Microsoft CEO Satya Nadella describes two new kinds of software that are going to change everything for businesses

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CEO of Microsoft, Satya Nadella.

• Microsoft CEO Satya Nadella has two very specific examples of what's next when it comes to business software.
• Specifically, he sees two new categories of software emerging.
• One new category will track the performance of products as customers use them. It is business software built on the concept of Internet of Things, where objects get sensors and apps.
• The second adds a layer of artificial intelligence magic on top of it all, which will predict stuff about to happen (like something braking) and take actions to prevent it (like sending out a repair person).

There are two new categories of business software that will soon be coming to the corporate world, to hear Microsoft CEO Satya Nadella tell it.

And he ought to know: Over his 27-year career at Microsoft, one of the world's largest makers of business software, he's helped bring his fair share of new corporate technologies into the world.

On Monday he told journalists at an invitational editors meeting at Microsoft's headquarters that two new categories of software are on the cusp of taking off.

• One of them he calls "systems of observation," which is software for the Internet of Things - the term for internet-connected gadgetry, like home appliances or autonomous vehicles.
• The second he calls "systems of intelligence," which uses artificial intelligence to predict what will happen, respond and take action.

These two new categories follow what he calls "systems of record," his term for financial planning applications that track everything a company buys and earns, known also as enterprise resource planning software or ERP. They follow what he calls "systems of engagement;" his term for the sales software also known as customer relationship management or CRM.

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While the jargon is thick, the concept isn't that hard to understand, as Nadella described it.

Companies already track everything they buy from suppliers and all the product they sell. They already track who is doing the buying. Next up they will be making their products smart, adding sensors and apps that track how their product are used, how those products perform, and when they are showing signs of failing, he described.

So they will use "systems of observation" to watch this "digital trail" these products, in customers' hands, create.

At that point, companies can add software with artificial intelligence to the mix and "triangulate" on issues or opportunities, Nadella says.

An AI app will be able to watch for patterns and then predict them. The top example is seeing signs of failure in the product and then, before the product actually breaks, it can order the part from the supplier (from the ERP system), and coordinate a service professional to go the customer site (through the CRM system).

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Nadella calls this a "big shift" - knowing who bought it, how they're using it, and what's going to happen next, you can do all kinds of nifty new things.

"Once you have these three things, you now can say, let me do a system of intelligence, which really triangulates these three and adds new value," he said.

And, as you might imagine, Microsoft already has popular ERP and CRM apps, in the form of the Microsoft Dynamics 365 suite of apps. And it also already offers IoT software and artificial intelligence technology.

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