, from the standpoint of an OS, you know, Windows and Office are kind of the franchises that people are most familiar with of Microsoft, and the very nature of an OS really changes in the world moving forward. We've conceptualized everybody who has used an operating system on a personal computer, or IT people who have used operating systems on servers think of it as a piece of software that operates one PC and one computer. But the opportunity moving forward is for us to kind of step back for a moment and conceptualize, if we were building an operating system today, what would it look like? It wouldn't really look like just one computer. We all deal with many, many devices in our lives. As I said before, I deal with multiple PCs at home, my phone, my TV, my car has this navigation system, we have media players, and the opportunity is to really ask the question, what would an OS look like in a world of multiple devices, in a world where instead of the computer being at the center, you are at the center, and how do you bring these things together to have them all do what you'd like, to have your e-mail and contacts, or your media, or your photos synchronized amongst them so that you can use the device that's appropriate in a given situation. And each one of us will choose some different mix based on the nature of our lives, our preferences, whether we live in a culture that's a commuter- based culture, where we might use mobile devices differently. If you spend a lot of time in mass transit versus driving, the types of devices you might use are different. So I think the first opportunity is really at the redefinition of the OS. The second would be in the redefinition of productivity into connected productivity. We've classically thought of productivity tools such as Office as being tools that operate on one device, one PC, and it is an amazing, amazing piece of software that lets you create and edit, and present documents.
  5. 5. PCs are becoming more powerful, they have bigger, and bigger screens. But, the Internet also offers new functions that are complementary to what's been going on in PCs. The Web is very, very good at sharing, it's good at universal access and sharing, it's not necessarily as good at presentation and interactivity. So it complements the PC in many ways. So the opportunity for us, in the realm of productivity, is to redefine the scenarios, to step back and say, how can we grow Office, in terms of what it really is, from both a creation and editing perspective, and the sharing scenarios. In terms of mobile devices, also, again, using the Web as a hub, the opportunity is really not just spreadsheets, and documents, and presentations on phones. Phones have cameras built in, phones have GPS built in, some of them have little ways of doing note taking, whether it's through inking, or through a little keyboard. We have them with us all the time. Those phones can be woven into higher-level scenarios involving note taking, so that when you take the picture of that whiteboard, it automatically gets synchronized to the PC up through the Web. So, again, in the productivity realm I think there's a growth opportunity in reaching new types of usage scenarios, broader markets, new form factors of devices, and so on. In the entertainment realm, we all use digital cameras, digital camcorders, we have televisions, some of these televisions are now IP-enabled TVs, gaming consoles. The opportunity in entertainment and media is really, again, to weave these things together into higher-level scenarios that bring all these devices together. And I already talked about the opportunity in the enterprise, in terms of connected business, and so on. So again, I think the broader opportunity is essentially to understand how these different markets grow based on the conceptualization of more than one device, and more than advanced scenarios than just the more limited way that we've thought about them in the past. CHARLES DI BONA: So if you think about the sort of competitive environment as we move into this more connected world, who do you see as your big competitors going into this space, and what kind of assets do they bring that maybe you can't replicate, or don't have replicated yet, and how do you deal with those issues? RAY OZZIE: Well, everyone starts from where their core strength is, but I think the main thing that we should all realize is that this is an industry-wide trend, and we are all going to end up in the same place. In any given inflection point, industry inflection point, whether it was mainframe to mini, mini to PC, and so on, the new guy comes in and he tries to disrupt the incumbent by saying the world is going to change, it's going to dramatically shift to this completely new model, and there's going to be no middle ground, it's just going to go all the new way. In today's world those are the people who say: You're going to dump your servers in your enterprise, and move it all to the cloud; you're going to no longer use a PC, you're only going to use a browser; you're not going to use a phone anymore, you're only going to use a browser. And the incumbents who have their head in the sand, and think that a transformation is not occurring, will be disrupted by those folks, but when all is said and done, in each one of these transitions the aggregate market always ends up larger than it was before, because people find new uses of the new technology, and the old ends up getting adapted into the new. We believe, fundamentally, in a hybrid model. And that's why when you hear us talk bout services, you hear us say software plus services, because we believe that the
