Kevin Turner: No longer the new guy

Microsoft's chief operating officer used to be the new guy in the company's top executive ranks.

Not anymore. Now, two years into his post, the heat is on: The software maker is still raking in cash, but it needs to adapt its old-line, shrink-wrapped software business to an online world. One of Turner's many jobs is to help convince partners--in many cases, Microsoft's front line with customers--that it won't leave them behind.

Welding a services model to the company's existing business is no small matter. Microsoft has to be careful to not derail its profit pipeline with Windows and Office, yet it needs to launch new services, like Windows Live, Office Live and online business software to keep up with competitors such as Google, Salesforce.com and many others.

At Microsoft's largest partner conference of the year last week in Denver, Turner told News.com about the progress he's made since last year, the challenges that remain, and what it's like knowing that only half of Microsoft's customers actually pay for their software.

Q: A year ago you were pretty fresh in the COO role. Now, a year later, what surprises you still? What are some of the things that you are still working on, and what are some of the things that are better than you thought--or worse than you thought?
Turner: I think that we're much better today about having a common definition of success through our subsidiaries. I feel really good about the fact that we have a common scorecard, a common goal sheet, that people are on the same page as it relates to both how they're compensated as well as how their performance review is (done). That sounds like a trivial thing, but with 80,000 people scattered around the world, if you don't have that common framework that people are working under, then they see things through a different lens. The performance of the company, some of the things that we've put in from an execution standpoint--from an operational excellence standpoint--I think have really made a huge difference, and it shows up in the numbers that we've released through the first three quarters.

I think that we're a company that has long believed in innovation. And I think we're a company that's learning to be operationally excellent. I don't think we've learned it. I think it's in the process of being learned, and that's something that I'm proud of--the progress that the team has made in that regard. They're adapting to that.

People wonder if that will stifle innovation. But all great teams have great discipline. If you do it well, discipline is not the enemy of enthusiasm, it actually becomes the enabler to do the things that you want to do. That's where the innovation really takes hold. That's where you're seeing these products hit these cycles. You know--bam--we're right back out there with another SQL Server version, another Visual Studio, and now Windows Server 2008. Those are huge launches on highly successful products that are coming in the marketplace in a good cycle. If you can keep turning that and keep showing that, partners win, customers win, and the whole ecosystem wins. So that's the theory; that's what we're working on, and it's fun. I love my job.

You talked about being more predictable, in having product releases regularly. There was that study that came out recently about software assurance (a Microsoft software licensing program) which found more ambivalence on the part of large customers to sign these deals, in large part because they aren't seeing regular releases. They don't see the road maps, and they're not confident that they're going to get their money's worth. What's your view on that?
Turner: I'm not seeing that or hearing that from the customers in the marketplace. We're not seeing any slowdown in that respect. There's an obligation on us, though. Steve Ballmer stood up last year and said something to the effect of, "never, ever, ever, ever, ever again will we have a delay like we had with Vista." I think that people care less about what you say and more about what you do. And--boom--(we're) showing that FY08 innovation coming to the marketplace. That's the kind of cycle that our customers expect. If we don't deliver it, people won't see the value in it. All we can do is continue to demonstrate the ability to do it and believe in it.

I do know this: Nobody is investing more, and nobody is trying harder to bring their own IP into the marketplace. I do know that. No other technology company is trying to do it the way we're doing it.

One of the things we are seeing is that there are more and more different versions of Microsoft's products. Is that what customers want?
Turner: You mostly let customers decide. It's harder on partners. But most customers are the ones driving for a different offering: they want different functionality or a different price point, or both. We typically listen to customers and where they lead us, then that's where we're going to end up building the products.

On the flip side of that, one of the secrets of the company is that we've really changed a lot of our licensing programs. So we went from 107 different licensing programs a year ago down to 23. One of the questions I get is, "When are you going to simplify licensing?" When I came in, that was one of the key things that I chartered with Joe Matz, who runs our worldwide licensing group for me. He's shrunk those dramatically, and our customer satisfaction number around licensing has improved dramatically. Partners want it. We've made a lot of changes in that regard and we still have a long way to go.

The thing that I want people to know about Microsoft is we're willing to listen, we're willing to improve, we've made progress, we want to keep getting better, and we need the partner input. They give us a lot of great input, and we need that. I got several notes already today.

