Steve Ballmer Speech Transcript – Gartner Group Symposium/ITxpo

ANNOUNCER: Ladies and gentlemen, please welcome Group Vice President and Research Fellow Tom Austin.

TOM AUSTIN: Well, good morning, everyone, to our third annual interview with Steve Ballmer. I want to introduce my associate, David Smith, Vice President and Research Area Director. David?

(Applause.)

And lets have a warm welcome for Microsofts CEO Steve Ballmer.

(Applause.)

Well, Steve, I understand that you have an announcement for us this morning, something about being in the groove.

STEVE BALLMER: We did announce this morning a very significant minority investment in Groove Networks, as well as a strategic alliance with them. Weve both been passionate about peer-to-peer and .NET and we love Ray Ozzie, think hes got a lot of great ideas, and so well really try to bring Microsoft and Groove much closer together.

TOM AUSTIN: So youve finally got the creator of Lotus Notes on your side? (Laughter.)

STEVE BALLMER : Finally. (Laughter.)

TOM AUSTIN: Why dont we roll the video?

(Videotape presentation.)

QUESTION: How can Microsoft move beyond its perceived role of the 800-pound gorilla to a company that collaborates with the rest of the industry to make life better for everyone?

QUESTION: Id like to ask Steve Ballmer what he makes of the Liberty alliance announcement?

QUESTION: Id like to know whats your .NET strategy and when are you going to come out with it?

QUESTION: Im very curious as to what you see the long-term impact of the September 11th incident and where do you see Microsoft fitting into society in helping us get through that?

QUESTION: I work for a teaching hospital and, with Microsofts new policies regarding licensing of both their Office and their operating systems, it has really shackled us for our planning for the future. Is this a conscious decision by Microsoft to really give the shaft to the healthcare industry?

QUESTION: Steve, Id like to know how you justify the licensing changes that youre making in Windows XP and beyond, given your tremendous revenue record to date?

QUESTION: What comes after IIS? We all know theres trouble with this. We understand that. Something will succeed it. What will that be?

QUESTION: Im interested in why or why not you did not incorporate Java into XP? I understand some of the legal ramifications. I understand obviously the controversy between Sun and Microsoft over Java in the past. So I just see Scott and you coming to some kind of agreement on incorporating Java into your platform. I think it helps both parties.

QUESTION: Steve, as a CIO, Im concerned about the new pricing formulas that Microsoft has put in place for the enterprise, and Id like to know how you think I should respond as a CIO to these changes.

QUESTION: Steve, I keep seeing you jumping around like a maniac in front of your technicians on the Internet. Is this a common practice?

(End videotape presentation.)

(Laughter.)

STEVE BALLMER : I thought Id answer one question myself.

DAVID SMITH: Steve, last year we asked you a lot of questions and were very pleased to have you back here again. And one of the questions we asked you about was what keeps you going, what makes you get up in the morning and be energized, really energized to do what you do? And you talked about changing the world: Has the world changed enough for you yet? Is there anything else left that needs to happen?

STEVE BALLMER : Well, the world certainly has changed I think in many ways much more and in ways that a lot of us are not real happy about over the course of the last 12 months. Thats the world at large, not the world of technology and the kinds of things that I intended when I answered the questioned a year ago. And certainly first the drop in the economy, the high-tech sector specifically, the bust of the dot-com bubble, which was sort of starting when I would have been here last year, but then we went through, and then, of course, the terrible bombings on September 11th, that a lot of things are very different.

If you ask me today, though, has the world really changed as much as it can, should and will, to positively improve the way businesses run, the way kids learn, no. I still see incredible runaway, incredible opportunity to positively impact the world and thats one reason Im still here and we have a lot of opportunities to play a leadership role at Microsoft.

TOM AUSTIN: Lets look at the culture at Microsoft. I remember back in the 80s when I first visited the tiny campus in Redmond that you and the entire company were the empowerer of the individual. You had low prices. You helped run a guerrilla campaign against the nasty IT managers. You helped individuals smuggle in their own brand of personal computing. That was then; this is now. You feel more like the establishment.

How are you doing things differently today so that youre not perceived as negatively as the establishment that you attacked 15 and 20 years ago, and are you still using guerilla tactics to undermine the establishment, IT establishment in organizations when they dont want to do what youre trying to get them to do?

