Microsoft Corporation (MSFT) Earnings Call Transcript & Summary

[Presentation] I'm Toby Bowers, General Manager in our product marketing group for business applications, and thank you so much for joining us here at Inspire. To set the stage, for those of you who are unable to see the video, we're here in a studio near our Redmond campus. I have brown hair, a beard and I'm wearing jeans and a sport coat. Earlier, I talked with Casey McGee, who leads our ISV business at Microsoft, about the great opportunities we have for ISVs across the Microsoft Cloud. And in the opening video, you heard from several ISVs we have worked with this past year in business applications. And in this session, we'll go a bit deeper on the opportunity for ISVs with the help of some special guests we'll meet later on. I'm eager to dive into some of the exciting updates around our ISV Connect program, all designed to enable your innovation and growth with Microsoft business applications. The momentum we're experiencing in this business is amazing to be a part of. Over 250,000 organizations are using Dynamics 365 and the Power Platform to run and transform their businesses, including 97% of the Fortune 500. And we've seen equally strong momentum in our ISV ecosystem and with the Business Applications ISV Connect program. Since launching the program, we've seen more than 740 ISVs enroll, and we've certified more than 1,700 apps on AppSource. And as that app number has grown substantially year-over-year, the average time it takes to certify an app has been reduced by 80%. Now in case you're not familiar with the ISV Connect program, it's a shared success model that reinvest in benefits delivered to our partners, technical benefits through platform capabilities specifically designed for ISVs and go-to-market benefits like access to customer leads through AppSource, co-marketing and co-selling programs with our global sales organization. All of these benefits combine to help you build apps faster and expand your customer base. And our Business Applications platform is built for ISVs from the ground up to help you maximize customer usage, all across the most comprehensive cloud on the planet. To fuel the momentum we're seeing with the program, today we're announcing key enhancements to ISV Connect to ensure we continue to deliver value to our partners. Starting in October, we will significantly reduce and bring our revenue-sharing fees for ISV Connect in line with our new commercial marketplace fees of 3%. That's down from 10% and 20% today. In addition, later in the fiscal year, we will introduce our first set of transactable offer types on AppSource, all aligned to that same transact fee of 3%. We're also enhancing our technical benefits to help you build on the platform. Our new ISV app license management capability is now available to help ISVs manage their end customer licensing, and we're launching new discounted dev, test and demo environments to reduce your costs and support your developer experience as you build your apps. In addition, we're simplifying our go-to-market benefits down to one tier, enabling you to accrue benefits faster at reduced thresholds. And at any time, you can purchase additional benefits to support your unique business needs. And lastly, we'll continue to allow our sellers to retire their quota during deal registration, supporting sales cooperation and driving that co-selling activity. And we're adding additional incentives for larger deals on select apps to drive even more co-sell momentum. All of this should help you reach new customers through our marketplace, tap into Microsoft's marketing engines, co-sell with our world-class sales teams and leverage the full strength of the Microsoft Cloud. So let's take a closer look at the enhanced benefits in the program. We enable a base set of benefits when you enroll in ISV Connect that grow as your business grows. The more deals you register, the more benefits you receive. The threshold levels have been dramatically reduced, and you can purchase additional benefits at any time. Now later in this session, Per from our engineering team will discuss the technical benefits in more detail and walk you through some key new enhancements. But on the go-to-market side, we revised the benefits to focus on the things you've said are needed most: self-guided training to help you create content and marketing campaigns; partner-to-partner networking options; geo expansion support; event management; and lead generation campaigns. And on the co-selling side, as we continue to significantly invest in our direct sales teams for BizApps, we want all of those new sellers to co-sell with our partners participating in the program. Sellers engaging with your offers will retire their quota from your rev share fees, and we're improving select incentives to drive more momentum for key offers in the marketplace. And now to talk more about how we're building value into the platform itself, I have the pleasure of introducing Per Mikkelsen, who leads our ISV developer experience team, to share some of the investments we're making in this space. Per, welcome.

