Steve Ballmer Speech Transcript – Fusion 2002

Fusion 2002

“Partnering for Success”

Remarks by Steve Ballmer, Chief Executive Officer, Microsoft Corporation

Monday, July 15, 2002

ANNOUNCER: Ladies and gentlemen, please welcome the Chief Executive Officer of the Microsoft Corporation, Steve Ballmer.

(Applause.)

STEVE BALLMER: Thank you. It is an indescribable honor, privilege and pleasure for me to be here today. There are two aspects of this great pleasure: One is I get to get up and give a speech and a talk to the finest group of partners, friends and allies our company has ever had. That’s pretty darn good and I want to thank you for that.

(Applause.)

Number two; I know I get 45 minutes at the end to take your questions, comments, thoughts and problems. And I will tell you, I will tell you honestly every time I sit down with partners, more than customers, more than employees, more than anybody else, if I want to get a long list, long list of things to do, I sit down with partners. Partners tell you more than anybody — I’m not quite sure why. They’ll tell you what’s good and more importantly what’s bad, what needs fixing, what needs improvement, what needs rework, you know, “You guys are okay but here’s the 28,000 things that might make you above average.”

So I’m going to get through this speech and I’ll give you a little bit of a spiel and you’ll hear what I’ve got to say. Hopefully some of it will be interesting to you, but I think on this one probably the most interesting thing and certainly the thing that’s going to be most demanding for me is the work list that you give me and you give our team not only during the Q & A session at the end but I’ve already had a talk with Mike Sinnick and some of the other folks who met with you and they already tell me you’re keeping them pretty busy and I’m very appreciative, frankly, for that, because if we don’t get the direct and honest and focused feedback here that helps us to improve we’re not going to be better, we’re not going to be better together and perhaps most importantly we’re not going to be better and more effective and more successful in front of our customers. So I’ll look forward to that for the next 30 minutes or so and then you can lay it on me, so to speak.

This has been a tough year. It’s been a tough year in a variety of different ways, I would say. The economic climate is truly unique, almost unexplainable in some senses. I was reading an article I guess in the New York Times over the weekend — the New York Times , Seattle Times ; they’re quite different newspapers, but I can’t remember which one it was. But it was talking about what is really going on today in the tech sector. Is what we’re seeing really just the dot-com and telecom bubble bursting? Is it something more than that? Is it residual from Y2K?

I don’t have an elaborate and involved theory about this. I do have a fundamental faith, which I’ll talk about, that the technology industry, our company, our partners, the people in our business, we still have more of an opportunity to have a positive impact on the world than anybody else around.

And so despite the fact it’s been a tough year I think about it exactly as that, a tough year, not the start of a cold winter, not the start of a long period in which things change more slowly, in which we can all add less value; I think of it as part of a tough year, because my optimism and enthusiasm about where we’re going is unabated.

It’s been a tough year though in other ways. Certainly I think it’s been a tough year in terms of the level of change that we as a company have gone through and subjected you to. And some of that change I will argue will be net positive over the long run and some of that change has certainly been troublesome over the course of the last 12 months.

We’ve learned a lot about how to focus or not focus our consulting force in the last year. Our strategies never change in what we’re trying to do in consulting, but it sure looked that way in the early part of the year, because we managed to get a misalignment between our incentives and our resources and our strategy in the marketplace that caused our consultants to look sometimes less like your friend and more like your foe than we ever would have intended them to.

The licensing changes that we put in place are an important part of a long-term simplification of what we are doing. I personally reviewed most of the key decisions that went into that and I personally will take most of the blame and credit and responsibility that goes along with it.

But we certainly learned a lot about how to introduce change. The changes that we introduced came too quickly in some senses. The changes that we introduced were thought through, probably if it was a chess game I would say we thought through two moves, we didn’t think through three moves and so there were some unintended consequences in terms of the way things work in our channel infrastructure that we need to go back and take a look at and work on, and times of change are times where there can be additional problems.

