Microsoft's (MSFT) CEO Satya Nadella Hosts Annual Shareholders Meeting Call (Transcript)

| About: Microsoft Corporation (MSFT)
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Microsoft Corporation (NASDAQ:MSFT) Annual Shareholders Meeting Conference Call November 30, 2016 11:00 AM ET

Executives

John Thompson - Chairman

Satya Nadella - Chief Executive Officer

Amy Hood - Executive Vice President and Chief Financial Officer

Brad Smith - President and Chief Legal Officer

John Seethoff - Deputy General Counsel and Corporate Secretary

Bruce Herbert - New Ground Social Investments

Chris Suh - Head, Investor Relations

Anne Taylor - Windows and Surface Product Marketing Manager

Analysts

Ken Copley - Capital Executive

Karen Prince - Private Investor

Bart - Private Investor

Jane Garcia - Private Investor

David Vance - Private Investor

Jim Pierce - Private Investor

Scott - Private Investor

Catherine Neuweiler - Private Investor

Operator

Today’s presentation may contain forward-looking statements, which are predictions, projections or other statements about future events based on current expectations and assumptions. Actual results may differ materially from these forward-looking statements because of a variety of risks and uncertainties about our business, which are discussed today or described in our filings with the Securities and Exchange Commission, including our Form 10-K and 10-Q. We do not undertake any duty to update any forward-looking statement.

Please welcome John Thompson, Chairman of the Board of Microsoft Corporation.

John Thompson

Good morning and welcome. I am John Thompson, Chairman of the Board of Microsoft. For those of you here with us today at the Meydenbauer Center in Bellevue, Washington, as well as those of you listening online, we welcome you to our shareholder meeting. We are streaming live today on our Investor Relations website. We strive to make this meeting as inclusive as possible and we are excited to offer our shareholders an opportunity to participate and vote via the virtual shareholder meeting. Our board values the ongoing feedback we get from you and we value the thoughtfully expressed and diverse opinions you provide us as we try to create real value for you, our shareholders.

I would like to share with you the presenters and the structure for today’s meeting. I will be joined by Satya Nadella, our Chief Executive Officer; Amy Hood, Executive Vice President and Chief Financial Officer; Brad Smith, President and Chief Legal Officer; and John Seethoff, our Deputy General Counsel and Corporate Secretary. John will address the business portion of that meeting, followed by Amy who will review Microsoft’s financial results and then Satya will talk about how Microsoft is uniquely positioned in this era of massive digital transformation. Following his remarks, we will show you some of the new devices and productivity offerings as well as examples of world class cross platform experiences. Then we will have plenty of time for Q&A.

But first, let me address or attend to some of the formalities. Broadridge Financial has been appointed as the inspector of elections for this meeting. The inspectors are located at the reception table in the lobby. Most of you have already voted by proxy or your proxy votes, and your proxy votes have been tallied. If you are a shareholder of record or a beneficial shareholder holding a legal proxy from your bank or broker and you want to vote your shares now or change your vote, ballots are available from the inspectors that are at the reception table in the lobby. Filling out a ballot and giving it to the inspectors will revoke any earlier proxy you gave. If you are a beneficial shareholder with a voting instruction form, you also may submit those forms and use the computers at the reception table to cast a new vote. The polls are now open and will be open – or closed, I am sorry, in a few moments following the presentation of the business matters.

As Satya said in his letter to you, we are proud of the progress we have made over the past year and equally excited about the opportunities ahead for our company. Over the past year, we’ve built momentum in each of the ambitions while investing in our future and positioning the company for new growth. We also remain committed to a strong corporate governance framework and routinely evaluate our governance practices to maintain strong accountability, shareholder rights and transparent policies. Acting in line with Microsoft’s commitment to best practices in corporate governance, the board is proposing changes to Microsoft’s articles of incorporation that would reduce the percentage of shares outstanding required to call a special shareholder meeting. We believe this step is in the best interest of our shareholders.

Another significant development has been refining our executive compensation program, which continues to evolve to better align to Microsoft’s ambitions and reward the operating team for long-term business success. We have received favorable feedback from our investors on the new incentive compensation arrangement that tie more directly to performance or specific performance metrics. The program has been developed, incorporates performance elements directly linked to the results of our three strategic ambitions: reinvent productivity, building intelligent cloud and create more personal computing. The members of our Board of Directors reflect our continuous evolution as we bring together the most diverse board the company has ever had, creating a balance with different backgrounds and points of view.

Now, I would like to introduce the members, the independent numbers of our Board of Directors who are here with us today. First, Teri List-Stoll is a member of our Audit and Governance and Nominating Committee; Mason Morfit is a member of our Audit and Compensation Committee; Chuck Noski is the chair of our Audit Committee and a member of the Governance and Nominating Committee; Dr. Helmut Panke is chair of the Regulatory and Public Policy Committee and a member of the Audit Committee; Sandy Peterson is a member of the Regulatory and Public Policy Committee; Charles Scharf is a member of the Compensation and Governance and Nominating Committee; John Stanton is chair of our Compensation Committee and a member of the Regulatory and Public Policy Committee; and Padma Warrior is a member of the Compensation Committee. Welcome to all of you.

Also here with us today are Steve Sinwell, Chris Weber and Stacy Janiak representing Deloitte & Touche, our independent auditors.

And now I would like to call the 2016 Annual Shareholder Meeting to order. I will be serving as the Chair of the meeting and John Seethoff will serve as of the Secretary. As Chairman of the meeting, I have adopted an agenda that will govern the order of business and the rules of conduct for this meeting. Copies of the agenda and the rules are available at the reception table outside the meeting room. The rules of conduct also govern the Q&A session.

John, please report the notice of the meeting and proxies received and present the matters to be voted on.

John Seethoff

Thanks, John and good morning everyone. This morning, I will walk us through the short formal meeting and then as John said, you will hear from Satya and Amy, followed by a Q&A session. The notice of the meeting, and Internet availability of the proxy materials mailed by Broadridge Corporation beginning October18, 2016. They went to all shareholders of record as of September 30, 2016. As a result, the meeting is being held pursuant to proper notice.

Proxies representing more than 88% of the approximately 7.8 billion shares of the company’s stock that are eligible to vote have been received. So, a quorum is present and the meeting is duly constituted and will proceed. This morning, we have five management proposals and one shareholder proposal for shareholders to consider. They were all described in the proxy statement.

The first item is the election of directors. The following 11 people have been properly nominated by the board: William H. Gates III; Teri List-Stoll; G. Mason Morfit; Satya Nadella; Charles H. Noski; Dr. Helmut Panke; Sandra E. Peterson; Charles Scharf; John Stanton; John W. Thompson; and Padmasree Warrior. The board recommends a vote for each of the directors on the ballot.

The second item is an advisory vote to approve the compensation of the company’s named executive officers as disclosed in our 2016 proxy statement. The board recommends approval of this proposal.

The third item is the ratification of the company’s independent auditor, Deloitte & Touche, for fiscal year 2017. The board recommends approval of that proposal.

