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JP Morgan Global Technology, Media and Communications Conference
Who: Rajesh Jha, EVP, Office Product Group
Event: JP Morgan Global Technology, Media and Communications Conference
Date: May 25, 2022
Mark Murphy: Good morning,
everyone. I am Mark Murphy, Software Analyst with J.P. Morgan. It is an
absolute pleasure to be here this morning with Rajesh Jha, who is EVP of Office
Product Group with Microsoft. Rajesh, thank you so much for making the trip and
being here with us.
Rajesh Jha: Thanks for having me.
Mark: Perhaps we can start by trying to put Office
in a high-level perspective. There have been many junctures we've lived through
in the last 10 to 20 years. People would basically assume that Office was pretty
penetrated, pretty saturated.
We look at it today. It's a $45 billion business. It's growing in the low
teens. You think about the perspective on that. It's larger than Oracle. It's
larger than all of SAP. It's growing faster. What do you view as the key
ingredients or what do you think of as the broader phenomena that are driving
this Office business to deliver such durable growth?
Rajesh: Our technology has evolved. More importantly,
the scenarios that we have focused on as we're working with our customers,
taking a look at the trends, that has evolved over the years as well.
10 years, 12 years ago, when we started Office 365 -- this is way before the
pandemic -- our vision at that time was to allow people to work from anywhere,
anyplace, at any time while delivering productivity, communications, and
collaboration solutions but at enterprise-grade security and compliance.
I think the thing that we got right early was trying to work with our customers
and get them to then transition to the cloud on their terms. Some chose to go
all-in into the cloud a decade ago. For the others, it was more of a hybrid
setup, whether some users moved to the cloud, some stayed on-prem, or there
were some workloads that moved to the cloud.
Then about five years ago, we really took a step back. By the way, the one
thing that the cloud did was not just economies of scale. It was economies of
skills because as Microsoft, we took it upon ourselves to actually keep our
customers updated and integrated.
Because we got all the customers on the same version of all our products, it
enabled a lot of new scenarios. That is what allowed us to create something
like Microsoft Teams.
We would never have been able to create something like Microsoft Teams in the
classic on-premises world. In a cloud, all our customers are on the same
baseline of the different infrastructure.
With Teams we took a step back, We said, "It's not about the apps. It's
not about the devices. It's about people and groups. How do you bring sync and
async communication collab together?"
Then security and compliance, we knew was an area we needed to invest in. As
systems of record and systems of engagement started to come together, we knew
we had to invest in automation, so you have a Power Platform.
I guess I would say, Mark, the thing was we've stayed with the word
productivity, but we have taken a broader and broader perspective of that in
Office. It was initially about information workers.
Even information workers, you go back to Office way back when, people thought
we were saturated because Office was all about creation, Word, Excel,
PowerPoint. Then it was about creation. It was about collaboration and
communication and security and compliance and automation.
Then we didn't stop at information workers. 80 percent of the workers on the
planet are first line workers, are frontline workers. As companies go through
digital transformation, these frontline workers are incredibly important for
productivity. We've gone from information workers, knowledge workers, to
frontline, workers, small businesses.
Then the TAMs. One of the things on productivity is the addressable market. We
continue to grow the addressable market, where it's about creation tools to
collaboration tools to security to compliance. Now, we think about employee
experience and productivity, especially in a hybrid role, how do those come
together.
I'm incredibly excited to stay on this journey to define productivity at the
individual level, at the team level, at the org level.
Mark: It's an amazing vision. Rajesh, when we look
back on the March quarter, in aggregate, for Microsoft, very solid quarter. We
came out of that. We raised our forecast for Office. In contrast, there were
many software companies who saw a slowdown. Investors now are concerned that
perhaps this whole demand environment was pulled forward during the pandemic.
We get these questions. If reopening caused Zoom to slow down, why didn't it
cause Teams to slow down, for instance? From your perspective, what impact did
the pandemic and the lockdowns have, as well as the pivot to remote work on
this whole Office business?
Rajesh: In the pandemic, definitely accelerated the
move to the cloud from many of our customers. The growth that we saw in Office
365 and Microsoft Teams, even small businesses, they had to really reinvent a
new way of working.
