WHEN: Today, Monday, October 20th
WHERE: CNBC's Business Day Programming
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Microsoft CEO Satya Nadella. Excerpts of the interview will run throughout CNBC's Business Day programming today, beginning on CNBC's "Squawk Box" (M-F, 6AM-9AM ET). Following is a link to the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000321520.
All references must be sourced to CNBC.
EXCERPT:
NADELLA ON RECENT COMMENTS ABOUT WOMEN'S PAY:
Fortt: Let's talk about some of the Grace Hopper stuff and then get back to cloud. A lot of people don't know you yet. It's only been nine months, you haven't been front and center that much. And you said some things to this conference of professional women that upset some people. Do you understand why what you said upset so many people? And can you elaborate on why you think that is?
Nadella: Yeah. I've sort of obviously in the last four or five days reflected a lot on it. It's been a very humbling and learning experience for me. And one of the best pieces of advice I got, when I got to be CEO was to be bold and be right. And I was bold going to Grace Hopper. I wanted to go to Grace Hopper. I wanted to imbibe the spirit of the place, understand the real issues so that I can be a better CEO, a better leader, and work the real issues. And so I feel very, very good of having gone there, spent the time, spoken to so many people, gotten so many ideas. But I was completely wrong in the answer I gave to the question that was asked around how should women promote themselves and make advances to their own careers. Because I basically took my own approach, to how I've approached my career and sprung it on half the humanity. And that was just insensitive. It was ... as I reflect on it, and especially since the conference, because I just gave a very generic answer — based on, quite frankly, what I've believed and how I've practiced and lived my life — without thinking through, what if someone was faced with bias in their career? How would they feel by sort of getting advice that says, 'Be passive'? I abso- I mean, in the face of bias, the last thing I want anyone is to be passive. If anything, both leaders like me need to take on responsibility to break down the barriers, break down the biases, create systems that are better functioning; and every individual faced with bias should also not be passive. And Maria [Klawe] answered it very well when she said, advocate for yourself. Find other mentors and sponsors who can advocate for you. And that is the right way. And that's been, like, the learning for me. I mean, I said something that was just generic, but I come out of it with real understanding, real empathy that this is a real issue that we want to make real progress on. And I just was, I would say a bit naive in thinking of my own personal experience versus understanding that I'm speaking to women who really, really want to make sure that people like me are making it easy for them to be able to participate in the workforce fully.
FULL TRANSCRIPT BELOW
Jon Fortt: Satya Nadella, CEO of Microsoft. Thanks for sitting down with me.
Satya Nadella: Thank you, Jon.
Fortt: It's been about nine months, hasn't it, that you've been in the job?
Nadella: That's right.
Fortt: So, just like the PC was the battleground for the '80s, the web for the '90s, the mobile device — iPods, smartphones — for the last decade, looks like the cloud is shaping up to be the battleground for this decade. And everybody wants to rule the cloud. Oracle came out earlier this month talking about their cloud strategy and infrastructure as a service. Of course Amazon's been there a while. Google wants to get into it and eat Microsoft's lunch. You have been pushing Microsoft's cloud initiatives among other things for quite a while now. Why is Microsoft positioned to be the winner here?
Nadella: First of all, to characterize what's happening and why the cloud becomes the battleground: The vision that I've been talking about is this mobile-first, cloud-first world. And when I say mobile-first, cloud-first, it's actually not the mobility of the device, it's the mobility of the human experience across devices. And the way that happens is because the cloud orchestrates it. We will live in a multi-device world. In a given day, every one of us is going to interact with sensors, interact with small devices, large screens. And all of that happens where you have your data and applications because of the cloud. And that's why I think it's a pretty strategic battleground. And in our case, we have a pretty comprehensive vision for what the cloud is and what the future of distributed computing is. When we think about the cloud, we think about first the application tier of it. We have some of the big, large-scale cloud applications for commercial in terms of Office 365 and Dynamics CRM. When it comes to consumer we have things like XBox Live and Bing. So we have a diverse set of, I would call them, cloud applications. That's what, in fact, has led us to build a mega-scale cloud platform in Azure. But quite frankly, we don't stop there. Because I don't believe that one single North American company or a couple of North American companies are going to corner the world's compute, storage and network.