The fourth item is the approval of the amendment to Microsoft’s amended and restated articles of incorporation. The board recommends approval of that proposal.

The fifth item is the approval of the French Sub Plan under the 2001 Stock Plan.

Finally, the sixth item is the shareholder proposal on enhancements to proxy access. The full shareholder proposal and its supporting statement are set forth in the proxy statement. The proposal has been submitted by Mr. James McRitchie. I recognize Mr. McRitchie’s representative, Mr. Bruce Herbert, with New Ground Social Investments for a period of 3 minutes.

Bruce Herbert

Thank you. I am Bruce Herbert of New Ground Social Investment, and I stand on behalf of Jim McRitchie to move Proposal #6 for proxy access. In response to shareholders, Microsoft has made substantial progress when it adopted a form of proxy access that made amendments to its bylaws. However, though headed in the right direction, what Microsoft implemented is a decidedly limited form of proxy access that only allows 20 shareholders to form what’s called a nominating group. Despite Microsoft’s assertions to the contrary, a limit of 20 is entirely unworkable because it sets the share threshold at stratospheric levels. To illustrate this, the Council of Institutional Investors, CII, whose members control over $3 trillion in investment assets, examined its members holdings and somewhat shockingly, they discovered that in the vast majority of cases, even if 20 of the very largest shareholders public pension funds were to aggregate their shares, they still could not meet the extraordinarily burdensome criteria set by Microsoft.

So in light of this, we will gently say, shame on Microsoft for appearing to embrace reform, but then setting levels that are unobtainable. The company’s policies are neither practical nor in the spirit of the national movement to democratize and enliven Board representation through proxy access. Thus, the most important amendment requested by this proposal is to raise the limit that Microsoft has set on the number of shareholders that can form a nominating group. Similar to an SEC rulemaking that was passed but subsequently suspended for a review this proposal suggests that any number of shareholders be allowed to form a nominating group.

In closing, as everyone knows, appearing in the proxy is not the same as winning a seat. All nominees need to be exceedingly qualified and must receive a majority of the votes cast. Proxy access is designed to breathe new life into the Board election process by driving competition, creating accountability and boosting shareholder value. Therefore, please cast your vote for proposal number six, proxy access. Thank you.

John Seethoff

Thank you, Mr. Herbert. The Board recommends the vote against the proposal for the reasons stated in the company’s proxy statement. The discussions of matters for shareholder consideration is now closed and the polls are also now closed. I will share with you now the preliminary voting tabulation. First, each of the 11 nominees on the ballot, to become a Director are elected with over 98% of votes cast to serve until the next Annual Meeting of Shareholders and until their successors are elected and qualified.

Proposal two, the advisory vote on executive compensation, has been approved by more than 95% of votes cast. Proposal three, ratification of the company’s independent auditor, Deloitte & Touche has been approved by over 98% of the votes cast. Proposal four, the amendment to our amended and restated articles of incorporation, has been improved by a majority of shares entitled to vote and more than 99% of votes cast. Proposal five, the French Sub Plan under the 2001 stock plan has been approved by 95% of votes cast. Finally, the shareholder proposal on proxy access enhancements was not approved. We expect to post the details of final voting results on all of these matters on our Investor Relations website later today. We will also report the results in a Form 8-K, which we filed with the Securities and Exchange Commission within four business days.

With that, we have completed the formal portion of the meeting and the meeting is now adjourned. Let me hand the stage over to our Chief Financial Officer, Amy Hood.

Amy Hood

Thanks John. Hello everyone and thank you for being here or watching online today. I am going to briefly recap our past fiscal year results and then cover our progress so far this year. Last year was pivotal in our continued transformation and we executed well and finished fiscal year 2016 with $85.3 billion in revenue. We aggressively pursued new addressable market opportunities in growth areas like commercial cloud, hardware, search and gaming. We transformed our sales and go-to-market engines to be more agile and further unified our internal organization around One Microsoft. It enables a richer connection to the voice of the customer and our partners. And we completed 17 acquisitions across security, productivity, developer tools, gaming and analytics to reinforce our capabilities in those key growth areas. We balanced our investment in innovation with a continued commitment to shareholder return, increasing our total cash return to $26.1 billion, up 12% from last fiscal year. And in September, we announced an 8% increase in our quarterly dividends. We remain on path to complete our $40 billion share repurchase program by the end of this calendar year and announced a new $40 billion share repurchase program.

Now a few highlights from our business in the past year. The Microsoft commercial cloud continued to gain broad based consumer and customer adoption with revenue and user growth across our services. And in response to customer demand, we introduced services and features across Office 365, Azure and Dynamics 365 in areas like security and in analytics. And our Office 365 consumer subscriber base grew to more than 23 million, with our rich office applications available across multiple platforms and multiple devices.

Now let’s turn to our Windows business. This past year, we delivered Windows 10 and reinvented one of the most popular and successful operating systems. With over 400 million commercial and consumer devices upgraded to Windows 10, we opened new avenues of economic opportunity in areas like search and in gaming. And we made a commitment to search profitability and achieved that goal, being most profitable for the full fiscal year. In our gaming business, we grew our Xbox Live monthly users to 49 million. And in our devices business, we prioritized category innovation with Surface, which ended the year with more than $4 billion in revenue.

Now just a few comments on our current fiscal year, first we updated key investor metrics. We added three new financial metrics to help on our financial reporting results and provide transparency into our progress against our key strategic initiatives. The new metrics are; commercial cloud gross margin percentage, total gaming revenue and Windows commercial products and cloud services revenue growth. In total, we now have 20 regularly disclosed metrics that reflect the evolution of our business and help our investor community track our performance trends. Second, we had a strong start to the year in Q1, exceeding our expectation across many of our businesses. Customers continued to adopt our commercial cloud services and we again saw increased user engagement in Windows ecosystem with key services like search and gaming. And looking ahead, our innovation roadmap and disciplined investment enable us to expand our addressable market opportunities and continue to position the company for growth. We believe the highest shareholder value is created by investing in our future, creating new scenarios that move us closer towards empowering every organization and person to achieve more.

With that, please join me in welcoming our CEO, Satya Nadella.

John Seethoff

Thank you, Amy.

Satya Nadella

Thank you, Amy and thank you all for being here today and watching online. We greatly appreciate your commitment as shareholders of Microsoft. This last year has been a year of solid progress at Microsoft as well as with our customers and partners. For us, everything we do starts with our mission. Our mission is to empower every person and every organization on the planet to achieve more. We are a company that deeply cares about both people and the organizations people build. We think about our impact globally. In fact, my own story would not have been possible but for the democratizing force of Microsoft technology reaching me where I was growing up. But perhaps, what is most unique about our mission is our focus on our customers and our partners’ success and what they can do by building on our technology.