STEVE BALLMER : Well, as a company internally I would say we have really one culture. Theres a certain kind of hard-working, passionate, pretty bright person, that we hire people who feel accountable, people who love technology, want to change the world, have patience, but if you actually look beyond that central core culture of the company, we actually kind of have at least three different, and Id say now four different things going on:

We still have a group of people in headquarters and in the field who very much think about empowering the knowledge worker, and they think about that passionately and they think about telling their story directly sometimes to the knowledge worker. You can characterize it a little differently and its probably not totally unfair.

We now have an even bigger group thats focused very much on the enterprise and the IT manager, the developer. In a sense, you could say its the group of guys whove got the culture of the establishment in every way, of the established IT infrastructure. And Id say we really kind of started building that 13 or 20 years ago when we hired Dave Cutler to start the NT project, and numerically that would be the largest collection of people in the company today.

Weve got some guys who care passionately about the consumer, and they live, eat and breathe a different world. And if you brought them up here, theyd have a whole different set of issues, a different view of the world, and then these Xbox guys, theyre just another crazy lot. I mean, theyre crazy in a Microsoft way, but theyve got a different customer they care about. They tell me I dont get to vote on their advertising or anything about them, because I dont understand the 18-year old gamer. And theyre probably right. I feel more comfortable, shall we say, in this audience, even if we do have maybe a little older than 18-year old gamers out there.

DAVID SMITH: Steve, one of the questions from the audience was about being the 800-pound gorilla and generally being one of the biggest, most powerful companies on the planet, and some of the perceptions of the company as the evil empire and the company that wants to take over the Internet and take over the world, an aggressive company, very aggressive, very assertive and aggressive.

How much do you think of that is fair treatment of the company and how much of it do you think is people that really just dont understand what the company is about?

STEVE BALLMER : I do think a lot of it is the company not being well understood, and Ill take one minute and just try to explain. Nobody wants to be the 800-pound gorilla that nobody can get a long with. On the other hand, if you ask our people what really motivates them to come to work every day, to try to do their best work, its to see people use their stuff. And if you have a lot of customers and a lot more customers and you want to get more customers and then you want to go do some new things and add value, you get big. I dont know if you get to be 800 pounds, but you get big.

And just the zest and passion that we have, you know, if we dont have a customer, we ask why. What do we need to change? Is there something wrong in the way were marketing the thing, telling the story and the pricing? What is it? And I think actually thats our sort of mode of force.

Yet just being large and being passionate, if youre both large and passionate, I think it gets very hard for some of the positive impulse behind there to really come out and I dont frankly think we do as good a job explaining ourselves many times on issues as probably we ought to that would help also to have people have a greater sense of understanding of the company.

TOM AUSTIN: Talking about being an 800-pound gorilla thats sometimes misunderstood, lets look at the antitrust issues that youre still facing. Its been a number of years now, a lot of changes happened in that. What permanent changes have happened now inside Microsoft, independent of the final outcome in the antitrust issue? How has this changed you and how are people in the audience going to see those changes in the future?

STEVE BALLMER : I think the number-one thing we really have taken away from the whole period — I wont say from the case itself, but from the whole period is a really deep understanding that we have to do a better job every day of reaching out not only to explain ourselves in the way I talked about with Dave, but really reaching out to our partners and making sure that we are a good partner to those who partner with us.

And the reason why I highlight that is our industry is built on cooperation. Its not built on the work of one company or another and it doesnt matter how big you get. Our industry is built upon having a whole ecosystem, the software company, the hardware company, the service company, that all can kind of work together in a very coherent way.

And I think were a little humbled by the fact that more of our people we thought of as our close partners didnt really come out and sort of speak openly and fervently on our behalf, and it really told us that we need to rededicate ourselves to being a good and positive and valuable part of the ecosystem to even cooperate with people we compete with.

We have still some issues with the people who are more litigious, but I made trips down to see Larry Ellison at Oracle, and we agreed were absolutely going to make sure that their stuff and our stuff work well together, Windows and the database, come hell or high water, no matter how much rhetoric you hear out of both companies, that that was important. Were going to compete aggressively with IBM and them with us in a variety of areas, but were cooperating on defining some of the key XML protocol standards that need to come to the market.

