Microsoft Corp at Deutsche Bank Technology Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Brad Zelnick - Deutsche Bank - Analyst : At Microsoft, as a Corporate Vice President and with a title responsible for Business Apps and Platforms, that could mean a lot of things. So if you can just help level set us, can you take a minute to explain your role a little bit? What is your purview? What's your success criteria? Charles Lamanna - Microsoft Corp Yes. Absolutely. So the big focus for me really these days is like our business offerings and our industry offerings. And when we talk about business, that's really Dynamics 365, so that's our CRM, our ERP, our CDP, so all the classical business SaaS apps, our low-code offerings with the Power Platform so like Power Apps and Power Automate, a bunch of our Copilot extensions and Copilot platform components like Copilot Studio or Copilot for Sales or Copilot for Service, and then a lot of our industry solutions at Microsoft. And these things go together really nicely because if we look at business apps and industry solutions, they both are similar in that they're very focused on helping our customers transform business outcomes and metrics as opposed to raw infrastructure or productivity. So it's why we have those together. I do all the product and engineering, so my team, live site, servicing, design, all that whole thing. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 28, 2024 / 5:15PM, MSFT.OQ - Microsoft Corp at Deutsche Bank Technology Conference

Question: Brad Zelnick - Deutsche Bank - Analyst : Makes sense. And it's a really important point, the disruptive prospects for AI and what that means at the application layer. Maybe diving into Copilot and Dynamics 365. It was introduced over a year ago. I believe there are now around 10 different solutions, including Copilot Dynamics for sales, finance, customer service, et cetera, in different stages of availability. Can you summarize the Copilot strategy in a way that we can understand it and in terms of the different capabilities you're building across the Dynamics portfolio and how you think about pricing for value with AI? Charles Lamanna - Microsoft Corp Yes. I mean the first thing I would talk about, why there are those 10 solutions and why customers are using them, is the model itself doesn't really know anything about a company's business process, doesn't understand how do they close their books at the end of the quarter, how do they go to a sales pursuit, and what does the marketing campaign look like for them. So that's all private data. That's private workflow, private experiences that each company has that wasn't available to train the model in the first place. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 28, 2024 / 5:15PM, MSFT.OQ - Microsoft Corp at Deutsche Bank Technology Conference So we've been very focused on how do we take these large language models, GPT-4o or what have you, and how do we enrich them with business process understanding and also enrich them with the private data and private workflows for our customers. And to do that, you have to have these, say, Copilot for Sales offerings with customization that the customer can do on top of it to really go help transform the process. Because if you look at the AI, it's not one size fits all. There's not going to be one thing that you can do out of the box and transform every company at once in every discipline, in every role and function in every company. Instead, you're going to have to take that one product and customize and extend it. So what we've done at Microsoft is we've spent the last 12 months getting information on this is we have Copilot for Microsoft 365 as the base. That's the horizontal offering. Everybody that has office software today or productivity software today should go have Copilot for Microsoft 365 or an equivalent. And then we've layered on top of that these Copilot for Sales, Copilot for Service, Copilot for Finance or in Dynamics 365 and so on. The benefit being you're taking that horizontal out-of-the-box value and then making it understand the specific business process and the specific needs of each and every customer. And that stack of Copilot for Microsoft 365, these business-specific extensions and then Copilot Studio, which is how a customer can tweak and configure the thing, it's how we can go make it so it actually delivers that business outcome that I was talking about earlier because generating like an e-mail faster is good. But generating e-mail which understands your CRM data, understands your sales process and speaks to that particular customer is far more compelling and going to produce better business outcomes. And if we go look at the broader story, that's really what every customer is going to be doing from an evaluation point of view, is what produces the best business value for me. And to get there, you're going to have to have these specific offerings. And we've been really impressed with the usage of this over the last 12 months. We now have over 2 million active users leveraging these Dynamics 365, basically the Copilot that my team works on, which is different than the Copilot for Microsoft 365 or GitHub Copilot numbers. Over 2 million already using it regularly actively engaged because the value is there. And as we go think about how all of this shakes out over the next couple of years, we think customers and companies and app vendors are going to have to keep going back to how do I make the AI speak your business. And that bridge is where most of the innovation is happening at the app layer today is by injecting it into the workflows and apps people use every day and also inside of the workflows and data processes that they use every single month to run the business. And maybe just like one last thought on it is like we have some great stats and analysis that we've done to see what is it like to be an office worker, what is it like to be a sales rep, what is it like to be a customer service rep or finance professional. And the typical person is switching applications 17 or 18 times a day. I mean so there's not one single app or one single experience where I get my job done completely. But the apps that people are using most commonly are the Office apps. So a lot of our focus, when we talk about Copilot, how do we use Copilot to bring more data and more workflow into Microsoft 365, into Office 365. So that's how it shapes out, Brad.