I have had the opportunity to visit nearly 20 countries over the last year from Indonesia to Ireland, from Egypt to New Zealand. Every place I go, I see firsthand the impact we are having in large businesses with entrepreneurs, in public sector, with students and people pursuing their dreams and passions. Take Volpara, a New Zealand-based startup using our cloud to apply data and analytics to early detect breast cancer or Land O’Lakes using digital technology in Microsoft Cloud to advance sustainable agriculture in family-owned farms, or the Al Amal School in Sharjah, where I saw teachers using the familiar Office tools to provide access to education for students of all abilities. Celebrating their achievements is what really drives us. We empower people to get more out of every moment, creating, collaborating, learning and gaming and being mobile and staying secure.

As I travel and talk to customers, one of the most profound changes that’s happening in the world today is that every organization is becoming a digital organization. That means that they are moving from just consuming technology to creating digital technology. At Microsoft, we enable organizations to digitally transform, to engage customers, empower employees, optimize operations, transform their products and business models, whether it’s Boeing or Rolls Royce, businesses want to empower their employees with analytical and predictive power. They want to transform their products and business models and their entire industries. At the heart of this transformation is a new technology of artificial intelligence. By 2025, our society will produce 180 zettabytes of data. In fact, we are running out of words to describe the number of bytes we are gathering. Our role is to ensure that the data is not just an exhaust, but is converted into actionable helpful insights and intelligence, as computing becomes more ubiquitous converting data into ambient intelligence that can fuel digital transformation is at the very core of our innovation agenda.

The work we are doing today in AI across all our businesses positions Microsoft as a key partner to everyone wanting to harness the power of this new technology. In fact, AI is already working on your behalf to predict and automate tasks in many of the products you use today, such as handwriting recognition in Windows 10, the facial recognition in Windows Hello feature, voice recognition of Cortana, language translation in Skype and the input recognition in the SwiftKey keyboard on your iOS or Android devices. What makes our efforts unique though is how we take these AI capabilities that we built for our own first-party products and democratize the access to them to customers and partners to build solutions to the biggest challenges in healthcare, agriculture, finance, government, every sector of our economy and society.

With that as the backdrop, now let me briefly expand on the progress Amy shared against our three interconnected ambitions. I will start with reinventing productivity and business process. With both Office 365 and Dynamics 365, we are helping individuals and teams manage their scarcest resource. That is time. Across devices and in organizations of all sizes, we are helping to change the nature of work. More than 85 million monthly active users of Office 365 Commercial rely on Office to get stuff done, including leading companies like Macy’s and eBay. Fortune 100 companies like energy leader, Exelon and Liberty Mutual Insurance have chosen Office 365 to help make their employees more productive and secure. Later in our demos, you will see how we are making people more productive by bringing cloud-powered intelligence to the familiar Office applications you use everyday.

We also think about teams of people and what they can accomplish together. Office 365 is that universal toolkit that empowers individual teams as well as entire organizations with the broadest platform for creation, communication and collaboration in the market today. We are also removing the barriers between productivity, collaboration and business process applications. We integrated our best-in-class productivity tools with Dynamics 365 to transform how people work across finance, sales, marketing, manufacturing, customer service and positioning us to compete and grow our share in this very large market. Lastly, we have the opportunity to connect the world’s professional cloud and the world’s professional network with our pending LinkedIn acquisition.

Now, let’s talk about our growth in the intelligent cloud platform. The Microsoft Cloud is winning significant customer support. Our commercial cloud annualized revenue run-rate exceeds $13 billion, and we remain on track to achieve our goal of $20 billion in fiscal ‘18. Azure revenue has grown triple-digits for the last seven consecutive quarters in constant currency and more than 60% of the Fortune 500 now have at least three of our cloud offerings. From day 1, we architected our cloud to give customers choice. Microsoft offers customers a trusted global hyperscale public cloud and true hybrid computing platform to meet their real world needs. Our high-value services enable organizations of all sizes to build their own digital capability and applications using IoT, advanced analytics, machine learning and AI. We continue to improve our global infrastructure across many dimensions and customers are experiencing the benefits. We have expanded our datacenter footprint to 38 regions across the globe. We are leading in security, privacy and compliance. Azure is the most trusted, most compliant cloud with 49 certifications, more than any other cloud provider. Our U.S. government cloud has the highest number of certifications in the industry. And the increasing richness and sophistication of our intelligence services and enabling scenarios that simply were not possible and driving new growth.

Across industries, companies like Daimler Trucks, Uber, Lowe’s, are using Cortana intelligence and other Microsoft services to transform their businesses and build powerful new offerings for their customers. We are also creating new growth opportunities with a cloud that is open to all developers. It might surprise you to learn that Microsoft is one of the biggest contributors to open source today. We are bringing SQL server to Linux. We have open sourced many parts of .NET platform, which has got great amounts of activity in the open source community today. We also joined the Linux Foundation Board. Finally, we are building Azure as the world’s first AI supercomputer. Researchers at Virginia Tech are already using Azure to accelerate genome sequencing and we are just at the very beginning of the possibilities of advancements in AI and what they can bring about to customers.

Now, let’s talk about how we are transforming Windows 10 in the ecosystem of devices in our pursuit of our ambition to bring about more personal computing. We continue to make progress on moving people from needing to choosing to loving Windows. We now have more than 400 million monthly active devices on Windows 10 and we are focused on offering new experiences to deepen our engagements with these users. Our focus on security has helped drive a 3x increase in Windows 10 enterprise deployments in the last 6 months, including the U.S. Department of Defense as well as Accenture. Customers experience the benefits of AI everyday with Windows 10 Cortana Search Box with over 141 million monthly active users and almost 13 billion questions asked to date. I have talked about how we can – how we are building Windows to be an operating system designed around you and your mobility, not just your device. One that pushes the boundaries on input and output modalities, enabling people to write, speak, see, touch and experience computing in new ways. With the Windows 10 creator’s update, we are empowering the creators of the world to unlock their ingenuity with new computers and new computing.

With Surface Studio, we are creating a new category that transforms your desk into a creative studio. We are birthing a new medium with Windows Holographic and HoloLens, where you move from 2D to 3D, from 3D objects to holograms, and from holograms to complete mixed reality. These new experiences are generating enthusiasm for Windows 10 and the new forms of creativity and expression that it can unleash. In this holiday, you will see the widest range of Windows devices ever from our partners so you can be both creative and productive. In gaming, Xbox One has been the number one selling console in the United States for the past four months, and Xbox Live fans have enjoyed more than 20 billion hours of gameplay on Windows 10 PCs and tablets. And I am excited that we are bringing Minecraft into the classroom as a platform for learning to empower more students from all backgrounds to unleash their creativity and equip them with the skills needed to be successful in the future jobs.

In closing, I want to reflect on the progress we have made in our cultural transformation over the past year. The most important job I do as CEO is to curate our culture on a daily basis. With the mission to empower every person and every organization on the planet to achieve more, we must strive to reflect the people we serve. That’s why diversity and inclusion is a foundation of the culture that we are building. Diversity has many dimensions and we think about it broadly, including accessibility, veterans, the representation of women and ethnic minorities, the LGBT community and many more. We took further steps this year to hold ourselves accountable, tying a portion of each of our senior leadership team members’ compensation to diversity progress, adding new training to help employees practice inclusive behavior and making advances in diverse representation in our university hiring programs. These are important steps, but we need to do more both at Microsoft and across our industry.