  6. 6. real opportunities moving forward are PC plus phone, PC plus mobile Internet device, Web plus PC, as opposed to just everything in a browser. I think we have some unique core strengths in that we have both the enterprise business, and the consumer business under one roof. The consumer business in MSN has given us the unique skill of understanding how to do very, very high scale services, services that serve hundreds of millions of people, whereas as a an enterprise-only player we might not have been able to recognize the fundamental rearchitecture that's necessary to do that kind of scaling. The flip side is, if you're only serving consumers with these high-scale things, you don't really realize how hard it is to be an enterprise player. We started as a desktop, in the desktop business, and it took us many, many years to gain enterprise credibility, and really to understand enterprise requirements, and understand solution selling, and understand really what an enterprise needs in terms of touch. I think the advantage that we have is that we can bring those things together. CHARLES DI BONA: I'll sort of -- the marquee, or the poster child for the Web- centric view is Google, clearly, at least in people's mind. Are they more difficult, because of their capitalization, because of their sort of intellectual capital, to compete with than your sort of historic competitors at Microsoft, and also do you see them sort of with Gears, and with the Mini, and with Android, sort of reaching out to try to get onto the client side, to get into those other -- onto the devices, and into the other parts of the ecosystem that they're not in yet? RAY OZZIE: Sure. Well, as I said, I think the software plus services is an industry trend, it's not just a Microsoft trend. They're introducing client-side things, just like Salesforce has an offline client edition, because that's what customers want. Customers who want to deploy these things have individual users with laptops, those users like their laptops, they like to carry them around, they like to have data locally, they also like to have centralized services, and all the advantage that services afford. It's a world of mobility, so everyone has got some kind of a play in mobility. I think Google, they're a tremendously strong competitor, very, very capable, very, very smart people. The fact that they generate the amount of cash that they have leaves it up to leadership, and how intentional they are about where they choose to compete, and where they don't, and from that perspective they could compete in any market that we're in, and from that perspective, of course we take them very, very seriously. But, Microsoft is a very interesting company in that it's had to, by necessity, kind of build up a culture of -- I guess a culture of crisis. Ever since the early, early days Microsoft has always faced some amazing competitor that looked like it was going to be some roadblock to success. When I was at Lotus, we were a bigger company than Microsoft, and it was hard for anyone to imagine how Microsoft could end up getting credibility in word processing, in spreadsheets. We were very daunting competitors, we had so much more progress. We had spreadsheets on the mainframe, 1-2-3-M, we had spreadsheets on the VAX. It takes perseverance, it takes investment, it takes an understanding that you can't compete by just chasing tail lights, you have to find some way of flanking, or appropriately leapfrogging, because when you're in the face of somebody who is running very fast and they're ahead, you have to find alternative ways.
  7. 7. Each one of these big competitive battles over the years, against Sony with Playstation, open source, has left the company more resilient, and more well positioned than before that competitive battle, and the outcomes are more diverse. If you look at the competition with Playstation, it really formed the basis for our entire connected entertainment strategy. The productivity wars in those days has evolved and now we've got amazing opportunities in voice over IP, and other types of collaborative infrastructure that couldn't have even been envisioned at the time. Open source, that competitive battle, which was just -- in many ways it was potentially much more disruptive than Google, who has to make a profit, and has to report earnings to shareholders, open source has made Microsoft a much stronger company, in terms of really understanding the importance of interoperability, and serving our enterprise customers who have heterogeneous systems within their data centers. So, yes, Google is a very strong competitor. Yes, we've got a lot of work to do, but the company really is used to, culturally used to dealing with these kinds of things. CHARLES DI BONA: You talked about sort of not following the headlights, leapfrogging in these situations, clearly a lot of the questions already coming up here are about Yahoo, and about how do you establish yourself in probably the weakest part of your business, relative to that big competitor. What does the post-Yahoo world look like, or is it even a post-Yahoo world, frankly, at this point? How do you, from your perspective, see Microsoft's capabilities to sort of extend that franchise if there isn't an acquisition of a lot of traffic? RAY OZZIE: Well, just to put things in perspective, before I directly answer the question, people don't like to talk out it a lot, but