Microsoft Corporation (NASDAQ:MSFT) Barclays Global Technology Conference December 7, 2023 4:55 PM ET
Company Participants
Rajesh Jha – EVP, Experiences + Devices
Conference Call Participants
Raimo Lenschow – Barclays
Raimo Lenschow
Hey, welcome to our next session. I’m really happy, Rajesh. The one thing when you have a speaker from Microsoft is always appreciate you’re such a big organization, and it’s a positive thing, appreciate, well done, and it’s amazing.
Rajesh Jha
The other thing, if big elephants can dance.
Question-and-Answer Session
Q – Raimo Lenschow
Yes. Maybe to get everyone on the same page, talk a little bit about yourself and your role in Microsoft.
Rajesh Jha
Yes. I direct the experiences and devices at Microsoft, so that would have Microsoft 365 which is Office and Teams, Windows and Surface and then also our explore and our browser efforts.
Raimo Lenschow
And, so if you think about the last 12 months, it’s been appreciate a crazy journey in terms of new innovation, et cetera appreciate that. Can you talk a little bit, appreciate, how did you go through — appreciate how was the last 12 months for you guys, for you appreciate and kind of funny as well?
Rajesh Jha
Yes. I mean, first of all, let me just say, as you all know, the last 12 months have been as exciting a time as any. I’ve been at Microsoft a long time. I came when it was graphically user interfaces and we thought that was a big deal, Internet, mobile. This last 4 months, I actually feel generative AI is as big of technology shift, if not bigger than any or all of them put together. And so for us, in the last 4 months, we got a lot done, when I ponder back. So GPT-4, now it’s been out in production for about in a year. So we — in Jan we had APIs in Azure for that with all the safety and trust that our enterprise customers expect. In February, we ticked the large model, we put that in our explore and browser, because we did think this represented a new way for people to find information to reason over stack. In March, we took a step back and we felt about what about productivity, how would these generative AI, the power of these things affect or impact the way work is done. So in June, we brought a private preview of that for a lot of our enterprise customers and it’s been great to be with them with on this journey. November, we launched the Microsoft 365 Copilot.
But when I ponder back, of course, GitHub Copilot was the first one that we went after, because it was very clear, that we could help the developers be incredibly productive, so we have that. In the last few months, we’ve also taken a look at how business processes and business workflows can be rethought in the world of generative AI, where you take systems of engagement and you take natural language and natural language interface and how you bring — whether it be a salesperson’s workflows, a service provider’s workflows, whether it’d be adopter’s workflows, whether the Copilot for those things. We thought about how to extend the Copilot to allow customers and developers to extend these Copilots with specific information. So a lot’s happened and the thing I’ll just tell you is. a lot of this technology shift also intersected with the work that we have been doing anyway. On Microsoft 365, post-COVID, we spent a lot of — we saw a lot of customer engagement intensity in that populated what we call the Microsoft Graph, which represents the customer’s most important database I think, which is the project, who knows what in terms of knowledge, people’s calendar, e-mail, documents with the right permissioning.
So this is where the generative AI reasoning engine meets the Microsoft Graph to furnish generative AI in the flow of work. So, I mean — but it’s still very early, very, very exciting to see the entire company rally to this.
Raimo Lenschow
And you guys must be thinking a little bit more ahead. And I just wanted to ask a slightly more bigger picture appreciate if you think now generative AI, what it can do, and you have more insight than us, appreciate, how does it — how do you think the way we work will change over time, appreciate — or would you say, appreciate a glimpse that you could give us there?
Rajesh Jha
Yes. I mean look, I am not a soothsayer on this stuff. But let me just share what we are already seeing with customers. So when we did the early adopter the program in June with the Microsoft 365 Copilot we had many hundreds of customers jump on the opportunity because they see the same thing. And 100 to 200 those, we went really deep, they invited Microsoft to go deep with them and scrutinize the impact on productivity. So, we looked at 3 dimensions of productivity. One is efficiency, just how quickly can you get the job done or how much more can you go do. But we balance that by taking a look at both quality of work. So it’s not just enough if AI assists in doing something quickly, I mean, what is the quality of the output in terms of accuracy, in terms of upleveling the skip level.