So even with our competitors, in addition to with more classic industry partners, startup companies — Im down in the Valley now almost once a month weighing in with venture capitalists and portfolio companies, et cetera. Weve said our company has to be more positive and we have to be viewed more positively by the entire computing ecosystem.

DAVID SMITH: Lets switch gears a little bit to some of the other questions that came from the audience and are on a lot of folks minds. The events of last month, September 11th, what kind of impact has it had on Microsoft and in what way? What might we think that you would think would come to be more important in the future as a result?

STEVE BALLMER : Well, I first want to talk about the very direct impact. I mean, we were very fortunate as a company not to have lost any of our employees, for which Im very grateful, and theres only so many things you can do. We made a fairly significant contribution to help both with relief and to help the families. We dedicated our staff around the world, but really in New York and D.C. to helping our customers to get back and get up online, particularly at the Pentagon, a very important set of activities that we provide infrastructure, which is very important for communications and to the DOD, so weve been very active on those very immediate things.

Theres also, of course, when you get the combination of NIMDA, Code Red and then terrorist attacks and a military conflict for the United States, and that only dials up the need to really focus in on what it takes not only for us to, quote, “deliver a secure environment,” but to make sure our customers can deploy the secure environment.

And so we raised some things, some that werent even planned and some that were, but Jim Allchin, who runs our systems business, and I just agreed we have to throw the pedal all the way to the floor, if you will, in terms of making sure not only that we do things technologically but we help customers, so a new security toolkit, a new set of facilities by the end of the year that will allow people to kind of automatically deploy security patches, a new mechanism to make those easier for people to deploy, new tools to lock down IIS environments so that people can enforce a greater sense of security in their environment. And I guess the combination of a number of factors, including September 11th, forced that.

DAVID SMITH: I think that helps, and I think that does help people who are already in a situation where they have your products installed, but I guess my question is probably a little more along the lines of the future — culturally, development wise. What are you going to do differently? For example, you guys have been out in front with setting the standards for web services technology, yet youre asking people to go to it before any of the security infrastructure is in place. I mean, obviously this happened before, but would you be willing to say that you wouldnt do that anymore, that from now on before you put something out you will have thought through those aspects a bit more?

STEVE BALLMER : Well, we thought through the aspects. We dont have solutions in some of the important areas of security, to be fair. Youve got to remember these web services concepts were not only across firewall boundaries, but also inside of companies. So I see a lot of value even if we dont — and when I say we I dont just mean we Microsoft, I really mean we the industry. In that XML protocol stack there does need to be the — the new form of security is does an XML message come into your environment that causes a security problem, and theres a group of companies but most importantly the standards body that needs to agree on how security will work in that environment. Weve been active in those standards efforts.

But if somebody just wants to, for example, an enterprise application integration problem use web services all within the context of their own firewall, I think there are still some very valuable things that people can do even before the richer security infrastructure is in place.

TOM AUSTIN: You know, lets switch gears to another related subject, actually something on the video. Over the years, as Microsoft attacked a particular market segment, you know, like the micro-computer operating system space, like GUIs, like LANs, like word processing, like office suites, eventually you get it right and you knock out the competition and you totally dominate the segment. Okay, so its a mark of tremendous success.

Vis-
à
-vis the people in the audience here — lets ignore Xbox and so forth, but vis-
à
-vis the people here, whats the next market segment, the next technology area that you intend to totally dominate?

(Laughter.)

STEVE BALLMER : I never have that intention, Tom. (Laughter.) But if youre asking where do we hope to do a lot better and have a lot more customers, Id be happy to answer the question. (Laughter.)

TOM AUSTIN: Consider it asked, Steve.

STEVE BALLMER: Okay. If you take a look today, there are areas where we could do more to serve customers, but we have a lot of customers. Youve highlighted some of those. Then there are areas like enterprise data center applications. Were not absent; we certainly are present in that market, and if you actually count numbers of applications, Id say were probably the largest player. But in terms of mission-critical significance to a number of folks in this audience, the incumbents are still a variety of flavors of UNIX, running a variety of flavors of middleware, running Oracle. Were in the game but were not as popular as wed like to be. We like to be popular. And Id say thats a critical area for us in terms of where we put our intellectual capital, our brainpower, our people, our dollar resources, et cetera.