One of the things I want to say thank you for is your patience, your perseverance and your support, even as we effected some changes, some of them very well, some of them not so well, but all changes that I think will be necessary and valuable for the long term.

I’ve gotten up at Fusion every year and I’ve made a statement, which I will re-enforce this year. More this year probably even in the past I know this to be the case. Our company’s success is built on the success of our partners. This year more than any other the clarity of that is simpler for me to articulate to people.

Yes, we’ve got a lot of things we need to do in enterprises and small businesses, et cetera, but the range of projects, the range of things going on with our customers so far exceeds any capacity we could ever have or build as a company to provide service, support, training, resale, it blows away anything we could conceive of.

And the basic model on which this company, Microsoft, was founded on is specialization on what we do, and what we think we do well is design, build and market software products and software products that can be delivered over the Internet — we call that a service sometimes but I don’t want to get things too confused in here right now. That’s what we’re good at. And the hundreds and hundreds of thousands of touch points that our customers need to have, we need to have a vibrant, successful partner community that’s making money with us on that.

Why is this year so interesting? This is the year where it’s become very clear, and I’m going to talk about this a little bit later on, where it’s become very clear to us that the competition that we see with this phenomenon called Linux highlights for us the need to have a broad set of very effective, very high professionalism touch points with our customers, and that’s what our partners provide. And it can be a unique strength and a unique asset.

Unlike IBM or some of our other competitors who sell directly, we understand I think pretty well that mass phenomena in our industry, whether that’s going to be .NET or J2EE or something else, mass phenomena don’t come just in high level enterprise selling; they come through a groundswell of activity that has to happen between us and our partners, between you and literally millions of customers around the world.

And we may get some disconnect from time to time in our own organization, but I understand and our team will understand and we will have the highest level of focus on making sure that we and you have a very successful and profitable foundation on which to go forward together.

Earlier this year we spent some time talking about something internally and now externally I guess that we call our mission statement. We’ve always had something called a vision statement; now we have a mission statement, whatever that means. And I’ve got to say I’ve always been kind of skeptical about this stuff. People want to have missions and they’re sort of words and it’s blah, blah, blah, doesn’t mean anything to anybody except the five people who wrote them. (Laughter.) There are a few chuckles; somebody might have done a mission statement in their life.

But I learned something over the last several years that I think is very important and I think probably very important to many of you as business leaders: We have this thing we were working on for years, a PC on every desk and in every home. And that actually was a very riveting and motivating thing for our employees. They got it. They understood it. They understood what it was that we and our partners are trying to do to change the world. Now, the benefits of a PC were sort of taken as self-evident, et cetera, but this notion that says we were involved in something important was really critical.

Well, we’re trying to do more than put a computer on every desk and in every home. We’re trying to put computers in pockets and on wristwatches and in television sets and data centers and a lot of other places that a computer on every desk and in every home doesn’t anticipate, and so we had to really step back and say what is it, what is it that we all do.

Well, what we do is provide businesses and individuals tools that extend their productivity, their capability, their ability to communicate, their creativity. It’s kind of like a tool that lets people and businesses use their collective minds and intelligence in a more effective form.

And so now we talk about enabling people and businesses throughout the world to realize their potential. That’s the benefit people have gotten out of PCs. If you really stop and step back and say, “What is it that people love about the PC,” because there’s plenty they don’t love, they love the fact that they can accomplish things, they can parse through things, they can communicate, they can analyze, they can look things up that they couldn’t do before.

And as long as we keep this kind of a mission clear to ourselves, to our employees, to our partners, the level of opportunity I see is very large.

I went to one speech in my life by Jack Welch. It was very important in terms of shaping my view. He said that there’s this myth that early in his career as CEO of GE he exited all businesses in which they weren’t either number one or number two. That was an important thing that he did. And in the speech that he gave a couple years ago he said GE does not have high market share in any business that they’re in. This seems like quite a contradiction to me. So I said, “What’s this all about?” He said what we’ve learned over at least his 20 years as CEO is as soon as you start thinking you have high market share in some business you just realize how little you were doing for your customers relative to what they really what. If you think expansively enough about what your customer’s problem is or opportunity or issue or desired improvement you see the world differently.