Question: Brad Zelnick - Deutsche Bank - Analyst : It's exciting what it can do today, but it's even way more exciting what it's going to be able to do in one, two, however many years from now. Thank you very much for that. Maybe if we could pivot to Power Platform, which includes Power BI, Power Apps, Power Automate, Power Pages, Copilot Studio, which I know we were talking about before is really an important focus. It's growing rapidly. It's widely used by customers to drive business process transformation. Can you help frame the TAM for Power Platform? Because I believe you've already said that it generates billions of annual revenue and has 48 million monthly active users, which is massive. How do you approach the go-to-market within the breadth of Microsoft's portfolio in a way that not only boosts adoption but also captures the value that Power Platform creates? Charles Lamanna - Microsoft Corp Absolutely. So -- and just like a little bit of context for folks who maybe aren't super familiar with Power Platform. The big value proposition there is how can we provide a visual or natural language-based experience to help you build dashboards to visualize data or to create web or mobile applications or automate tasks and processes or create websites really focused on unlocking a broader set of users to become developers. And of course, developers can use it, too, to build things faster. And if we look at the usage and what the addressable market looks like, 48 million monthly active users, we think that the upside long term can be 10 times that. Because if you're an office worker, an information worker, today, you send e-mails, you build PowerPoint presentations, you build Excel spreadsheets. Tomorrow, you should be able to build apps, automate tasks, visualize data, build whatever you need to get your job done. And just like how Excel took calculations and tabular data from something that was done by specialists in a central team and democratized it and pushed it to every end REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 28, 2024 / 5:15PM, MSFT.OQ - Microsoft Corp at Deutsche Bank Technology Conference user, Power Platform is aiming to do the same exact thing for a lot of these common developer artifacts. So when I say 10 times, that's basically saying the same set of people who use Office at work is the same set of people that can ultimately use Power Platform at work. Now we're early in that journey. Like we grew 40% last year to get to that 48 million number. And we think over time, like that can continue to grow and reach. The growth curve is a little bit different than, say, something like Teams, just like as some context, because it's not just like I send you a link and you use it. Someone has to build something then people have to use that thing, so there's a little -- like the growth rate is a little bit different. But the good news is on the other side of that, I think there's actually a lot of monetization opportunity as we're already seeing with the billions of dollars of revenue being generated. So that's how I think what the TAM looks like and what that is doing in the market. And over time, the reality is like every customer I talk to, their demand for creating digital solutions is basically bottomless. Like they're -- I don't think I've ever met a CIO or a CEO or a CRO that said, you know what, I have all of my digital needs met. They probably don't even get a quarter of the way down their list. One of the easiest ways to go capture all the opportunity by creating these solutions is to empower the entire organization to create these things. And we have some amazing stories out there of companies like Shell, who have saved tens of millions of dollars of real bottom line savings in the first year of using this tool by empowering what they call DIY or do-it-yourself developers throughout the business. Or if you go across the board, you see the same thing even at the smaller level, like Heathrow Airport doing the same thing. So whether it's like, say, small, medium to the largest enterprise, it's really unlocking a whole bunch of potential by getting people to develop these things. And as we look to the future, we think AI only accelerates this whole story just because it unlocks and simplifies development even further.