And weve been at it for a while, but I think were well known as a company thats persistent. Weve made some progress, but were going to keep coming and coming and coming. I think with the Windows .NET Server next year and VisualStudio.NET and some of the things that we deliver around XML and some of the increased improvements in scale and operability and reliability, security, were going to make another quantum step forward and then well keep working it and working it and working it.

TOM AUSTIN: You know, you mentioned Oracle there. Whats your internal goal when you try to rally the troops and SQL Server development? Youve got a goal for them. I mean, what market position do you want them to have and when do you want them to have it? Number one.

STEVE BALLMER: I want to be number one.

TOM AUSTIN: When?

STEVE BALLMER: As soon as possible. (Laughter.) You can go ask the development guys and theyll say,
“Hey, were doing our end; what are you guys doing on the sales and marketing support side?”
And it takes our development group, our sales group, our marketing groups, our partners, our service infrastructure; the whole ecosystem has really got to perform for us to achieve a number-one position.

And, yeah, weve been at it now 13 years, and you know what, if it takes us another five, another two, another seven, well stay after it.

TOM AUSTIN: Whats after that? Okay, I know whats in your sights now. Whos next?

STEVE BALLMER: I wouldnt put it quite that way. (Laughter.) What I would have said was that we really want to be much, much, much, much, much more popular in terms of enterprise data center applications. And there are a variety of people who do an effective job in that area today, and I guess if were going to be more popular, they would have to be less popular. Thats true. (Laughter.) But this is the change you get after four years. (Laughter, applause.)

So theres a whole ecosystem there of people who are involved in that game, whether its IBM or Oracle or Sun; theres a whole set of guys.

DAVID SMITH: From looking at the entire software industry, weve recently done a study that shows that the whole industry is not growing anymore, even though Microsoft is. What does that mean for future opportunities in software for you or for anybody else?

STEVE BALLMER: Well, actually I think its our Pocket PC guys who have this little slogan, which they kind of repeat to themselves: Software matters. That was kind of really the crowning innovation, if you want my opinion, of what Bill Gates and Paul Allen did when they started our company was, yes, there was a software industry before, but Id say we were the first real software company in a lot of ways.

And do I think that software adds value, that software matters, that software is going to continue to be in many ways the thing that really redefines the way people get to work and live? I do. And so the fact that you see some contraction in the size of the whole software business, my prediction is the software business will continue to grow. It will look different. I mean, if you look at it, the PC software business is very different than todays large systems software business — much higher value, much more commodity pricing, et cetera than larger systems, and that can have temporary contraction, but it leads to overall market growth.

So if you were to ask me,
“I have a dollar to invest; tell me a good industry to invest it in,”
Id tell you to put it in the software business. Im not sure Id tell you to put it in any one company, but Id tell you to put it in the software business.

TOM AUSTIN: What segments?

STEVE BALLMER: Well, I think if you look over the next several years, the more instructive thing to ask is what revolutions are going on, and therefore what dislocations and new opportunities will get created. We point to the PC, to the Internet, to graphical user interface as dislocations. This whole XML Web service phenomenon will be a dislocation. Some companies will take advantage of it and boom up in their current sector. Some people will not in their current environment. But I think its almost like throwing all the cards up in their air. You know, we talk about XML Web service security. The existing leaders in the security market might rise to the occasion or they may not, but there are new opportunities that will be created.

DAVID SMITH: We can see web services about to happen. Whats next though? Whats the thing that people havent thought about yet?

STEVE BALLMER: Well, its an interesting question, and I guess I get the privilege of being the non-visionary of our management team. Weve got plenty of people who are visionaries. But let me first say that I think before we really see the XML web service revolution play out fully, so to speak, were talking about four or five years. This is not kind of a one-year phenomenon. If you think about how long it took the PC really to catch on or graphical user interface — some people say the Internet caught on right away. Of course it didnt. It had been around 25 years before the concept really caught on. So I think weve got a five- or six-year gestation period in which our industry has to work hard to realize the integration and connection benefit of the web service revolution. By that time, I think the thing people will be talking about is kind of a v2 where we go back and change all of the way information is stored basically.

DAVID SMITH: Last year we talked about what we termed the Microsoft tax, that is the proportion of price of a PC thats deployed for its lifetime, typically four years now, that goes to Microsoft. Thats been growing as a percentage over years as PC economics seem to really be kicking in in the hardware space, but your prices tend to remain relatively constant and even rise. Our projections say that in the next three or four years Microsoft will, in a fully loaded environment, in a typical corporate environment account for greater than 50 percent, probably more like 60 percent of those costs, factoring in maintenance and all that for the lifetime.