It brought forward a lot of people moving to the cloud that were perhaps on the
sidelines or perhaps not fully using the cloud. We created things like trials
to let them get onboarded really quickly. We created specific small business
offerings like Teams Essentials, affordable collaboration, meeting tools.
Our usage has never been higher. Even coming out of the pandemic, it's never
been higher. When peoples think, "Why is that the case?" well, with
Teams, it's multi-modal. Teams is not just a meeting solution.
With Teams, what we said was, "How would a group of people collaborate,
whether it be a project team, the boardroom, or a first-line worker working
with their managers, how would they work?"
It's synchronous and asynchronous. It's across different time zones and
different shifts. It's about people being either face-to-face or being
distributed, so even if the actual number of minutes in meetings goes down,
collaboration -- especially when you're trying to go through a digital
transformation and digitizing business processes -- the need for
collaboration's never been greater.
Usage of Teams continues to grow, but it's not just Teams in Office 365. If I
take a look at the usage today in Office 365, it's never been higher from other
modules. Our customer that will use four of our modules are now maybe using six
of our modules.
It's not just the number of modules. The depth of usage of these modules
continues to grow. If you wonder why, I do think, in a hybrid world, digital
tools is where work will have to get represented, work will have to get done.
That's how collaboration happens. That's how you work flexibly across different
time zones and across space and time.
I think now that we have a strong baseline and a growing baseline of the usage
and consumption, we continue to grow the scenario that we want to serve our
customers with, whether it be the phone system in Tunes, whether it be how
Space -- whether it be a focus room or an open collaboration space; a
conference room; small, medium, large that group can chat -- how should that
evolve with Teams?
We thought about employee experience in Viva, how you balance productivity as
well as learning knowledge. Device is becoming incredibly important. We try to
virtualize devices with Windows 365.
The usage has never been higher. I'm excited about how we can continue to serve
our customers in this hybrid world.
Mark: Great to hear that usage has never been
higher. I'm going to come back and touch on many of the products you just
mentioned, including Phone, Teams, and Devices.
Let's start with an assumption for a moment that remote work and hybrid work
are permanent societal shifts and this is going to be with us for a while.
What are these types of differentiated experiences that you're creating
currently that perhaps maybe we're not even considering yet as you try to help
workers connect and collaborate in the world?
Rajesh: There's a couple of things that I would note
here. First, I do think this hybrid work, where individuals.
One of the things that we recently released was our latest Work Trend Index. We
interviewed 30,000 information workers and first-line workers across 30
different countries.
The other thing that we have with Microsoft 365 or Office 365 is a massive
amount of signal, so we can see a lot of the data and the usage patterns, and
the communication patterns.
You would have heard us talk about this thing called a hybrid paradox, where
three-fourth of the employees, they want flexibility in how they work, whether
they work in their office space or they work elsewhere. At the same time,
two-thirds of these employees, they also want more face-to-face time with their
colleagues.
This is the paradox. Three-fourth, they want flexibility, two-third, the same
two-third, they say, "Hey, I want to be face-to-face and build off the
energy."
The other thing that I'll just say that was striking to me, even though in Q3,
as I reflect on it, makes sense is remote work, hybrid work tends to make
strong ties stronger and weak ties weaker, and that is important.
Why is that? The serendipity, the water cooler, you're coming out of a
conference room meeting, talking to somebody, who is not in the immediate work
group, an immediate work group being a strong tie.
No matter how an organization sets up the org structure, what is not always
done in a hierarchical manner, what has to train and send these boundaries.
That's all weak ties.
What we are thinking about here is, just take Microsoft Viva, for example, it's
an application that's built on Microsoft Teams, because Teams is about putting
groups at the center, people at the center, and bringing the right apps, the
right data, the right AI, the right automation to people.
The Viva and hybrid work, you've heard about the triple bump of the day where
people took three peeks, one before lunch, one after lunch, and one in the
evening before going to bed. It's like productivity has to be balanced with
their well-being. At Microsoft alone, a third of our employees started during
pandemic.
