Microsoft Corporation (MSFT) Earnings Call Transcript & Summary

I'm very excited to participate in the virtual ZertoCON. My name is Erwin Visser, and I worked for the Microsoft U.S. organization, where I'm responsible for our partners' strategy, planning and enablement. Clearly, we are living in unprecedented times. Over the last years, I would typically start a conversation like we are having this morning with stating that we live in a time of disruption and change. But arguably, these words have never been more true. The COVID-19 crisis is reshaping global businesses as we have not seen before. Business and institutes of all sizes need to adapt and change adapt the products and services, their supply chains and also how they can be successful in a world that is predominantly working remotely. In this unprecedented world of disruption, the Microsoft mission couldn't be more appropriate and enduring, empower every person and every organization on the planet to achieve more. No one company is going to solve a challenge like this one alone and it's going to take the private and public sectors working together to turn the tide on COVID-19. Our unique role as a platform and tools provider allows us to connect the dots, bring together an ecosystem of partners like Zerto and enable organizations of all sizes to build the digital capability required to address these challenges. So the question we are asking ourselves in the last weeks and days, is listening to our customers and partners, how can we help. How can we help our customers' businesses from all sizes to navigate this crisis and support the continuity for you, your employees, your suppliers as well as your customers. For the months ahead, we are thinking about this in three phases. First, the most immediate is how can we help you adapt and respond in realtime in the current crisis? What are the solutions you need to keep your business going, continue to serve your customers and help manage your supply chain? Second is to help you plan what's next, help you reduce costs out of your operations, create new value and restart customer demand. And last, we believe that the current crisis will have enduring change on businesses. We're not going to go back exactly as the things were before. And business of any size will require to innovate, define and realize new opportunities and start focusing back on growth to get the economy going. But before we get there, let's focus first on the immediate. On the short term, the reality we need to embrace is probably best summarized with the term remote everything. Our job, together with our partners, is to be the digital first responders, providing the critical infrastructure for our customers to be successful. And with remote everything, we're not just referring to working from home. With remote everything, we really refer to the ability to handle everything remotely. I think there is no doubt that the workflow of our jobs is changing fast, with so many people doing so much work remotely for the first times in their career. And I can talk for myself here. While Microsoft has always been open to working remotely, I have been typically one of those people that likes to commute into the office, and I did it every single day. And it's not just me being home. I'm sharing the house with my wife and multiple kids who are trying to remotely learn, still continue their doctor's appointment through telemedicine and even try to keep track of their sports practices schedules by recording their workouts and sharing it with their coaches. And while I'm in my office participating in this virtual event, my wife is probably, at this moment, participating in virtual offside. My son is designing his new fraternity gear through an online shopping experience. And I think this is a pretty high chance that my teenage daughters are practicing their dancing while they are recording their latest TikToks. And we can see the impact of this remote everything on the usage of our technology. We have a unique experience as we observed the search and demand for cloud services, and we have been working diligently at Microsoft to keep up with the demand as well as accelerating the increased capacity in the coming days and months to remain ahead of the demand curve, and last but not least, meet our service levels across commercial clouds, especially Azure and Microsoft Teams have seen significant surges over the last weeks. Teams is growing to 44 million daily users with people conducting over 2.7 billion minutes of online meetings, and this is billions, not millions, and also calls in a day. In Azure, we have seen a significant demand for our remote access solution, and specifically Windows Virtual desktop, growing usage with 300% in the last period. But unfortunately, we also have seen increases in both rudimentary and sophisticated cyber attacks, ranging from phishing campaigns, preying on COVID-19 concerns, also true to more sophisticated attacks, underscoring the need for constant vigilance as the landscape has enforced with people working from home. So let's talk a little bit more about the key scenarios that can keep people productive as well as secure. At Microsoft, we have identified 5 key scenarios to support our customers in this new world of remote everything. The first one is to enable people and teams to collaborate and be more productive from anywhere, anytime and any device. The second scenario is very related. And this is about enabling this productivity from anywhere with IT organizations, keeping IT organizations to tools to be able to manage and secure access to apps, data and devices to their business users. The third scenario speaks about the ability for businesses to rapidly adapt the business process, manage their workflow, optimize supply chain and redesign products and services. Next -- the next scenario talks about how we can help businesses to sell, service and deliver on the new customer expectations and requirements in this remote everything world. And last but not least, critical for business is not to lose beat in the developer productivity. As software innovation is the key for everything and keep co-development going with a distributed team is going to be essential to support innovation. Microsoft has great and cost-effective solutions for all these five scenarios. But