An Interview with Microsoft's Steve Ballmer

Steve Ballmer talks about Apple's niche, Zune's app potential, and what's up with that Courier tablet.

Molly: Hi, I'm Molly Wood. Welcome to Cnet Conversations. I am joined today by senior writer Ina Fried, from Cnetnews.com. Who is a long time Microsoft Beat reporter. And of course Ina’s here because we’re very excited to be on the Microsoft campus with Microsoft CEO Steve Ballmer. Thank you so much for having us. Steve: Thanks guys. Molly: We’re pretty excited about this. So recently speaking, obviously on a lot of issues on the launch of Zune HD. Windows 7 is about to go mainstream. And of course the economy, you're kind of expert on. All things economical right now. Most recently we heard Erick Smith say that, from where he sits. The worst of the recession is over. I was wondering if we could get your thoughts on that. Steve: Well I think any sort of forecast at this stage is probably a little bit premature. Thank goodness we haven’t fallen off the second cliff. Which, you know, certainly on some economic times we had. But our employment rates are still high and growing. So it’s a little hard for me to say that the worst of the recession is behind us when there's still a lot of families both out of work and more families out of work with, there every day. So, I don’t think things are getting worst. But I don’t think they're getting a lot better either. And we’ll keep our fingers cross that the things can start gradually moving up again. Ina: One impact of the economy was, from Microsoft as a company, you guys had kind of first companywide layoffs. You cut some jobs in areas before. I'm curious looking back now, it’s been several months, how does Microsoft look different from that point? Where there any elements of the focusing and pairing down that were useful exercise for the company? Obviously, you don’t want to let go of the employees. Steve: Well, you know, what's the expression? Are job in life is to make lemonade out of lemons. And so I think what we said was, look we do need to adjust our cost structure. Let's use this as an exercise to make sure that we’re also razor sharp, focus on the things we need to focus in on. That not only are we focus, but we’re also what I might call right size. And you're going to be focus on the right thing and you can still do it with 10-15% less people. To be perhaps right size opportunity. And so we took that, sort of took the opportunity presented by the economy and the economic conditions and the need to get our cost structure right. And so I think it was a healthy exercise for us. We do, periodically, readjust group sizes base upon what we hope to do in new releases versus old et cetera. And this was a chance to do that in a more structural way. Ina: You’ve talked a lot, you were talking in London about kind of the roll that technology can play as a growth engine for the economy. Talking about how IT is creating jobs and growing jobs. But certainly Microsoft, itself as a company, isn’t adding a lot of jobs. When I talked to IT departments, they're not seeing budgets growing. How is it that it is going to add jobs to the economy? Steve: Well, first of all. Looking in any one window, time is probably, particularly short period of time. We got a lot of jobs over the last 5 years. Maybe that’s even more we do a right sizing. But we’re 95,000 people, roughly. And I guarantee you, that’s a lot more we we’re 3 or 5 years ago. But economic growth, and I focus in on economic growth more than job creation, although the two should go hand in hand. Economic growth comes from productivity increases in the economy and from innovations. Which is kind of accelerated form, if you will, or magical form of productivity enhancement. You invent a new form of travel or a way to do something completely differently. That leads to productivity improvements. Productivity improvements in this economy, they have come in large measures. Over the course of the last 20 years by using information new and powerful ways. The service economy is largely base on information. The service economy has grown relative to the manufacturing and agricultural economy dramatically. And the ability to use it information technologies to streamline and make more efficient the processing information. Service industries are pretty amazing. Let alone what IT has brought where we improve supply chains, and design chains in other businesses. As we look forward, just take science, people like to talk about productivity improvements and innovation that we need to see in the health industry. That we need to see n the energy industry, that’s going to come from science. And that science actually is going to be in larger measure than ever before. Powered by modeling the physical world in the virtual world. That’s going to speed up the pace of science like nothing has come before it. So, I think that in terms of productivity and innovation, IT has delivered and will deliver. Whether that leads to direct growth in jobs, actually in IT or in other fields, as yet another question. I'm not sure what you call the folks who writes large geophysical models that help with exploration in oil and gas. You might not even call them IT people, but the strength and backbone of what's powering that work is definitely things that have been written as pieces of software. Molly: That’s information. So I want to move on to Windows 7, obviously your next big product release. Not just the next thing, but the big one. One question that a lot of people have had, including myself, is can you explain the rationale behind the multiple versions of Windows 7? That seems to be something that consumer feels confuse by. Commentators feel kind of negative about. And yet, there it is. Is there a good reason? Steve: There's really three versions. Molly: Okay. Steve: Let's just be clear with this. The starter version, the home version, and the professional version. Molly: Has it been sort of exaggerated. Because I think I've heard people describe the versions have 7 different. Steve: There's really three versions that you’ll find in any, if you