How does in a world where our customers have higher attrition, new people
joining remote work, how does the knowledge gets discovered and how do you
create knowledge? How does that get discovered? How do you balance wellness
effectively? How does learning take place in the flow of work? How different
teams align on their core mission?
How does a front-line worker connect to their leadership? These of the things
that we think broadening of employee experience for this world where strong
ties tend to get stronger, weak ties tend to get weaker, with these things have
to come into the flow.
I would say, Microsoft Teams and Viva, but there are other things we are
thinking about, documents today a super monolithic. How do you get the documents
to be the flow of communications, but also hand together as a document with
things like Microsoft Loop. We got lots of things we got to do, and we are
going to learn and we're going to literate.
Mark: You mentioned Loop at the end, correct?
Rajesh: Yeah.
Mark: I just want to make sure. It's OK. We'll come
back to that as well.
Rajesh: OK.
Mark: Office 365 commercial is the bulk of the
business. We recently ran a survey, and it was showing us that are O365 is
going to exceed 60 percent penetration of all corporate employees in the coming
years, which is a very high number.
You've had the seat count growth running around 16 percent for that in recent
quarters and then you had shared this had hit 345 million seats of Office 365.
Let me begin with a very simple question, how much runway do you see now for
seat growth?
Rajesh: Just a growth, we think about it in three
different dimensions. We can think about in three different dimensions.
First, let's talk about what you said, seat growth. The seat grows, there are a
billion information workers, the projections are 20, 25 information and
knowledge worker.
There are a couple billion more first-line workers that are on the front-lines
of this transformation of business processes. There are small businesses.
There's industry-specific role offerings. There's education. We think broadly
that we have lots of room here to grow the seats with Office 365.
Then, the other dimension is the addressable market. With Office 365, it's not
just about creation tools or collaboration tools or communication tools.
It's about security and compliance. It's about employee experience. It's about
learning. It's about knowledge management. It's about content management. Even
industries like phone systems, how do they evolve for the future? How does
space evolve to allow hybrid work?
We think our addressable market is pretty broad. That's a great thing about
productivity is. It is what is the heart of the modern economy, and so we
always tried to take a step back and take a closer look at the productivity.
Finally, I just say, I talked about usage and our usage has never been higher.
The more usage there is, the more our customers, you see that pay off and the
renewals, lesser discounting, and then we have things, like E5, which is a
premier tier where we bring it all together for our customers and very early
days of seeing that play out for our install base.
Mark: Your aperture is broader than a billion
information workers. It goes well beyond that. You just mentioned E5, and I
wanted to just touch on that for a moment.
There is a sense of there is so much value packed in to these SKUs, E3, E5.
There's been speculation on E7 coming at some point. Where do you think you are
in the process of packing in more value into the SKUs and monetizing it?
Rajesh: I just say last year we said eight percent of
our install base are commercial Office which were installed base had moved to
E5, and I like this still early. Remember, this is we're talking information
workers.
Like I said, we aim to go broader with SMB and first-line worker and
industry-specific role offerings. The mix of how E5 plays out over time depends
on the more FLWs we have, they're probably not E5 users. Information workers
quite early still in that cycle.
In terms of the value of the E5, I agree with you. There's a lot for our
customers there. Our customers can choose to get not the bundle.
They can choose to get just the security offering or the compliance offering or
the Phone System offering or the analytics offering. They can choose to get out
each one of these separately.
We think the value taken together for our customer with all of the E5 SKUs, and
many of them actually want to get the entire suite as its incredible value.
Mark: Rajesh, Teams is a part of that incredible
value. A couple of years ago Satya described Teams. I believe he said,
"It's the fastest-growing app I have seen."
We step back and we were thinking about that, it's a pretty big statement,
because Office grew quickly, Outlook grew quickly, Exchange grew quickly.
Earlier this year, I believe you had said Teams had crossed 270 million monthly
actives. It's not too far behind the Office 365 commercial seats.
How do you view the significance of Teams, if we step back and say, put this in
a historical context for us? What is it about that, that Teams experience that
you'd say is fundamentally different than other competing products in the
world?