specifically today, we're going to focus on one, and the scenario is how can we help manage and secure access to apps, data and devices. Essential for remote work is secure access to the important business apps. When we talk to customers, this is one of the key focus areas as well as concerns. And we talk to a lot of customers who are struggling to move from their existing CPM constrained models to a more flexible architecture to support the current requirements. Additionally, the cyber attack landscape is shifting as bad actors explored COVID-19 and VPN vulnerabilities, making security even more important. In addition, we know that it's a challenge to onboard and manage new and personal devices. So these are great areas where Microsoft can help. First, with Azure AD, you can easily enable remote access to applications both cloud apps, like Office 365, Salesforce and Dropbox, but also on-prem web apps without the need for VPN. Most apps are connected. You can easily keep usage visibility to their apps and a simple way to get access to them with the My Apps portal. The securing access is critical. With Azure ID conditional access, you can apply security policies to ensure only the right people have access to the right apps under the right circumstances. Last, this conditional access could also extend this protection into the device, protecting access to the apps and the data or the device itself. But before we go into much more detail on this, let's talk about 2 specific solutions, Azure AD and Windows Virtual Desktop. But before we go there, let's take a step back and talk a bit more about Azure. Essential for remote work is secure access to the important business apps. When we talk to customers, this is one of their key focus areas as well as one of their top concerns. We talk to lots of customers who are struggling to move from their existing VPN constrained models to a more flexible architecture to support their current requirements. Additionally, the cyber attack landscape is shifting as bad actors are exploiting the COVID-19 and VPN vulnerabilities may be security even more important. In addition, we know that it's challenging to onboard and manage new personal devices. These are the areas where Microsoft can help. As with Azure AD, you can easily enable remote access to applications both cloud apps, like Office 365, Salesforce, Dropbox as well as on-prem web apps without the need for a VPN. Secondly, once apps are connected, you could easily keep usage visibility to their apps. And a simple way to get access to them is through the My Apps portal. Securing access is clearly critical. And with Azure AD conditional access, you can apply security policies to ensure only the right people have access to the right apps under the right circumstances. And last but not least, this conditional access can also be extended -- this protection into the device, protecting access to the apps and data on the device itself, which is critically important in the world of remote work. But before we go into more detail on these 2 specific solutions, Azure AD and Windows Virtual Desktop, let's take a step back and talk a little bit more about Azure. Let's introduce Azure. To start, cloud delivers the scalability and flexibility to support the digital systems required by customers today as well as into the future. And Azure is the backbone and foundation of the Microsoft 3 cloud approach, which also includes Microsoft 365 as well as Dynamics 365. With this combination of 2 clouds, we believe we deliver a unique and unmatched platform to support our customers' digital transformation and unlock value for customers of all sizes, the largest enterprises to fairly run small business. With Azure, we are delivering the infrastructure, the platform, the tools and services, not only to support the other Microsoft cloud offers but also to run our customers' apps and services workload in a scalable and cost-effective way. So let's dive in a little bit more. Now if you haven't looked at Azure in a few months, you may be surprised to see what we have these days. Shown on this slide is a high level map of the class of services that we offer. Azure currently has well over 200 products and services, including infrastructure services like computation, network, storage; a rich set of surplus capabilities, including analytics and AI services; tools to increase the productivity of your development teams and allow code sharing with GitHub; as well as finally, edge capabilities. With Azure, we are extending our cloud capabilities into the edge, giving you the opportunity to extend application growth from the cloud in a consistent way into edge devices like Azure Stack, Azure Sphere, all the way up into HoloLens. Over the last years, we have seen accelerated demand for Azure by enterprises in the U.S. At Ignite last year, we announced 100 new Azure capabilities, including especially 2 exciting announcements, namely Azure Arc and Azure Synapse. With the Azure Arc, we are allowing the customers to manage resources anywhere across on-premise, edge and multi-cloud. With Azure Arc, we are enabling deployment of Azure services anywhere, including other public cloud platforms and extend Azure management to any infrastructure. Azure Synapse, what's another exciting announcement, and it's a great exciting surface. It's an analytic service that brings together enterprise data warehousing and big data analytics. Synapse gives you the freedom to query data on your terms, using either serverless or provisioned resources at scale. Azure Synapse brings data warehousing and big data together with a unified experience for immediate BI and machine learning needs. We are very excited about the market and customer response on both Azure Arc and Azure Synapse, motivating us to continue to accelerate our innovation on Azure. As we believe that our focus on customer innovation is also leading to adoption, we feel very fortunate to have over 95% of Fortune 500 companies [ incenting ] with Azure. And they are offering all industries, as you can see on this slide, from retail to automotive to airlines, all doing meaningful things with Azure. In this thought, we unfortunately don't have the time to go through specific business cases. But if you are interested, how Azure can help you specifically for your industry, I