Microsoft has a very, very strong position in the online space in some very important dimensions. We have 475 million people who use Live IDs, which are the basis for all of our online properties. We are number one in terms of minutes, in terms of engagement of users in our communication properties, even beyond the online properties. If you can just think of the level of engagement that people have with things like Outlook, and Office, in the other parts of our business, user engagement is a very, very core important part of anything that you do in the online space. I think it's really important to understand that there are three underpinnings of being an online company. Number one is, user engagement, because essentially those are the first party properties that represent potential places that advertisers could advertise their products and services. The second thing is search, and our strategy is to innovate and change the game in search. Search is a very, very important first party property, and it's important to advertisers just like other highly engaging properties. And the third leg in the stool is really an ad platform, an ad platform that's of high scale, and an ad platform that presents a real competitive choice out there in the market. So user engagement, search, and a very strong ad platform are all essential to a powerful, thriving online business. And we are innovating in search. We've got some of our best people at Microsoft working on search. We're behind. There's lots of opportunity, but there's lots of opportunity to innovate. I know it's kind of hard to think of being in the early days in search because we've all got our habits now, we go to our search engine, we type the words into the box based on what we're looking for, but when you're trying to arrange a vacation,
  8. 8. potentially arrange it with other people. When you're looking up some information related to health because of a friend or a relative who might have a health issue, I think any one of us, just from our personal experiences, could look at it and go wow, there is room for improvement. There's a world of information out there, and how we structure our request in order to find the information that we want, there is plenty of room for improvement and innovation. And I think we really haven't seen any high scale implementations of really good innovative interfaces that have come out yet, and we are investing in those areas. With Cash Back you've seen that there is room for innovation in business model, and I think there are many, many different ideas that different people will have over the next few years in terms of innovation in business models that will help the end user, that will help the advertiser. In terms of the properties for engagement, there's tremendous, tremendous room for innovation. In the early Internet era, content, commerce and community were really the three legs under the stool of user engagement. And communications like instant messaging and e-mail was what transpired in the early days. Content, portals such as Yahoo, and MSN, and AOL, were the simple way that content was presented in those early days. Now content is being mixed in with communications, and if you look at social networks, the photos that are shared on those Web sites, that's the next generation of communications assets, and community is being intermixed into content sites, and things like Digg are showing the fact that content can be ranked based on measurements of community behavior. There's lots of room for innovation in terms of user engagement. So, in any case, Yahoo was not a strategy unto itself, Yahoo is an accelerator. We view Yahoo as an accelerator to the ad platform, potentially to the user engagement, and so on. We'd love to still discuss possibilities with Yahoo, but beyond that I don't have anything to talk about. CHARLES DI BONA: It sounds like, and there have been a couple of questions about this as well, as you sort of move into a world, let's leave Yahoo out of it, as you move forward into this, from your perspective, what is the value of partnering for some of this versus building it in-house versus acquiring, how do you see that sort of array of options particularly in the online space? RAY OZZIE: I think it's extremely important. We are very, very serious about the online space, and in order to have a very, very healthy ad platform, as I said, you need a powerful search, and you need a large amount of user engagement. We cannot, no single player can produce all the content that people are interested in. The Internet brings us all together, but then we self-select into small segments based on our own interests and demographics, and the Internet is a very broad and interesting place, and it's going to get more and more interesting over time. And so forever there will be many, many different publishers that have content and other activities that users are interested in doing. In order to have a successful ad platform, we need to make that ad platform appealing and profitable for those publishers in addition to us as first party publishers. So we do need to build first party content, we do need to have strong first party engagement as a part of building that ecosystem, but we also need to partner very, very strongly in that realm. CHARLES DI BONA: There were a couple of questions about this as well, software and services, I think you talked a lot about the opportunity for software plus services to sort of drive incremental revenue, but there are some defensive characteristics.