And the third thing we looked at was effort. How much effort, how much grind did we take out? And the results have been really impressive and we are going to publish all of this in the Work Trend Index, I think in the coming days. But about 68% or 72% of people felt it made them more efficient. It improved the quality of work. They felt they had to put less effort in, so they had more time to do what is innately human, which is more creative, more reflective work, more collaboration. And 70% of them would say, of course, the Copilot makes me more — appreciate generative AI makes me more productive. But what’s also telling us that, more than 55% of people feel that the AI makes them more creative. This is today, and here and now.
Now, you asked the question, how do I see this proceed forward? I think workflows are going to have to be reimagined. So today what it does is the Copilot or AI helps you in your existing workflows. But when a lot of the grind — and let me just take a step back. In the Copilot, our vision with the Copilot, it is not an autopilot. It works on your agents. It works with your permissions. It works with your context. So today, it’s helping you in your existing workflows. But because it’s helping everyone, how can entire group’s workflows change and be reimagined and we are starting to see that both in my team and with customers.
Just one — I want to leave you with one thought, so far AI, prior to generative AI, it was as if the human beings did all the work and the AI was the editor, able to show up in auto complete, your grammar checks, spell check. But now it’s flipped, AI is doing the work. They’re doing the full strap. They’re doing the summarization and the human beings are now editors. So you’ve gone from AI being editors to now where it should be, which is the human beings are the editors and the AI is the assistant.
Raimo Lenschow
Rajesh, do you have any — appreciate on the reimagining workflows, et cetera, Do you have examples to make it slightly more tangible for us? appreciate I hear you, but I don’t hear you, if you know what I mean?
Rajesh Jha
Yes, so let me give you just a couple of examples, maybe couple of customer examples, maybe one from my own team. So one of the customers what they did was — so when people start using the Copilot, the first thing they’re trying to figure out, hey how should we go do this? They ask us, should I distribute a few seats to this across different departments or should we go all-in in one department? And based on our work with them, we tell them go in in into one function. Because we find taking a peer group and giving them all Copilot helps to reimagine a workflow.
This customer, what they did was they gave it to their service department. They’re an operational company. So they had very complicated processes for long-running incidents because hundreds of peak — these incidents would be day long. This was the core of what the company does. And then they had very complicated overhead of how — when people work 4 hour shift in the incident and the next crew came in, who was going to transfer the knowledge? How were they going to come up to speed and so on?
So they reimagine this. Reimagine the workflow in the context of Copilot in the meeting. So when a new person would come in, the Copilot would just summarize, they could just be and they can summarize what happened in the last 6 months, so which one’s applied to this specific function. So they were able to get rid of a lot of the manual overhead, the human overhead of transferring knowledge between shifts and so on. That was an example just reimagining the workflow.
We have another drug research company where there’s a corpus of lot of data around this clinical trials and research but that’s in different system. And so — but what they did was they extended Copilot. So in the Copilot, people could summarize quickly when they came in, what were the latest findings from the last week from their colleagues, in the context of all the e-mails that have come in around with that, all the chats, the documents, plus what’s in their system record.
In my own team, we saw this is an super interesting thing. If a product manager wants to go incubate an idea, the process used to be, he or she would come up with an idea in the product management team, she’d go lobby for some resources in the engineering team and design team, so they could go incubate. But now, she just uses the Copilot. So this — product manager early in career, she had this incubation idea. She just used the Copilot to produce. She doesn’t know coding. She’s not the designer. She had an idea. She used the Copilot to create a perfectly workable mobile app to incubate a bunch of stuff.
Got to try a lot of different things. And then once the idea was just stated, she brought it up to the core team to actually even go execute it. And so this has saved in that specific scenario months of just time of coordinating people. So I think what you will see is workflows you have to reimagine in addition augmenting the human ingenuity and creativity and taking the grind.
Raimo Lenschow
Yes. And then — and maybe I should have started actually. If you think about the Copilot and the productivity gains and you started on GitHub on the Copilot side, and now we have appreciate first guys using it on the Office side, what do you think in terms of productivity gains and changes to work behavior coming out of that one?
Rajesh Jha
So GitHub, it’s the — the first thing, the GitHub Copilot in many ways have blazed the trail for us, in the design language. So we spent a lot of time, how does — how should AI get instantiated for teams and user and organizations? I mean, it’s no secret that the AI can get some things wrong. Now of course, when you grounded in your information to a RAG pattern or what have you, then you’re using it as a reasoning engine, not a fact engine.