would encourage you to go to azure.com, where you can learn more about not only what other customers and your peers have been doing with Azure, but also, you can find the richest set of partner solutions available to help your business. Now you might be thinking all of these capabilities and services are great, but how should I think about them when it comes to my business? Let me share a typical path our customers would take when moving to the cloud and specifically moving to Azure. And the first step is migration. This is a common practice for a lot of our customers. As the first step is to migrate the existing workloads from on-premise to the cloud. Typically, this is called in the industry lifting ship. You probably have heard the term, and this is the process of taking an on-premise VM and moving into the cloud with almost no change. But we see a lot of customers not stopping here. And the second step is clearly how to innovate and build and modernize your applications, leveraging the rich capabilities of the past platform of the platform-as-a-service. This is where you could use containers to provide better efficiency and speed compared to VMs but also leveraging the scalability and elasticity of the cloud. Now as you move into the PaaS platform, you not only can become more efficient, but you can also innovate that and deploy your products faster to market, which is essentials certainly at this time. We have a variety of offerings for our PaaS platform to help become more productive. But the unique service, I'd like to quickly highlight is power apps. Power apps provides a unique self-serve option to build apps with no code, which means enabling anyone to build applications on their own terms, even including your business users. But let's take a step back and go back to step 1, migration. What makes Azure infrastructure so unique? Well, with Azure infrastructure or IIS, we are delivering a modern infrastructure for all your workloads. You can use Windows or Linux applications and your favorite programming language or run your enterprise-class applications like SAP, Oracle, IBM and SharePoint. Or choose from a thousands of other workloads available in the Azure marketplace. Secondly, Azure IIS is a hybrid by design, enabling you to extend your investments in on-premise licenses for Window Server and Microsoft SQL server into the cloud with Azure hybrid benefits. Furthermore, as we discussed earlier, with Azure Arc, we can extend the management and deployment of Azure resources into on-premise apps and even other public cloud platforms. Last, a recent commission study by Forrester showed that you can realize up to 435% return on investment over 5 years by migrating your workloads to Azure. Cost savings are delivered through Azure cost management, a free tool to manage and optimize your cloud spend by transferring your on-premise Windows server and SQL server licenses to the cloud with Azure Hybrid Benefit and but also by paying advance for predictable workloads, which Azure refers -- Reserved Instances or RIs. To further showcase the investment Microsoft is making in Azure infrastructure, I'd like to highlight a couple of key areas. Let's start talking about scale. Azure is a global infrastructure with more than 55 regions, offering 150 VM size options. Second, [ ticker ] Microsoft make Windows server a SQL server, there is no place better to run Windows platforms. But that's not where we have stopped. Presently, about 50% of Azure VMs run on Linux with Linux growing 1.4x faster versus other VMs on Azure. And this is probably why Microsoft established relationships with all the big Linux providers. In fact, we're doing something that industry has never seen before. We have developed an integrated support model with Red Hat, where Red Hat engineers and Microsoft engineers are sitting side by side to support our customers. Lastly, we have partnerships with SAP, VMware, Oracle and many others that allows us not to migrate -- to migrate all of your data center and all of your apps to Azure. So now let's talk a little bit about what triggers customers to start their Azure migration. And talking to customers over the last years, and we are seeing a lot of different reasons to start an Azure migration. The business leases can be cost savings, urgent capacity needs, exploration on data center contracts and many, many more. Last year, we have seen a lot of customers starting their migration due to end of support that lines for their on-premise Windows and SQL surface servers and taking advantage of the 3-year extended support that Microsoft has delivered through Azure. But recently, a key trigger for customers is the new requirements around working remotely and enabling secure access to apps, data and devices. So let's go deeper here. How can Azure and Azure AD or Active Directory can help? As we talked about earlier, we see a lot of customers scaling constraint in their remote access needs due to VPN. With Azure AD, these constraints will be removed. With Azure AD as your single control, customers can secure older apps, whether they're on-premise, in the Microsoft Cloud or in another cloud. And the good news here for businesses already using Office 365 is that your employees are already using Azure AD for single sign-on, and they can extend the single sign-on functionality with the same credentials to other SaaS, on-premise or LOB apps, whether they are hosted on-premise or are in a public cloud. Specifically for on-premise applications, there are a variety of options based on customer needs. You can use secure hybrid access capabilities like as Azure ID application proxy, or native integrations with network security vendors like Akamai, Citrix, F5 and others if you already deploy one of those solutions. Last, customers can also use Azure VPN servers to scale access to applications that cannot be exposed over the Internet. Additional to Azure AD, another Azure-based solution to support the remote everything needs is Windows Virtual Desktop. While Microsoft 365 is designed for remote work, delivering productivity and collaboration securely to the Internet, WVD or Windows Virtual Desktop is a key additional solution delivering cloud-based and secure remote computing for all other applications. Windows Virtual Desktop gives your employees a seamless