Fortt: Why not? Microsoft did a good job cornering the operating system market.
Nadella: I don't think that's the way the regulatory regime — and what I mean by that is, you may control the software, but not the actual running of it. Because I think the world is going to remain distributed because of both speed-of-light issues, power, regulation, geopolitics. There will be other clouds. There will be a few mega-scale clouds like Azure. But we also don't stop there by building our servers, which are really the edge of our cloud. We enable others to build clouds. So that's the vision that we have. When you ask the question, why do we think we have a unique contribution to make in this cloud battleground? It's the apps, it's the mega-scale cloud platform in Azure, as well as our servers, which we really characterize as the edge of our cloud.
Fortt: You know what Microsoft's critics will say. They'll say Microsoft got cocky in the late '90s. They missed mobility. They missed some web services and e-commerce things, let Google and Amazon grow so big. Why are they going to get it right now with the cloud. What's Microsoft's superpower that's going to work for you here?
Nadella: In the cloud I would say we absolutely caught the trend. See, it's no longer about, hey is Microsoft in the cloud business. We have a $4.5 billion business that's growing well and it's fantastic to see. It's just that in relation to our success of $70 billion it's a small business. But the overall magnitude of our cloud business today shows that we've caught the trend at the right time, jumped on it with a unique value proposition and we're now further accelerating. So it's no longer for debate, whether we get the cloud. And quite frankly, when I think about — take an attribute of our cloud, which is the operational security rigor. That's one of the reasons why many customers choose our cloud, especially internationally. That's not something that you grow overnight. That's something that comes from having operated over the last five, seven years for highly demanding enterprise customers. That's the position that we now have.
Fortt: And it's expensive to build this, right? Talk about what you think your competitive positioning is versus an Amazon, a Google, a VMware, in terms of your operation in places like China, and what it's going to take to succeed there.
Nadella: I think that if you're not already spending a lot of capital in the order of four or five billion dollars each year to just grow your cloud, probably it's a little too late to enter the market. I mean, that's the entry barrier, and there are a few of us who are in that mega-scale of cloud —
Fortt: So that's the cost of entry. If you're not prepared to spend four or five billion dollars a year, forget it?
Nadella: I mean, that's the rate at which — it's the same thing. I mean, if you're a network operator today, you have to be in that business, and if you're a mega-scale cloud provider you're already committing a lot of capital. In our case we've been committing it for multiple years and we're not alone. There are at least two other players like that, Amazon and Google in particular. But we are one of the three in that category. And the way we've not only done that, but one of the things that we've really invested in is this enterprise cloud, which is — we have data centers in 19 countries. We have made sure we get the certifications to operate under the various regulatory regimes for vertical industries like financial services, or different countries' data sovereignty laws. That's hard work. China is a great example. In fact, we now are the only public cloud company from North America, or global public cloud company, that operates in China. Both Office 365 and Azure. And it's doing very, very well for us. Because it now makes what I would say global infrastructure available for every Chinese company and every multinational that needs to operate in China. That's the kind of investment, learning, progress.
Fortt: Are you comfortable with the compromises you might have had to make to do that in China?
Nadella: There are no compromises. In the case of running the public cloud, the Chinese law states that you want to have a local Chinese operator. This is a completely disconnected cloud from the rest of our cloud operation. It definitely has symmetry with what we do, so that means if somebody wants to move virtual machines or their application from the United States or Europe to China they can move it, but it's its own instance.