What that means to me is if somebody asks me, “What are you, Microsoft; are you a personal computer software company,” I’d say no. We’re a company that’s going to enable people and businesses throughout the world to realize their full potential.

It doesn’t seem very narrowing somehow but it does seem smart to remind ourselves when we go talk to our Office team, is our Office team’s role to do spreadsheet and word processors or is it to fundamentally enhance the productivity of the knowledge worker? Well, if you look at the kind of stuff Jeff Raikes had a chance to show you, I think it’s clear that we think the answer is it’s the latter, and you think about things differently.

We were doing a business review a couple months ago and I was going through what everybody in the Office team was doing. The Office team has today about 3,000 people. Anybody want to take a guess how many people are working on core new spreadsheet capabilities? I can guarantee you I’ve got enough digits on my hands and feet to count; it was like 20 people. Most of the people are working on collaboration, note-taking, digital meetings, a variety of other new scenarios.

And so this notion of saying the mission is broader is important, and it affects our relationship, which is why I share it with you.

The number of new things that we’re going to try to do will increase over time, not decrease. Particularly in this environment in which the antitrust litigation that we’ve been involved in I think has been quite on people’s minds, one of the questions I get from partners is, “What are you going to stop doing? Where are you going to retrench?” We’re not. Where we think we can add value to people with software technology that’s consistent with this mission we’re going to push forward. So we’re pushing forward with new technology incubation in storage, in management, in security.

You just heard from Doug Burgum. We think that the small and medium business market is still not well served by IT. And if we do a little more software and we put that software, higher-level software in the hands of an incredible partner community we think we can raise the level of experience and satisfaction and productivity that small and medium businesses get out of these technologies quite a bit.

So the mission is to think broadly about what we’re doing. Consistent with that mission, we’ve talked to our people and I say exactly the same thing to our partners about how we’re going to do it. It all starts with great people with great values, great people with great values. We tell our employees you’ve got to have passion for customers and technology and partners. We tell our people you have to be accountable to customers and partners and shareholders. We tell our people they’ve got to be honest and high integrity. We tell our people they’ve got to be open and respectful. There’s a lot we need to do and we’re going to keep just pushing hard to have the greatest people with the right values and to have a partner community that wants to share that sense of great people and great values.

We have to be excellent in everything we do. And that sounds kind of hokey, but it causes you to focus on quality over quantity.

How many new partner programs do we need in the next three years? Answer: A few excellent ones, not dozens that may meet more needs but not be as well done, so quality over quantity in terms of excellence.

Trustworthy computing: Bill Gates put out a memo that talked about the need of our product line and our company to really be able to be trusted and depended upon for businesses large and small by producing products that are more reliable, available, secure, more able to help people with privacy and other important issues, and to make sure our customers and our partners can depend on us and trust us in every sense.

Broad customer connection: I talked about these millions of people we need to reach, and even with as vibrant a partner community as we have, 800-some thousand partners around the world, over 30,000 certified partners, there are still more customers out there than any of us can talk to. And we have to keep redefining the relationships that we have with our customers so that it is broader, more real-time and more connected. That’s got to extend all the way from customer and market research on through support.

A small show of hands, how many people in the audience use Windows Update — Windows Update? Okay. Windows Update is a facility in XP, for those who don’t use it, that sort of helps you keep your system continuously updated. That kind of broad connected relationship is the kind of thing we have to push much more universally throughout our product line so that the products help you and help us, not just us, not just you, not just the customer but all three of us stay much more connected.

Innovative and responsible platform leadership: I said we’re going to push to do new things. Many of those things will start with platform infrastructure, features of Windows and .NET that are a platform on which the whole industry builds.

