In-Depth

Microsoft's $11 Billion Man

Jeff Raikes, head of Microsoft's Information Worker unit, expounds on Office, Software Assurance and the changing nature of life at work.

If you're sitting at a computer, chances are you have a least one program from Jeff Raikes up and running—and it's probably more like two or three. That's because Raikes runs the Information Worker business unit at Microsoft, where he is not only responsible for Office, but a growing portfolio of related applications such as SharePoint and Live Meeting.

A group vice president reporting directly to CEO Steve Ballmer, Raikes is also responsible for Microsoft Worldwide Licensing and Pricing. He must be doing something right—his group brought in $10.9 billion in fiscal 2004.

Redmond Editor in Chief Doug Barney asked Raikes about the future of Office, competitive threats, Software Assurance, what it's like to spend 23 years working for Microsoft, and the Seattle Mariners, which Raikes co-owns.

Redmond : How does the solidification of the Longhorn feature set affect the Office schedule?
Raikes:
We communicate a lot with the Windows team to determine how we can take advantage of improvements in the platform that will come with Longhorn.

When's the next version of Office coming out?
It's just too early to speculate. Right now, we are focused on helping our current customers deploy Office 2003 and take advantage of the many ways it can benefit their individuals, teams and organizations overall. And remember, we're continuing to look for ways to help information workers improve productivity before the next version. For example, Microsoft Office Live Communications Server 2005 has just been released to manufacturing, and the new Microsoft Office 'Istanbul' client that brings advanced VoIP technology into Office will be delivered [in 2005].

Will the next version of Office be dependent on Longhorn or will it be backward-compatible with Windows XP?
In the next version of Office we will take advantage of improvements in the Windows platform that will come with Longhorn. But we know customers have varying adoption needs, and we'll make sure the Office System works well on Windows XP.

Would there have been an Office support element to WinFS and will that be pushed out to a future version now that WinFS isn't making the Longhorn client cut?
The next release of Office will take advantage of the latest Windows innovations/advancements. However, it's too early at this point to talk about specific features and functionality.

How does Office fit into the 64-bit transition?
Office 2003 already runs well on the new 64-bit version of Windows. As 64-bit computing becomes more pervasive, the Office team will explore how to take advantage of the capabilities of the platform.

You've touted Office as a tool for not just personal productivity, but collaborative, team and organizational productivity. But many people use Office applications in much they same way they did 10 years ago. What are the big productivity benefits those people are missing, and what are your expectations in terms of being able to get them to change the way they do things?
The way people work is changing. We've conducted extensive research including over 3,500 hours of observing how people use our products, and we've received feedback from thousands of customers as to how they spend their day at work. And this was just for building the 2003 versions of Office System products! The cumulative releases contain decades of learning from feedback and research.

Information workers today are telling us they share more information, meet more often and e-mail to the extent that communication software has become a mission-critical application for most organizations. The Microsoft Office of 10, or even five years ago wasn't built to handle these challenges.

Jeff Raikes
At $10.9 billion, Jeff Raikes' Information Worker Business Unit delivers the second-largest revenue stream for Microsoft, outgunned only by the Client business.

We cannot expect people to realize all the possible benefits of Office just by having it on their desktops. We have made investments both in product development and materials to help people take advantage of their Office System tools. This effort has met with great success. Customers that have deployed have found that collaboration tools are used much more often when they are integrated into familiar applications such as Word, PowerPoint, Excel and Outlook. In many cases, a simple click of a button has replaced what used to be a call to IT.

We also offer improved tools via the Internet. Office Online has become one of the Internet's most visited sites with almost 50 million unique visitors last month. Once there, customers find training documents and videos as well as industry and occupation-specific templates and tools that help them get the most out of Microsoft Office.

Are there other communications paradigms that can be productively integrated into the Office suite, such as IP telephony or instant messaging?
Yes, we see a huge opportunity here. Already included in the Microsoft Office System are real-time communication tools that enable instant messaging, presence detection and Web meetings. These kinds of contextual collaboration tools set the Microsoft Office System apart from older versions and allow people to be more productive. A recent glimpse of the next generation of these tools can be seen in the Istanbul beta program announced Oct. 19. Istanbul is a communications and telephony integration client that incorporates instant messaging, voice, Web conferencing and video and makes them all accessible in familiar Office applications.