walk into a computer store. That computer store most likely will come with either starter or home. And the computer will be configured so that when you want to upgrade in place, you can do that, the professional version. Certainly, people who are using the PC in the work environment will, in my opinion, most likely want the professional version. But you don’t know when the box ships out, whether it’s going to go to somebody at work or somebody at home or somebody buying it in a computer store and using it for work. So it’s important that we have that. But for people who use these machines professionally, professional’s the right choice. For people who want very low end machine, very low cost, with a very small screen, we want them to have a version of Windows that did the job. That’s called starter edition. And for everybody else, there's home. And it’s not really that much more complicated. And if IT department’s 1, 2 add on, increase manageability and security. They have a way to do upgrades, that’s the enterprise edition. And they can go ahead and do that if they want to. And there will be a few folks who just wants everything you can get, even though they're at home. We have, I think, called Ultimate. But really, the bread and butter is starter for low netbooks, but you could use home or pro on those to. But if you just want the lowest end, starter edition. Home, will be the bread and butter for people who use this machines just personally. And people use them professionally and personally, it’s pro. Ina: You’ve talked about netbooks. So you said, you know, Windows 7 obviously. You can run any version of Windows 7 on a netbook. So that really gets you back in the game, obviously, you were selling XP on a lot of netbooks. Are you guys going to do anything to make it easier for all those millions of netbooks that have sold in the last couple of years running XP to move to Windows 7? Because, really for netbooks and all computers, it’s kind of tough to get from XP to Windows 7. Steve: We have no simple upgrades. Of course you're going to always wipe, back up, wipe on an XP machine and then install Windows 7. Which is not the simplest of process, but it’s what we have available. And it’s all we have available for XP based netbooks as well. Ina: You’ve talked for a long time about the idea that Google is a significant competitor and more of a broad base competitor than you guys had seen in the past. But we’re now in a point where they're actually talking about, they're going after you guys in office. And they’ve talked about an operating system. What do you make off their moves in to this course bases from Microsoft? The operating system and office. Steve: Competition is competitions. I'm sure they welcome us in to the search base and glad to be there. That’s kind of like what Apple works. So far we've done exceedingly well, I would say, competing against Google’s applications. They’ve been in market, 2 years, 3 years, and yet at the end of the day outside of free usage of Gmail, we've seen almost no update of their stuff. And I think the statistics verify that. I don’t know what they're doing on operating systems, they launch one. Then before you get any momentum, they launch another. So we have to wait and see, I don’t even know what their operating system strategy is at this point. Ina: So when you see them on the office side, is that more of when businesses talked about Google Docs, is more of a bargaining chip. I mean, I know for example, the city of LA is talking about using Google Docs. Steve: I assume anytime a customer talk to us about is a genuine competition. Doesn’t mean that we don’t do well, we have a lot of people that we’re genuine competitors that we've done well against. We gain markets, Linux is genuine competitor, yet we built market shares in Linux’s server, up to about 75% market share. Open Office, Star Office has been a genuine competitors and yet we've done pretty well. So we have another genuine competitor, this one is not any better than the ones that have preceded them. I have not seen anything from Google that makes them look better than the other guys that we've competed with. But we take all competitors seriously. They're better funded. They're making money hand over foot in the search business. So they can afford to foray and even if they're not successful, they're well funded. Molly: Moving on to hardware. Are you prepared to exclusively tell Cnet that the Courier tablet is real and it’s coming out in, say, June 2010? We've seen video, it looks pretty amazing. People are really getting excited about this possibility. Steve: No, I'm not prepared to tell Cnet. Molly: Do you have any thoughts on the possibility? Steve: No I don’t. Molly: You don’t have to give any exclusive. You can comment in general. Ina: Tablets and pen computers. Steve: We pioneer them, we’re not partners, absolutely. Ina: A lot of people, in the battle of unannounced products. A lot of people are talking about the Apple Tablet. I've talked with some folks, and basically the idea that Apple would eventually be the one to make money off of Tablet computer. I think there's a fair number of folks and redman that want to do themselves harm if that’s the case. I mean, do you see a renewed market for pen based computing and tablet computing? Steve: There's definitely a market for computers that you can market on. If you take a look at the laptop, quote laptops, tablets. Take a look at the machines that are coming out this Christmas. You find a number of machines, most of them which have a keyboard. But you can also, they're convertibles. So you can flip them around. You can write on them. They're pretty nice. And we still have OEMs, what we call slate. A slate is a tablet essentially without a keyboard. It’s not convertible, we got people to make them popular in certain application types. So I don’t see that market going away. Certainly, I'm sure Apple, very unique point of view. They tend to bring unique points of view of things. And yet we got great people doing great stuff. And let's see what competition is. Ina: Obviously we were asking question