Many people may realize that we kind of started down the saga of litigation by integrating new capabilities into Windows. We have a new set of obligations and responsibilities under the consent decree that we signed with the Department of Justice, but one of the fundamental things that remains intact is our ability to continue to put new things into Windows.

I was with a group of partners in Dallas last week and we were talking about whether this is good or bad. Some of these partners were even yearning wistfully for the days when integrating TCPIP stacks into operating systems was a good source of systems integration revenues.

We’re going to continue to try to put more into the products and continue to move out the frontier on which you add value. Things which we can do once in R & D that applies to everybody around the world should be done that way and you should be able to add value by focusing in on the unique needs and issues of the customers that you see.

I talked about our desire and focus on doing new things, not just staying in existing businesses, but we’re only going to focus in on areas where we think we have unique ideas. I don’t know how to redo enterprise ERP systems. I don’t think that’s an area where we have the ideas today to change the rules, to have new ideas, so you’ll see us partner with SAP, with Siebel, with PeopleSoft and others; consistent with the notion that says we have some ideas but our ideas are more trained and more focused and developed and appropriate around smaller and medium size customers.

And last but certainly not least is a global inclusive approach. This is an important thing for me to explain. The software business only makes sense if you can take a piece of R & D and make it real serious R & D and then make it popular everywhere in the world for the broadest set of customers. It’s the only way the software business makes sense. Otherwise we ought to recognize that what people are doing is custom application development. Even some of these application servers that IBM and others have in the marketplace for large accounts, they don’t make sense to me. How can you put all the effort into building something that sort of lets people write applications and not let them write applications that are appropriate for small or for medium size business, for dot-coms, for large companies?

So we believe in a very broad customer base, which also means then we have to believe in a very large partner base and we have to have a community of partners that can reach and touch everywhere in the world, all kinds of people, all kinds of businesses, and that’s an important thrust for us.

Orlando talked a little bit about the fact that we today see ourselves in seven core businesses, all around a common technology platform, Windows and .NET, and I’ll explain that in a second, and a common partner infrastructure, common customer infrastructure.

Why is this notion so important? Because in many ways today you’ll see us sometimes in events like this as one company with one integrated strategy but we need to have uniqueness and focus in the strategies in every one of these businesses for every kind of customer.

In fact, it’s so important to me to get our product development people thinking through our customer and partner relationships that we’ve actually asked each of our product development people to kind of be kind of an, what shall I say, overseer for the relationship we have with certain customers.

Jeff Raikes, whom you had a chance to hear from, he’s now the product group executive who’s going to partner up with Allison and people like that to make sure we’ve got the right partner infrastructure in place to go to market.

Resource allocations in our company start with these businesses. One of the problems we’ve had in working with our partners I think has been we allocate some resource, we give a big speech at a meeting like this and tell you it’s going to be there and then what happens, it gets shuffled away to do something else, maybe even something valuable, who knows, but something else.

And so in a sense what we’re trying to do internally is create a system and a structure that allows us to have more focus, more uniqueness in our resources and to make sure that when I get up here or Orlando gets up here and tells you we’re adding 400 new people to focus on our relationship with partners, we don’t wake up a year from now and find out that people decided that should be 62 new people focused in on partners and 338 more people selling Commerce Server in large accounts or whatever the case may be.

This is internal laundry but I wanted to air it with you because it gives you a sense of where we’re coming from. It also gives you a sense of what areas of technology we’re investing in: Windows, servers, knowledge workers, consumer services and MSN, handheld devices, home and entertainment devices like Xbox and TB set-top boxes. We have a pretty I think cool product in the marketplace this year we call the Windows Media Center PC, which will allow you to kind of control a TV set and have a PC all wrapped in one nicely integrated box.

Business solutions: Business Solutions I think is going to be a huge growth opportunity for us together. For anybody who cares about small and medium size accounts I know we only have about 30 partners, former Great Plains partners, now Microsoft Business Solution partners with us, but particularly for that small and medium size business sector I think there’s a lot of value for us to add together.