But what the GitHub Copilot taught us was a design language, often being a Copilot, not an autopilot. They were working on your behalf, making sure that humans were in the loop to actually adopt the changes or to commit the actions. And then when we saw the GitHub Copilot land up to 50%, 55% efficiency for developers, the other thing that we did was we created the Copilot stack.
What I mean by the Copilot stack is, so you take a look at Microsoft 365 Copilot, it’s not just a largest model, the most capable model, it’s the fact that, that model is grounded with the Microsoft Graph with all your permissions and it’s then brought into a Copilot design language and user experiences to use. And then there needs to be extensible. So this entire thing is what we call the Copilot stack. So all the Copilots at Microsoft have been built with the same orchestration, same extensibility, same design language. And we’ve made this thing available as an Azure service whether it be Azure AI Studio or for low code no code where the Copilot Studio. So I think in many ways, the GitHub Copilot has blazed the trail for us into this one design language.
Raimo Lenschow
And then what are you seeing in terms of the customers that have been working with the Copilots and adoption curves here? And I’m telling where I’m coming from. It’s appreciate, look, the productivity gains you’re hearing is somewhere appreciate 20%, 30%, appreciate 50%. And the people that are working with this are kind of more developers, appreciate kind of workers, they’re expensive. So here, you think, appreciate, everyone should be watching out getting this. appreciate, what are things that on their adoption that we kind of should consider appreciate they do kind of go through so far?
Rajesh Jha
Yes. So great question. So it’s clear that for the end user whether it’s in the context of creation, summarization, first draft, all of this that pay off. I mean, this is what we — I was just talking about and what are you going to see in the Work Trend Index, benefits of 50%, 60%, 70% in terms of meeting summarization, follow-up tasks about 80%, 85%. So it’s clear value from the end user. For now, let’s talk the IT admin and enterprises. They’re also responsible for security, regulations, compliance and so on. So one of the things that we’ve done with the Microsoft 365 Copilot is actually built there to be enterprise-grade. What I mean by that, it understands things appreciate conditional access, if IT had a policy in place which is if Raimo is outside this ZIP code and tries to access corporate data, do not allow that access, another challenge to the authentication, the Copilot understands these policies. So things appreciate all interactions with the Copilot are discoverable for regulatory reasons or it generates an audit log. So we’ve done that work, but IT still has to go through the validation process for these things.
So one of the pieces of feedback we got from IT early was, hey, we love the notion of Copilot helping in meetings, but we don’t want to create a data retention policy where transcripts have to be retained to enable the Copilot. So we did the work so you could now get the Copilot to perform in a meeting without creating a transcript that lasts beyond the meeting.
So there is a bunch of IT evaluation and adoption, but we have an adoption guide at Microsoft, adoption.microsoft.com for IT for those reasons. The other one that we hear from customers is, how do I know the ROI? So we built a Copilot dashboard, so they can usually go take a look at the fact of the Copilot. They can combine that with their custom data. So you can bring your HR’s custom data, you can bring your sales performance custom data, combine that with the Copilot data and see what the ROI is. So we have gone and built that too.
And then for the end users, we are having to really educate them a new way to do computing, all of us have grown up keyboard, mouse, white gestures and so on, but now you are seeing prompts. What is a good prompt as a sales person? What’s a good prompt in this organization in the manufacturing context? So we have that now in the Copilot Labs.
In the end of the day, the Copilot is going to go through a bit of the adoption cycle of any enterprise because you got to work the risks, you got to work the compliance and procurement, and make sure there’s ROI. But the time to value for the Copilot, I feel unlike anything that I’ve done in the M365 space in the last 20 years, it’s much, much, much faster. Because Microsoft Graph already exists, it’s built to be enterprise-grade and it shows up in the flow of work.
Raimo Lenschow
Is that appreciate — and you mentioned the Microsoft ground alone and actually, I think on our side, we pay not enough attention to that. Was that before and you just got lucky or appreciate how did actually…?