Rajesh: That's a great question, Mark. I've been in
and around the office business a long time. I would just say Teams is
remarkable. You said, what makes it different? What makes it different is the
fact that it is multimodal.
It's not about one modality of a meeting, one modality of a chat, one modality
of creation. With Teams, we took a step back and assessed. What if we didn't
start with tools first? What if we started with people first and groups first?
Then, when people congregate together, whether in an informal chat or a formal
group or a channel, how do we bring the right modalities of chat, meetings, the
phone system, and documents and files and dashboards and business automation,
how do we bring all of that together?
The tools find you. You didn't go from tool-to-tool to do your job, and if
there is group, a work group of 20 people and they are all independently seek
different tools, that's not going to work.
With Teams, what is remarkable is that we see it as relevant in the board
rooms, for a CEO and their leadership team taking a look at business
performance and have a shared context as it is on the shop floor.
We are seeing broad success. Recent CIO survey showed 50 percent of the CIOs
are standardizing on Microsoft Teams. With three years, that number was
projected to get to about two-thirds.
What is really remarkable with Teams is not the multi-modality application, the
usage, is the fact that it's a platform. That it's a platform in an ecosystem
that transcends a given device. If you are an ISV or even Microsoft, we're
creating things like Microsoft Viva as applications in Teams.
If you write an application for Microsoft Teams, your application runs on the
Windows, on the Mac, on the web, on the mobile devices, iOS, or Android. We
have ServiceNow and Workday and Adobe and Monday.com and lots and lots of other
ISVs.
In fact, if you take a look at the number of third-party and custom
applications that have been built on Microsoft Teams, two years ago to now, it
has grown 10x. The ecosystem is the real differentiation with Teams.
An ecosystem also plays out on the Devices side. We have Poly, Logitech and
Zebra and all of these folks who are building devices that are optimized for Microsoft
Teams. We have telco operators that are connecting. They are backlinked to the
Microsoft backlinks, so a customer that wants Teams Phone or collaboration or
conferencing has no configuration to go do.
I feel this is just a baseline. Then we have a differentiated point of view on
how a company's space evolves with Teams Rooms. As their phone system evolves,
how employee experience evolves. Teams is truly special.
Mark: You said the tools find you.
Rajesh: Yeah.
Mark: Teams Phone has been finding a lot of people.
Can you help us understand the strategy there? How far are your ambitions
stretching out with Teams Phone, and how would you think about the scale of
that specific opportunity?
Rajesh: It's very interesting. It's seems obvious now,
but the phone, of course, it makes no sense to be anchored to a desk anymore,
especially in a hybrid world. The phone's got to be around the individual. It's
got to be around the person and not around the desk.
A lot of customers do want to get from their legacy PBX systems to something
that is much more person-centric, set up for the hybrid world.
The other thing about a phone is, when you work with somebody -- like three of
us are in a chat -- you want to escalate that quickly to a phone call, quickly
to a synchronous modality, go back to the async modality. There has to be a
continuum between the phone system and collaboration.
Even when you start with a phone call, you want to bring a white board in. You
want to be able to bring screen-sharing so you can actually communicate
quickly. We think there is a blending of a phone offering that is
person-centric, and whether it be VoIP-based or PSTN-based, whether it be
inside of an organization, whether it be across an organization.
We see broad demand for phones across different industries of all shapes and
sizes. We have over 80 million people that use Teams Phones in all of these
different flavors.
The thing that is exciting to me is the fine-tune value to customers. Once they
decide to get off their legacy PBXs onto the phone system, the time-to-value is
in weeks. In weeks they can get configured, because again, the back point is
the same.
Teams is multi-modal. You're configured for Teams. You're configured in a
directory to add Phone. It's a question of weeks. It's not years in the making,
so hugely cost-effective, flexible, multi-modal. I think we have a real
differentiator perspective here with Phones.
Mark: When we look at how Office 365 is being
purchased, 45 percent of that is purchased through Microsoft 365. I think most
people in the audience would probably think of Microsoft 365 as this set of
very finished applications and services.
I have heard you refer to this as basically a rich developer platform. You've
alluded to some of that foundation underneath it -- Microsoft Graph, the fluid framework.