What are some of the things on your road map for the year? What are your main priorities right now?
Turner: I'm working hard on making sure we're winning customers, and that includes share, it includes Linux, it includes making sure that we're bringing value to the marketplace for customers. I'm making sure that we just make it habitual to take care of customers, that we really step up our game, that I really rally the partners to help us step up our game because they represent us. The customers vote by what they buy. Being a trusted adviser is a more and more important thing in a decision-making process for an IT person. I want us to keep stepping up the customer satisfaction and the partner satisfaction that we're driving.

When I look at growing the business, we have huge opportunities in emerging markets. I mean, if you look at the BRIC countries, Brazil, Russia, India, China--you know, those are great opportunities for us to figure out how to grow our business, to really figure out how we can get after antipiracy in a thoughtful way, how we can continue to monetize new things that we have coming to the marketplace like HPC, this high-performance cluster computing. When you think about that and how we can get better at that, there's a big opportunity for us to grow new businesses, software plus services, Office Live. You know, what a challenge for us to figure out new ways to grow our business and grow it through partners.

And the last one, but certainly the most important one, is people. That it's people who actually make things happen, that it's people who create value, that it's people who take care of customers, that it's people who communicate those road maps.

That's the one thing that I think about the most: Do we have the right people? Do we have the right team? Is there something I can be doing to develop or grow them or train them or help them? Or what do they need from me?

On the issue of product road maps, on the Windows side it seems like we're actually getting less clear direction from Microsoft. They're not even talking about when we're going to have the first service pack for Vista, which I imagine, for your team trying to sell Vista, seems like a step backwards, at least externally.
Turner: Well, no, I think that's certainly a fair challenge to us. I think that we got out of the gate a little bit slower than any of us would have liked from an application compatibility standpoint, but we fixed that. We've spent a ton of time making sure we've got 10,000 devices and 1,900 applications, and we've spent a ton of time getting that right.

When you look at the security engineering that went into Vista, we're very pleased with the progress. That's a journey. That's not a destination, so we're working on that, but good progress has been made. There'll be a (Vista) SP1, and there'll be another release of the next Windows after Vista. You'll hear more about that in the upcoming months.

Do you think customers want more clarity than "there'll be a service pack and there'll be an upcoming release"?
Turner: Not the customers I talk to. Most of them want to know why they need Vista in the enterprise. I mean, Citigroup is a great example. HP is another great example, going to all Vista everywhere. (What they want to know is) what they can do, how quickly they can implement it, how they can get it certified on their applications. So what they want to know is more about today. Fewer of them want to think about having to swap it out three to five years from now. They want to think about how they get it implemented today.

Emerging markets and antipiracy are pretty big opportunities for Microsoft. What does Microsoft need to recognize that's different about selling software in these emerging markets, versus the way you guys have historically sold products?
Turner: We have a new, Unlimited Potential offering for students and education and schools. We've really started there to attempt to build an ecosystem to get in there and help people. They can't afford to do the things that the developed world can. You know, part of our core beliefs, which go back to Bill Gates, our founder, is, how do we get out and help and extend the software in those markets? There are new business models for us in those markets.

(The goal) is not to lose money, but it's not to make a lot of money (either). It's to create an ecosystem that can help people get better. But, in turn, in doing that, we believe it's the long-term approach to creating a healthy, stable economy and creating the right ecosystem for PCs and for technology. So it's more about changing our approach and attempting to be more thoughtful.

You know, it's humbling knowing that every single day of the year, a billion people use Microsoft software. Every day. That's a very humbling thing to think about. The unbelievable thing about that is only 500 million pay for it.

It seems like you guys have really beefed up the technological means by which you're making piracy less practical. Is that starting to make a difference in the bottom line?
Turner: WGA--Windows Genuine Advantage--with Vista is really our first hard line to attempt to curtail some of the piracy efforts. It's still a little too soon to tell, but it will have an impact. And over this next year you'll certainly see us do different implementations and learning (related to piracy).

We have a lot to learn in that process, and we want to be thoughtful about it. We don't want to cause customer dissatisfaction; we don't want to push people away from Windows. But at the same time, we want to make sure there's an opportunity there to get paid for it. That's the balance of how we implement that, where we implement that, and how fast we go with the rollout of that. There's a lot of work going on within Microsoft to make sure that we're thoughtful and mindful about how to do it. But, yes, Vista gives us that advantage in the marketplace over time.