Thanks so much, Toby. So my name is Per Mikkelsen, and I run ISV focused engineering teams and business applications. For accessibility, I have brown hair, I'm 5'10, and I'm wearing a black shirt and jeans. As many of you might already know, I came to Microsoft from being a partner myself, building on this amazing platform, first as a system integrator, and later spinning off an ISV from that company to better scale the business. And it's been truly rewarding to now be part of that team that delivers benefits and overall capabilities to other ISVs. We attribute the ISV success to some of the incredible platform enhancements that we've made to empower ISVs to create apps that they simply couldn't build anywhere else. We think about the platform in 3 layers that are available to you in a completely customizable manner to complement any scenario that you or your customer might face or dream up. And at the heart of it is the Power Platform, which you can really think of as the glue that ties all the various pieces together. This is really a differentiation for the ISVs. It includes the engines, the data service and the logic to support any kind of built permutations. Because all of this is built on Azure, it also opens up an infinite number of possibilities and opportunities, including integrating AI, Machine Learning, IoT and cognitive services into your solution. So by plugging into this system, from our first-party Dynamics 365 apps, to Power Platform, to Azure, we truly allow you to build without any cliffs, some of which I'll show you on the next slide. So we typically categorize these ways of building apps into 3 different categories that the ISVs tend to align on. You can build a brand-new app using all the power of the Power Platform, Azure, and Office 365. If you need something new or niche, whereas in the past you'd have to develop a solution like this from the ground up, we've seen that ISVs who build on the Power Platform can reduce the time to market by 70% because there are so many pieces of building an app that you just don't have to worry about. Another way is to extend or customize Dynamics 365 applications to fit a specific industry as well. Lastly, you can simply choose to connect your app to the platform. So many ISVs, they might have existing apps that will build on non-Microsoft platform, but want to either expand their customer base or use the Power Platform to offer a low code extensibility option without them having to invent their own low code. By connecting your application to our platform, you can do all of that. After you've chosen the right development path for your app, you can now start taking advantage of some of the features and benefits that we offer specifically for our ISVs. One of these is our new license management capability that simplifies how an ISV can implement license management. This is available uniquely to ISV Connect partners, and I want to thank our preview partners for their great feedback. And in fact, you'll be hearing from one of them later in this session. So you can leverage license management for license enforcement so you no longer have to build that yourself, but also and just as important, to ensure that your customers don't have to go to 5 different UIs if they have 5 different applications installed. It can now all be managed from the Office 365 admin center and enforced through the platform to prevent noncompliance and to gain greater knowledge of customer usage. Another super important benefit that we are making available this year is discounted product licenses, that reduces the cost for you to set up non-production environment with Dynamics 365 product licenses. In addition, as you reach specific revenue share thresholds, these can even be free. This has been a long-standing ask, and I'm incredibly excited to finally be able to announce this. Another benefit is our recent investment into pro developer tooling to speed your time to market. What initially started as a CLI to build BCF controls has now been published as a VS code extension with broad support for all that the platform has to offer. That makes us faster to acquire the tools you need and more approachable to developers that are new to the platform. We also published extensions for GitHub and Azure DevOps that makes it much, much simpler to set up continuous integration and continuous delivery for your application development. But one thing is the development of the application. But in order to truly scale, you need to be able to deploy and manage that scale as well. Building on the Power Platform really helps you by removing the onerous task of managing cloud infrastructure to deploy your apps to, and later this year, also giving you the ability to automatically push updates out to your customer base. This is something we're working on this summer and into the fall -- the ability to extend your automated application life cycle, all the way to the edge which, in this case, is making updates available to end customers through AppSource and for the customer to automatically have their apps updated. Now once that app has been built, published and installed by end customers, as an ISV who worries about quality, retention and which features are actually used -- which we all should -- can now get access to all this through ISV Studio. We released features earlier this year that helps monitor the success of an app in a single portal, giving you a consolidated view of app telemetry across your customer base. This helps you better plan sales strategy, prioritize development and monitor installed success and errors and address these in a more proactive manner for both CE- and F&O-based applications. Lastly, but not least, another and very popular benefit of the program is our technical onboarding support. If you have any problems with onboarding, certification or development, we have teams on standby ready to help. You can receive assistance with application envisioning, overcoming development roadblocks to help get your apps listed faster. We've also made significant improvements to decrease the time it takes to certify your application as part of this process. The team and I are eager for ISVs to take advantage of these great tools. And for some great examples of partners who have leveraged these benefits, I'd like to introduce a good friend, Brian Galicia, who will walk you through a few examples of partner success with the ISV Connect program. Take it away, Brian.

