CNBC Interview with Alain Crozier, CEO, Microsoft Greater China Region

Below is the transcript of a CNBC interview with Alain Crozier, CEO, Microsoft Greater China Region and CNBC's Deirdre Bosa. The interview took place at CNBC's inaugural tech conference, East Tech West, in Nansha, Guangzhou.

DB: Mandy-, first of all, thank you guys, and good morning, and Mandy, you really could not have put that better. Microsoft, today, is not a lot like it was back in the 90s, and what a day to be sitting here, Alain. I don't know how many people know this, but just yesterday, historic moment, Microsoft's market cap surpassed that of Apple, becoming the biggest company by market cap in the world. Who would've-, I mean, it's been a lot of back and forth, over the decades, but, Alain, when Apple surpassed Microsoft, back in 2010, The New York Times described the moment as the end of an era, and the beginning of the next one. Do you think we're at a similar moment?

AC: Well, you know, I've been 25 years with Microsoft, and very interestingly enough, you know, if you go back ten years, and if you look at-, it's not a question of number one, or-, Microsoft was in the top five. Ten years before, we were still in the top five. Actually, there is only one company in the world that has been in the top five, 30 years in a row, and that's Microsoft. So, I think, you know, as Jim said, evolutions are happening, and reinventions are happening, and I think we are-, we are, right now, in the middle of a big reinvention.

DB: I know, as you said, you've been with the company for 25 years, so-,

AC: Yeah.

DB: Your faith could not have wavered as much as some others, but certainly in the media there were doubts that Microsoft could turn things around, and it is a very different company. It used to be all about Windows. Now, Windows, Xbox and Surface make up just 36% of Microsoft revenue. You look at some of the other big tech companies, and, by the way, Microsoft market cap is more than that of Amazon and Alphabet, just have to note that, um, 86% of Google's revenue comes from advertising. 60%-, nearly 60% of Apple's revenue comes from the iPhone. Microsoft has actually done a better job diversifying itself over the years. What drove that? Tell us a little bit about the businesses now that have increased that shift.

AC: Yeah, so, the first thing is, we did a very big shift to the Enterprise, and, of course, to serve the enterprise-,

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AC: …you know, very seamless way for our customers, and I think this is what really has changed drastically, versus maybe the older Microsoft-,

DB: Right.

AC: That you mentioned.

DB: The older Microsoft, and you've seen it all, you've sat in the US, you've sat in Europe. Now you're in China, you've been in Beijing-,

AC: Yeah.

DB: Three years, right-,

AC: Yes, yes.

DB: Tell me a little bit about the China story, and how that has or hasn't played in to Microsoft's transformation.

AC: Yeah, I think it's-, it's very deep. We've been here 20, 26 years. Most importantly, I think, Microsoft decided to have a long-term view, which is-, everything we do has a long-term view. And sometimes people say, 'Why do you do that? Why do you go there?' But it's a long-term view. So, we-, we implemented our R&D Centre 20 years ago here in China, and when talking about R&D, I'm not talking about development, I'm talking about research. China has the largest R&D centre outside of the United States, and when you talk about search, when you talk about AI, when you talk about some connectivity aspects, some hardware research, it's all done here out of China. And so I think this has really paved the way for, I would say, a very deep presence here in China.

DB: It's interesting you say that Microsoft has been here for 25 years, because Jim and Geoff just spoke about this-,

AC: Yeah.

DB: How there-, maybe, in the future, there are some companies that are going to be able to be in both China and the US, but a lot of companies have really struggled with that, big tech companies, Facebook, Google. You're putting an emphasis on long-term research. Would that be a different strategy than you think that they've taken? Because a lot of these tech companies, when it comes down to it, some say that they have to choose between principle or profits. How has Microsoft navigated that dilemma?

AC: Yes, I think the notion of-, the big notion is, again, long-term. When you-, when you develop, when you do research, do you think you're going to find something tomorrow morning, or the next week, or the next month? No. You have to invest. And investing means, at some point, some of your IP is going to be developed here. So, you need to not have this fear that, you know, everything is going to go the negative way. I think that's a very important one. The second one is, when you come and you do business somewhere, you also have to contribute very heavily to the market you are in, and contribution is not just doing business. It is how many people today are leading some of the most famous Chinese companies that came from Microsoft? You know, you look at ByteDance today, and TikTok, 450 million active users, well, he went through the-, the Microsoft R&D Centre. And so what's important is you are here also to develop the ecosystem-,

DB: Mm-hm.

AC: 17,000 partners that we have been nurturing for years, to bring some of our technology, but also competitive technology, to market, together. And so, long-term view, ecosystem, and also making sure, and I rebound on Jim's point, on the education piece.

DB: Right.

AC: Everything we do, everything we do, everything we do, every day, has to have an education component aspect. If you just come here for business, I think your challenges are going to be way bigger.

DB: Do you think that's where some of the other big tech companies have struggled?

AC: Definitively.

DB: Yes?

AC: Definitively.

DB: Like Google and Facebook?

AC: Like Google and Facebook.

DB: So, they haven't been prepared to invest enough in-, especially on the education part, or the long-term research and development part?

AC: And they also need to understand that some ways of doing business are slightly different, or different.