on the Kindle. So what about this eBook notion? Is that something that's interesting? Again, this is a market you guys we’re in, you had Microsoft Reader and Protected Books for compact devices a long time ago. Is it a market that you think is serious? What's the best device for it? Steve: Obviously, the number one reading device on the planet is the PC. PC is past, it past print. I would say, probably. For books, probably some more people read on paper. For the things formally known as newspapers, magazines, people primarily read documents, work documents, home. People do a lot of readings on the PC screen. And we need to continue to improve the PC as a place to read. Including making sure that content types which are still primarily read on paper can be read on the PC. I think, we see a number of the players who are doing dedicated devices take that as an interesting opportunity. Ina: Obviously the most important mobile device is the phone, it’s the one that sells in the largest volume. Steve: You know what, it’s not really true. I mean, just for the record, at least smart device. The PC is the most popular smart mobile device today, but I agree. The phone will be. The smart phone will be. Today’s smart phones still relatively small than the mobile PC market. Ina: I mean, it’s an area again you guys have been in for a long time. But I think, if you said is much true, could prevent your capitalist. You guys have not move this quickly in the last few years in the phone business as you would’ve like. What does Microsoft need to do to get back into the phone business? Where would you like to be a year from now that you're not right now in phones? Steve: It’s all about shipping good product. I love our Windows mobile 65 offer. I think that’s going to be a big step forward. We’re just going to keep new releases, new releases, new releases. At the end of the day, I think, the model of a software company partnering with a lot of handset vendors is powerful. Powerful relative to what you see from folks like palm and Blackberry and Apple. I think it’s a way to see a lot of variety and innovation. Flexibility, form factors, prices, et cetera. Certainly, we’re competing with Limo and Android in that realm. I think we got the best offer of that crowd. And I think we got the model right. So, we just got to deliver against that. Molly: Can you help us understand the mobile strategy a little bit. I think most reviewers seem to agree that this new HD is superior hardware. Hands down against the iPod touch. But there's a lot of concern that there's not an app ecosystem, it’s a little unclear whether there will be. Whether Windows mobile market place will come to the Zune. And whether users of Windows Mobile 6.1 will be able to get the apps that are eventually developed for the 6.5 market place. And I was wondering what your thoughts are on kind of that concept? Whether now you need an apps or ecosystem to really support and internet device and whether we can have to see some cross over? I guess, between those app developments. Ina: On the flip side, a lot of people say, wow the Zune HD is a good device. You know, why don’t the phones look as nice as the Zune HD? Steve: We got two primary focuses. Windows mobile, Windows phone and Windows PCs. Windows PCs got pretty healthy app ecosystem around them. You know it’s possible it makes sense, quote, to make an app store. But nobody has got any trouble getting app. The whole internet design basically to the Windows PC. That is the design point for the internet. Part of the reason why you need so many apps in the mobile app store is to read a map. Websites that were written for the PC look good on a mobile phone. Even though there's decent browsers now. And products like the iPhone and our Windows phones, et cetera. So we do need to do a lot to encourage and facilitate app ecosystem on our phones and on our PCs. And we will do that. And you’ll see that Windows mobile 6.5 and they're continuing and obviously there's a healthy ecosystem for the PC. What is Zune HD? Zune HD is a couple of things. Number one. Zune HD is a music player. It got a nice music service, by the way, the same software will be available in Windows phones and Windows PCs. You have that today on the PC, and you can see that in our phone environment as well, which is great. And it’s a nice piece of hardware. At least that’s the general reaction. And I think it serves as a model for what our OEM partners can do with Windows phones. It’s not our plan to make a phone out of that piece of hardware. Molly: Is the Zune HD meant to be a more far reaching internet mobile internet device or do you really see it as a portable media player that it doesn’t need to have email and GPS and you know. Steve: It’s a nice entertainment device and probably we will keep its position as a nice entertainment device. But you have to wait and see what we do in the next release. Ina: Windows 7 is coming out, Microsoft is notably increased its Windows advertising last year. But you have a lot of different messages from the Seinfeld stuff, I'm a PC it seems like Apple still gets the benefit of owning the message sticking with we’re cool, we’re simple ,we’re safe. Can you talk a little bit about your marketing strategy and like just personally, what's your reaction when you see them constantly just beating you guys over that? Steve: What do you want me to say? They’ve done a very good job of marketing for their 3 and a half percent of the market. I think they do a great job for their 3 and a half percent and I'm glad we’re doing a great job for the other 96 and a half percent. I mean, at the end of the day the fruits and the pudding. We got whatever the number is, 96, 95. Take the pick. And they got 3, 4, 5. Those are about the right numbers. And they advertise basically to that small niche of people who want they're machines. I don’t take it away from them, they make a very good business doing it. And they're selling something like 10 or 11 million PC a year. 10 or 11 million Macs a year. And we’re selling about 300 million PCs a year. And so we need to have messages that