And I have always said that each one of us shapes the culture through our mindset and our behaviors. We will continue to embrace the growth mindset and listen to learn from each other, from our customers, our partners, from the world in which we operate and to make Microsoft the place where everyone can do their best work. We will focus on designing and building products that our customers love and that are accessible to everyone and built for each of us. Beyond that, I am optimistic about our future and the role Microsoft can play in spreading economic opportunity more evenly throughout the world, helping to create a bigger, brighter future for people across the socioeconomic spectrum. When we build a culture in an organization that includes and empowers everyone, we will generate new growth and deliver long-term value to you, our shareholders.

Now, I would like to invite Sean [ph] to the stage to show how our innovation comes to life in some of our new products, devices and services and then we will move to Q&A. Thank you all very much. Sean?

Unidentified Company Representative

Thanks Satya. Good morning, everybody. This year, we introduced two new additions to the Surface family Surface Studio and Surface Dial. Surface Studio is a beautiful 20 – has a beautiful 28-inch, higher than 4K display with 13.5 million pixels of true to life color and clarity. At just 12.5 millimeters thin, it’s a powerful and innovative device that brings a completely new experience to creators. The zero gravity hinge allows you to effortlessly turn your desk into a studio. Look at how easy this is. It has the perfect amount of resistance and I can position it with just one hand. And Surface Dial introduces a brand new type of user input that provides a truly uninterrupted experience. The Dial works contextually and in different ways with different apps.

Here in Sketchable, I have imported a picture of a leaf and I can use the Dial as a palette for my pen so that I can adjust the color on the screen just by moving the Dial with my left hand. In a single stroke, you can see how truly powerful this tool is. This is Mental Canvas, a graphical design app that’s opening new opportunities for artists. Surface Studio is the perfect device for creating sketches like this 3D sketch of Grand Central Station. Surface Studio is also great for architects and engineers. In Blue Beam, I can use split screen zoom to navigate the map on the left side, zoom on the right side and edit in that particular area.

Breakthroughs in interactions such as gesture, gaze, voice and pen are making computing so natural, so personal and predictive that it no longer feels like computing at all. Take, Cortana, open PowerPoint. Cortana is my personal digital assistant. She is built on Microsoft artificial intelligence and is available on over 400 million Windows 10 devices and has over 100 million monthly active users. We are also using AI to accelerate our investments in Office. I am going to show you how easy it is to create a beautiful PowerPoint presentation with just six clicks. Here is the slide with a quote from Teddy Roosevelt. When I insert a couple of images on this slide, you can see how PowerPoint uses machine learning to improve the design process and automatically chooses a variety of different layouts for me without me having to do anything. Think about what it would have taken for me to create this slide. I would have to crop photos, format text, change shapes. I really would have needed the precision of a mouse. Now anyone can use this tool to create professional looking slides with very little physical effort, something that would be great for users with mobility and vision impairments. We are focusing on accessibility and the needs of people with disabilities and have found that these features can make everyone more efficient.

Last year, we showed you learning tools in OneNote, which was an add-in that helped people with learning differences like dyslexia or cognitive disabilities. Dyslexia affects 3% to 7% of the population and up to 20% of people may have some degree of symptoms. So what was once a product add-on will soon be fully built into Word to help everyone. Reading View now has a tool to sustain attention and improve reading comprehension. Separating the syllables can help with word recognition. Increasing the text spacing will shorten each line to reduce the visual crowding. Changing the page color can assist with limited visibility and where it can actually read content out loud to me to help me retain it.

Now these improvements in accessibility extend to content creation and communication as well. We are extending our proofreading tools to improve the recognition of common patterns of dyslexia and phonetic misspelling. Here, the word approximately normally would have returned no suggestions, but now Word recognizes it and suggests the correct word. Here, even though the word effect is spelled correctly, it’s still identified as an error and suggests the correct word based on context. Now, some words look similar, but have different meanings and being able to see the synonyms can help choose the correct one. And if I am still unsure, being able to hear the words out loud can make a world a difference. Our goal is to help people write more clearly and effectively and use of plain language can help more writing more understandable to everyone. The phrase large in size can simply be written as large. Give consideration to is more easily read as consider.

And it also suggests the use of inclusive language. So this should read as, first people with disabilities. Now these tools together really lower my anxiety about writing, allowing me to focus more on my ideas than misusing the words.

Now, I would like to introduce you to one of our experts in accessibility, Anne Taylor. Good morning Anne. How are you?

Anne Taylor

Good morning, Sean. Good morning, everybody. In my role as a Senior Supportability Program Manager, I work closely with the various engineering teams across our company to help ensure that our products and services that we deliver are accessible to people with disabilities. Today, I would like to demonstrate to you how I stay productive using our own platform.

Now since I am blind, I use screen reading technologies to access information on my PC. I am using Narrator today. What’s narrator, well, I am glad you asked. Narrator is the screen access program included in Windows 10 that will read content allowed to me. And here is how it sounds like. Well, I listen to the speech at a higher rate, so I will slow it down for our today’s demo. By the way, Narrator and Windows are not the only areas of investment in accessibility at Microsoft. We invest in accessibility to improve our products and services across platforms and across devices.

Next, I would like to show you how the works that we have done to improve accessibility in Office empower me to stay engaged with my colleagues every day. Here, I have a Microsoft Word document open. I will use Narrator to read the content. I not only hear the content, but I also heard that someone has commented on this text. I want to know what was the comment, basically who said what. So, what I will do here is I will do Alt R, I press N. Now, Ken has a comment for me. Let’s find out what he says. Anne, can we use this phrasing? Anne, can we use this phrasing? Well, absolutely Ken, if that’s what you want to use. I am cool with it. So, I am now going to do Shift F10, arrow down, Reply, Type okay, I just replied to Ken’s comment. This is one of many examples of the work that we have done in accessibility areas. And there is still more to do. Our customers are counting on us. And as we pursue accessibility as one of the major priorities, we will keep delivering relevant, impactful technologies like this one, technologies that will empower people with disabilities to do more, to achieve more and to be independent. By the way, did you like those keyboard shortcuts? If you do, you can use it. If you don’t have, you mouse handy.

At this point, I would like to turn the podium back to my colleague. And I thank you very much for listening. Sean? It’s all yours.

Unidentified Company Representative

Thanks, Anne. Thank you. So, accessibility is a priority as Anne just showed you. She was using Word and that’s just one of the many Microsoft apps that we are continuing to build accessibility on a cross-platform. Our goal at Microsoft is to deliver consistent experiences that extend to whatever device you happen to be using. We are driven by the mobility of the experience, not the device. Every app on my screen here was made by Microsoft and some of these are also available on Android and Windows. I have got my personal digital assistant, Cortana, the best of communications with Skype, and all the Office productivity applications. I have Word, Excel, PowerPoint, and I have one note at the bottom, because that’s my personal favorite.