So the point where we may even believe that the lifetime of PCs will go from four years to five years in that timeframe because of that, what should it be? Is 60 percent the right number? Should it be higher? Should it be lower?

STEVE BALLMER: Well, in a way I would say Im willing to have a big discussion about whats appropriate for pricing, et cetera, but I dont think thats the right way to analyze the problem. The software and the hardware do deliver fundamentally different values. You need to say it takes both of them to deliver the experience, but its a little bit like taking a look at a CD player. If you look at a CD player and the CDs you buy for it, and CDs are a lot like software and the player is a lot like the computer, of course the software over the life of the device costs you much, much more than the device that you paid for. You buy many more dollar value of CDs for your CD player than the CD itself. So Im not sure theres one canonical model of percent of hardware, et cetera.

I like to think about whats the cost of our software, what cost does it force into an organization or take out of an organization, because right now today theres a whole ecosystem of cost inside IT departments to support the PC, and if we could actually help people save on help desk deployment costs, essentially it makes our stuff more valuable, even if it doesnt do much more for the end user. Then theres the question of how interesting and exciting are the new scenarios that the upgrades permit, and I think its sort of that view of the world that determines appropriate price more than some absolute relationship to that price to hardware.

DAVID SMITH: Well, I think theres probably a lot of different ways you could look at it, and thats one way. Another way people might look at it is from a CD player perspective its more analogous to if they bought a CD player for $100 and then they had to spend another $100 for a piece of software that goes on the CD player that lets them play their CDs. So I think that its a little bit different.

STEVE BALLMER: Well, the basic capability, of course, to run the PC, at least when people choose our system, does come licensed through the hardware vendor — I mean Windows — so its packaged up in the price of the device and it certainly has nowhere near the kind of price point that you talked about relative to the price of the hardware. I mean, if you look at even the worst case, in the worst case we probably represent something about 10 percent maybe of the cost of the PC and less of the total cost of the PC to the user.

DAVID SMITH: Well, that doesnt jive with the experience of the people out here, Steve.

STEVE BALLMER: Were talking about the Windows — Ive got to be careful, because to do the analogy, the analogy of the CD player is the PC plus Windows, and Windows itself is probably 10 percent. And then we can get into Office, which I think about as an application.

TOM AUSTIN: Lets stay with the issues around pricing. I mean, thats an issue a lot of people are very sensitive about. And the audience, they watched the video clips. Let me take it from a different perspective. You know, one of your stockholders once asked me why you arent charging a lot more for your software. For example, why dont you — I mean, youve got 187 percent of the Office market today. Why arent you charging $1,000 a desktop for Office Professional instead of what you charge today?

STEVE BALLMER: Because we have good competition, and our competition comes from a number of different sources. Number one, there are competitors in the marketplace. And competitors have what I might call very attractive price points. I dont think they have super attractive products yet, but they have very attractive price points. That is, many of them are at zero. Thats a pretty attractive price point. (Laughter.)

TOM AUSTIN: You havent thought about matching that, have you? (Laughter.)

STEVE BALLMER: Id better give back the water. I cant afford to pay for it, if thats the price. (Laughter.) No, we havent. So thats one thing.

The second thing is our business is a funny business. Software doesnt stop working. If customers dont like our new versions, the new things we bring to market, they simply dont change anything, they dont upgrade. So in a sense our competition includes our old version. And if our new versions arent that good, people will stay with our old version. And to the degree people stay with our old version, essentially we have competition for anything we do with new version and new prices and everything else.

So feel a lot of good external competition, as well as the choice that all of our customers have, which is to just not upgrade. And certainly we got a lot of feedback from customers over the course of the last month on the changes that we announced five months ago, where people said,
“Look, either you guys make some changes or were going to elect one of those two options. Well go to competition or we just wont upgrade.”
And thats why you saw us respond and make some changes in the announcements that weve made to try to be responsive to the things that people seek.

You know, when I take a look at it and say, you know, per hour use what do you pay for a copy of Microsoft Office, its not a big number from the perspective of the end user. So I think we deliver an incredible amount of value in the product, and I think our new versions add even more value. So I feel good about that.