  9. 9. In fact, I think some people would argue that it's primarily defensive. But maybe you can talk about sort of the threats to the core business, and how software and services sort of addresses it? RAY OZZIE: Sure. Let's just say, we could focus on any one of those markets that I talked about earlier, but just take the enterprise environment. We are a purveyor of enterprise infrastructure, Exchange as an e-mail infrastructure, SharePoint as a content management and applications server infrastructure, and so on. And in any of these areas, we have very strong competitors, a very strong class of competitors, Notes in the e-mail market, and so on. At any given moment in time, a customer of our product will be looking at the environment, just like we are, and saying, should I continue to invest in you, should I invest in your competitor, or what will be the catalyzing event that will take me to evaluate some completely new architecture for something like that? Different people have different requirements. In financial services, for example, there are requirements of compliance that might enter into the decision as to whether to run your own infrastructure, or to host it elsewhere. Other companies might say, hey, that's not my core skill, I'll just outsource that and use my well- trained IT staff to work on business applications that are more strategic to my business. So for some businesses, essentially, it's we want to be there from a defensive perspective to make sure that when that customer who might want to move things into the cloud wants to do so that they don't have to make some dramatic new change that implies retraining of users, retraining of IT, we want to give them choice to run Exchange in the cloud or Exchange on premises. So we have offerings, Exchange Online, SharePoint Online, CRM Online, that let them retain those skills, retain the user skills, and run those things in the cloud. Similarly, there are some customers, such as Coca-Cola, who we've been trying to win over for years as customers, they're Notes customers, and they decided that they wanted to evaluate the cloud, and they wanted to use that as a point where they just reevaluate everything, and they are now new customers of Microsoft's Exchange Online. They're initially moving 20,000 users over of ultimately 75,000 total users. But they're using the fact that these online services are available as a catalyst for that decision, and so that represent new opportunity, new growth opportunity for us that arguably we might or might not have been able to capture otherwise. So it's a combination. I said earlier that at every one of these technology inflection points, it doesn't just shift from one to the other. It ends up netting out to an aggregate of growth, and there are both defensive and growth elements in the services transformation. CHARLES DI BONA: Maybe we could shift gears just a little bit, because one of the other hot topics in software is virtualization, and maybe you could sort of talk about that in the context of software plus services, and your strategy, and how you use virtualization in your own data centers, how you see it playing out in corporate data centers, and even sort of onto the client side as well? RAY OZZIE: Sure. Virtualization is a great technology. It's been around since the late '60s, early '70s. I think it was CPCMS, or there was some early products that were the predecessors of VM-370. It's a very well proven technology. It's a technology that enables isolation, the simulation of multiple machines on one
  10. 10. potentially larger machine. And much of the job of an operating system itself is to let many things go on concurrently, this just takes it to another level. And ultimately virtualization is really just a feature of the OS. You can think of the OS as either one thing that's operating multiple tasks that share memory, or many things, but it's really just juggling the use of one piece of hardware to do multiple tasks. That technology has applicability both on the desktop and in the data center, and it's got operability both in the enterprise data center and in the cloud. In the enterprise data center, it's really mostly about making the best use of that capital investment that you've got. You know, you want to run those applications as different workloads. Some might have a heavy I/O mix, some of those workloads might be very computational. By putting those together on one box, you can actually make the best use of that box. And so from an economic perspective, it's very, very, very important for the enterprise. In the cloud, it's actually not just important for that reason, but there are other reasons that really aren't written about very much yet, I think they will be overtime, but we build these huge data centers out in the middle of nowhere, co-located with dams, and in other places sources of cheap electricity, and we sent up racks of tens of thousands of computers, and spend a lot of money and energy on cooling, and the goal of that data center, our goal, is to make the best use of that, and ultimately there's an environmental issue of if you're cooling these things, if you're spending all this money on power, you want to make sure that every last cycle of those data centers is being used very, very efficiently, and very, very effectively. Microsoft today uses this to optimize the use of our hardware in the data center across many, many, many of our properties, and over time, as you can see with our customer environments like Exchange up in the data center, over time we're extending the use of our facilities to more, and more, and more third party customers and developers. So that technology is very important in that realm. On the desktop, it's also very important, but more in the realm of compatibility. It's really the ultimate way of assuring that if you have written an application for a desktop environment, that you can make it run from one version to the next, to the next of an OS. So I think what you'll see is as we make further and further improvements and refinements to the desktop OS over time, we'll make use of virtualization technology to ensure that compatibility. Some out here might be familiar with an acquisition that we made some time back, Softricity up in Boston, that's desktop virtualization software that lowers desktop management cost by enabling an enterprise to package up an application and use that virtualization technology to ensure that they can get it on a broad variety of desktops running different OSes and different versions, and maintain absolute compatibility. CHARLES DI BONA: I think you sort of touched on what I suspect is your answer here, but there's been a lot made about disintermediating the OS with virtualization, essentially running straight onto the virtuals on the hypervisor. Can you discuss sort of the shortcomings, or your view of the shortcomings of that, or the potential for that? RAY OZZIE: I don't think it really disintermediates the OS. Certainly, you can run a hypervisor of one vendor and an OS from a different vendor. But, really -- or you can run multiple from the same vendor. Ultimately it all comes down to what is the best way to run the workloads that are relevant to a customer on a given physical