But the app that I use most on my phone is Outlook. I use it all the time. It drives my productivity throughout the day and it keeps me connected no matter where I am. And we find that users actually spend on average about 24 seconds inside Outlook on a mobile device, and our goal is to make those 24 seconds as productive as possible and it does that in a few different ways. For one, it actually consolidates all of my inboxes in one place, so I can access messages from different e-mail addresses at anytime. And we all use e-mail differently, so I love that Outlook personalizes the experience to me. I can set it, so that when I swipe in one direction, it deletes the message. And when I swipe in the other, it marks the messages unread so that I can go back and read it thoroughly from any device. It uses visual cues to communicate information like this flight confirmation, this coffee chat invite or this flag message for follow-up. I can even check in or RSVP directly from my inbox. Outlook intelligently prioritizes my inbox by looking at the content or people that I interact with most often, allowing me to focus on my most important messages in my focused inbox. Less important messages are still easily accessible, but are simply out of the way.

For me, e-mail is extremely important, but it’s my calendar that really keeps me on task. And we have done some incredible work in the calendar app, which has made it more visual and connected than ever before. Like my e-mail, my calendar pulls in from multiple sources like Wunderlist from my sports team, like the Rutgers Scarlet Knights or from Facebook. Events now automatically get icons that associate with the type of meeting. So at a glance, I get a visual identifier of what that meeting will be, whether it’s in the gym, coffee, going to get lunch. As I type out the name of this new meeting, you can see that the icon changes depending on the context. Now, not only is it great at scheduling appointments for myself, but Outlook also does a great job of taking into account my coworker’s availability. So, when I go to schedule a meeting, I can be sure to pick a time, 2:30 works for everybody.

Now, Outlook uses AI to help me manage my inbox. But now let me show you how we are bringing AI to photography. Microsoft Pix is an intelligent camera app that automatically optimizes settings, so that anyone can take better photos, especially of people. Let’s be honest. It’s hard to capture the perfect picture, right? Sometimes people’s eyes are closed. They are moving or the lighting isn’t right. Pix works to capture a burst of photos both before and after I press the shutter button and then uses all the data from those photos to give you one perfect shot. Let me show you an example.

Here is a picture that I took – well, here’s a picture that [indiscernible] took of me earlier today. And when I hold down the compare button, you can see the image that he actually captured where my eyes were closed. That’s what he captured at the moment he hit the button. This is the picture that Pix generated using AI and taking all the data from those photos. Pix can also sense motion and it creates short looping video clips called Live Images when it recognizes interesting movement. Here is a picture from Thanksgiving when my aunt was making gravy on the stove. You can see the steam moving on top of the pot. Pix, allows me to enjoy the moment instead of struggling to capture it. And since I have my photos automatically backed up to OneDrive, I can access all of them from any device. Everyone gets 5 gigabytes of cloud storage when they create a Microsoft account. But with an Office 365 subscription, this increases to 1 terabyte. That’s 1,000 gigabytes. You can think about that as 300,000 pictures or 1 million documents.

Now, let’s shift gears for a moment here and talk about something that’s been really exciting in stores. A little over 2 years ago, we acquired Mojang Studios, the makers of Minecraft. Minecraft is a game that is loved all around the world by people of all different ages. It provides an immersive experience that allows for learning and adventure in a 3D world. Since joining Microsoft, Minecraft has grown to new heights. In just the last 2 years, Minecraft sales have doubled. Over 100 million copies have been sold, and over 40 million people worldwide are using it every month. It’s added millions of new members to the Xbox LIVE ecosystem and over 50 billion views of Minecraft content have occurred online in just the past year.

As we look to engage with fans in all the ways that we can, we recently launched Minecraft: Education Edition, which is the collaborative and versatile platform for learning. Teachers can use Minecraft across subjects to encourage 24th Century skills, like creativity, problem-solving and computational thinking. The game has become a true cultural phenomenon and is only continuing to grow. We have recently added VR, artificial intelligence applications, Hour of Code tutorials, and we are just getting started.

And I have shown you a few of the ways that we have innovated in 2016. We have talked about new products, artificial intelligence, accessibility, cross-platform experiences and Minecraft. And we are really excited about gaming at Microsoft and we haven’t forgotten about our hardcore gamers. It’s been a great year for gaming with the release of Xbox One S. I am going to leave you all with a video to show you a little more. Thanks for your time and enjoy the rest of the meeting.

[Video Presentation]

Chris Suh

Good morning. My name is Chris Suh. I am the Head of Investor Relations for Microsoft. I hope you enjoyed seeing a glimpse of the exciting new products and services we are bringing to our customers around the world. We are now going to move to the question-and-answer portion of today’s meeting. I would like to invite our speakers back on the stage to join me for the Q&A.

I would also like to introduce Brad Smith, our – Microsoft’s President and Chief Legal Officer. Across the room, we have set up four microphone stand stations. If you would like to ask a question, we please ask that you make your way to one of the mics. Also, I have members of the IR team. Please raise your hands, who are in each of the stations, who can assist or answer any questions you may have.

Question-and-Answer Session

A - Chris Suh

Okay. While we set up and make our way to the mics, I am going to start actually with the first question that was submitted from our virtual shareholder meeting. So the first question is around our cloud progress, so Microsoft seems to have made great progress in the cloud this year and moved to the cloud computing, can you tell me a little more about the progress and in particular, how do you feel about your competitive positioning?

Satya Nadella

Yes. Overall, I feel very good about both the progress and the long-term technology architecture path we have chosen and what that translates into it, which is in terms of our product differentiation and competitive differentiation. If you look at it, we are not building one cloud service. We are building a complete digital transformation cloud platform for our customers which has infrastructure elements, which has the application or SaaS services elements as well as client devices. In fact, one of the most used cloud service that we have is of the Windows Update cloud service. And now of course, we are adding even Advanced Threat Protection and security to it. But at the core of our cloud momentum is growth in Azure as the true hybrid cloud platform because we don’t think of our service as legacy, in fact we think of them as the edge of our cloud, whether it’s Windows Server or to our SQL Server. One of the other exciting areas of progress in the last year has been the application platform both on top of Azure and Office 365. So if you are using something like Power Apps, you can start building rapidly applications as a customer. Office 365 itself is something that we have grown our new capabilities like voice, the new Microsoft Teams product. We are very excited about what that does for our customers. And perhaps, the biggest change in the last year has been Dynamics 365. I mean it completely changes the game I believe in business applications. It’s more modular. It’s more modern. It’s more price competitive. It speaks to the needs of customers going forward. So the combination of Azure, Office 365, Dynamics 365 is pretty unparalleled when you look at it based on our competition and what customers want.

Chris Suh

Great. Thank you, Satya. Okay. Let’s start with microphone #1, please.