Rajesh Jha
It’s super bullet, I would say. So here’s what happened. If you go back to the Office business, the Office business when we were on-premises was a bunch of silos. So we didn’t comprehend the user well. We understood the job. With Exchange and Outlook, we understood the mail and calendaring job. With SharePoint and Office, we understood where document management was. With LINQ at that time, we understood meetings and telephony. But they were all stuff pipes. When we proceed the cloud, we really got to be user-centered. That’s what the Microsoft Graph is.
We then — and the reason we were struck by on-premises was no customer could deploy all our products at the same time. So every silo had to be standalone and be able to exist even if the other pure silos were different versions. So, in the cloud now we had one data structure. Customers we were doing the jobs, keeping it up to date, so that’s what allowed the graph to created. Then what COVID did was it accelerated the use of Microsoft 365 with a lots of intensity. The more you use Microsoft 365, the better your graph is. Now after COVID, what we have now is tons of customers deeply immersed in Microsoft 365. The graph is held, it is permission and now you get generative AI, you take the graph, you ground the generative AI into the graph context. And you say, now bring it to the user experiences that people are using today and that’s what the Microsoft Copilot is. And that’s the differentiation of the Microsoft Copilot.
Raimo Lenschow
And then I wanted to shift gear a little bit appreciate, what does it mean on the way how you do compute, appreciate first fundamentally, but then also how do you do it in Microsoft at the moment because you have so much demand on your side, on the Copilot, et cetera, but you have all the external demand on Azure, so appreciate who’s getting the GPUs?
Rajesh Jha
Yes. I mean, first of all, I mean, look, this GPT-4 was built on Azure and we’ve been optimizing all layers of the stack for over an year now. That being said, to answer your question, you should think of it a couple of ways.
Of course, the customer, when you come to Azure, you can use not just the frontier models from OpenAI, but you can use models from Hugging Face, from Meta. We ordered — we now have Model-as-a-Service that we’ve announced where you can use Mistral’s premium models, Cohere’s model, Jais model. So you can use lots of models. But for the large model that we use in our first-party applications and Azure OpenAI API, we’ve done the work to leverage one implementation in one stack. So it’s not that — so I can improve the usage of the GPUs across Bing, and Windows and Office, and Dynamics, and the Azure OpenAI because we all use the same APIs. But if the third-party is using our APIs, you can come and bring your own model, you can use the plethora of model, but if you use the large model, we are getting the leverage of the fact that we are all using the same API, same endpoint. And then of course underneath the cover, we are working clearly in close partnership with NVIDIA, but, of course, AMD and we have our own AI first click on that — the picture.
So you should think about below the waterline on the systems level work we’ve been optimizing for a long time for any year. We have silicon level work and then above the waterline, when you are hitting the large model, we get to improve the traffic across all our first parties and anybody using the Azure OpenAI API.
Raimo Lenschow
Okay. Makes sense. And then, I have Investor Relations getting a little bit nervous now. But I — if I could ask appreciate a number — not a numbers question, but appreciate more a monetary question. If you think about the — you’re creating with AI a lot of value for the client. But if you look at your pricing, it’s still appreciate — if you look at the $30 for per user, it’s still appreciate a very classic-model-appreciate created price. I think it was appreciate — for the GitHub Copilot, it was, appreciate, $9. I tell you, I talk to customers and they’re appreciate, it’s a steal because, appreciate, 20% productivity gains and I am taking $9 for a guy that costs me 115%, a 120% more out of it, appreciate, give it to me, you know. How do you think about that dynamic going forward, right? So do you have to rethink when you visualize that?
Rajesh Jha
Well I mean let me just say early days yet, the thing that we believe is — take a look at Office. Before Office existed, Word was a business application, Excel was a business application. And what we did was, we said now, we want to democratize this for all the users. And so Microsoft Copilot, GitHub Copilot is about democratization of AI for all the users. So we basically said hey we won’t — to take the core capabilities and what it used to be productive, now AI enhanced productivity, I want to take that to all the users, just appreciate we’ve done with Office. In addition to the per user, we have lots of other constructs that we have on top whether it’d be E5 construct, whether it’d be Teams Premium construct. So right now, really, the way we are thinking about AI is, let’s bring it to every information worker, every first line worker. Get to boost the productivity and then, I am sure there will be lots of opportunity for us to add value and capture value.
Raimo Lenschow
Yes. Since you’re kind of working on the go through side for Microsoft, how will I need to reimagine my UI going forward? Because is there a classic way appreciate — and a good generative AI system should be more interactive, appreciate, what’s the work that you’re doing here?
