Peggy Johnson is Microsoft’s executive vice president of business development. She sat down with Business Insider’s Matt Rosoff at IGNITION 2015, and told us about how Microsoft decides when to buy a company, and its new strategy of building apps for competing platforms.
Matt Rosoff: Peggy joined Microsoft a little bit more than a year ago …
Peggy Johnson: A little over a year ago – a year and three months.
Rosoff: And at the time there was a relatively new CEO — Satya Nadella — only Microsoft’s third CEO in history and I would say in the last couple of years there’s been a real remarkable transformation in the way Microsoft treats companies that used to be considered competitors, so I kind of remember the old days when it was like if it wasn’t invented here, we’re not going to talk about it, and Linix is cancer and Apple is the enemy. And then in the last year and a half ago, you guys have bought a bunch of small app makers for iOS and Android, which is something you never would have done before. You’ve struck a whole bunch of partnerships, you’re starting to even embrace things like Linix, so how has this happened? And what is the philosophy there? And why is Microsoft being friendlier to other platforms now than it used to be?
Johnson: Well I think it did start with Satya and his vision for the company. He’s really chosen to focus on partnerships and look for areas of collaboration and for sure we compete with other companies, but there are so many areas that we can also collaborate. So you mentioned a few — Salesforce is one. We have a competitive product between the two of us. But we look for areas that really our joint customers were involved in. And we said, “Can we integrate here and bring more value and delight our joint customers?” So we did that with Office 365 and Salesforce. And it kind of opens up a lot of new value for our customers where they can now take these two sets of data that they are gathering from these two products, put them together, and as an enterprise kind of mind that data further.
Rosoff: Yeah, I’m particularly interested in Microsoft for the iPhone. So you bought a Acompli and a Sunrise and integrated those into Outlook for the iPhone. I actually use that instead of the built-in mail client because it’s better. You bought some companies that do Android lock screens … and this is pretty different than Microsoft before which was always about Windows phone — Windows, Windows, Windows. So, why did you guys make the decision to start investing more heavily in iOS and Android?
Johnson: Well, we fully recognised that our customers have a variety of devices. They’re carrying all sorts of things. And we want to bring our world class apps to those devices. And that meant going cross-platform. And it was shortly after Satya took the reigns that he made that first decision to take Office apps to iOS. And then from there, we continued to build on that. And so you mentioned a few of our recent acquisitions. Acompli is just a great example of a fabulous app. And we looked at that — and we kind of do a build-buyer-partner with everything that we view — and that one just made more sense to acquire. And we brought the app in, and since then — two great things have happened — 1. we acquired Javier Soltera, I don’t know if any of you know him, he was the CEO at Acompli, he’s now doing amazing work at Microsoft. He’s now in-charge of all of Outlook and I think his outside perspective has been helpful for the teams. We’ve have really engaged the teams deeply on his view of things. But then, what that did, was it sort of set the pace for bringing in other things. Acompli brought in Sunrise. Then Wunderlist — Wunderlist is a great app. We’ve had, I think now over a billion lists made on Wunderlist. And so it’s just continuing to tap into things that are delighting our customers and bringing them in.
Rosoff: Right. And one of the first things I think Satya did was bring Office to the iPhone as well. So now you can use Office on your iPhone. And it sounds like you’re going to be able to use Cortana on the iPhone as well … and some other things like that.
Johnson: Yeah. So we are really excited to announce that we are bringing Cortana, also cross-plat, to both iOS and Android. Both of those are available today. And then a little bit later this month we are also going to bring Cortana to Cyanogen devices. So, just again broadening that perspective. And why we’re doing that is Cortana is a personal, digital assistant. It should be with you wherever you are, going throughout your day, whatever device you’re engaged with. Where it can give you bits of information. And that’s really the right approach — to take it across these platforms. And so we are super excited about announcing that today.
Rosoff: Great. Yeah. Cortana is kind of the short-hand that people sometimes use as Microsoft’s version of Siri. So that must have been an interesting conversation with Apple … because Apple has Siri deeply integrated into iOS. How did you come up with a partnership with Apple, who used to be — I’m thinking more back when “I’m a Mac” “I’m A PC” days — sort of arch enemies. What were those kinds of conversations like?
Johnson: Well, again, going back to that vision — lets look for areas where we can collaborate. So we were on stage this year at Apple’s conference and I think the fact that we can take these apps to so many different devices — it’s all about engagement with our customers and driving that user delight — and so it just made sense to do that. Rather than to say “we’re just not going there.” And so the more we collaborated, actually opened up a lot more opportunity for us.
Rosoff: And were they open to you guys reaching out? Did they reach out? I mean how does that relationship work?