Ken Copley

Thank you. And to think of it, I could have stayed home today and had a root canal, I wouldn’t miss this for anything. Anyways, my name is Ken Copley, Capital Executive. I have been a shareholder since 1991. First of all, I would like to congratulate and commend you on your job that you have done, the entire Microsoft team, just a great job. To frame my argument, let me just pose it, the Microsoft, the business model is software and hardware development and the segments of market that we are serving is the enterprise and the consumer. We have already established a strategic goal of every person and every organization loves using a Microsoft product or service. This is a tough goal to accomplish when we occasionally create frustration in our users. Let’s look at Bill Belichick for example, I can’t think for a better ambassador for Microsoft, he is a user with demanding expectations and to many, many people, he personifies excellence. We want to develop a market, one way not to do it is to get the user to destroy a very important product on TV out of sheer frustration and we can issue a press release and stand behind the product and it’s a good product, I am using it right now. But the damage has been done to the Microsoft brand, let’s learn from the frustration of users like Bill Belichick, let’s parse the complaint and let’s figure out what he is really trying to say. In this case, he identified certain relationships that are critical in really creating a satisfying user experience. We have to accept responsibility for building the Microsoft brand and protecting it. We must assume greater relationship control in the critical services necessary to create genuine customer satisfaction. We can do that through an acquisition strategy. I know you guys have already got one. You practice it a lot. But the objective is to achieve organizational control. We can achieve organizational control by a, maybe buying just 51% of the organization or even less, if we develop shareholder alliances. Let’s look at the LinkedIn acquisition, you bought it 100% of it for $26 billion, great acquisition. But what are we really buying on that, we are buying the people, we are buying the intellectual capital of an organization. In this case, it includes Reid Hoffman and Jeff Weiner. We are talking about letting that operate as an independent organization, yet we roll it into the bureaucracy of Microsoft. And I don’t mean that negatively, all organizations have a bureaucracy. However, there is an alternative structure to making these types of acquisitions, one that would conserve a precious resource, in other words, our investment capital. It will achieve organizational control, but it will maintain an independent equity float of the target organization. If we do that, we can leverage the structural benefits of an acquisition like this. For example, we can create ownership incentives throughout the organization – I am making a presentation. Hey, it’s okay. I hope its okay. Anyway...

Chris Suh

Yes, if you do you have a question, Mr. Copley.

Ken Copley

Can I finish this or is it too time consuming or what?

Chris Suh

I think I would respect the time for other questioners, but it will be great if you get to your question.

Ken Copley

Okay. Well, here it is, we got $143 billion in investment capital within the organization. 84% of it is in cash U.S. securities. In my opinion, the portfolio is structured as if it were an organization and retirement. I can understand the human element of retirement planning, but my goodness gracious, why not put it to use, why not imagine the organization as a 20-year old, but with the collective wisdom of humanity. And if we do that, we could get into and make equity investments in organization and I am not talking about Empire Building or anything like, I am talking about developing deep strategic operating relationships with organizations so that we can build, but in time constraints, I will shorten this and I will just step back and I will say, can we consider other uses with the portfolio?

Brad Smith

I will say, before turning to Satya, someone who has lived here for 20 years, that is the most passionate statement I have ever heard in Greater Seattle on behalf of New England Patriots. But I think there was a question there. I would say a couple of things. One is, as far as your comments around quality and making sure, for example, in the case of the use of Surface in NFL, one of the big variables is in fact the Wi-Fi connectivity on the sidelines. And so for example, thinking about quality, not just of the device, but the end to end system, which has many, many variables. This is a very, very good point and that I think is capacity that we need to keep building, we need to take ownership, take responsibility for it. That’s well said. And I thought I will forget all the other comments you had. But quality is something we definitely are on a completely different frontier in terms of how the frequency, with which we are upgrading and updating and adding capability, but that doesn’t mean that the quality can regress. We are learning, improving and getting much better at it. And so keep pushing us. My inbox is always available to anyone of you. If you have any issues with Microsoft products and we will – you will have our commitment to keep getting better.

Amy Hood

And maybe I will just briefly talk about how we think about different structures in order to gain both alliances, as you have discussed, but also continue to further help customers is really the focus we have and so whether its acquisitions, in their completeness like LinkedIn or the 17 others that we completed last year, or whether it’s taking small stakes and making investments. We have actually started an MS Ventures fund, which has been really a terrific asset to us to build great connections globally to the start-up community is another terrific use of that capital base. We have done some really large alliances that take advantage of our capital structure, including being able to do big and ambitious projects with companies like Adobe or SAP to build on our cloud. And so I think obviously, we are open to anything that furthers our ability to achieve our mission, including, of course using the balance sheet to execute on that.

Chris Suh

Thank you. Let’s move to mic #2, please.

Karen Prince

Thank you. Let’s see, what was my question, no, who am I, I am Karen Prince, I live in Kenmore and I am happy to be a Microsoft shareholder with my husband. My question is, I need help, we had Windows 7 and now we have Windows 10, it was upgraded, I do not understand how the photos work and do you have a program tutoring where somebody can come help me in my home or somewhere, I just – I am completely – I don’t know what has happened to my photos, they used to be in one place and now – so I need help, that’s it?

Satya Nadella

Absolutely, in fact right here, I think there are folks from our store are here and they should reach out to you and make sure we book an appointment and really help you sort of understand Windows 10 and the migration from Windows 7 to Windows 10. And also the new capabilities, we hope you will get to use a lot of the new capabilities of Windows 10 and the cloud services that go behind it, for example, photos. And hopefully, you will get to enjoy that and without the pain of having to learn a lot of new things.

Karen Prince

[Question Inaudible]

Satya Nadella

Yes. Cortana, yes.

Chris Suh

In fact Christen, will you please follow-up Ms. Prince.

Brad Smith

The other thing I could add for those of you who live nearby or are watching who live anywhere near our Microsoft retail store, you can go online and book an appointment and the kind of question you asked is exactly the kind of question that customers walk in every day or you can book an appointment for free and people will work with you. And so we won’t actually be able to drive to your home, but if you can get to one of our stores and obviously there is one with in short working distance of this very building, you will find people who are just terrific and enjoy working with you.

Chris Suh

Thank you very much. Let’s take a question from mic #3 in the back.

Bart

Hi. My name is Bart and I am from Bellevue. Originally from Brooklyn, New York, as you can tell. So I am just going to do something, a little bit different than what’s been said today, I am talking about climate change, global warming vis-à-vis the IT sphere of influence, I would like to hear the views from the folks on the stage and possibly from some folks in the front row regarding how the businesses like Microsoft in the IT sphere can transition the intelligent young generation from cubicles in computer surroundings, and yes, even street corner societies, to a needed niche in natural surroundings. The environmental activists who want to see a clear future had need to collectively solve the planet’s needs with earth’s dirt under their fingernails with handheld PCs in the mix, so let’s go to settings, systems, customize our world?