.NET: What is our platform is a question I’ve gotten a lot from partners lately. Is it Windows or is it .NET? And my answer is both, of course. And I think we’re going through a cycle that in some senses is exactly like the cycles we’ve gone through before. DOS was a platform. We introduced Windows, which was a platform. And eventually DOS got sucked into Windows. We introduced Windows with Internet Explorer, integrated but people thought of them as two separate platforms, now being converged together. Windows and .NET sort of comes out as a separate platform that works in conjunction with Windows but with the Windows .NET Server and our next generation client releases .NET and Windows get integrated in together.

Why are we doing .NET? I’ve had partners ask me this and even backstage I asked our people, what do people in the audience think of .NET? And I had two very different reactions. One person said to me, “God, there’s a lot of partners doing extremely interesting things out there, Steve, with .NET. You’re going to be real excited about that.” And then another person said, “And the other partners don’t know why we’re doing .NET yet. It doesn’t seem very relevant to them in small and medium sized or particularly smaller sized businesses.”

And the truth of the matter is, and I think it’s important for people to have in their heads, the entire IT industry somehow made a decision in the last several years — it’s a really weird thing that happened but the decision was made. It’s not like a bunch of people got in a room and made it but a decision was made. The entire technology industry is re-platforming around XML. And when we look back five years from now, six years from now, seven years from now everything will look quite different.

People say to me, “My business is consulting services around security.” The way security gets done in five or six years will be quite different. Firewalls will need to be redesigned and rebuilt around the XML world. Storage is going to get redone around XML storage systems. The way management gets done will be all very different.

And people say, “Okay, well why, though, why? What’s the big benefit?” I think the benefits are twofold: Number one, we need to make it easier to build applications and number two, we’ve got to make it easier to connect systems, connect systems, connecting things. The easiest thing to do is to plug two things together if they’re designed correctly. And I bet the hardest thing to do for many people in this room is to connect two things together that aren’t designed properly.

XML is essentially kind of a common language that will allow computers and devices to be connected together more easily. And whether you’re building a B2B supply chain for one of your customers, whether you’re trying to get data out of a system and put onto some kind of small screen device like a phone or a PDA, you’ll value the fact that XML is the standard data interchange medium for all of these things. XML will be the standard way that you get an accounting system like our Great Plains stuff to talk to a product like Microsoft Office.

I saw an incredible demonstration the other day. Particularly with WorldCom and all this stuff in the news it was particularly interesting to me. There’s a new XML standard that’s come out for financial reporting. So instead of a company just publishing a Web site with its financial statements and then you can see them in a browser, you can actually publish your statements in XML format. And then if somebody wants to download those and take a look at them in Excel, because Excel handles XML, voila, that works, that happens.

If somebody else wants to collect a bunch of financial statements and put them in a database and do some analysis, say like maybe the SEC, for example, it’s super simple in real time for them to do it because an XML standard exists.

And I don’t care whether you’re a small company, medium company, a large company, XML will change the way your IT infrastructure works and that’s why we spend so much time talking about it with our partners.

Some of our partners will say, “Look, this is too early for me in my business.” And you know what I’ll say, “Okay. Wait. It’s okay to wait.” It’s not okay though for us to not tell you something so important and so obvious to us.

We’re going to spend in the next 12 months someplace between $5.5 and $6 billion in R & D, and literally everything we’re doing across that entire spectrum of businesses that I talked about is being redone around XML. We’re redoing the Windows file system. We’re redoing the Windows presentation system. We’re redoing Office. We’re redoing the way Microsoft Business Solutions are constructed to be XML based. We’re redoing SQL Server. We’re redoing the Visual Studio tools. We’re redoing our management tools to be XML based.

And for us not to share that with you and at least help get you to understand that’s coming and then let you intelligently decide when to rewrite your applications if you’re an ISV or to help you intelligently decide when to retrain your people if you’re a consultant or integrator would be wrong.

So we may be a little ahead of the power curve for some of you, but I think that’s partly why you come to meetings like this is to try to understand where things are going. And this one I guarantee you is going the direction not only for Microsoft but for the industry that I talked about.