Well, thank you, Per, for all those great insights. My name is Brian Galicia. I lead our global ISV business here at Microsoft. And I'm joined by Frank from Carma, Chris from Sitecore, and we're going to have a very interactive conversation. Before we get started, let me set the tone. Gosh, it's weird to kind of be in this back-to-normal situation. And it's amazing to be back in studio sitting with these 2 fine gentlemen talking about how they're getting benefit with the business applications ISV Connect program. And as we get kicked off, one thing I always like to do on shows that I'm a part of is just to get a sense for what's your background, of something that's not on your LinkedIn profile, Frank and Chris, that you'd like to share with the MS Inspire digital audience?

Thanks, Brian. I'll go first, Chris. I guess it says that I'm in the -- was in the Air Force, but I was in the space and missile career field. And up until then, I had 0 programming experience. So I first learned how to program when I was working on the simulators that we use to train, evaluate and certify crew members.

That's amazing, Frank. Like I can't even imagine what that experience might be like.

They don't like bugs.

Yes. No, exactly. So Chris?

Well, thanks for having me, Brian. So my LinkedIn profile talks about a long and storied career at Microsoft. However, it almost didn't happen because the day I was interviewed I actually ended up hitting the car of one of the interviewers. I was quite nervous and left a note on the windshield. And when he came to interview me, he pulled out the note and said, "Is this you?" Luckily, I managed to get through that and really enjoyed my time at Microsoft.

No, that's great, Chris. Well, it goes to show you, inclusion, diversity, all that stuff came into play because they didn't knock you on that specific incident.

That's right. Thank goodness for that.

Yes, that's great. So I'm going to start with you, Chris. For the first question, tell us a little bit about Sitecore? And what are the business outcomes that Sitecore helps to address with [ software ]?

Yes, sure. So Sitecore is a digital experience platform. So our solution allows brands around the world to create a differentiated personalized experience for their customers online. We're the only end-to-end DXP platform that is fully compose-able and SaaS-based.

That's great. So Frank, we're going to go to you. So tell us a little bit about Carma? How did it start? How are you innovating to deliver business outcomes with telco customers?

Well, my brother, Joseph, and I started the company going into telecom and knowing that we were going into an extremely fragmented and siloed environment for data systems. Some of that's a good story, all of the M&A activity that's been taking place. But once you get 10 years after that acquisition and it's not integrated, well, Notepad becomes a mission-critical application and you're trying to stitch all of this information together. So we knew we needed a platform that we could do real-time data aggregation on, and allow for real-time communication from our field techs that are in data centers and our network engineers that are back in the office. So we needed something that was powerful enough to, say, be the Rosetta Stone amongst all of those different data silos, and then present that information so that we could do our network optimization work, our revenue assurance work and our expense controls. Now we've taken that platform and made that available for our customers to drive their own customer experience improvements and their own profitability.

That's great, Frank. I mean talk about stitching all the things together and all these different languages, to your point, using the Rosetta Stone example.

Exactly, exactly. And a lot of this stuff turns out to be like almost Y2K era or older technology that drives the telecom and data centers that we rely on.

Yes, that's great, Frank. So we're going to go back to you, Chris. So Sitecore has been an amazing Microsoft partner, specifically with the Azure side. What was the kind of decision point from a business perspective, or technical perspective, on why Sitecore decided to start doing things in our business application space with Dynamics 365 and Power Platform?

Yes. So Sitecore has been a Microsoft partner for 20 years, and we are foundationally built on Microsoft technology, .NET, we run exclusively in Azure. And that partnership has been extremely impactful for us, allowing us to deliver a rich experience on the world's most trusted platform. We have a major growth plan in place where we want to quadruple our revenues over the next 2 years, and Microsoft is going to be critical to that. So being able to solve bigger problems together with Sitecore and Dynamics and being able to partner with the Dynamics field sellers is going to be very important to us reaching our growth plan. So we're very excited about what we can do together to solve bigger problems for our customers together.

I love it, Chris. Because when you think about that bigger problem, it is not just infrastructure types of things, it is business process. And what better to do that with business application sellers at Microsoft working closely with you? That's great.

Yes, exactly.

So let's go back to you, Frank. So in terms of the telco conversation and guiding telcos with this digital transformation, the Rosetta Stone example.

Yes.

Why was Dynamics 365 and the Power Platform the right choice for Carma for your end customers?