DB: When you say 'slightly different', are there points where you have to compromise? You brought up search and IP, and, you know, Steve Ballmer said-,

AC: Yeah-,

DB: Earlier this month, that 90% of Chinese enterprises use Windows, 1% pay for it.

AC: The thing is very simple, you know, we are developing a specific version of Windows for the Chinese government, and state-owned enterprises, critical state-owned enterprises. If you think that your product can be used, and will be used, across the world, the same product, the same product, I think today it's not going to happen anymore, in some areas of the business. Why? Because some governments, and it's not China, it's China and many others, want to have some protection-,

DB: Right.

AC: They want to make sure that, if they bet on an operating system, or on a cloud, which are the two largest components of any strategy, then there-, there is a way to make sure that you can control what is being done in those spaces. And so I would-, I would say that you have to make some compromise, you have to adjust, and you have to work hand-to-hand with the customers, no matter if they are China, Germany, Croatia or Brazil.

DB: When you talk about the Chinese government, though, and you talk about compromise, do those sometimes compromise principles that perhaps Microsoft holds in America, things like security and IP rights? IS that the cost of doing business in China?

AC: No, I think it's-, I think we have to work on a different, let's say, level. You know, the world today is very intertwined, it's interlinked. You can't do something without having impact elsewhere. Why? Because you don't build things in one place, or you don't develop, or you don't research, in one place. It's not, I think, the right thing to do, and it's not the right-, the way Microsoft have decided to do. Why? Because we go also where the competencies are, where the skills are, not only where the markets are, but also where the people who can develop, and help us. And so you have to really work in an environment where you're not going to be in a contained environment, you're going to have to work with your neighbours, and they may not behave, they may not react, (inaudible) the same way. I think you have to just be able to navigate through that, and again, be very patient.

DB: Yeah. As you say, look at the long-term.

AC: Be very patient, and just focus on the long-term.

DB: Let's talk about what's going on right now, the relationship between China and the US is evolving, it's changing, we're at an interesting point right now, and really tech, it feels, has become this bargaining chip, in talks between the United States and China. Does that affect Microsoft's strategy at all? Partnerships with Huawei, which the US government has identified as a national security concern, your contracts with the Chinese government, has that changed anything? Are you thinking about that?

AC: No, the-, you know, it's a-, it's a very interesting comment, I just (inaudible) how much we've accomplished in the past two or three years. I think we've accomplished a huge amount of progress. And so, I see that, I know that, you know, people will sit around the table, and, you know, intelligent people will find a way to-, I would say to resolve their difference. That's the only thing I can say. What I can tell you is that, you know, our activity in China has never been as great as it is today, no matter if you are talking about operating system, or you are talking about cloud, where the notion of data, the notion of, you know, residency, and all that. No, we do-, we do have very strong relationships with different partners, because China is not only a set of partners, you know-,

DB: Right.

AC: Everybody wants to talk only about the big guys, from the internet space, or from, I will say, the hardware space, like the Huawei or the Lenovos of the world. But think about it, you have 20, 30, 40 companies, that are just one inch behind, that offer, I would say, tremendous opportunity for great partnership, and this is the route Microsoft is taking.

DB: So you're not worried about, sort of, these tensions, and escalating talks between-, or, you know, escalating tensions between the two leaders of both countries, you're not worried about that affecting Microsoft's business?

AC: No, because, again, I think the contribution of Microsoft to China-,

DB: Right-,

AC: Has been unbelievable. If you take the top 20-,

DB: The President doesn't care about that, though, he cares about the contribution to-,

AC: No, it's fine, but-, but-, but I think-, I think, you know-, um, I think it's important to look at the contribution you are making to the country. If you take the top 20 companies, internet companies, hardware companies, in China, 80% of them have either a CTO or a Lead Technician that comes from Microsoft. And so, I would say, again, what has been decided by Bill Gates, and-, and-, and the predecessors of Satya, I think is-, it's putting us in a special position. Now, you know what, I don't have a crystal ball-,

DB: [Laughter].

AC: And I know, in two days, or three days, we're going to have some-, some news-,

DB: Some more [laughter].

AC: But I'm not really very concerned about that.

DB: Well, there's one thing that, you know, President Trump said, in an interview earlier this week, and he said that tariffs could be placed on iPhones and computers. Microsoft makes Surface products here in China. How do you view his comments?

AC: Um. How do I view his comments? I think the-, you know, the-, the world is-, is big. It's big. You have a lot of consumers of Surface. And China, by the way, is our largest market now-,

DB: The largest one?

AC: Yeah. So-, so, I think, you know, at the end, people will not touch what's going to impact innovation, and the US will not impact innovation, and-, and the US will not impact innovation, because this is what the United States is-, is all about. And so, we can meet, in a week from now, and-, and-, and we learn more-,

DB: See what happened.

AC: But I'm not worried. And by the way, his comment was very clear, but, you know, I saw that Apple market cap went up, you know, like, half an hour after his comment, so-,

DB: Right, so you think it's-, it may be the art of the deal, negotiation, we'll see where it actually goes-,

AC: We'll-,

DB: That's what you're saying?

AC: We'll see. We'll see.

DB: Okay, well, I appreciate you answering some of these sensitive questions-,

AC: My pleasure.

DB: And being with us today-,

AC: My pleasure.

DB: And we learned a lot, thank you very much.

AC: Thank you. Thank you.

ENDS

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