Is Software Assurance and limiting support to the current and previous version the main reason for users to upgrade?
The main reasons to upgrade are always going to be the productivity increases customers are seeing. Telecom Italia Mobile has deployed Office 2003 among its 11,000 employees and estimates that improvements in handling e-mail alone have saved the company $12 million a year. K-Line, the big Hong Kong shipping company, has built a solution based on Office 2003 and InfoPath that is saving them a ton of money by automating their travel approval process. Conrad Hilton Hotel has used Office 2003 to automate its processes and estimates a 70 percent reduction in paper usage.

How do you respond to customers who don't feel they've gotten value from money spent on Software Assurance contracts, especially as product ship dates slip, forcing them to renew the contracts in order to get upgrades?
There are a number of reasons why customers buy Software Assurance for our products.

Among these are discounts, asset management, budget predictability and rights to upgrades.

Over the past year, we have added a number of new benefits to our Software Assurance customers to add more value.

Customers have the choice of purchasing Software Assurance, which is designed to assist with management needs and cost reduction around licensing by providing customers with a predictable pricing program as is standard in the industry. We believe that all customers should do an analysis to determine if Software Assurance is right for their business needs. Microsoft, in partnership with Forrester Research, has developed an ROI tool that enables the Microsoft sales team and Microsoft partners to sit down with customers to provide a return on investment, break even, cost savings analysis of what customers can achieve through Software Assurance.

Can you assure Software Assurance customers that the individual Longhorn components will be covered?
Details on the delivery vehicle for WinFS are yet to be determined. However, Software Assurance customers will get any and all product updates that are shipped during the life of their agreement. Non-SA or EA [Enterprise Agreement] customers would pay the full license price for any new version of the operating system they purchase.

Are there any untapped markets left for Office?
The short answer is a big "yes."

The longer answer centers on our customers and the great potential to help them be more effective and efficient. Three years ago we expanded our scope from knowledge workers to information workers. "Information worker" refers to all people who participate in the flow of information inside and outside an organization. When you look at each step in the information flow, you find that there are many areas where software could be introduced to make workers more productive. This may mean introducing new form factors to workers who today do not use PCs to complete their work.

According to Gartner's Neil MacDonald, the second most important business issue for corporate executives, behind customer relations, is improving productivity. Clearly, there is still a massive opportunity for us to meet business challenges that we don't address today. Some of these opportunities include major markets such as business intelligence, work management and business process automation that are estimated by analyst reports to grow to $117 billion by 2006.

We have an entire Incubation Group within the Information Worker Group and outside of our overall research lab that is focused on bringing new products to market to benefit information workers. We're in the business of finding opportunities to increase employee productivity and the value of business information, as well as to help customers gain a higher return on technology investments.

Will Office ever port to Linux?
On the desktop, we have not seen significant adoption and implementation of Linux but rather trial evaluations so we don't have plans to port Office.

What's the future of Office for the Macinstosh?
There have been some exciting developments in the Mac industry and with Microsoft's Macintosh Business Unit throughout this year. In May, we launched Office 2004 for Mac and the future looks good for the next version.

Because most folks only use a small percentage of the functionality in Office, will Microsoft ever start stripping down the suite, giving it a smaller footprint and lower cost for customers? Will there be an Office Starter Edition for the countries that get Windows XP Starter Edition?
Actually, the perception that most people are using a small percentage of Office is overstated. People become experts depending on their job. Almost everyone uses Outlook. Excel, PowerPoint, Word and Access have expert users who also regularly use other Office applications. So anytime we even take one feature out we get thousands of complaints—and that is just at the individual level. If you start looking at how teams and organizations are using Office then you need to look at SharePoint and InfoPath as well as the RTC [Real Time Communications] products. We are linking them all together to help customers increase productivity. With 400 million people touching our software, features that seem insignificant to some are being used by tens of millions of people.

Ultimately, the choice to use Office relates to the value that it provides. As you mentioned, the Windows Group at Microsoft is experimenting with a concept for developing markets called the Windows Starter Edition. We will be watching and seeing how it performs, but keep in mind we also have Microsoft Works, which is a lower-end productivity product. So, we will continue to follow the marketplace, learn and evaluate our strategies on an ongoing basis.

Jeff Raikes
The main reasons to upgrade to newer Office versions "are always going to be the productivity increases," Raikes says.

StarOffice and other suites offer users an office productivity suite experience that's far cheaper for the basics. Can Office have a long-term future without major price cuts?
StarOffice competes with Office 97, which was a great product seven years ago. But it's now a decade of innovation behind—a decade because a lot of the R&D happens way before a product is launched. Both our research and our customers have told us that simple productivity applications focused on content creation do not address their needs today. Our customers do not want to be two or three years behind, let alone 10. In all of our talks with customers and partners, we're hearing that they need and want a desktop productivity tool that helps them with access to information, real-time teaming, process management and personal productivity.