Fortt: When people on Main Street think about Microsoft, depending on age, they might think about Windows. They might think about mobile devices and how that's working, or not. They might think about XBox if they're younger. A lot of people — unless they're in business — don't think about business. But the majority of your revenue, I think 2/3 of operating profit actually comes from your commercial segment. In an environment where HP is splitting up business and consumer, in an environment where eBay is splitting up payments and marketplace, and your focus is so much on cloud, why not just spin off the consumer business? Have a good relationship with it, but focus on one thing?
Nadella: One of the things that's really been key to our success — the way, even, our footprint in the enterprise grew — is because of what I term as dual-use. People using Windows and Office for their personal use, and taking it to work. You see that today, even. In fact, we have a pretty profitable, big consumer Windows business, and consumer Office business. One of the subscriptions in Office 365 that's really doing well is the Office Home and Premium subscription. So to us, the way I characterize it is, let's go after the users and their dual use. In fact, I want us to shine, and want to be the best in class around people who are these dual users, who want to use things which are our tools, our platforms for their home as well as work, and it crosses over. There's a lot of work — I mean today there are so many seams — I mean, we brought OneDrive and OneDrive for Business, Exchange and Outlook together. These are things — and Skype and Lync together. These are things that I believe we have a unique contribution to make so that these markets, quote-unquote, don't feel as they are today, which is fragmented.
Fortt: Just before we sat down, I took a look at the App Store. And the top-grossing productivity app on the iPad was still Microsoft Word. I believe Excel is #5. I imagine you're happy about that. What have you learned from the experience of launching that? It's been a few months.
Nadella: You know, we have got tremendous success in terms of downloads. We have also had lots of learnings, even in business model. Of course, a lot of the users on the iPad happen to be already people who are Office 365 subscribers in the enterprise and they get to use now across all devices. But we also are getting brand new growth, because people who are buying, using our subscription offers. Now, we have a la carte offers in the iPad and the iOS store, and so that's really helping us grow. And this notion that we also can now do new types of modules. Because when I think about productivity, I'm happy to have Word and Excel and PowerPoint in the top-grossing applications in any application store. But I also want us to push the envelope of, what does productivity mean in these new device form factors? Some of the things we're doing with Power BI, or Delve, or even Cortana, are examples of us rethinking productivity, where we really give back more of your time to you as an individual. That's where we're going.
Fortt: Google's trying to use the cloud to attack you with Chromebooks, with Chrome OS. You've done some things with pricing, particularly in smaller devices on Windows, it looks like to strengthen your market share and your position. Tell me how do you think about that kind of competition in this cloud era. And strategically, what you're willing to give up, and what you're not.
Nadella: One of the decisions we made very early on, as part of when I became CEO, was really to change the Windows business model so that we could really get more designs, more flexibility in the full price ranges that we want to compete in. So, the low-cost PCs, now we have a connected SKU of Windows that's really helping us get to price points which are Chromebook-like. And we're very competitive. You get a full PC experience versus just an Internet-connected terminal at those price points, running full Office, we think that makes it very competitive. We also have low-cost tablets now. We obviously have phones. So the combination — I was recently in Shenzen seeing some of the ODMs and OEMs doing some of these designs. And that's fantastic to see. Even this holiday, I think you'll see, both in terms of low-cost tablets as well as low-cost PCs with full capability of Microsoft Office available, which I think will only grow the market.
Fortt: You and some other tech executives have talked about how, in this mobile and cloud era, it's more important than ever to have an executive team that's working closely, seamlessly together. Because things are moving so quickly, and as you mentioned, people are connecting from multiple types of devices and want a consistent experience. Microsoft, within in the industry, has had a reputation for being a place where some knife fights can break out over turf, ofter territory. Steve Ballmer said a couple of years ago during a reorganization that he was trying to break some of that down. What do you think you bring to that effort, that's got to be so important to where you want to go? How's your team doing?
