Global Delivery Of IT Services Is Here To Stay

Implications and Possibilities for Microsoft and Our Customers

Our Customers Face Business Upheaval

They Must:

1. Do More with LessOptimize use of internal resources Reduce and/or control operating costsRe-allocate capital to strategic projects

2. Improve Business EfficienciesReduce business cycle times Bring products to market more effectivelyCompetitive pricing with strong value

3. Become People ReadyDrive innovationBuild partner connectionsImprove operationsDevelop deep customer relationships

What is a key cause of this upheaval?

…It’s A Flat World And Getting Flatter

2000: Round 2005: Flat 2010: Virtual

Dynamic global market place

Variedcustomer response

Geography nolonger matters

Price

Flexibility(e.g. ease of integration)

User Alignment

Speed of Delivery

High

Low

By organization

Protracted

Lowest possible

High

By user

“On-Demand”

Building Blocks for Global Delivery

Source: Internal Microsoft study by IDC

Our customers have adapted and turned to the strategic use of IT to drive business transformation

Global Delivery…Drives Customer Value Today

Customers Realize Savings Driven by Operational Efficiencies

Source: Offshore 2005 Research, Preliminary Findings and Conclusions, © 2004. Ventoro I www.ventoro.com

Cost, Quality, and Time-to-Market are Key Customer Drivers

Source: Offshore 2005 Research, Preliminary Findings and Conclusions. © 2004. Ventoro I www.ventoro.com

70

60

50

40

30

20

10

0

Achieve Cost Savings

Improve Quality

Improve Time to Market

Gain Technical Skillsets

Forced Strategy

Cost Predictability

Penetrate Market

Gain Industry Expertise

Recent Customer WinsABN Ambro: Infrastructure outsourcing and maintenance; $1.0+B won by Infosys, TCS, and IBMCiti Group: BPO, Application Development and Maintenance; $800M won by TCSDixons Specialty Group: BPO and Infrastructure; $300M won by HCL

Pe

rce

nt

Global Delivery is Leveraged for:Full array of project-based IT servicesBusiness process outsourcing– Horizontal services (e.g. HR, customer care)– Finance and accounting, procurement– R&D / Engineering servicesEmerging technologies (e.g. VoIP, search)“Transformational” strategic outsourcing

Customers see value and adoption is increasing

…Embraced By 95% Of The Fortune 1000

Fortune 1000 Firms Currently With Global Delivery Strategy

Trends Favoring Global Delivery68% of the Fortune 1000 expect to increase spending with Global Delivery Partners39% of the Fortune 1000 will increase spending with Global Delivery Partners by more than 20%11% of the Fortune 1000 will increase spending with Global Delivery Partners by more than 50%20% of the Fortune 1000 expect to accelerate their global delivery strategy due to pressure from Shareholders and Boards

Source: Offshore 2005 Research, Preliminary Findings and Conclusions, © 2004. Ventoro I www.ventoro.com

Source: Offshore 2005 Research, Preliminary Findings and Conclusions, © 2004. Ventoro I www.ventoro.com

Why?Cost savings or cost avoidance from labor and time arbitrageQuicker entry into new markets by shortening product development cyclesBusiness transformation through new service models

72% the Fortune 1000 Expected to Increase Spending on Global Delivery

Source: Offshore 2005 Research, Preliminary Findings and Conclusions, © 2004. Ventoro I www.ventoro.com

Microsoft has the opportunity to increase customerpenetration through Global Delivery Partners

30% Demand GrowthSustainable Over Next 2 to 3 Years

… A $430 Billion* Market Today And Growing

Trends Driving GrowthIncreased demand for application management servicesBroader offshore adoption in market segmentsUnbundling of large IT outsourcing contractsProspects for a comeback in custom software developmentIncreased access to global talent poolInvestments in global development centersQuality procedures and proven disciplines on the rise

Current SpendingEstimated at $43 Billion

i.e. Backoffice Workflow

i.e. IT Strategy, Architecture,

Development or Process Engineering

i.e. Custom Application

Development

i.e. Taking Over IT Infrastructure

NormalGrowth of CurrentMega and Large Heavy Adopters

Growthof OtherCurrent

Mega Users

Growth of OtherCurrent

Large Users

Growth of OtherCurrent andNew Users

Total U.S. Demand

Source: Bernstein Research, January 2006

Only 10% of current market is tapped!