Brad Smith

I would say two things. First, your question really frames very well the broadest challenge for us in the IT sector, which is how do we help our customers around the world contribute to a world that is more sustainable. So we are actively focused on that. We are still in very early days, in all honesty, but we have actually work ongoing to think about how we can help use artificial intelligence and the like to work with all of our customers around the world. But then I think stepping back from that, we also have a very important responsibility in terms of our own use of energy. If you look at Microsoft today or if you look at Facebook or Google or Apple or Amazon, companies that have a lot of data centers. Our data centers around the world already consume as much electricity as a small state of the United States, more than North Dakota, more than Vermont. And so what we have committed to as a company is a set of principles that will be transparent about our energy use, we will devote our R&D energy in part to become more efficient in our data center electricity use and perhaps most importantly, that every year, we will increase our use of renewable energy. So for example, we announced earlier this year that already on a global basis, 44% of the electricity that we consume in our data centers comes from renewable energy. Meaning, either wind or solar or hydro. We have committed that we will reach the 50% threshold by 2018. We will reach the 60% threshold earlier the next decade. Just two weeks ago, we announced the largest wind purchase that we have ever made, our data center in Cheyenne, Wyoming will be entirely run on the basis of wind power and in addition, we are making additional electrical resources available to the grid so as to reduce energy costs and promote energy efficiency for everybody who lives around Cheyenne. So we would be the first to say we have so much more to learn in this space, so much more to deliver in terms of opportunity for our customers, but we definitely are committed to taking this on with a real sense of conviction.

Chris Suh

Thank you for the question. Let’s go to mic #4, please.

Jane Garcia

Board of Directors, Chairman, my fellow stockholders, I am Jane Garcia and I am from the Great Comeback City of Detroit and it is coming back, I just wanted you all to know that. And I am here basically also because I sit on the Board and we own the stock from [indiscernible] and their affiliates and we have been a partner for many years, where you give up some Microsoft information and we appreciate it. And what you do globally is wonderful. My concern only is that and I sit here with [indiscernible] is that, as we look forward to the urban areas, which the majority is minority, when you talk about Detroit, Chicago, Dallas and some of the other areas that do not have the infrastructure and the educational aspects as I deal with that daily, that we do some more partnerships because we have some very successful ones and we look at that because as we grow into the next century, whether it’s skill trades or the data or computer analysis, that we need to look at those programs and that we need to look at as we do not leave people behind, specifically minority students in urban areas. And I work very strongly and very hard every day with that kind of situation in the city like Detroit, so as you look forward and I know you do a lot of it, but maybe and I – this is my first meeting, so I thought, I bring it up, that we look forward to that situation where we can create some things for the next generation, that we do not leave, specifically minority students behind a generation that can be lost?

Brad Smith

I will just say a word on that. Actually, two weeks ago, I was in Milwaukee close to here I grew up and it has certain similarities to Detroit. And what I would say, as we are very focused and need to keep doing more to make these kinds of educational opportunities around digital skills more accessible, I would say both in urban areas and in rural communities across the country. We are focused on doing that. One of our best programs is called Technology Education and Literacy in Schools, TEALS. This is where Microsoft employees and others go team, teach in schools. This week, we have people teaching in 161 schools in 18 states in the District of Columbia. We are reaching over 6,000 students. But the point that you made I think is the one that we actually are thinking a lot about. How do we ensure that we are doing a great job of reaching more girls, for example and exposing them at an early age to coding and computer science and digital skills, how do we reach more people in the minority community and we know we need to do more. This coming month, as we get to December, the country in the world will have the so-called Hour of Code. We are the largest sponsor and financial donor to the Hour of Code and Code.org. That now has over 150,000 teachers across the country and around the world using these materials to teach coding. So we are doing more and we are going to keep at it.

Jane Garcia

There are still organizations across of the network to continue and we already have a partnership, but maybe we just need to expand it more.

Chris Suh

Thank you very much. Okay. Let’s come back to mic #1, please.

David Vance

Hi, I am David Vance from Seattle. This is actually a question for Microsoft from microphone one. I am interested in your vision for the consumer, not the business, but I have an original Windows phone and a Microsoft Band. And when I originally got an e-mail about Microsoft Pix, that looks pretty cool, see if I can look into it. And then it says, available for Android and iOS, not available for Windows phone. And then you comment about Outlook. So, I go to Windows Store, I type in Outlook. And there is no Outlook app that I can see. And so I am wondering what – and then the Band has just kind of disappeared. I am wondering what’s the guiding vision that’s happening with these kinds of things that happen to the average Windows user? And I go into Microsoft store, and they say, well, I don’t know. And one last other comment, the thing that’s kind of making me hesitate about a Surface or a Surface book is the lack of ability to change the battery. I have an old laptop, HP laptop, and after 4 years, the battery goes and I replace it. I still have a valuable device that works. When I supposed to spend $3,000 or $2,000 every 3 years if the battery comes out? So, that’s just another issue that I think the hardware people should look at. Thank you very much.

Satya Nadella

Thanks for the question and also the comments. So first, as far as our vision for consumers and enterprise, first of all, I don’t think of these as separate markets. I think about users, people and their devices. The basic construct that we think about architecturally and technically is that it’s not about just one device it’s about all the devices for the person. In other words, whether it’s the app or the operating system, we want to build it for the person across their devices. For example, your comment about Outlook, Outlook, interestingly enough in the context of the Windows phone is the mail client. You don’t need to go look for another client, because it’s built into the phone. Whereas in our own operating systems, the camera will have the Smart. You don’t need a separate application. You will not need another separate mail program. When we control things silicon up, that’s how we will integrate those experiences. But when we are on other people’s platform because that’s the basic construct that we have, which is we will not only build for you devices that are unique and differentiated with our software capability on top of it, whether its Surface or Surface Studio or HoloLens or the phone and also make our software applications available on Android and iOS and other platforms. And so that’s what I think is needed in order to – for Microsoft to help you, as a user get the most out of our innovation.

Chris Suh

Thank you. Let’s go to mic #2, please.

Jim Pierce

Thank you. My name is Jim Pierce. I am from Bothell. And I am a long time Microsoft fan. I run my business using your software. I own Microsoft Windows phone and I use it 18 hours a day. I have heard that you are stepping away from mobile. Can you calm me down and tell me where your future – what’s your vision is for mobile?

Satya Nadella

Yes. So, our overall approach again to the previous question is we think about mobility broadly. In other words, we think about the mobility of the human being across all of the devices, not just the mobility of a single device. That said we are not stepping away or back from our focus on our mobile devices. What we are going to do is focus that effort on places where we have differentiation. If you take Windows Phone, where we are differentiated in Windows phone is it’s manageability, it’s security, it’s continuing capability that is the ability to have a phone that in fact can even act like a PC. So, we are going to double down on those points of differentiation. In fact, the XP HP X3, which came out recently, is perhaps a great example of a differentiated device built using the Windows phone platform and that sort of points for the direction. We will keep looking at different forms, different functions that we can bring to mobile devices, while also supporting our software across a variety of devices. So, that’s the approach you will see us take. We are not stepping away from supporting our Windows phone users. But at the same time, we are recognizing that there are other platforms in mobile that have higher share and we want to make sure that our software is available on that.