personalized experience of Windows on a PC, phone, tablet or browser almost identical to a physical PC writing -- sitting right in front of them. The new simplified management and provisioning tools give customers the opportunity to deploy and scale WVD in a short amount of time, especially helping businesses stay productive in the current crisis. Windows Virtual Desktop is also the only multisession window STEM experience in the market, virtualized in the cloud that's highly scalable, always up-to-date and available on any device. The multisession with the STEM experience creates unique cost savings versus any other on-prem or cloud-based VDI solution. Over the last months, we have seen hundreds of customers and partners in U.S. starting with Windows Virtual Desktop. And if you haven't yet evaluated it, we would encourage you to take a look and understand the value that it can bring into your organization. So the question you may ask yourself now is how to start with Azure? How do I, in my organization, start a cloud migration? And to help you here, in the last years, Microsoft released a comprehensive framework called the Microsoft Cloud Adoption Framework or shortly CAF. And this framework is designed for customers to help start the Azure journey. The Microsoft Cloud Adoption Framework is proven guidance that's designed to help customers create and implement the business and technology strategies necessary to succeed in the cloud. When you are new to Azure and you listen to this talk, you may ask yourself like, "Hey, where do I start? Or how can I ensure that if I start the journey to cloud and to Azure, that I do it in an successful way?" To support you, in the last year, Microsoft released a comprehensive framework called the Microsoft Cloud Adoption Framework for shortly CAF. And this is especially for customers to help start their Azure journey. The Microsoft Cloud Adoption Framework is a proven guidance that's designed to help customers create and implement the business and technology strategies necessary to succeed in the cloud. It's a combination of best practices, documentation and tools that you can leverage and help you support the end-to-end process and journey. First is -- in the process is to define the strategy, identify the business outcome and build a business case for Azure and understand also with clarity the value that you expect the migration to bring. Second is to plan. Assess your current infrastructure and build the cloud adoption plan, identify the first and priority workloads for migration or deployment. The next phase is ready. And this phase is about building the skills, the management and deployment processes as well as create a landing zone in Azure for the workloads. And the last is adopt. And this is where the real work starts, and where the migration starts and where the first workloads will be brought alive on Azure. And this can be the migration of existing VMs or apps or the start of the development of a new cloud-based app. The process follows the idea of developing the so-called minimum viable product or an MVP that is based on the business requirements but grows with the customer needs, and the idea is not to try to overengineer at the start of the migration but create a framework that can grow and evolve with your cloud journey. As you know, requirements will change with the usage, this will help you start in a more agile way while profiling and supporting all business requirements and have requirements also grow with the increased needs and usage as Azure usage grows. By the way, all the CAF documents, best practices and tools are freely available on azure.com, and I encourage you to check it out. I hope this talk gave you more insight in how Microsoft and especially Azure can help you continue your business in this new world of remote, everything. In closing, I'd like to also bring in the technology of our partners, Zerto, as a great example of how the Azure ecosystem is extending functionality to help deliver end-to-end solutions. Especially, I'd like to talk a little bit more about 2 great customer cases. The first customer I'd like to highlight is Jay Peak. Jay Peak is a ski resort in Vermont, needed a solution that was easier to test and more cost-effective than the current on-prem solution. And they have been looking for a cloud-based DR with bidirectional replication. While ski resorts always have the threat of weather-related disasters, in this case, Jay Peak was hit with a ransomware attack that affected several systems and impacted lost work. Clearly, systems downtime impacts all the business processes in the ski resort, affecting lodging as well as ticketing systems, which can equate to more than $900,000 of lost revenue for a single day. Leveraging Zerto and Azure, Jay Peak implemented a solution that brought time to recovery from 1.5 days to less than 3 hours and data loss from 24 hours into seconds. The second customer I have the pleasure to highlight is [ ProHealth ]. [ Pro ] switched from an on-prem DR solution to using Zerto on Azure, reducing DR testing from days to hours and also significantly reduce man hour spent on maintenance and operations. In this case, the server solution facilitated the customers' first step into the public cloud on Azure and helping to become more agile and more cost-effective as an IT organization. Hopefully, these cases were helpful to understand the combined power of Zerto and Azure and how we can deliver customer solutions. In closing, I'd like to thank you for your time today. It's absolutely remarkable how much has changed in the last month and how quickly the situation continues to evolve. All of us at Microsoft remain committed to the mission to empower every person and every organization on the planet to achieve more. It is as important and relevant now as it was before COVID-19. While how we achieve more might have changed and we will no doubt continue to evolve, we are here, grateful for your business and grateful for our partnerships with strategic vendors and partners like Zerto. And we look forward to navigating this new reality together with you. I'd like to thank Zerto for giving us the opportunity for this talk and being a great partner with for Azure, and I'd like to thank you for listening to this talk in the last 20 minutes. Thank you very much.