Johnson: I think it works very well. Satya spends a lot of time in the Valley. And he visits all of the leaders of companies, as well as the VCs. I spend a lot of time in the Valley. I’m probably down there every other week or so. It’s all about starting out with a partnership. And saying “where can we take this?” And I think Uber is a great example of a partnership that started out with somewhat narrow focus, and then we ended up taking that more broadly across a number of areas.
Rosoff: Yeah. I’m also a little bit curious about the Cyanogen partnership. Cyanogen is a company making a non-Google version of Android. It’s a modification — I think the CEO said something like he wants to strip Android control from Google. So Microsoft, you guys have some sort of partnership with them — and it sounds like it’s being expanded in this deal. How did that come about and how are you guys working with Cyanogen?
Johnson: Well, Cyanogen has done an interesting job with their version of Android — the Cyanogenmod. And they’re on 50 million plus devices. And that’s just another ecosystem that we wanted to tap into and to bring our Office apps to. The original partnership started with us working with Cyanogen to pre-load the Office apps. And take that — and then what they do is ship that image to their customers. So that was the original part. So now, we are working with them on Cortana. And with Cyanogen, we have been able to deeply integrate Cortana. So right now, on our own devices — on our PCs and tablets — you can say “hey Cortana! Remind me to bring a birthday cake home tonight because it’s son’s 17th birthday.” And you can say it from any of you devices and then in the notification, it shoes up on whatever device you are carrying. You can actually, from the Cyanogen collaboration, do the same thing. So you can say “hey Cortana” and set a reminder.
Rosoff: And so with Cyanogen, they basically give your engineers access to this version of Android …
Johnson: Mutual. So we are both sharing. And it’s been great. Clearly, with a deeper integration, you can bring more functionality across the board. And so, it’s been a great partnership.
Rosoff: So how does it work … you know, Microsoft is a big company and you have different divisions working on the same things. There must be some kind of education process where the Windows phone team sees this happening and says “Well, gosh. I guess Cortana is not exclusive to just Windows phone anymore.” Or you guys had a partnership with Dropbox. And you have a competing product called OneDrive — how does the OneDrive team feel about that? Or is the philosophy “hey we have to compete in the market and if that means partner or build, we’ll do both and see who wins”. How do you sort of square that circle?
Johnson: Well, again, starting with Satya’s vision, we have progressively had more and more of these types of engagements. And I think deep in a product team, it might feel a little uncomfortable. They’re still going to compete. So the OneDrive team is still going to do their best to create the world class storage product. But we do have customers who use Dropbox or Box and they want to be able to integrate to Office 365. And Satya said we are going to do both. And so it can be a little challenging if you are deep in a team, to see that, but it also makes you compete too. So we think both dynamics are healthy and we’re going to continue on that path.
Rosoff: Tell me a little more about that Uber partnership. You guys sold some mapping assets to them? How did that come about?
Johnson: So it actually started with us just having a conversation with them. We talked about Office 365 initially and how we might do a little more with Uber. Because what happens is, you have Office 365, it has your calendar and it knows what you have to do next, and then you would tell yourself, “OK I have to get an Uber for my next meeting which is cross town.” So you exit out of Office 365, go into Uber, call your car, and we said why don’t we just put those two things together? Wouldn’t that be great? Give our joint customers a few extra minutes in the day. So we did an add-in with Uber to Office 365 and it makes available, your calendar, and it says, “OK, where do you have to go?” And at the right time, it will put a notification up and you can just press a button, it will just fill in the destination and your Uber car is called. And so that’s where it started.
And I think, with any partnership, you might say “OK, what are all the things we might do with a company like Uber?” And you might try and boil the ocean. But we said, “Lets just start with this. Lets start with this and get it right. And then see where it takes us.” And what you’re doing is you’re sort of building a level of trust and mutual respect for each other. We have great respect for Travis and Amile and the folks there at Uber. And then, in those conversations, we started to talk about maps and maps are somewhat existential to Uber. That’s core to what they need for their product to work well. And we had some imagery assets and a team along with it. Maybe less so for us, it made maybe more sense for them to go under the Uber umbrella. So we did work a deal with them where now they control those assets and the people, and they can take it in a broader direction than we might have And then, there will be more after that. Where we’ll go next? I don’t know but it’s a healthy relationship and that’s always a good spot to build from.
Rosoff: When I think about Acompli and Sunrise — these are both great productivity apps, and it seems like there’s a lot of action there. And then I think of Uber and sort of these unicorn startups, and one that comes up a lot is Slack. What do you guys think of Slack?
Johnson: I think it’s a great product. I think the whole area of collaboration is interesting. We, obviously, are trying to create our own products with that in mind. So, part of my job is to look at trends in the industry and see what’s resonating, what are people finding engaging? How would people engage further with our product? And so this area of sharing, real time sharing of documents, if that can help you get more time in the day, make you more productive — we look at all these things. We are constantly looking out at the trends. Slack is just a great example of a fabulous company, led by a great leader in Stewart.