Is there any way you can help make that tangible for this kind of non-technical
audience to try to explain some of the differentiation?
Rajesh: Yeah. I think this is a really important
point, Mark. Microsoft 365 is a set of finished services for sure, a
time-to-value for customers, whether being creative with a new solution,
productivity, or collab. We want to get the time-to-value to be really quick.
First and foremost, it's also a platform, because Microsoft's found on builds
every single productivity application or project management application. Teams
is set up as a platform, like I had earlier talked about.
You will find Zoom in the Teams store. You will find RingCentral in the Teams
store. You're going to find all sorts of project management and whiteboard
companies in the Teams store.
At the UX layer alone -- the UI layer -- we are a platform where people can
plug in, because it's really our customers' choice in the end of the day on how
they play it.
Even below the UX layer, Teams has a platform at the data layer. We call the
data layer the Microsoft Graph. Satya once said this, and I think it's a right
characterization.
The Microsoft Graph is the most important database for any company, because
that database has all the company's employees, who they work with, the meetings
they are in, the documents that are shared, the documents that are trending,
the projects, and the deadlines of different people.
This is the database on which Microsoft can run a massive amount of AI to give
you both deep insights and the right recommendation in the flow of work.
The Microsoft Graph is an extensible platform. Each one of Microsoft 365
applications writes to the graph, gets value from the graph. We allow third
parties to also write to the graph and get value from the graph.
The graph, of course, is owned by the customer, and the right permissions have
to exist, and the right IT controls exist.
The other part of Microsoft 365 that is a platform is, you know how the user
experience can be composable. We've done that ourselves today. With Microsoft
Loop, we thought, "Microsoft Loop. I'm really excited about Microsoft
Loop," but documents have tended to be somewhat monolithic. Users go to
documents...of course, with Teams, you can hang all the documents around a
group.
With Microsoft Loop, we allow documents to be decomposed. For example, I've got
a project update, and there's a table that a bunch of us need to update.
Instead of telling everybody, "Hey, can you go update that table?" I
can take that table, that snippet of the document, put that in chat or email,
and send it out.
As people fill it, it's always live. When I go back to the document, it shows
the same state. If I'm in chat, it shows the same state. In email, it shows the
same state. If I were to take that component and put it in a Word document, it
is always alive and connected.
This is extensible, so third parties can participate in that, too. With
Microsoft 365, finished services, focus on time-to-value, but we want to make
it extensible. We have made it a platform, both at the UX layer and the data
layer.
Mark: With this canvas and this surface area that
you have, and you're describing to us the graph data, the AI, you would seem to
have an advertising opportunity. You had made this comment in January.
"The advertising business is over $10 billion in trailing 12-months'
revenue."
That was an incredible stat. You're investing in this area. Can you share with
us how you think about your strategy in advertising?
Rajesh: Yeah. As you know, it's a large market, and I
think we are well-positioned to play in this market. A couple of things.
Let's start with, LinkedIn, LinkedIn Marketing Solutions. Now LinkedIn is like
the highest trusted social network. For customers, for advertisers, B2B
advertisers, they have a really large engaged audience.
Now, let's take a look at Windows, 1.4 billion active devices. With Edge, we've
started gain sharing. We have more room there to grow.
Then with Microsoft Start, it's like this personalized feed that is used by
about half billion people, and so you have curated content and content
consumption, commerce, now we got the supply deal going. We are investing in
scenarios.
What do people do on their PCs. The PCs have never been more relevant. People
do shopping. They do learning. They do gaming. They do browsing. We're
investing in those scenarios, both in Windows and with Edge.
Then, as you know, we recently completed our acquisition of Xandr. Then, you
take the deep audience intelligence that we have, and the Xandr data-driven
platforms, we think we can accelerate this even more.
These are the mainstream things, but you're also exploring Advertising in other
surfaces like Outlook.com, our Consumer Mail offering, or gaming. Gaming is
high engagement and we think it's really interesting to see their new business
models possible gaming. I think we are well-positioned here.