Nadella: I mean, culturally, it's super-important to have teams that come together with a level of trust, so that we can go after both our business objectives and more importantly the products. Because one of the worst things that one could do in tech is to have organizational seams show up in your products. Because that's when customers suffer and your business ultimately suffers. In our case, really, the simplification of our strategy, where we talk about it — we're a platform and productivity company. That's what we're doing, and organize around that. We are in gaming, but we're in gaming for its own sake. Let's not even try to think of that as part of the core, but it's a thing on the side that we're very proud of, we have a dedicated team for it. So we've organized ourselves so that we can actually work as one play, one team, and have the experience drive both what we build and how we work with each other versus any organizational boundary. And of course this is something — it's not just about talking it, but it's living it each day. We as a senior leadership team are every week together, talking the hard issues. It's not about trying to put them under the rug, but it's about being able to surface them. There's tension: business model, product. But it's the constant vigil on it that I believe is the way to make improvements and changes in culture.
Fortt: Are there things that you're reading, that you're asking your team to read — things that you're watching or looking at to kind of drive that point home?
Nadella: We had, actually, for very many years, a Microsoft structure which was a business unit structure. We managed each one of the businesses independently. There was of course integration, but at the same time, the accountability culture was about the business unit performance. We always had a shared sales force, but the product creation was always inside of these business units. Now we've brought it together under the One Microsoft rubric to be one play as I say, one strategy. And the thing that requires is a fair amount of coordination. And if there's anything, communication. One of the books I first recommended that everyone read, when I first got on, was Nonviolent Communication by Marshall Rosenberg, which used to be able to say, look, let us make sure we are empathetic to each other's needs, because it requires that. Where does Windows and Office and Cloud come together. But at the same time, each one of these things, for example our cloud strategy, is cross-platform. So we've got to recognize that. Even though we are working together in a very integrated piece, each piece does have uniqueness in terms of their business goals, and we're able to accomplish them.
Fortt: How do you think about what you're not going to do anymore? Or what you're going to do less of? Because it often gets said, good management isn't just about deciding what to do, it's also about deciding what not to do, especially when you've got the kinds of resources that a company like Microsoft has. What are you not doing?
Nadella: One of the key things we stopped doing was treating our consumer and enterprise businesses as completely two distinct things. I mean, even think about what we're doing with Bing. Bing is now central to all of the innovation in Office around information. The fact that Power BI has a natural language interface. A lot of the technology comes from Bing. The fact that this product in Office 365 called Delve that is really an ability to discover information in Office much more like a ranking result of a search engine is, again, technology from Bing. Azure has grown because of all the learnings of how to create at-scale distributed systems inside of Bing. So to me, by organizing ourselves where the technology layers have been brought together — we don't have two emails, two Skype and Lync stacks, two file systems between OneDrive and OneDrive for Business — and thinking about the technology that serves, has been the biggest change that has happened, in fact, in the last year for us. And we are starting to see the dividends of it. And that's a huge shift, actually.
Fortt: I think it's Xbox Studios, some of the content stuff you've decided to stop doing. Other specific things like that? Projects or initiative types that you've just decided, "That's — that's not what we're going to focus on right now?"
Nadella: I would say the Xbox decision where we said we'll focus back on gaming as the core priority. And not only that, by the way, we also are bringing together what we are doing on the PC and the console. Xbox Live, like Office 365, is an amazing asset for us in the cloud, which is the gamer tag. And we're now able to bring these two things together. So I would call it more about taking out the incoherence we may have had in a variety of our efforts. Bringing them together with this focus around productivity and platforms. That's what we're doing a lot better on. And in some cases we have made these decisions where we have completely scaled back from some of our entertainment. We'll still be a great platform for others' entertainment, from a distribution perspective. But we don't need to be first-party in it.
Fortt: Let's talk about some of the Grace Hopper stuff and then get back to cloud. A lot of people don't know you yet. It's only been nine months, you haven't been front and center that much. And you said some things to this conference of professional women that upset some people. Do you understand why what you said upset so many people? And can you elaborate on why you think that is?
