 This is Dave Vellante with Stu Miniman, and this is theCUBE, SiliconANGLE Wikibon's continuous production. We're here live at Gillette Stadium. This is the VTUG Winter Warmer. Brad Anderson is here. He's a corporate vice president with Microsoft. Brad, welcome to theCUBE. No, thanks for inviting me, it's good to be here. Yeah, so the VTUG has sort of evolved. It's come from the sort of narrow sort of event, and now it's this sort of multi-hypervisor, multi-constituency event. Obviously, Microsoft's done a lot to advance the market beyond VMware, and so congratulations on your progress. Thank you. And we'll appreciate the support here. So, you know, the knock on Microsoft is always, well, the first version really doesn't get it quite right. The second version is almost there, and the third version is like a home run. And when you talk to the practitioners in the Wikibon community, things like Windows Server 2012, Hyper-V, I mean, they all go hand in hand. It really seems to be clicking for you guys now. It seems like you really got it right, in this version. So, is that, first of all, is that a fair assessment? And what are you seeing in the customer base? Yeah, I think that may have been a fair assessment in the past. As I take a look at Windows Server, you know, my responsibility on Windows Server, you know, 2008, 2008 R2, 2012, 2012 R2, those have been world-class, you know, release of the operating system. Yeah, and we're quickening the cadence, you know that cadence from 2012 to 2012 R2. You know, we did that in less than a year. You know, we had a fundamental change in all of our processes, but you know, if that was a knock in the back, which it was, you know, I think it was a realistic knock. I think our server releases have just been rock solid now, you know, for four-four consecutive releases. And I'll tell you, one of the things that has contributed to that is, you know, even when we bring a new technology into Windows Server, it's actually not the first time it's hit the market, because we have this design principle we call Cloud First. So, we literally will go out and we'll build things into Azure first, prove it in Azure, battle hard and battle test it, then we deliver it into Windows Server. So, for example, a lot of things I talked about this morning was a lot of the innovation that we're doing in storage, okay? And so, that innovation was actually pioneered in Azure, because all of our storage in Azure is direct-attached storage. Then we brought it onto Windows Server, but it had already been proven in Azure. I'll tell you the other thing, you know, Hyper-V, Hyper-V is what powers all of Azure. All of Azure is built on Hyper-V. And so, we will actually take new versions of Hyper-V, but you know, while we're in preview or pre-preview, put it into Azure. So, we're testing it out at scale at incredible performance before it ever hits the street inside a Windows Server. Yeah, Brad, you know, some people, I think, really don't understand, you know, Azure's been out there a while. It's kind of a little bit under the radar. You know, Amazon was here, you know, that they have such a strong position in the marketplace. Do you have some proof points to talk to us a little bit about, you know, how Microsoft's doing in the cloud? You know, I think thought that was a great statement you said, you know, Azure's there to prove it out, as opposed to VMware really has kind of that base in the data centers today, and they're trying to push into the clouds as opposed to you've got great footprints both in the data centers and the cloud. So, can you give us a little bit of data on that? And I think the point you make about Microsoft delivering solutions that are in private, hosted in public cloud is really the key mesh, I think, for everybody to hear here. You know, we are the only organization in the world that is operating and building a public cloud at scale, you know, available around the world with a guaranteed SLA. We're also the only organization, Amazon doesn't do this. We back our SLA financially. If we don't meet our SLA, you don't pay us. But we, you know, literally are committed to this strategy of ensuring consistency across private, hosted and public cloud. And what that means for our customers, for everyone watching this, is they're not locked into a cloud. So they can go do their dev tests in Azure, build that application, and then they've wanted to deploy that in a private cloud. They can do that. They don't have to modify any code at all. They then want to move that to the public cloud, or they want to move that to a service provider. They can do that without having to change a single line of code, because we're doing the work to make sure that it's consistent. So the Azure concept applied to the private cloud on-premise. I mean, everybody wants to build a cloud, right? So talk about the evolution of that, because early on, Azure, hyper scale, a lot of experimentation, how did that all get baked out and get into your group, and now what's happening in the customer base? Yeah. So I think the key thing to think about here is, in my view, I