are appropriate to the vast majority of people and its fine. There may be 3 percent of people who appreciates their approach. Molly: And that seems to be part of the strategy. Is that it? There’s a sense that you sort of pulled away from advertising in techs specific arenas and gone to that much more mainstream approach. So then is it okay that the tech crowd might find that ad a little bit funny or, that’s not the pen. Steve: You mean the Apple ads? Apple’s in charge of the Apple ads were not. Our job is to make sure we keep a very healthy ecosystem, high volumes with Windows tell our story. I think they're telling our story. You know, if you want to be counter culture, you will sell to a counter culture market. Or whatever they're trying to do in their ads there. I think they're ads are got, I admit, one could say cute when they first came out. I think they just got kind of edgy silly itself. But I'm not on bias on the issue. Ina: You are taking one page from their playbook and opening some Microsoft stores. Can you tell us a little bit more about what to expect from those. They're opening I think within a month or so. Steve: First store will open later on in October and then I think another one within a week or two thereafter. And then we’ll keep going from there. We want, you know I think what we have found is particularly the way of the last 4 or 5 years, the retailing of electronics in general has evolved in this country and every other country. We’re basically down to Apple and one large electronics retailer. And it means it’s hard sometimes to see cool Windows PCs in stores. Because the large electronic retailer, which is Best Buy in this country is fantastic, maybe Lamarck in Germany, Dixons in the UK. They have to keep a mainline set inventory and the Apple store will carry, of course, the Apple inventory for that 3, 4, 5 percent of the market. Whatever it is in a given country. And we want to show Windows users the kind of selection and variety that maybe important and maybe mainstreamable, that maybe not mainstream on day one. It doesn’t mean we’re not going to have mainstream inventory as well, it gives us a chance to tell the story. To tell the story, the PC of the home that has devices that supports 3 screens and the Cloud. And we’ll see. 2 stores is the first 2 stores and then we have the next 2 and 2 after that and keep getting better. Molly: So let’s ask a quick question about Bing, it’s been fairly well received, and you’ve seen a slight uptake in Bing market share. What does it need to do to really make a dent in Google’s position? Or is that your plan, you kind of going to have slow and steady growth and see what happens? Steve: You got to make a dent. And Google’s got 85, 90 percent of the market shares. Something likes that. At least at the revenue side of the market. They may have little less in the query share. I mean globally, they have at least 80-85%. So yeah, we need to get a share against Google. And in order to do that, we’re going to need to continue to work on what we call the basics. Something that Google does well, that’s really what they really built on. I think we have a chance to innovate and do some interesting work in user interface. And I think that’s primarily what's marked the arrival of Bing so far and got the buzz, just small market share increase that we've got. That we’re happy to have that happen. And then we’re going to continue to work on kind of more disruptive ideas on how technology in business. We’ll continue to shift in this arena. I mean I think it’s probably fair to say search has been one of the least innovative areas in the tech landscape for the last 5 or 6 years. It’s worked well, but things we’re pretty much 5 or 6 years ago. A few content types have been added to the market reader’s credit, but that’s about it. Molly: Well let's end with a very specific user question, I think a lot of people basically had the same question, and that is generally what's the plan? You got all these great products, there's the Zune, Windows Bing, XBox 360, MSN, online office. And they're wondering, when can we see these products be really integrated in a very seamless way so people can live their M life. The Microsoft life. Steve: I'm not really sure what question you're asking, the products work in some cases quite well together. Just always seams to be taken away. I'm not sure if it’s a brand statement, some people they can live the M life or whether real issues. There are things, you need to have Zune across all the devices. We’re going to get that done. We need to make sure that the store works in a consistent way across the devices, that’s important. There's a set of things that we need to get done and we’re hard at work against. I don’t expect massive brand convergence anytime soon. Because I think there are people do buy things for different reasons and we’re trying to support that. and if we call the XBox the Windows gaming machine, it would work better for your question, but it might have not work better. Molly: But a couple of years ago, there's a great demo of the possibility of the Zune really integrating well with the XBox Live, with the gamer tag. So you have to all these updating and you got all of that integration down. Steve: A lot of those works very nicely. Ina: I think the user questions and sort of the sense of people watching is, in the entertainment side, nobody plays in this many places as Microsoft. You have stuff in car, in the living room, on the go, the phone, the desktop and yet sometimes the best integrated experience isn't from you guys. Even though you play on all those spaces. And I think for folks that want to see Microsoft succeed that want that. They’re sort of the, you guys are making all this stuff, why doesn’t I work better together? Steve: Always an opportunity to improve. I'm not going to deny the opportunities for improvement, well get after them for sure. Molly: Well then we’ll wrap it up and let you go. Thank you so much. Again, Microsoft CEO Steve Ballmer. And please keep an eye out for our future conversations at cnet.com/conversations. Steve: Thank you.