* Source: IDC

…Partners Growing Dramatically Today

Pure play global delivery players expected to add significant on-shore and off-shore resources in 2007

Top 6 players projected to add 100,000 head count over next 12 months including 10,000+ on-shore

Total Headcount – 2003 to 2006350,000

300,000

250,000

200,000

150,000

100,000

50,000

0

2003 2004 2005 2006

OffshoreOnshore

Double-digit percentage revenue increases year-over-yearSome of the highest margins in the industry

Traditional SIs trending toward to adding global delivery to capitalize

IBM: ~ 38,000+Accenture: ~ 22,000+HP: ~ 10,000+

GSI Compounded Quarterly RevenueGrowth Rates – June 2003 to June 2005

Source: IDC internal study for MicrosoftOffshore Headcount Mix Across Major IT Service Companies

Cognizant HCL Infosys Satyam TCS Wipro

$800

$700

$600

$500

$400

$300

$200

$100

$0

Mill

ions

of U

SD

June ‘05June ‘03

212

87

476

233246

122

399

195

623

324

CAGR 11.69%

CAGR 9.33%

CAGR 9.22%

CAGR 8.53%

CAGR 9.37%

Source: Corporate Reports, Bernstein Research, January 2006Note: Includes total headcount (i.e. IT Services plus BPO

Source: Company Corporate Reports Bernstein Research, January 2006

On-siteOffshore

Tota

l Hea

dcou

ntTraditional Players Aggressive

Adopters Pure Plays

Bea

ring

Poi

nt

Cap

gem

ini

ED

S

CS

C

IBM

GS

Acc

entu

re

Per

ot

AC

S

Sap

ient

Sat

yam

Cog

niza

nt

info

sys

Wip

ro

HC

L

TC

S

Pure play global delivery growth due primarily to rapid headcount increase

Servers and Tools Business (STB)

Information Worker (IW)

Microsoft Business Solutions (MBS)

Mobility and EmbeddedDivision (MED)

Windows Client (WC)

Unaligned

…Headcount-driven Growth Not Sustainable

SMB

O/S(Volumeserver)

ClientTechnologies

SOA

Wireless(RFID)

MiddlewareVirtualization

Grid

EmbeddedSystems(R&D)

EmergingMarket

Hosting

O/S(Midrange

High)

EnterpriseDB

EnterpriseApps

BPO

Low

High

LowHigh

Global Delivery Providers mustmigrate up the value chain

…The Migration Has Already Started

Source: McKinsey Global Institute

Labor cost arbitrage

Skills arbitrageAutomationCentralizationRe-engineering

Leakage preventionCapital cost avoidanceOpportunityloss (time or information)

Service extensionsData miningPrice elasticity

Below the waterline products

for existing marketsNew marketsSkills-limited

services

Leading Financial Institution

Lowered support costs significantly by moving to India and Malaysia

High-performance Industrial

ConglomerateHas 25% of internal development team in China, India, Hungary, and other

global sites

LeadingAirline

Savings driven by revenue auditsAvoided U.S. $20+M HRIS capital outlay by outsourcing HR

Leading Financial Institution

Extended services to range of credit card customers (e.g. fraud detection for US $15 per transaction)

Top Software Provider

Live customer support for U.S. $40 per application

Evolving Value Creation from Global Delivery Providers

Nortel NetworksNorthwest AirlinesNovartisOhio Casualty GroupPhilips Electronics NVProctor & GamblePrudential InsuranceQwestRockwellSAP AGSonySt. Paul InsuranceStandard Life AssuranceState Bank of IndiaTarget CorporationTATATexas InstrumentsThe GapToyota MotorsUBS Unilever plcUnocalUS Department of Defense

ABN AmbroAmerican ExpressAmerican International Group (AIG)Amoco PetroleumCompanyAT&TAXA InsuranceBank of AmericaBest BuyBoeingBritish AirwaysBritish PetroleumBritish TelecomCadbury SchweppesCanadian Depository for Securities ChevronTexacoCitibankCommonwealth ofPennsylvania Credit Suisse First BostonCummins CompanyDell Computer Corp

Dresdner Kleinwort BensonDeutsche BankEaton CorporationEli LillyEMCFidelity InvestmentFord Motor CompanyGeneral ElectricHewlett PackardHome DepotHSBCIBMING AmericaJC PenneyJP Morgan ChaseKellogg’sLehman BrothersLifescanLucent TechnologiesMcGraw- HillMerrill LynchMorgan StanleyNikeNokia

Nortel NetworksNorthwest AirlinesNovartisOhio Casualty GroupPhilips Electronics NVProctor & GamblePrudential InsuranceQwestRockwellSAP AGSonySt. Paul InsuranceStandard Life AssuranceState Bank of IndiaTarget CorporationTATATexas InstrumentsThe GapToyota MotorsUBS Unilever plcUnocalUS Department of Defense