think the most innovation that is happening in the cloud and the industry is happening in a handful of organizations that are operating these clouds at just incredible scale. I mentioned this morning, in the last several years, we've spent more than $15 billion as we've built out Azure, the data centers, all the things that are inside of the data centers, and hosting these 200 plus services, like being, like Skype, like Outlook.com. So in that environment, we get the opportunity to learn like you can't even understand what a learning opportunity that is. When you're spending $15 billion over a couple of years, you're bringing in hundreds of thousands of servers at a time, we're making 50,000 networking changes a day. You have to innovate like crazy. You just have to innovate like crazy. And then from an engineering perspective, we want it to be common code, because our costs are lower if we just have to build once and run everywhere, just like customers want to be able to build an application or create an application and run everywhere. So we benefit, the customers benefit, and that's been the core of the strategy. Now you asked how did this all come about, okay? And so initially, Windows Azure and Windows Server were, we started Windows Azure in a separate group, and you can kind of think a little bit about the innovators dilemma. We wanted to give that team kind of free reign to go up and build and not be kind of encumbered. But then several years ago, we brought those two organizations together, and now those organizations sit side by side, and all the work that we do together is just remarkable. Now let's give you one proof point that I think is really kind of tangible. One of the requests that we get is we want to, organizations say we want to have Windows Azure-compatible private clouds. Windows Azure-compatible hosted clouds. And so literally, we have this deliver what we call the Windows Azure Pack, okay, WAP. Windows Azure Pack is literally taking capabilities that have been pioneered and proven in Windows Azure, delivering them on top of Windows Server. Okay, let's give you two or three examples. First example is high density websites. Inside of Windows Azure, we literally can host more than 5,000 websites on a single Windows Server OS instance. Okay, that makes us very, very low cost. Well, every customer wants that. Whether you're running 100 or whether you're running 5,000, you want to get as dense as you can. So through the Windows Azure Pack, we ship that, and now customers can get that same kind of density, that same kind of cost saving. Give you another example. One of the core parts of Azure is called service bus. And think about service bus as a queuing mechanism that developers can use to separate out, say, the frontier from the backend tier of an application. You can also use service bus as your communication bus across multiple clouds. So a lot of applications that get built for Azure will take advantage of service bus. Well, guess what? Service bus is now delivered on top of Windows Server through the Windows Server Azure Pack. And so those applications that are built that are taking advantage of the service bus can run in a private cloud, in a hosted cloud, or in a public cloud because we are delivering consistency across clouds. I mean, the homogeneity is a big advantage of Microsoft. I mean, obviously, Amazon is this homogeneous entity. We had the guys here in Rackspace before talking about OpenStack and it's evolving, but Microsoft has proven that you can actually go from public to private and in between. Talk about the level of competitive advantage that gives you, and why is that unique in the marketplace? Yeah, so from a competitive advantage, no customer wants to be locked in. When I talk with organizations, literally the number one, two, three concerns that I hear from organizations thinking about the public cloud is one, they don't want to be locked in, and two, they want to make sure that it's secure. Those are the two most common things that I hear. And so as we are delivering on this consistency across clouds, we can promise and we can demonstrably prove that when you develop an application to run on Windows Server or an application to run on Windows Server, you can move those applications and VMs and services across the clouds and you are not locked into any single cloud. The business needs change. Today you could be running in a private but tomorrow for whatever reason you may need to expand that out, you may run out of capacity and you want that flexibility and that's what we deliver. So, Brad, you talk about the organizations coming together, the Azure cloud piece and your organization. And it may be some internal plumbing but I'm curious as to how you guys deal with sort of the Azure as a service versus Azure on premise and the channel dynamic there that's changing. Right now, I mean historically Microsoft has sold to its partner, still does but the cloud somewhat changes that and there's somewhat counter-poised to your objective is to put stuff in presumably on premise and support hybrid clouds. How does that