Nadella: Yeah. I've sort of obviously in the last four or five days reflected a lot on it. It's been a very humbling and learning experience for me. And one of the best pieces of advice I got, when I got to be CEO was to be bold and be right. And I was bold going to Grace Hopper. I wanted to go to Grace Hopper. I wanted to imbibe the spirit of the place, understand the real issues so that I can be a better CEO, a better leader, and work the real issues. And so I feel very, very good of having gone there, spent the time, spoken to so many people, gotten so many ideas. But I was completely wrong in the answer I gave to the question that was asked around how should women promote themselves and make advances to their own careers. Because I basically took my own approach, to how I've approached my career and sprung it on half the humanity. And that was just insensitive. It was ... as I reflect on it, and especially since the conference, because I just gave a very generic answer — based on, quite frankly, what I've believed and how I've practiced and lived my life — without thinking through, what if someone was faced with bias in their career? How would they feel by sort of getting advice that says, 'Be passive'? I abso- I mean, in the face of bias, the last thing I want anyone is to be passive. If anything, both leaders like me need to take on responsibility to break down the barriers, break down the biases, create systems that are better functioning; and every individual faced with bias should also not be passive. And Maria [Klawe] answered it very well when she said, advocate for yourself. Find other mentors and sponsors who can advocate for you. And that is the right way. And that's been, like, the learning for me. I mean, I said something that was just generic, but I come out of it with real understanding, real empathy that this is a real issue that we want to make real progress on. And I just was, I would say a bit naive in thinking of my own personal experience versus understanding that I'm speaking to women who really, really want to make sure that people like me are making it easy for them to be able to participate in the workforce fully.
Fortt: Some in the industry would say it's a meritocracy. And therefore this isn't an issue. But it sounds like you're saying you do see that there has been bias out there?
Nadella: Right. In a meritocracy, I mean, the thing that, finally ... we all live in a meritocracy and that's what is the optimism we have. But even in a meritocracy there is so much subjective decisions that are made by all of us. How do you make sure that those subjective decisions — whom to promote, when to promote — are not influenced by unconscious bias? So that's where, you know, just because I was .... In 22 years, I came to Microsoft as somebody who knew nobody here, and in 22 years I've become CEO, and so in some sense I'm a product of the system that worked. But I can't take my one example and say that's how it is for everyone. And anyone who's been faced with — "Hey, why didn't I get that promotion? I did that great work!" Those are real issues even in meritocracies and have to be talked about. They don't affect everybody the same way. If you're a minority, it affects you differently. And that, I think, is an issue that needs to be talked about, and leaders like me actually need to do work on it.
Fortt: Last bit on that, since you mentioned it, and then we'll move back to cloud: Some people would say, and have said to me, he's the CEO of Microsoft. Microsoft is a big, powerful company. He can fix this. That's what I expect. What do you say to those people?
Nadella: Actually it's absolutely right. I mean, there is no reason why I shouldn't go to work on it. And in fact, one of the data points that I shared today in our all-hands [meeting] was, one of the things I came back and I asked our HR department is, hey, let's take the principle of equal pay for equal work and let's also talk about equal opportunity for equal work. Those are two core principles for us. On the equal pay for equal work, it turns out we have a very tight band. It's around .5%. In fact we went in — so within a .5%, all ethnic minorities and women are within that.
Fortt: At Microsoft?
Nadella: At Microsoft. And we looked at women in the U.S. in particular, because that's the data cut that's easy to do for us. And it turns out that last year 99.7% of the men's salaries is what women make. So it's different from what perhaps is normally felt across all industries. But we're doing well on that. But by the way, I'm not celebrating any of it. Because all I just said was, we pay equally if you're in the same level. But the real issue is, do we have enough people of different ethnicity, and women in those levels? Do we have them in my SLT [senior leadership team], do we have them in, you know, our corporate vice president ranks? Are we promoting them as vigorously? So there are a lot of other secondary things that we have to go actively work. But to your point, of course, the expectation of anyone should be that a CEO like me should go to work on this and have some principles guide it. And the two principles that I really want to stay grounded on is equal pay for equal work, and equal opportunity for equal work. And we'll make progress on that.