Chris Suh

Thank you. Okay. Let’s go to mic #3, please.

Chris Herbert

Thank you. Chris Herbert again. And I have a question, but first, I have a celebration for Dan Bross who is person who has been the Head of Business and Corporate Responsibility and is retiring now after 18 years. And Dan now speaking on behalf of the Sustainable Investment Movement, every single one of them, Dan has been an excellent, a thoughtful and very courageous partner and we still celebrate his service to this company and to sustainability as a whole and encourage the company to continue that sort of activity and perhaps enhance it. So, my question actually is on behalf of Amnesty International, who is curious and saying, end-to-end encryption is now recognized as a key safeguard to protect the privacy of users of instant messaging and video calling applications. And it’s already being deployed on the most popular services. So, given Microsoft’s very strong commitment to privacy, has the company considered deploying end-to-end encryption on its Skype service?

Brad Smith

Two thoughts, first, thanks for the feedback about Dan. He has worked in the part of the company that I am responsible for and we absolutely are committed to not just sustaining but continuing to build on the kinds of progress he brought to us. We are definitely focused on expanding end-to-end encryption for Skype and we have already been expanding it for a variety of other services. I will say this, though, one thing that we try to encourage the folks at Amnesty International to just think about it in this context. We do want to make end-to-end encryption available as a feature in more of our services. And at the same time, there are certain features and certain services that frankly are not necessarily compatible with end-to-end encryption. For example, if you have used a product like Skype to interact not with one other person where you can encrypt the message or a call in just – I could send it to you, but in fact, have interaction with lots of people at the same time, you move to a fundamentally different model with client server based computing and it is not possible to do that with technology today and end-to-end encryption. So mostly, we would ask people to think about how we all move forward, increase encryption, availability and also recognize that we will want to give people the option of using features other than encryption and that will, at times, involve informed choices that consumers get to make.

Chris Suh

Let’s go to mic #4.

Scott

Thank you for the segue. My name is Scott. Along the lines of cyber security, security and authentication, what is Microsoft doing to bring uniformity across all the platforms to where one needs to authenticate something, there is an accessible available system that’s consistently agreed to buy all of the services within Microsoft?

Satya Nadella

That’s a great, great, great question. And there is two sets of things that we are doing. One is to make sure that there is a service that can be the keeper of the truth when it comes to users and their credentials, so that you can authenticate against it. And in that context, we have made tremendous progress. It’s Azure Active Directory, which can sync with your on-premise Azure or on-premise Active Directory. And from that basis, not only for all of the Microsoft services, whether it’s Window devices or Office 365, Dynamics 365, but also all the other SaaS applications that you maybe using. So, we are making rapid progress on it. Now, there is a second side to it or there is an additional element, which is to be able to attest your logging, your authentication and then authorization into the various services across all the devices that you maybe using. You may use your phone. You may use your kid’s computer to log in sometimes at home or what have you. So – but we need to know that it’s you. And that is where we are now adding additional factors. So, the second factor authentication, whether it’s SMS or whether its voice or what have you. So, the idea that you will have to authenticate using a second factor sometimes creates a little bit of friction, because security is more important than just seamless log-in, especially if it’s not your device that has the certificates. So that’s the place where both users have to know, what’s the device through which they can have seamless access, where will they value the second factor because it’s about securing their data. Those are the things that we are working through. And I believe one of our core, what should I say, efforts to get customers to deploy this modern infrastructure for identity management and authentication so that you can have single sign-on across all of the services and really multifactor authentication for real security. So that’s the sort of vision that we have and that’s something that we are even trying to practice inside of Microsoft.

Scott

Where I am stuck right now trying to authenticate – something within the Microsoft system and the only authenticator they are offering me is an SMS or a voice to a phone number that they keep telling me they don’t like. They – I have contacted customer service numerous times, the last time this happened a number of months ago, I went down to the local Microsoft store, I worked through it with them and was told, great, now we have solved the problem and in the future, here is the Microsoft authenticator that you won’t have to go through this again. Now months later and I am having to go through it again and I just refused to go down to Microsoft store again, so I want an authenticator to be able to move through this current place where I am stuck, that’s not an SMS message or a voice message or you agree to use the phone number I am providing?

Satya Nadella

That is right and the authenticator should work the way you were told at the store and we should have someone who work with you even today and fix that and see what the issue is, whether if it’s the same phone number, it should work so we should go figure out – troubleshoot your issue.

Chris Suh

I appreciate all the questions, but unfortunately, we are going to have time for one more. So let’s go to the last question here, mic #1.

Catherine Neuweiler

I am Catherine Neuweiler. I am from Arvada, Colorado and my question is what investments is Microsoft planning to make for public schools?

Brad Smith

For public schools, great question and I first want to thank you for asking it and I have been coming here for something like 15 years, I think you are the youngest person to stand up and ask that question. So it’s a pleasure to have you here. We are really focused on investing in public schools in three ways. First, there is our business. I mean our education business is a fundamental part of what we pursue as a company, so we work with schools as customers. Satya has certainly been encouraging us all to focus on how we do a better job of providing a suite of services and hardware and the like to schools that will really improve learning opportunities for students. So that’s number one. The second is our philanthropy. We do invest in programs to support students in public schools around the country. I talked a little about those programs before. And so we see that as something that adds to what we do in the core of our business. And the third is really using our voice together with others in our industry typically to champion the causes of public schools. We are very interested in making sure that, first, students today in every school in this country and frankly, around the world have the opportunity to learn the skills that are going to enable you and your peers to succeed in the decades ahead. And in many cases, that involves learning new things. But second, we are really interested in working with public schools. We are actually especially enthusiastic about the work that Governor Hickenlooper is driving in the State of Colorado to launch new apprenticeship programs in Colorado. We have talked with companies that are already working there. We have a sales office in Denver. We think that there is lot of opportunity to create new ways for students starting in high school in the United States to connect with what they will need to learn to go on and get great jobs, whether they want to go on to a community college or a 4-year college or just go straight into the workforce. And so as much as anything else, we see this as a moment in time where, in Colorado, in Washington and other states, there is an opportunity for the business community and the non-profit community and schools to really come together and innovate. And I would actually say, from my perspective, you happen to live in a state where there is a lot of exciting innovation and we are trying to learn more from Colorado, ourselves and think about what we can do both to support things there and here in Washington and in other states across the country.

Catherine Neuweiler

Thank you.

Satya Nadella

Thank you.

Amy Hood

Thank you.

Chris Suh

Thank you. Well, this concludes our Annual Meeting this year. We thank you for joining us today. And of course, thank you for your investment. We look forward to seeing you at future meetings.

Satya Nadella

Thank you.

Amy Hood

Thank you, all.

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