But we still live in this competitive environment and when we get pushback as we get hard pushback from customers, were going to respond and listen to that.

TOM AUSTIN: If you get hard pushback again this June coming, are you going to push the date back again and change the terms yet again? When do you dig in and just …

STEVE BALLMER: I dont think well hear anything new — I think its actually July, we extended it to July 31st, to be technically correct. I think thats right. But I dont think were going to hear anything then that were not hearing now. And, boy, have we heard loud and clear, you will change some things. So Office 2000 is now current, aye-aye. That was a clear change we heard from the customer base. We have a number of customers who are actually better off with the new program than the old program. We have some customers who are about the same. And then from the customers who are worse off, we got plenty of feedback. Weve responded to it. I dont think were going to hear any new arguments. So I think were kind of done because weve heard what people had to say.

DAVID SMITH: With regard to things like Office, are you somewhat trapped by the success of it? I mean, weve heard a lot of talk of innovation, of things that you were going to do with it that havent yet shipped to market. Are you having trouble being able to bring that to market and maintain the compatibility? Why havent we seen a lot of the innovations that weve heard about in that space?

STEVE BALLMER: Well, I think youve seen a lot of innovation, and we always run the risk, we either talk too much or not enough about what were going to do in the future. I have a very exciting vision for how the life of the knowledge worker changes. Some of that you already start to see in Office XP. In Office XP, if people in the audience havent used it or had a demo copy, set up a SharePoint Team Services site, seen what that means in terms of collaboration amongst people, built an application, for example, that uses our Smart Tags capability to let Office sort of plug into other XML date sources, its fantastic. Its real innovation. And the XML infrastructure in some senses is all built in, the collaborative infrastructure is built in.

Is there more we can do? Sure, theres more we can do help meetings, to help collaboration, to help people really track and research documents, to take notes, to do annotation. And were hard at work with the next release to do those things.

TOM AUSTIN: But not to try and put you in a bad position, theres an awful lot that hasnt been done with Office. You know, there is inconsistent behavior from one application to the next. Its been there for multiple releases. This isnt an attack on your process so much as a question of how do you get out of this. You have a dilemma: Youre between a rock and a hard place. We think that we have in your engineering organization, among your engineers some really bright people who have come up with entirely new paradigms, get rid of forcing people to figure out, all right, what application do I have to start and all of these things. You have bright engineers, who have come up with entirely new ways of doing it and youre held back, we think, by your fear that these people out here will go ballistic on you if you change file formats, if you dramatically change user interface. How are you going to introduce a whole new wave of innovation, given the fact that youre in this trap?

STEVE BALLMER: Yeah, we know these guys love file format changes. Thats one of the favorite things we do for people. (Laughter.) There is an element of truth to what youre saying. The number one thing actually I think weve kind of decided is it doesnt make sense to shift Office to the whole new paradigm unless were going to shift the systems infrastructure. And so in some senses we ought to let Windows lead. You really dont want the core applications in the operating system having different paradigms of how to work, and theres some work we want to do in the core operating system and well move the applications kind of in concert with that.

TOM AUSTIN: So give me a sense of when can we expect or where can we expect to see dramatically new paradigms for the knowledge worker rather than just sitting inside applications inside Office.

STEVE BALLMER: I would say two Windows releases away — not one, but probably two Windows releases away. And until Windows kind of sets the context for not only Office but Adobe, but Groove, but Dassault Systems with CATIA so that all ISVs can make the paradigm shift, we want to have the systems infrastructure to support a new UI paradigm when we do it, and we want that new UI paradigm to also have a new context for application integration that builds around XML and XML schema, et cetera.

DAVID SMITH: Let me shift to another area, a question about .NET and the strategy. People are now I think finally beginning to start to understand this, which is good, and we can see a lot of reasons why its a good thing for Microsoft. Help the folks in the audience understand why is it a good thing for them.

STEVE BALLMER: Okay. I think if we were on a day-to-day basis, Im not sure what response wed get, any of us, to the question, whats the number one issue people in IT face, but if you could take a 40,000 foot view, I think youd get the answer that says my number one challenge to providing more efficacy in my company is integration. You know, “Darn, the CEO wants a better dashboard of information to understand whats going on. Darn, they want to see an integrated view of customer profitability. Darn, my systems dont talk to my small trading partner systems.” Almost every one of these at the core is a problem of integration, how do we get applications to talk to applications, businesses to talk to businesses, devices, how do you get devices to talk to applications when they werent designed.