all work and how do you see those shifting sands? Yeah, it's a good question. So there's a couple of key metrics that as I think about the business that I track, things like I watch what's happening with x86 server sales because that kind of tells me am I going to sell more Windows Server or am I going to sell less because if servers are growing the hardware we're going to sell more Windows Server. So maybe a way to answer your question is what are the metrics that I track when I take a look at our hosted revenue compared to say Amazon, okay. When I do that comparison I take the combination of Windows Azure revenue and the revenue is coming from our service providers who are leasing Windows and leasing out our applications out to customers and I think about that combination versus Amazon as the metric. So I think about our service providers and then building a business a line of what we're doing in Azure. And I think that's fair. I mean, you've actually criticized for counting that way but to me it's a fair calculation because it's the TAM. I mean, whether it shifts from, you know this container to that container it really doesn't matter it's solving a problem that's similar but at the same time don't the channel dynamics change? I think the cloud changes everything. Yeah, so I wonder if you could talk about that and how your partners are responding. Yeah, you know, so what we've tried to do is we've tried to build out our compensation package or our sentence for the channel so that as they're out and they are selling say for the Office 365 or Windows Intertune our software as a service offerings that they get an annuity that comes into them. And so, you know, literally what they can do is I think that our channel partners can find more customers to go to and as they get more of those customers using our software as a service those annuities just continue to build on each other. You know, and annuities are great things as long as the customers continue to use our software as a service offerings like Office 365 that annuity comes back to that channel partner that helped them get there. Now let me give you another example. Windows Intune is our management and protection solution delivered from the cloud. Okay, so think about this as kind of system center configuration manager and system center endpoint protection delivered from the cloud. So we now are able to host the solution up in the cloud. So we host the infrastructure, those types of pieces but it still requires some level of knowledge some level of expertise on how you package up your applications how you put those applications into the service. And so a lot of our partners still see that opportunity to be that expert to be that trusted advisor to actually help it do. But they no longer have to worry about when we come out with a new version of our solution taking six months or eight months to actually do the upgrade deployment customers get value on day one when we put the new capabilities in the service. And so I think that's a win-win because customers get value instantly our partners get the opportunity to still be that trusted advisor and our partners get that annuity coming into them in the same way that we get the annuity coming in from the subscription. So Brad, it's interesting to hear you talk about lock-in and when I hear you talk about licensing and annuity of course one of the biggest criticisms from Microsoft typically is I've got licensing fees. Linux obviously has tried to attack Microsoft for years the open stack community is trying to change what VMware is doing and what you guys are doing. So how is the cloud kind of changing how Microsoft looks at this whole pricing dynamic and is Microsoft's tune on licensing changing? So first of all I think that there is a right to protect your IP. If you're investing like we are where we're investing 10 plus billion dollars every year in development you do have the right to protect that IP and I think you have the right to monetize that. Now I think the way to think about this is to think about the total cost of ownership. And so when you think about any software whether it's on-premises whether it's a software as a service offering there's a certain amount of value and there's a certain amount of utility that comes to the customer from that solution. And in terms of if they're hosting it on their own they've got hardware costs, they've got software costs they've got people costs and let's be honest the software costs for a service for a solution that people have deployed on-premise is less than five or six percent of the total cost of ownership. So if you go take a look at the research that's been done about what it costs to host for example SAP or Oracle in your data center the software aspect especially the software aspect coming to Microsoft is a very, very small fraction of that. And so our strategy has always been we believe that we offer great value at a very economic price. I think we've shown time after time after time that we are the low price provider in the market. And that has always been our strategy I think that will continue