Rajesh Jha
Super good question. For 35 years, computing hasn’t changed in terms of the way — you’re on a phone, you swipe. On a PC, you use the keyboard and mouse. And the operating system does a very basic job of abstracting away hardware and allowing you to get to an application. That’s going to change. And so the way you will see us blend the Copilot, for example, in Windows, and we think that the lines between the shell, explore, browser, Copilot, is going to blur because you enable something that understands your intent at a higher level with natural language. It can take a lot of the grunge out for you. The application relationship to the operating system to the Copilot is going to evolve rapidly, and you’ll start see us do this stuff, by bringing the Copilot in Windows. It’s going to be very exciting, but I do think it’s a new paradigm for user experiences.
Raimo Lenschow
And that kind of gets me to the other questions around devices. appreciate, you guys were always very good of showing your partners what’s possible, appreciate — and actually, I recall when your Surface came out, I bought it, I loved it. And I was appreciate, this is cool. And you kind of, in a way, almost forced innovation on your partner side. This in a way appreciate you need to kind of almost reimagining devices, et cetera. Where — I mean, not that you announce something with me here now, but appreciate where are you in that thinking?
Rajesh Jha
I do you think this naturally — this natural user interface, and these are multi-modal, by the way. This isn’t just natural language, but speech and video and all of that stuff. I think our existing hardware form factors are going to evolve to accommodate this. And there will be new form factors.
Raimo Lenschow
Yes. That’s new appreciate that.
Rajesh Jha
That’s new appreciate that. Yes.
Raimo Lenschow
Yes, okay. The other thing is appreciate — shifting gear a little bit back to kind of adoption — client adoption that we see on the Copilot side, what’s your thinking in terms of the speed of adoption, you can uphold with a given shortage of GPUs? appreciate, how do you see that playing out? Do you give, appreciate, some to every client, appreciate, limited amount to every client? Is it appreciate one client gets a lot so you learn a lot more? How do you think that, that will play out in the field?
Rajesh Jha
We are open for business now with customers on Copilot. It’s really appreciate the earlier conversation I was having with, where the customers are going through their evaluation of the security policies, governance, procurement and so on. I feel confident in our ability to improve across all our first-party usage and third-party usage. We have been at this for a while. We know how to go, improve capacity.
Raimo Lenschow
Yes. So there wouldn’t be appreciate — so if Barclays says appreciate, we are — I think we’re a big team’s job for you guys. If we say we want Copilots for everyone, it’s not going to be appreciate, no. You could…
Rajesh Jha
I’m happy to sign you up right after this.
Raimo Lenschow
Yes. That’s not me. I mean — and the last question for me is, appreciate, how do I think about you guys were going to partners, because one is appreciate a very Microsoft centric view, but on the other hand, appreciate, it’s not just you, there’s appreciate a whole broader world out there. appreciate how do you think that’s evolving for you guys in terms of working with other people, bringing other people into the equation as for going forward?
Rajesh Jha
Super good question. I mean — and again, back in the days that Bill used to run the company, I mean I recall being in meetings with him. He would take incredible pride that for every that Microsoft would create, we would create $3 through the ecosystem. So we are really a platform company and not just at the Azure layer, but even at the M365 layer. And so already with Teams, we have more than 2,000 ISVs and countless other line of business applications that extend Teams and you will see the same platform sensibility I talked about, build and ignite. And this coming year, build, we’ll talk about how developers, both line of business developers inside of organizations as well as ISVs can augment the Copilot where their custom logic and their inner activity because not all — productivity is still human in all its various forms. We’re not going to build all the most interesting applications.
And so we won the Copilot, Microsoft 365 Copilot is a platform and that is, we are working. And I don’t know if you had a chance to take a look, Raimo at Ignite from 3 weeks, we showed lots and lots of customers and partners actually extending the Microsoft Copilot.
Raimo Lenschow
Yes. I think — yes, that’s — I mean, the conference is really exciting. appreciate, it’s really nice to see all the innovation coming out of there. So, I guess, hey, it’s 58 seconds and I’m German, so I have to be on time. So thanks for joining us. I really enjoyed our conversation.
Rajesh Jha
Thank you very much. Thank you, everyone.