Fortt: Going back to cloud, can you explain to me how the business model is going to shake out? Because I look at infrastructure as a service: Amazon and Google and others are trying to take the margins to zero, it seems like. When you look at software as a service, Google with its version of the Office suite, trying to take the cost to zero. Where's the money going to actually be made three to five years from now in this cloud era?
Nadella: In all of these cases, there will always be some price competition by someone on these various layers. I mean, ultimately there are only two things that I think you compete on. You compete on value, you compete on price. And depending on which layer against which competitor at what time, the equation changes. But our own theory — for example, one of the things that has happened is as we have grown our cloud, especially around infrastructure, one of the things that has grown nicely for us is our server business. It's not, at least in the short term or the intermediate term, zero sum.
Who knows what the long-term stability is. But as we have made our software much more competitive by exercising it in building our own cloud, what has happened is we have built much better server products. SQL 2014 is an amazing example of that. It's the best database release we've ever had, which has got in-memory everywhere. And that's doing super well. So sometimes where you make your margin, where you make your revenue versus where you're building the real power, real strength are not exactly the same place. Over time, even on our cloud, when you look at the margins of some of the higher-level services of Office 365, very different than, say, commodity cold storage. So I feel very good about the portfolio I have — with my servers, which, as I said earlier, is, like, at the edge of our cloud; our infrastructure services; and our higher-level SaaS services. And that portfolio allows us to have a more balanced monetization and at the same time be able to compete with anyone who tries to make it a price war on a given dimension.
Fortt: So it's a matter of having all the different courses of the meal, so you have options on what to charge for and where the value is, based on what you see the customer do?
Nadella: Absolutely. And I also think one of the things that is under-estimated is, it all seems like a commodity until you have too much of it, which is — what I mean by that is, enterprises, what do they care a lot about? They care about SLAs. They care about performance. They —
Fortt: Service level agreements, meaning up-time, is it working when I need it?
Nadella: Exactly. And so the point is, there are many other ways to take something that is just, quote-unquote, commodity, and differentiate by levels of service, by flexibility you provide. And all of those become, you know, pricing tiers. But the thing that I don't want us as a company to shy away from is usage first. Because I think if anything, the new competition has taught is that, you know, what matters is do not try to equate revenue and usage day one. Have the flexibility to be able to get usage. And then there will be other ways to monetize usage when people want a better service level agreement, when —
Fortt: Can you say more about that? What do you mean by not equating revenue and usage?
Nadella: I mean, take OneDrive and OneDrive for Business. It's our easiest one. We want everybody to use OneDrive. And then when you are starting to use it for business, that's when we want to monetize. So we do not want to have you only start using us when you have a business license or subscription. We want to have you use us when you just want to save any file or any document, any artifact of yours. And then have a natural way for us to monetize as you use more of it in the commercial context.
Fortt: Kind of the freemium model, which a lot of startups in Silicon Valley latched onto. But Microsoft has always been fond of getting paid for the software it spent so much time and money developing.
Nadella: Well, we've always had freemium. Sometimes our freemium was called piracy. And — I would say — now there are a lot of, I mean, as I said, there are zero-price Windows SKUs. We have many, many offers of Office. I mean, you talked about Office competition. And when it comes to education and a lot of other markets, we're as competitive as anyone else in terms of pricing. We've never shied away from it. And that freemium model is something that I think is here to stay, and we know how to compete in it.
Fortt: Your database product, I think, is at a $6 billion annual run rate. Should Oracle worry?