The software world's changing: if software is delivered differently, what does that mean for Microsoft and its partners? What changes will they and you need to make to current business models and the way they work?
Turner: One of the common themes I kept hearing in speaking to partners is, "Hey, I'm reading a lot about this software and services; is it a real deal and should I be looking at it?" I've heard it so much that today I was attempting to try to energize people to think about what we believe is imminent. We believe that it's happening and there are certainly great examples today of where it's evolving and where it will continue. We are a multicore company, so it's not going to be the only business model we have. But we believe that there's a whole new ecosystem that's emerging through software plus services for existing partners to extend their business and get into some new spaces. But it's also going to create a whole new ecosystem for partners that aren't at Microsoft today that we can invite into the fold as well. It's exciting.

It seems like the most painful aspect of that transition is for the partners that have been doing hosted services themselves. Initially, Microsoft really didn't offer direct hosting and, if you were a partner hosting Exchange or SharePoint, you kind of had that field to yourself. Is that what you're hearing?
Turner: No. Mostly it's about whether traditional services are going to become obsolete. Is everything going to that? Or is it going to be a mixture? We happen to believe it's a mixture, but an important choice. In our ecosystem of software-plus-services, we're offering different monetization models. Whether it's on-premise or hosted or hybrid, there are opportunities for partners in all three of those buckets, which I think is very important.

We know a lot more than we did a year ago about where software-plus-services is going to go and where we're going to invest. But by no means do we believe that we have it all understood and figured out. So these profitability models have got to continue to evolve. And next year, we'll be smarter than we were this year. But we want to invite our partners to get on the train with us and figure out what we think is a very important initiative.

One of the things you said is that 100 percent of what Microsoft delivers to business customers for its Dynamics software is through partners. Does Microsoft see more things that it needs to be able to offer directly, maybe with partners reselling it, but where the partner role is more of a reseller role for that particular service?
Turner: As you look at our business model, what's really changed is the company predominantly was a product-centric company. As we transition to more and more solutions, the complexity of those solutions creates opportunities for partners. To be able to make that transition from product-centric to solution-oriented is one of the things that the customers, particularly the largest customers, want to make sure that Microsoft is going to stand behind.

When you take a look at things like SharePoint and SQL Server implementations, we have great partners that help us do those things. But there are also companies--whether it's Citigroup or some other major company--that say, "Hey, where are you at, Microsoft? Are you at the table with me? Are you going to stand by this?" And, certainly, we have to participate with partners. But that ecosystem--and the amount of innovation we've got coming into that ecosystem--I don't think it's ever been better.

One of the things you talked about was a report card of how Microsoft is doing versus one year ago. Could you summarize that report card?
Turner: The one I think is really super strong is this idea of bringing innovation into the marketplace. It's great to see that happen. What does '08 look like? I feel very strong about our ability. We're investing $7 billion-plus on innovation in the marketplace, and then delivering that out for partners to create value. I feel great about that.

If I take the opposite end of that and say, "Well, where do you not feel as great?" I think we have opportunities to continue to make that software road map more clearly understandable by our partners. We're better now. We actually have, by business group, a software road map. But if you look at those, there are varying degrees of quality in that. And it is still a learning exercise for us to be able to chart, share and then make sure that we protect what's competitive intelligence. Being able to meet the partners halfway and give them what we can (so) they can plan their business is something that we're going to continue to improve upon.

Another one we talked about was creating profitable opportunities. I feel great about these partner models. Those are real. I mean, they're not perfect. Again, I don't want to say we have that figured out, because we don't. But it's a start. It gives partners the ability to walk through how they can make money. The thing about that tool that I think is interesting is by us creating the tool, it makes us work through the same math and logic that the partner does in making sure that we're thinking about everything from a monetization standpoint. So it makes us better, in turn, by providing the opportunity for that.

This is an online profitability tool that the partners use?
Turner: Yes. There are nine different models that we use today for each of the different types of partner.

Another goal you stated a year ago was to make sure that Microsoft is seen as acting as one company. I imagine that's something you're trying to work on, but don't have all the ability to do it all yourself.
Turner: It is a real challenge. I mean, we sell products out of 191 different countries today. The breadth of our portfolio is so broad. We sell from end users to consumers, all the way up to the largest enterprises and governments in the world. Because of the amount of products that we've got--in divisions, in departments, in things that customers and partners don't care about, like structure and governance--there is an opportunity for us to bring that together for partners is a big deal. For the first time, we actually have it all come together under a single person at Microsoft. I think we've got to get better at it. The partner and customers don't care how complex we are, how big we are or what we sell; they just want simplicity. I think that's part of my role: to make sure we keep driving for that simplicity.