Look, a bunch of different reasons, Brian. So as an Air Force officer, and then especially one with a top secret security clearance, security is always first and foremost in our minds. We knew we had to be able to pass somebody's security or compliance audit from day 1. So with that taken care of, then we could go exploit our domain knowledge in the telecom space and build that integrated view of customers, assets, services, the revenue and the expense, all of that and to build that complete picture so that we know what's happening. By one example, I mean, we've been able to build and release over 300 new features and enhancements to Carma in the last 6 months only. I think that really speaks to how we're demonstrating the promise of this low code, no code platform when you get it right into the people's hands who need to use it.

Yes, I love it, Frank. Because innovation, the pace of innovation, especially in these days, being able to do that so quickly, and rapid innovation for your end customers to drive their business adoptions.

Exactly. I mean we can build, test and deploy functionality in hours that nothing in the world is slowing down, everything is moving faster. Now the code has to keep up with everybody who's doing that thought.

Yes. I love it, Frank. So let's go back to you, Chris. So when you think about building the various integrations with Dynamics, where do you see the future opportunity?

So a lot of this has to do with better alignment with the Microsoft sales teams. So right now, we drive Azure revenue. In the future, we're really looking forward to driving Dynamics revenue for the D 365 sellers as well. We are looking to verticalize with you. So we solve big problems. We can solve them better when we solve problems for retail and for manufacturing and for financial services and healthcare. So we're really looking to align much more deeply both along the vertical line story as well as what Dynamics and Sitecore can do together, all built on top of Azure.

Yes, I love it, Chris, because you think about that market opportunity for partners like yourself and Carma, being able to leverage the whole one Microsoft Cloud to take advantage of that to then drive innovation to not only the customer who's been working hand-to-hand with us to drive really proactive co-sell. That's great. So Frank, just in terms of being a relatively new, like compared to 20 years with Sitecore, Carma being fairly new as a start-up, what value have you seen working with Microsoft and the ISV business applications, ISV Connect program?

Yes. I mean, like Chris was saying, this is -- we knew what technology we were getting into. But the biggest, pleasant surprise to all of this was the partnership programs, and especially just the way that product teams value our feedback. That allows us to focus on our intellectual property, our use cases. And probably the perfect example is what Per just discussed with the license management system. I mean that is a perfect example of what we needed at the perfect time. Otherwise, we were going to have to go build a license management system on our own, like other people have done in the past. But now Microsoft took that over and brought that functionality for us. And when you see your company's logo appearing in the admin center, now it's clear that you're not just another start-up building another widget, you're working there with Microsoft technology and with those sales teams. And those sales teams are, I think, greatly incentivized to work with us more because we're not just talking about moving individual workloads, a single SQL database or something like that into the cloud, we want to move entire businesses, the entire telecommunications industry into the Microsoft cloud, too.

Yes. I love it, Frank. Gosh, just to your point, going into the admin experience and hand in hand having all the ISVs who want to take advantage of that. And seeing, to your point, that's a great example of what Per described earlier.

It comes back to that security posture. That's obviously not something that was bolted on after the fact and waiting to become the next headline.

So as we wrap up, what are some call to actions? Or how do people potentially learn more about Sitecore and Carma? Chris, we'll start with you.

So thanks for the opportunity, again, and we're very excited about our new alliance with the Dynamics side. As people want to learn more, you can go to www.sitecore.com/microsoft, and all of our data will be there.

Fantastic. Frank?

Thanks for having us, Brian. I really appreciate it. And for anybody who wants to learn more about Carma, that's Carma with a C, carma.net. Join us, and you can contact us directly from there.

Fantastic. And also, I encourage you to also follow or connect with both Frank and Chris on LinkedIn as well. So as we wrap up, I want to thank you so much again for spending the time. Thank you all for watching this MS Inspire event. And I'm going to pass it back to Toby to wrap us up. Thank you so much.

I hope this session has demonstrated the investments we're making to support our partners, whether through new platform capabilities or go-to-market benefits as well as the overall experience our partners are having in the program. Now whether you're an existing partner or would love to learn more, our goal is to support a thriving ecosystem of partners built on the Microsoft Cloud, delivering innovation to our collective customers. If you're not yet a Microsoft partner, visit partner.microsoft.com to learn more about the Microsoft Partner Network and take the first step to joining a proven community designed to foster business growth for partners. From there, you can build with us using resources designed to help you get your solutions to market faster and publish your apps on Microsoft AppSource that will help you generate leads and scale globally. And to learn more about the ISV Connect program, visit aka.ms/bizappsisv, as well as these additional sessions and resources. Thank you, and enjoy the rest of Inspire.