Nadella: I feel we have made a lot progress on our database. For us, the database is just one element of our entire infrastructure service. The main thing that I feel that we've done is really taken some of the innovation, like in-memory, and done a fantastic job of stitching it everywhere, in all of the classical uses of the database. And now even playing in some of the new big-data places. So I feel competition is going to be robust. Oracle is going to be a competitor. There are many new competitors. But I feel like we'll be fine. I mean, think about the journey here, which is I think 20 years. And that's the kind of persistence sometimes you have to have to make real progress.
Fortt: What message should we take from the acquisitions that you've done thus far? Enterprise cloud-related in particular. And maybe you even throw Minecraft into that in some way. I don't know, because everything runs in the cloud these days to some extent. What are you looking for that you're willing to acquire rather than feel like you've already got it here at Microsoft?
Nadella: Well, one of the things that — we've done a lot of acquisitions — is adding capabilities to both Office 365 and Azure. One of the best acquisitions we did in the last couple of years was StorSimple, which is a beautiful appliance that you can stick into your data center and it automatically cloud-tiers your storage. Because one of the things that happens inside of data centers is you're continuously buying more storage, more storage. Because guess what? Every application is generating more data. And a lot of it is cold. In other words, it's never hardly used. And perhaps the most cost-efficient way to think about that is to just push it into the cloud, because, after all, the cloud has got economics that are scale economics.
Fortt: Now, you're talking about the hybrid cloud, basically, right?
Nadella: Exactly.
Fortt: So when you put this appliance in, you can have storage right there. And then when you need to, you can pull it from Microsoft.
Nadella: That's correct. That's correct. So that's doing very, very well. That was an acquisition that's now part of our portfolio. In fact, we bought another company along the same lines for disaster recovery. And so we have really now got a very robust offering, not only just for Microsoft, but even for VMware installations. So we are able to do a good job of being able to really provide that disaster recovery back plane in the cloud for any data center. Because you can imagine, when you're in a data center, you want to make sure that there's business continuity.
And you can, in fact, use our cloud without abandoning your data center. So that's a place we have done great work. Another area is in our Active Directory. One of the big crown jewels of our strategy and our asset base is Active Directory. What it is, is it's the place where all of the identity — I mean, you can even think of it as the Facebook of the Enterprise. It's owned by the Enterprise. It's where you log in. It's your credentials. And it becomes the place where not only do you do the login and get access to all of your cloud services, but that's where you manage. In fact, if you're an Enterprise customer, you're trying to use Salesforce, Office 365, even the Amazon cloud, now you have one control plane to provision users, de-provision users, do security, because the best place to find whether you've been penetrated is to look at the login patterns. And we bought some companies there. Two-factor authentication. So those are the kinds of things that we've been building great robust capability in, in both Office 365 and Azure.
Fortt: Interesting — you mention storage and security, which are hot areas right now. And there are a number of opportunities out there. But people might not think of those things first, even when they think about where Microsoft already is in the Enterprise. Are those areas where you're still looking to be opportunistic?
Nadella: We come at it slightly differently when we think about, when we say storage and we say security. Because one of the things is, you have to be playing to, sort of, your strengths. What's my strength in security? It's identity. And what is the security around it? So we now have three things that we have brought together in something called the Enterprise Mobility Suite, which is really doing very well for us. It's identity management. It is device management so that you can set policy, because people are bringing their phones or tablets, iOS, Android, or Windows. And you want as an I.T. person to be able to have a way to administer all of that. And we have that, both from an identity and a device management, and data protection so that there's no information leakage. That's something that's a natural thing for Microsoft to do. And for customers to expect us to do. That's a place. Even in storage, it's the cloud storage. It's SQL. It's big data. It's the cloud tiering of your virtualized infrastructure. Those are the things that I feel — where we have a unique contribution to make.