to be our strategy. Well that's how Microsoft's ascendancy occurred frankly and certainly in the PC era and then people used to, it's ironic right? People used to say oh it's just PCs it's toys and now Microsoft is the dominant player in the enterprise because you were able to take that ethos and bring it in. So the transaction costs you're right or tiny compared to the overall cost of ownership but now then the cloud comes in and there's this whole new dynamic of CAPEX versus OPEX but you're playing there too. So yeah and just to kind of build on that for a minute you know if someone sits down and says hey what's my total cost of ownership per mailbox to run exchange in my environment. They've got hardware costs, they've got the software costs, they've got the people costs when a new version of that comes up they've got the cost to plan and orchestrate that upgrade. Our proposition here is we can host all that up for you in Office 365 in the cloud and we will do it at a lower price and it'll be at a predictable price. You know a bad day for IT is when they overrun their budget and in these large kind of infrastructure upgrades there's always risks that you're going to you know you've missed something in your planning and something happens and then you overrun your budget. The beauty of a service like Office 365 is the day that we release new capabilities all that value is available to all the customers around the world and they don't have to go through any kind of an upgrade process. But when I think a lot of the Microsoft applications they say well they're just perfect for the cloud so where are the headwinds in terms of customers going to the cloud? That's a great question, it's a great question. First of all let me make one, just to give one point that maybe a lot of people don't know about. Today Office 365, one out of four enterprise organizations in the world are using Office 365. And you know just so we have kind of all working on the same kind of a baseline here our definition of the enterprise is very broad. Our definition is any organization in the world that has more than 500 PCs. You know we call that the enterprise because that's where we kind of see you know the IT administrators move from kind of generalists to specialists. It's real IT. Yeah it's a good way to say it. From generalists to specialists. So one out of four are using Office 365. You know we've talked about Office 365 being the fastest growing product in the history of Microsoft. So what are the headwinds? You know one a lot of organizations are concerned about security. Okay so when we're selling in a cloud based solution there's a lot of conversation that we have to demonstrate what we have done to secure the organization's content and their data. Okay that's one question. Two there are a number of verticals that are highly regulated. Okay and a lot of those highly regulated organizations will probably keep a lot of their applications on premises in a private cloud you know for many many years into the future. And then third I think it's just unknown. You know it's something that is dramatically new that a lot of the world is just not accustomed to. They just haven't tried it. And so a lot of what we've been trying to do is build out these easy scenarios where an organization can do like backup to the cloud. Get familiar with it right? You can do all your backup to Windows Azure through the Windows Azure backup. The data is encrypted at your premises. It's encrypted on the wire. It's encrypted up in Azure. And you hold the keys. The keys never come to us. So the data is secure but it gives you the experience of getting comfortable with what the cloud means. And I feel like the third one the unknown is probably the biggest reason what percent of organizations can build security better than Microsoft can build security? I would say it's a single digits. Matt, can I quote you on that? Yeah, absolutely. I mean I've said the cloud guys are better at security than the vast majority of organizations. You have to be because you're in a constant attack. And the compliance piece, you know maybe that's just experience but I mean you can provide compliance in a variety of different industries. And a lot of, I mean Azure and all of our services have been certified in a number of the different certifications. And so you know those companies, I think you're right. The comfort level and just the willingness to embrace something new is the biggest area. I mean the cloud reminds, in some regards it's not perfect analogy, but it reminds me of the main frame days when we were doing downsizing and all the applications that should go went. Yeah. You know and it ultimately became the de facto. And I feel like the same thing's going to happen here. So maybe something to kind of say so what advice would we give to organizations looking at the cloud? You know literally identify an application in your organization that you can move to the cloud and go get experience. There is no substitute for experience. So look at one of your applications doesn't have to be a mission critical thing and move it up