And I think at its heart XML is a foundation that allows the industry to go after these issues of getting systems to work better together and facilitate IT people or end users. I mean, me as an end user, Id just like to have a page at home that had my calendar, my wifes calendar, you know, my e-mail from work and a couple other things. I cant put that page together. So integration is the key to XML and I think .NET will be the leading platform to let people take advantage of that.

DAVID SMITH: So things that you talked about like your calendar and those things that would be served on the network, those are the things that youve gone and announced under the (code) name Hailstorm and (now) .NET My Services and this Passport identity service, which you recently announced to open up, which I think is a good thing. Yet just a week or so later another alliance, led by your friends at Sun and 21 of probably your bigger customers, announced this thing called Project Liberty, which is supposed to do pretty much the same thing from what we can tell. Why dont you just join the thing and be done with it?

STEVE BALLMER: Well, I guess the first answer would be we werent invited. (Laughter.)

DAVID SMITH: Thats not what they said.

STEVE BALLMER: Maybe thats not a surprise, that it wasnt that surprising in the current litigious frame of Sun.

DAVID SMITH: Thats not what they say though.

STEVE BALLMER: They dont say that? Honestly, if there was somebody who was invited, theyre not known to me inside Microsoft.

But if you take a look at it, I think what we announced is right. I dont think the Sun thing has — I think the Sun thing has absolutely zero probability of mattering to the world. (Laughter.) And thats my non-emotional view of the topic. (Laughter.)

TOM AUSTIN: How do you really feel?

STEVE BALLMER: Why should it? None of those customers are deeply aligned. Theyll take advantage of things that make sense. If our stuff makes sense, theyre in with us also. If AOLs stuff makes sense, theyre in with them. AOL and Sun have a huge joint venture and they couldnt even get AOL to participate in this thing? What kind of craziness is that? It just shows you the weak foundation on which they build. I mean, its a little bit nutty.

Wheres the application? We have 120 million users to start. AOL has got about 30 million users to start. How many users does Sun have? Whats the seminal application thats going to encourage people to go get an ID?

I think the thing is one of the craziest things — I mean, guys at Microsoft say the new strategy at Sun works a little like this: Microsoft announces something called a hole. Sun says,
“No, you shouldnt build a hole for two weeks.”
Then they say,
“Were going to build a better hole on the moon, but we dont have any equipment yet to get there, and were going to call it J-hole.”
(Laughter, applause.) So this whole Liberty United thing feels like another J-hole to me. (Laughter.)

Okay, Ive got to get back in my chair now. (Laughter.) Four years later —

DAVID SMITH: Well, since you brought up the
“J”
word, we can talk about it. (Laughter.) I know never to bring up the
“J”
word at Microsoft, but since you did, thats actually something theyve done thats been pretty successful over the past two years, and a lot of our clients, I even heard this here when one of them said it on the video, just here in the audience, people want to know why dont you just give in a little bit and do whats right for the customers who have made some investments and just try to make life a little easier for them and not fight it all the time?

STEVE BALLMER: Well, if you look at what we tried to do, what is it now, six years ago I guess when we first signed our deal to license Java from Sun, we tried to do precisely that. When we signed our original deal, which I guess must have been probably late 95, early 96, when we signed our original deal with Sun, we didnt go in thinking, “Oh, this is all just great for Microsoft; arent we delighted that we get to participate in Suns world,” but we said, “This is the right thing to do for customers.” We said to ourselves, “Weve got to be able to innovate in this world. Weve got to be able to add some value.” We did that. We had the whole blah, blah, blah with the lawsuit, et cetera.

And were really at a point today where we cannot realistically participate. Based upon the settlement that we reached, we cannot realistically participate in any meaningful way in the Java world.

So we still have our JVM in the market. Its a pretty good JVM despite the fact that we are not allowed to work on it essentially.

DAVID SMITH: But you dont even ship it on Windows XP anymore?

STEVE BALLMER: We allow people to download it. But I wont tell you in most cases its the best JVM. And given that I know we cant work on it, Im not sure its the right thing to do to customers to put it out there and suggest that it is. We let customers download it. Our OEMs can include it if they want to. They can include somebody elses JVM.