Spam, viruses, worms, trojans. Will e-mail survive as a main corporate form of communication? Is there anything Microsoft can do through Outlook, Exchange and other means to stem the problem?
I have no doubt in my mind that e-mail will survive as one of the most common forms of corporate communication. Our security and anti-spam teams have done a lot to address the issues of security, and they will continue to explore new ways to stay one step ahead of the hackers—a formidable challenge, but I think we've been able to make some good progress in the last couple of years.

Your Information Worker (IW) business unit now delivers the second-largest revenue and profit stream for Microsoft. What are your growth expectations going forward, and how will IW growth compare to that of the other six Microsoft business units?
Office System tools will continue to be a very important part and very large percentage of Microsoft's overall business. We live in an information age global economy where every day more people are becoming information workers. More of their work is becoming information work and more and more software tools are being used to enhance that information work. That is a trend that will continue for the foreseeable future. So, the Information Worker business at Microsoft is a growth business. The only reason it might not remain at the same percentage it is today in terms of overall revenue is because other Microsoft businesses will continue to evolve and grow too.

The latest speech transcript on your Microsoft Web page is from a talk you gave in July at the Worldwide Partner Conference in Toronto. Other recent talks were likewise to partners and financial analysts. In 2003, you spoke at the Convergence customer conference, but not in 2004. How do you explain the focus on partners, but not on customers?
There are a few conferences where I can speak to partners as a big group, but our customers are so diverse that I need to reach them in other ways. I meet with customers just about every week and also spend a significant amount of time traveling to meet with customers around the world. These meetings are often with small groups and you may not hear about them the way you do broader partner conferences. On a worldwide basis, we have thousands of events where customers are the direct audience—everything from the CEO Summit to executive counsels. There are hundreds of customers touring the campus and going through the Executive Briefing Center, and thousands of Microsoft employees are meeting with customers on a daily basis.

What's your take on how .NET is panning out, in terms of what's working well and what still needs improvement?
We are very pleased with where we are with .NET both in terms of the opportunities for developers and partners building on the Microsoft platform. .NET represents Microsoft's strong commitment to Web services and the deep integration of .NET across our platform offers customers a number of advantages, including the best time to market, best way to leverage existing skills and technologies, and best price/performance.

We are also seeing strong support from our partners. .NET, along with broad XML support in some of the most commonly used Office programs and our new program focused on electronic forms, InfoPath, mean that Office can be tightly integrated with enterprise applications from vendors like SAP and Siebel. This provides a seamless user experience, which is especially useful in business intelligence and people-driven process automation solutions.

In the fall of 2001, Bill Gates predicted that in this decade we'd see twice the improvement in productivity that we did during the 1990s. How are we doing on that front?
We've seen enormous strides with improvements in productivity in the past few years on all fronts. The volume of partners, new industries, customer growth and technology deployments are all strong signs of this. In corporations across the world, e-mail has become a mainstay. People are able to communicate with one another instantly rather than having to travel. At Microsoft, we're planning to use LiveMeeting to replace one in five business trips and estimate the savings will be over $70 million. Different continents, time zones and languages are no longer much of an issue—those are some pretty significant improvements in my opinion and all good indicators that we're on the right track.

In a perfect world from a Microsoft perspective, how will information workers work differently five years from now?
We expect that collaboration will be taken a step further, capturing the data and experience of an entire organization and enabling individuals and teams to use that information to make better strategic decisions. Information workers will have more options about how and when they work and the technologies they use will be mature enough so they can participate in high-value, high-content communications no matter what kind of device they are using, no matter where they are using that device. I'm really excited about where software can help people be more productive, but even more importantly, where software can help people increase the value of the work they do.

How much back and forth do you have with Bill Gates, and what's he like to work with these days?
As a member of the Microsoft Senior Leadership Team, I have the pleasure of working with Bill on a regular basis. He remains as passionate as he was when I met him years ago on how to move our technology forward to bring the most value to our customers.

Is there still enough to do at Microsoft for the rest of your career, or will there be a time when you move onto other goals? If so what are they? Sports, politics, social causes? Others?
I've been here for 23 years now and never once have I not been challenged or inspired. The opportunity to truly make a difference in people's lives and in my case, in how they work, is one that I would not attempt to find in another company.

You're a part-owner of the Seattle Mariners baseball team. On behalf of Mariners' fans, we have to ask: What happened this year?
Ha-ha—well, it was a rough season but I remain optimistic. There's always next year to get back on track.

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