Rosoff: Yeah, I mean we use it at Business Insider and we kind of depend on it now. And it’s been a significant change from emailing files back and forth, which is how we used to do things. So you’ve done small acquisitions, you’ve done partnerships, sometimes you build things yourself. How do you — when you are looking at a company, take an example or two — how do you decide whether you are going to buy to whole thing or sign some kind of partnership with them? What’s that thought process?
Johnson: Well, it’s just sort of a cost-benefit analysis. Sometimes when we are looking at a company we say, “Do they have a huge user base that we might tap into?” Maybe a base that we’re not in yet. Do they have a technology that makes more sense to buy it than try to build it? You can kind of get that mindset “oh we can build that!” But when you have so many competing things that you are trying to do within the four walls of your company, sometimes it makes more sense to buy it. And bring it in and integrate it. And then other times, it makes more sense to partner because you’re never going to buy that thing on the other side of the table, at this point in time. So it seems like a partnership with, say Uber, was the right way to go there.
Rosoff: What what about say Cyanogen? That’s a very, very interesting company from Microsoft. You know, Android has been discussed as a possible way to revitalize Microsoft’s handset business. So how do you decide in that case that this is going to be a partnership and maybe not a full acquisition or a full investment. How do you kind of make that call?
Johnson: I think in that case, what Cyanogen is doing, is fairly decent. Really pushing out into a new area. And at this time and this place, it just made more sense to partner with them. And to kind of learn how their journey is going. And so partnerships, are many times, about exploring. And so we’re learning as their story unfolds. So we will stay close to them and continue to look for more ways to partner.
Rosoff: Another thing you do, as the head of business development, sort of out of the M&A and partnership realm, is partnering better with Microsoft’s own internal divisions, including the research group particularly. So I know one of the risks of having a pure research group is that it ends up like Xerox Park, where you have a bunch of innovations that never turn into products and the product ties by other teams. Can you tell a little more about how you’re working closely with research? And then related to that … when am I going to get a HoloLens?
Johnson: Well, we have a great research group. And it’s something I learned more about since coming to the company a little over a year ago. First of all, we spend about $12 billion on our idea year, that’s pretty healthy. It’s about 13% of our revenue.
Rosoff: How much of that is research? The pure research group? Do you know?
Johnson: We don’t break it out, but you know, some portion is spent on that area of the campus it’s a fabulous group of people. It’s where some of early HoloLens technologies came from, it’s where some of our predictive analytics came from, it’s some of our machine learning…. it’s just an amazing set of scientists on our campus. And so, I’ve engaged with hem because I want to understand these technologies that they are working on. So I can, earlier, think of a way to commercialize them. So I’m always about, what can we do with all these technologies that they are building? And I also think it’s an interesting asset for startups. For instance, to know that we have Microsoft research. That they’re looking at doing something in the 3D graphics space. Maybe we can point them in the direction of Microsoft research because there’s an interesting technology there and pair them up with it. So it’s actually an asset we have, that we can share with the startup community. So on the topic of HoloLens … you want one … we just recently announced that our developer kits will be available next quarter. So you’ll be able to purchase developer HoloLens.
Rosoff: And how much do those cost?
Johnson: I think the price is set at $3,000. So we have these early first versions, which are pretty amazing. I don’t know if any of you have had a chance to use them at a few conferences that we have shown them off at. But they’re pretty cool. We’re working with several companies — NASA has done some interesting work with it, Volvo, where it can re-define the car buying experience. You can imagine: put a car in front of you, put the HoloLens on, and since it’s augmented reality, you see both, and you can change colour, you can change designs, wheels, things like that. So what we want to do with the program is open it up to developers who are really going to be the spark behind what this product can do. And say “come one, come all and tell us what you can do with this product, because there is obviously a number of areas that we can go deep — retail, education — and so we want to tap into that community. And we will start next quarter.
Rosoff: Old Microsoft made a lot of big, splashy acquisitions. You can think about Skype and you can think about Nokia, multi-billion dollar acquisitions. The new Microsoft, in the last two years, hasn’t really done any of that. Is that a strategic shift? Or is that just a matter of opportunity and you haven’t found the right fit? Would you do a big, multi-billion dollar acquisition?
Johnson: First of all, I would say there’s no set recipe. There’s been no strategic shift. I think we found some interesting smaller acquisitions that we’ve pursued. But clearly we have the balance sheet to look at both. So I would say, at this point, that nothing is off the table.
Rosoff: So you could, for example, buy Salesforce, or some large software company if that were an area you wanted to get into, but you just haven’t found it yet?
Johnson: We could do a number of things with our balance sheet.
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