Fortt: What needs to be fixed still, with security in the cloud? Because we've seen all kinds of scary things happen. iCloud hacking. Dropbox, Snapchat. So far, it doesn't seem to have shaken everyone's confidence in the cloud as an idea, but not to say that won't happen eventually. What do we still need to fix?
Nadella: This is going to be something that's going to be front and center. I would say both privacy and security are perhaps topics that each one of us has to one, take some principal stances on. And then keep working on it.
Fortt: And how do you differentiate between the two, privacy and security?
Nadella: See, first on privacy, it's very simple. In our case, we've sort of taken the stance that the user is in control and we want to be transparent. So that — that's sort of what every product of ours needs to really adhere to, both on the consumer side — and, of course, on the enterprise side we don't set the policy. Our customers who use our infrastructure set the policy. Then when it comes to security, our core is that we have to have great operational security. It's a constant thing. It's not where we can sit on and say, "Oh, we've got great operational security." Every day you learn about the new attack vectors. And you get better and you get better. But the truth is that if you're running something as complex as Azure and Office 365, your learning curve is so much better than anyone else who's not dealing with all of these various attack vectors. That doesn't mean that something bad won't happen. But it means that we will have capability that is more sophisticated than anybody else. But we have to keep at it. The other thing on security, though, is the stance we have taken around what does it mean to work within some framework of law? Because one of the key things that matters — matters to corporations, matters to citizens, matters to companies in other countries — is what is the framework within which you're operating?
In our case, we have drawn the line and said that, one, we don't give any unfettered access to data in our cloud to any government agency without some due process of law. And we are going to fight any court orders to access data that's overseas. Because we think that that's important for us to take a stance so that the global ability of clouds doesn't get stymied.
Fortt: My sense of privacy and my country's sense of security might be at odds with each other.
Nadella: And I absolutely believe the governments have a role to play in protecting their citizens' interests. And in their national interest. I absolutely think that every government has to do that, because you and I as citizens of the United States feel secure because our government is doing that. The only thing that I believe we need to now put in place, though, is what's the legal framework within which the government operates to protect its citizens, and protect their national interests?
Fortt: We're pretty far from getting that framework at this point, aren't we?
Nadella: But I'm still hopeful. I mean, that's what I've advocated and that's what Brad Smith, who's our general counsel, and others in the industry. And I'm hopeful for the dialogue and that we will get to the right place. Because that's the only way forward.
Fortt: Are you pushing on that in Washington?
Nadella: Absolutely. Absolutely.
Fortt: All right. Nine months in, a lot has happened. It's a fast moving industry. The economy, the markets are going through a period of great volatility. How do you feel about the whole global economic picture, and how that affects your plans going forward?
Nadella: I mean, it's— it's actually very interesting. When I look at how we're doing at least currently — we seem to be doing pretty well in some of the developed markets, including the United States. We have our quarterly results next week and we'll talk more about it. But I feel good about what I'm seeing in the traditional markets where we've been strong. I would say the emerging markets have been a little more challenging for us. And that's a place where we're also trying new business models. I spent two weeks in Asia recently, and learned a lot about what it takes to succeed in these markets is probably not the same — that worked for us traditionally. New business models, what does it mean to monetize post-sale, cloud? Because these markets probably will bypass entire generations of technology and come to something new. So it's going to require a lot more diversity in the approach that we take, both in terms of product and business model. And things, as you said, are fast-moving. And the ability to really learn from that. That's why one of the key things that we have changed in our own metrics is usage, usage, usage. Which is, wherever we are seeing something getting used, that to us is an early indicator that there might be something that people want. And then let's figure out how to make that great. And then let's go figure out monetization. It's a very different approach. And the new platforms and the new ways of delivering things enables us to do it.
Fortt: All right. Satya Nadella, CEO of Microsoft — I appreciate all the time. And it's going to be interesting to see how all these things shape up, heading into the midpoint of the decade.
Nadella: Thank you so much, Jon.
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