Mark: New business models, you had mentioned the
theme of citizen developers using Teams and Power Platform at one of the recent
Build conferences. Personally, I've been a bit of a skeptic on this whole topic
of citizen developers.
I'd say for most of my career, because we never saw convincing signs and
traction from any other software company, and that is until now. With the Power
Platform, that has been ranking number two in our product momentum, Microsoft
Partner Survey Work, that we've been conducting.
The signs are very clear. Can you put that into context? Why is there so much
momentum and do you think that you finally cracked the code on this trend with
the Power Platform?
Rajesh: Yesterday, it was Microsoft Build and some
really exciting announcements on our platform, an Azure Data, and AI
Infrastructure. Even on Microsoft Teams, yesterday, we announced multiplayer
sharing.
Today, if somebody shares an Excel file with you or a video with you, you're
passively consuming it. Now we've got true multiplayer gaming, like sharing
going on as a core platform and other things in Microsoft Teams.
If you're an ISV, write an application for Teams, it also runs in Outlook and
Office, new tooling in Visual Studio to create Teams apps.
Let's talk about Power Platform. Very exciting announcement yesterday, where,
today Power Platform has an ability to...
You can analyze with Power BI, so people can drive data-driven. You can connect
to all the business data to connectors and drive insights as Power BI. You can
create new applications and act on it through Power Apps.
Yesterday, we announced that now it's even simpler to create a Power App, you
can just point it to an image of how the app should look. The AI will do most
of the work of creating that for you the application for you. We have
automation, the way to make business process automation.
Then we announced a new member yesterday called Power Pages, which is a
business-centric data-driven way to create a website.
Now, why is this resonating, Mark, you said? I saw some staggering statistics,
which is, there's an expectation as customers go through digital
transformation, that in the next five years, 500 million new applications are
going to get created. That's more than in the last forty years.
Where are these developers going to create this half billion applications. IDC
says today, there is a shortage of four million developers.
The idea behind the Power Platform is digital transformations happening. These
applications have to be low code, no code. With Power Platform, we build all
the connectors to all the systems of record databases.
Business person who's closest to the business process can create draw insights,
create these applications, create this Power Pages, automate business
processes. I'm very, very bullish about how Power Platform can help our
customers with a digital transformation.
Understand that these Power Apps, again, are, when I say, Teams is an
extensible platform, you can write a business process in Power Apps and consume
it right in the flow. There's an updating your business processes posted in the
chat of inside of the Teams. You can consume that on your phone or on the
desktop.
Mark: In the very final moment, here, maybe we can
do a lightning round question. I wanted to touch on the topic on security and
make sure that we wove this in, it is itself interwoven up and down the whole
product stack.
We see incredible momentum, security ranked number one in our Partner Survey
Work. It's actually above Azure and it's above Teams, which is interesting.
Can you explain to us what is differentiating this Microsoft Security Solution
versus the other products in the market?
Rajesh: I could go on, but you said lightning round.
[laughter]
Rajesh: With Microsoft, our security cloud works on
multiple clouds, not just an Azure, but GCP and AWS, our Defender product works
not just on Windows, but on all mobile platforms and all other desktop platforms.
We are multi-cloud, multi-platform, multi-device. The real differentiation is
how end-to-end it is? Our security cloud addresses identity, compliance,
privacy, security.
I would say, if you double click a level, what's the differentiation? The differentiation
is scale. We have 24 trillion signals every single day coming to our security
cloud on which we can run AI and we can help our customers with these threats.
The threats have never been more. Today, Microsoft tracks 40 plus state actors,
140 different persistent threat actors. Even just a couple of years ago, it was
in a handful.
The level of scale, the level of insights, the trust that we have in the
security cloud with over 785,000 customers betting on the Microsoft Security
Cloud, so I would just say, end-to-end, trust, insights, scale.
One last comment, I'll make, people think end-to-end means integration, and
yes, but with our Microsoft Security Cloud, the individual components are also
best of breed. We work to be both best of breed and best of suite.
Mark: Rajesh, thank you so much for being here with
us and sharing all these wonderful insights. Again, thank you...
Rajesh: Thank you, Mark.
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