Question: Brad Zelnick - Deutsche Bank - Analyst : Very interesting. Copilot Studio seems to be on a real tear. You've talked about 50,000 organizations that have used Copilot Studio to customize or build their own Copilots. How does it fit into the overall picture for Microsoft, given the breadth of Copilot offerings across Dynamics 365 but even Microsoft more broadly? Charles Lamanna - Microsoft Corp Yes. I mean the big mantra, like I mentioned earlier, that we use internally is like it's not one size fits all. There's not going to be one model that solves everything for everybody on day one. You're going to have to have layers of application extensions and workflow extensions and then have -- which are specific to departments and industries. And then every customer is going to do a little bit of configuration on top, which is very common. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 28, 2024 / 5:15PM, MSFT.OQ - Microsoft Corp at Deutsche Bank Technology Conference That's how like business applications work today. No two customers have the same exact CRM implementation, right? They have their own fields, their own processes, the things that make them unique to their sales domain, so the way they run sales pursuits or the way they do marketing campaigns and so on. Copilot's going to be no different. It's not like every, say, CPG company is going to run their sales and marketing processes the exact same way. They're going to have some need to customize. And what Copilot Studio does is it makes it possible and easy for every company in a no-code way to tailor Copilot to their data sources, to their business processes and to the content that matters. And inside of Copilot Studio, we have integrations with over 1,500 other systems, companies and solutions from Salesforce, SAP, ServiceNow, Workday, AWS, G Suite. If you name it, it probably can be connected to because we have to bring that context in. And we have a great experience where our customers can configure content and prompts that can be used as basically more guidance to these solutions. And like one of my favorite examples is we use Copilot at an incredible clip inside of Microsoft. Of course, we would hope that's true. And one of the areas where we had great success is around customer service, and we have a Copilot for all of our customer service reps. And that Copilot has been extended and configured using Copilot Studio to have over 40 different plug-ins and over 400,000 pieces of content, and it dramatically improved the efficacy of that Copilot. So we think that whether it's Copilot for Microsoft 365, Copilot for Sales, Copilot in Dynamics 365, our customers are going to have to configure it using something like Copilot Studio to get the full maximum benefit from it. And that's the extension component. And then a lot of people are just building their own Copilots with Copilot Studio. So some great stories like from PG&E, where they have like an HR Copilot called Peggy, which they built on Copilot Studio. And you can go to and ask any questions about HR. And that saved them millions of dollars already in terms of simplifying the process or for customer, consumer-facing Copilots built in the same way. So if you want to build a Copilot, Copilot Studio's a great way to do it. You want to extend the Microsoft Copilot, Copilot Studio is a great way to do it. And that's why the growth rate is so sharp, and the installed base is so large for those reasons.

Question: Brad Zelnick - Deutsche Bank - Analyst : That makes sense. And it seems like it's working well for you guys. I want to maybe pivot to something else. When we ask folks in the industry about the killer use case for generative AI, so far, the one that comes up most often is customer service and support. You've rolled out a lot there, including Dynamics 365 Contact Center. What have you seen in terms of customer adoption? And what differentiates Microsoft from numerous others going after this opportunity? Charles Lamanna - Microsoft Corp Yes. I mean I'll go back to something I mentioned earlier, which is like context is everything.

Question: Brad Zelnick - Deutsche Bank - Analyst : Got it. With respect to time, I've got one more that I'm going to try to condense into one last quick question. But when we think about Copilot, everything you said about context, interoperability, common data model across Azure and Microsoft apps and all those integrations, Salesforce, ServiceNow, Adobe, what have you, what makes Copilot best positioned to be the point of integration across all these systems? I mean I think you've spoken to this a bit already. But does extensibility ultimately expand the TAM for Copilot? And is there a scenario where it becomes the orchestration engagement layer for other Copilots and apps? I mean I know in software, it's always been about coopetition and a win-win to broaden the pie for everybody else. But would love your thoughts on that. Charles Lamanna - Microsoft Corp Yes. I mean the first thing is I think with GenAI, like the overall software market is going to be a lot bigger because if you produce these business outcomes, there's a whole lot of investment that can happen. So there's a lot of room to partner and do coopetition that works best for everybody. If we look at like Microsoft's unique position, where is the canonical workspace and workflow for a typical office worker? It's Microsoft, it's Windows, Microsoft 365, Office 365, it's Outlook, Teams, Excel, PowerPoint. That's where people start their day and run most of the business process each and every day. So we think that is a really unique position for us. And we're an open platform. We're an open company. We have partnerships that we've already announced with SAP, where their -- Joule, their AI assistant, will integrate inside of Microsoft Copilot. We have partnerships with ServiceNow where Now Assist will integrate inside of Microsoft Copilot. We really think that you can start with Microsoft Copilot as the place you begin your day at work. And from there, it will extend out to other solutions and other AI components. And we are very committed to make this a platform almost like an operating system for like the GenAI assistance and [agencies] at work that our customers can use, and so that's our big focus. That's why we've been so attentive to platform and extensibility for Microsoft Copilot very early on and why we've gone out and done a bunch of these different partnerships with other companies, whether they're industry or SaaS providers, to extend Microsoft Copilot.