I actually think what were trying to do here is very pro customer. If we could do even — you know, if we had the ability to do a little bit of innovation and improvement and could really take some pride in ownership in it, Id understand. I mean, the rude thing to do would just be to withdraw it completely, which we didnt do.

TOM AUSTIN: So if Scott would give you a little bit of room to maneuver here, youd re-include it, youd work more on it?

STEVE BALLMER: With that kind of commitment, not to litigate again? I dont want to be back in court. I dont want what looks like room for five minutes and then get the rug pulled out from under us again.

TOM AUSTIN: This is a challenge. Its a challenge to Sun —

STEVE BALLMER: You can make it one if you like. (Laughter.) I consider it as likely a challenge as my climbing Mt. Everest in the next two weeks, but its okay. (Laughter.) Ill get fit. (Laughter.)

Theres not much we can do. We are — I think we announced this a couple days ago or were announcing today something, our Visual J# product, which some people will view as a Java product and others wont. Its a Java syntax product that talks to the .NET framework, so it looks a little bit like Java, and some of our folks will tell you its disingenuous to even say its Java, because a lot of people assume the frameworks and the class libraries around Java to be part of it.

So its not that we dont understand that customers have investment and training and understand of Java, but our hands, to the degree we dont have a license, our hands and our ability to add value in that world is somewhat limited.

TOM AUSTIN: I want to bring u a subject that we talked about on stage now for three years running, as we close. Its the subject that I call the conspiracy of silence.

STEVE BALLMER: I knew it would come up. I didnt think it would be the last question though.

TOM AUSTIN : And the question I have, I mean look at all the people out here.

STEVE BALLMER : I see them. (Laughter.)

TOM AUSTIN: Today you have a set of terms and conditions in your product that gives you the right to find them in breach of contract, in violation of your intellectual property rights if they publish — if any of these people here publish any performance information related to your product, you retain the right to file suit against them. Why do you want to retain the right, the possibility to sue the individuals out here if they publish information about the performance of your products?

STEVE BALLMER: We never have.

TOM AUSTIN: But in your history youve never changed your application of your terms and conditions. Youve never changed the way you deliver your license.

STEVE BALLMER: You said we do have the right. I agree with that, and Im saying weve never sued anybody.

This relates to the issue of benchmarks and disclosing benchmark data. Let me just make — Tom and I go through it each year. Each year he tells me were wrong. Each year frankly Ive dug into it in depth and each year our people have convinced me that this is industry practice pretty much. We have competitors, particularly in the database business, who are reasonably unscrupulous about the way they use or dont use benchmark data. And we have decided that the only benchmark on some of our products to be published are benchmarks that are done officially under an explicit agreement, which is kind of, as I would say, industry practice.

If one of our customers did a benchmark and shared it with another one of our customers, its not going to be an issue that would cause us to bring a lawsuit. Youre right the agreement is written so it could permit that, but if you have a benchmark or you want to share —

TOM AUSTIN: To prevent that.

STEVE BALLMER: Yes, it doesnt allow that by its nature, but if one of our customers here has a benchmark that you want to share with somebody, just let the Microsoft account person know, theyll give you a quick letter and let you be off to the races.

TOM AUSTIN: So theyve got to get permission from you —

STEVE BALLMER: Its industry practice.

TOM AUSTIN: Its not a question of the industry practice, okay. Just because —

STEVE BALLMER: I know you dont like the industry practice, but we are not the market leaders in the market. Were the new guys on the block, so to speak, and were playing by those big, tough guys rules. (Laughter.) Im not asking for sympathy, but IBM and Oracle are pretty big guys.

TOM AUSTIN: So youre going to retain on the books the right to sue these people if they publish that information? You cant make that change?

STEVE BALLMER: Each year he makes me feel bad about this, too, and each year I go jerk around about 40 guys after the Gartner symposium on this — (laughter) — and each year I lose, because I have some sympathy for what youre saying. So dont bleed me dry here. Ill jerk 40 guys around again and well see if I do any better this year.

TOM AUSTIN: Great. (Laughter, applause.) So, Steve, thank you very much.

DAVID SMITH: Thank you.

TOM AUSTIN: Wonderful. Thank you, Steve.

(Applause.)