  11. 11. piece of hardware. So Windows and Microsoft's hypervisor will run all of the Windows related workloads, and non-Windows related workloads that are relevant to a customer on that piece of hardware. CHARLES DI BONA: Going back to something you said earlier in the discussion about operating systems sort of basically being redefined from being a device specific, to a much more broad-based, running multiple devices, where do you see the line when it starts to impinge on what the network does? Where do you see sort of that line between sort of network management and operating system functionality ultimately falling? RAY OZZIE: There is kind of an unusual, kind of fractional nature to what's going on, on a given chip right now, increasingly. We started out with one core, one CPU on a chip, and now on most computers we've got two or four cores. We're heading into a world right now where the clock speed of a given CPU is staying roughly the same, and we're getting more and more capability by adding more, and more, and more cores to a given CPU. So on a given box there are many, many different things going on, and there's communication amongst those little processors. In a data center, at the complete opposite extreme, there are many, many computers operating in parallel, and there are networks that are connecting those. The programming tools, and the programming models that we as a company offer to our developers, and we as an industry have to offer to developers, have to become more parallel, both at the level of targeting one computer, or targeting multiple computers in the data center. That's a lot of the innovation that we have to do in our tools and languages group. Our operating systems are getting better, and better in terms of the number of processors that they can schedule and manage workloads on concurrently. Craig Mundie has a lot of work that he's been doing for a number of years innovating in that realm. Ultimately, some programmers won't necessarily program in a parallel way, but they'll take advantage of services that use those multiple processors. They might call a very, very simple library that will use the camera on a PC to recognize the user, to understand a gesture that they might be using. We use the multiple processors in recognition of handwriting, in recognition of voice, and so on. And that doesn't require the programmer to get involved in those kinds of things. CHARLES DI BONA: We're almost out of time, but maybe in the last couple of minutes here, I think you've laid out a vision sort of where things are sort of headed over the next five years, 5-10 years. Maybe you could sort of help from a financial perspective, from a financial analyst perspective, what are sort of the things that we should be looking for, sort of the tipping points that we're seeing progress, both for Microsoft, but also for the market as a whole as it moves in this direction? RAY OZZIE: I think it's -- again, I think the best way to look at it is really on an audience by audience basis, from a market segment by market segment basis. On the enterprise side, which is a big part of our business, I would not look in the next few months, or even a year, in terms of specific material momentum, in terms of people moving stuff into the cloud, but I would be very aware that this is a trend that's actually happening, and we have strong backlog of customers who after we announced our online initiative, are starting to work with us in a trial mode, to
  12. 12. experiment and to understand how they will manage these systems, how and at what rate they will migrate users. So I would just keep a close eye on how enterprise customers are, themselves, balancing those uses of internal investment, investment in internal systems and external. I would look at developer platforms. We've got a very significant investment in developer models that let developers build things for multiple different types of devices, and developer tools kind of give you an early indication of where the solutions that will be built on those tools will be happening over the next few years. So I think those are really the core DNA elements. What really excites me about this whole thing is that the -- this constant change in technology, in the nature of technology over time, really gives us, as an industry, an opportunity for growth, and us as Microsoft an opportunity for growth. And services in particular gives us an opportunity to take a number of the thing that we've done, and to reach the next billion people, or the next 2 billion people that we might not have been able to reach with the types of software that we've got. It gives us opportunities to use the same assets we've got in different form factors, to take our understanding of a value proposition, and to re-purpose it for people who have slightly different needs, and different markets. I think ultimately the opportunity for Microsoft is to create compelling, seamless experiences that take the power of the Internet, and the magic of software, and to mix them together, and to put them out there on a world of devices. And I would just monitor those kinds of trends, in terms of devices, and backend infrastructure, and how we're doing against those. CHARLES DI BONA: Great. Thank you very much. We're right out of time. (Applause.) END

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