…In Your Accounts Today

Microsoft Global Accounts

Selected Accounts

Dresdner Kleinwort BensonDeutsche BankEaton CorporationEli LillyEMCFidelity InvestmentFord Motor CompanyGeneral ElectricHewlett PackardHome DepotHSBCIBMING AmericaJC PenneyJP Morgan ChaseKellogg’sLehman BrothersLifescanLucent TechnologiesMcGraw- HillMerrill LynchMorgan StanleyNikeNokia

ABN AmbroAmerican ExpressAmerican International Group (AIG)Amoco PetroleumCompanyAT&TAXA InsuranceBank of AmericaBest BuyBoeingBritish AirwaysBritish PetroleumBritish TelecomCadbury SchweppesCanadian Depository for Securities ChevronTexacoCitibankCommonwealth ofPennsylvania Credit Suisse First BostonCummins CompanyDell Computer Corp

Novartis

Philips Electronics NVProctor & Gamble

Sony

TATA

Toyota MotorsUBS Unilever plc

Proctor & Gamble

Sony

TATA

ToyotaMotors

UBS

Unilever plc

Ford Motor CompanyGeneral ElectricHewlett Packard

HSBC

ING America

General Electric

HewlettPackard

HSBC

INGAmerica

Novartis

Philips Electronics NV

AXA Insurance

British Petroleum

Citibank

Credit Suisse First Boston

AXA Insurance

British Petroleum

Citibank

Credit SuisseFirst Boston

Ford Motor Company

…Can Drive Significant Revenues For MicrosoftM

S R

even

ue

Po

ten

tial

Ability to Influence Platform

Low

Partner Services Breakup (FY05)

Application Dev. and

MaintenanceEnterprise Consulting

Infrastructure Services

Product Engineering Others BPO

Total Services RevenueExamples

Custom app. dev., Apps maint.,

Porting, Integration,

Testing

ERP, CRM, EPM, Content mgmt.,

etc.

Security, Net Ops, Data Center mgmt, Legacy migration

H/W S/W testing, Engineering, Life

cycle mgmt.

ISV packages and Business

Consulting

Call center and Backoffice processing

Reference 1 2 3 4 5 6

Cognizant 75% 25% 0% `0% 0% 0% $1 B

HCL 34% 17% 11% 24% 0% 14% $0.927 B

Infosys 53.5% 16.1% 12.1% 5.1% 8.8% 4% $2.6 B

Satyam 52% 37% 4% 5% 1% 1% $1.096 M

TCS 72% 22% 1% 1% 2% 2% $2.97 B

Wipro 38% 2% 9% 34% 11% 6% $2.7 B

Hig

h

6 2 3

1

5

4

Low High

Microsoft Campaigns

CoreIOI

CoreIW

App.Platform

Compli-ance BI MBS Search Collab Mobility

Cognizant

HCL

Infosys

Satyam

TCS

Wipro

Significant Impact on MS Platform Adoption

….With Local BDM Capacity In Key Geographies

Microsoft Regions US Canada LATAM UK EMEA China APAC India Total

Cognizant 150 30 0 8 12 3 1 0 204

HCL 130 5 6 55 21 0 63 25 305

Infosys

Satyam 175 17 8 45 37 6 37 30 355

TCS 400 5 20 170 95 4 5 60 759

Wipro 160 5 0 25 25 2 15 15 247

Strong Today, Stronger TomorrowWide global footprintDeep established relationships with the Fortune 1000 (some spanning several decades)Embedded in IT organizations with operational and fiduciary responsibilitiesOwn the application stack including maintenance and new development Business model supports rapid cost-effective executionMoving up the value chain and becoming trusted advisors

Strong opportunity for MS account teams to drive revenues through platform deployment and application migration

Expand MS Footprint By Engaging Proactively

Global Development PartnersGrowing faster than traditional Global SI’s – Year-over-year double-digit percentage growthHave deep MS capabilities – Top 6 Global Delivery Partners have combined capacity of 25,000+ skilled professionals on MS stackHave Global capacity – Top 6 Global Delivery Partners expect to add 100,000+ professionals in 2007Have wide and deep established business relationships – Embedded in virtually all of the Fortune 1000Have comprehensive solutions and assets – Aligned with MS People-Ready vision and are transformational in nature

Make Global Delivery Partners Your Advocates

Next Steps

Global BDMsCognizant & Wipro – Kristian Gyorkos – kristg@microsoft.comHCL & Satyam – Ganesh Ramamoorthy – ganeshr@microsoft.comInfosys – Wendy Corley – wcorley@microsoft.comTCS – Ram Dixit – rdixit@microsoft.com

1. Identify FY07 focus areas for your accounts2. Identify Global Delivery Partners to engage with

for your accounts 3. Connect with BDMs to engage

©2006 Microsoft Corporation. All rights reserved.This presentation is for informational purposes only. Microsoft makes no warranties, express or implied, in this summary.