into Azure and get that experience ask the questions, develop that muscle and then what we find is once they get up there and they get comfortable, it just starts to accelerate. And then maybe the hardcore transaction processing stuff stays and you build a brick wall around that perhaps. It could be, but I don't think it's really due to hardcore transaction processing. Actually you have unlimited transaction processing up in the cloud, right? I'm wondering how much does mobility play into what you and your team are working on? So define mobility for me, make sure I'm on the same page. So phones, tablets, things like that. Okay, all right, so now we're talking about desktop, BYU, how we enable users. Okay, so I'll tell you, the vision that I have for the team is our responsibility is how do we help organizations work on the devices that they love while helping IT ensure that the corporate assets are secure and protected, okay? That really is the mission and the vision that we have for the part of the organization that works on what we call the enterprise client. So if you take a look at the assets we have in the place, first of all, System Center Configuration Manager is the de facto standard for managing desktops around the world. We manage more than two out of three desktops in the enterprise worldwide, so it's a very, very large installed base. We have assets like Office 365. For the last two and a half years now we've taken System Center Configuration Manager and we built it for the cloud and that's called Windows Intune. We've talked about we have more than 10,000 organizations around the world who are using Windows Intune to actually manage their PCs and manage their devices. And because that's a service, we're constantly updating that. So in the fall of last year we updated that with an update to Windows Intune and in that Intune, all of the mobile device management settings that organizations require across Windows, iOS, Android, that is natively a part of Windows Intune and then we've done this, I think a wonderful job of taking Intune and Config Manager and connecting those so that the System Center Configuration Manager administrators can do all their administration of their devices and their PCs. We then communicate those policies up into the cloud because we believe your devices should get policy from the cloud, right? Those devices were made to consume cloud services and so that while they get policy from the cloud you can do all your administration, all your reporting from your on-premises console. So Brad, my penultimate question, well first of all, thank you. Penultimate, okay. Yeah, so that's right, my David Floyd, my English colleague, second to last for those of you who don't know. But so my question is, so first of all, thank you for coming to this event. Oh, my pleasure, thank you. Regional events, great to have a senior executive from Microsoft here, so we really appreciate the support. If you think about, we're here for you, let's say a year from now. And you had to write the bumper sticker on 2014. What do you want that bumper sticker to say as you're leaving Gillette Stadium in 2015? You're looking back and saying, all right, this is what we accomplished, what's that bumper sticker? That's a darn good question. There's so many things you want to do, what's the one I would have it done? We can narrow the context if you want in terms of keeping the virtualization. At a high level, really our desire is to help organizations cloud optimize their business. And so I think if there's a bumper sticker, it would be cloud optimized. Yeah, and when I say cloud optimized, it really is how do we help organizations embrace the concepts of cloud computing? And really how do they differentiate and accelerate their businesses by adding value that is unique from the cloud into their organizations? And so I think that bumper sticker should say cloud optimized. Right, awesome. My last question is any predictions for the Super Bowl, right? You got a team and the... Yeah, go Seahawks. Go Seahawks, they're looking good. I mean, you must be excited. Oh, you know what? Pete Carroll, you've spent a lot of time here. We like Pete. He was here, you know. You know, so I'm kind of in dangerous territory here, so I, you know, you know. It's good, we had a good brawl with you guys last year. You eked it out at the end, it was a great game. I think all I can say is, you know, I'm hoping for a Super Bowl that's the Seahawks and the Patriots, you know. And then I'll have my Seahawks, you're gonna be cheering. We'll be thrilled with like that, but I'm sure, you know, Seahawks and anybody would make you happy as just as Patriots. It's exciting, it's exciting. It really is, you guys have had amazing two seasons and we're sure the best up in Seattle, so. All right, well, listen, thanks very much, Brad, for coming on theCUBE. It was a pleasure having you. Pleasure to have you. Thank you. All right, keep it right there, everybody. I'll be back with Stu Miniman. We're live, this is theCUBE. We're here at Gillette Stadium at the VTUG with the warmer. We'll be right back.