We see our technology then around that coming kind of in three waves: The current wave, which is really about Visual Studio .NET, XML standard support. Some people say, “Microsoft, are you really serious about supporting XML as a standard?” And you know what I say, “Yes, we are, absolutely, 100 percent.” People say, “Well, why?” And I say, “Look, we’re going to have proprietary ways to write software and all that stuff but at the end of the day for XML to deliver the value it needs to for our customers and partners there’s got to be a standards based infrastructure.” Interconnection doesn’t make sense unless it helps connect things that are disparate.

One of the biggest issues we’ve had in our enterprise business with many of you is how are we going to get Microsoft systems to interoperate with systems from other people. XML is like a lightning bolt from above for us on this. It’s an architected way for us to make sure that we interoperate with the stuff that you might work with from IBM, from Oracle, from others that are very important.

Windows .NET Server is sort of the culmination point I would say of this wave.

The next major milestone for us will come in the next wave, which we call the Yukon wave. Yukon is a codename for our next generation database product. You might ask when does that wave come and it’s a little bit like drifting in the sea writing software. The closer the wave is the more clearly you know when it’s going to crash over your head. The farther out the less precise it becomes. So the Yukon wave is probably a year plus from now, but the Yukon wave really focuses in on core plumbing to make sure that our databases and file sharing technologies embrace XML and that you can store XML very natively into the file system.

And then really the place where we kind of bring it all together will be at least two years from now, could be longer so we’re not going to get into copious detail, but this is a wave around the next major release of Windows, a Windows client release, a server release, a database release, a tools release, an Office release where we really try to bring together in its entirety not only for the developer and for the IT person but also for the end user the full XML support is there in kind of an integrated and natural way, and that’s an important wave that will be at least a couple of years from now.

Today I want to make just two announcements quickly since Im running long, but I do want to make sure you know about two exciting things that we have coming out. The first is the next release of Microsoft Exchange, which has been codenamed Titanium, for those of you who have been using the beta perhaps. This is a release of Exchange really designed to, what shall I say, work on and address issues that our partners and our customers have highlighted.

We’ve built in the wireless access so you don’t have to go buy a separate product. The so-called MIS or Mobile Information Server capabilities are just built-in for talking to phones, for talking to PDAs. We’ve improved the scalability and availability based upon some key technologies in the Windows .NET Server. We’ve increased the abilities for developers to write collaborative applications on Exchange with improvements in its development infrastructure.

And last but not least we have some new protocol supports that we’re doing and there will be a new version of Office and Outlook that takes advantage of Titanium to improve some of, what shall we call them, the small peccadilloes that people suffer with today using Outlook and Exchange. Some people don’t like it when Outlook hangs up on the Exchange Server. That can be frustrating. Some people don’t like download times over slow links. Many of these issues we have pushed to address from a usability perspective in the Titanium release.

The Titanium release will be middle of next year. It will happen at the same time as the next release of Microsoft Office. The next release of Office there’s a focus in one XML, there’s a focus in on new user features to support digital meetings, electronic note-taking, personal information management and e-mail; a pretty dramatic enhancement to the Outlook product and that will come in a version of Office about the middle of next year that we call Office 11.

To share with us a little bit of what you’ll see in Office 11 and Titanium I’d like to invite Jim Bernardo from the Exchange product unit to come on up and do a short demonstration. Jim?

JIM BERNARDO: Thank you, Steve.

(Applause.)

Thanks. So, Steve, as you know, we’ve been talking a lot about connectedness at this conference and connected systems and connected businesses, and our developers for Titanium and Office are working very hard on delivering an exciting new connected user experience for users of Outlook and Exchange, and they’re also working very hard, as you said, on further reducing the cost of ownership of technology through advancements in things like server consolidation and manageability.

What we’re looking at here is actually my inbox, live, and we’re looking at it with Outlook 11. One of the very first things, which I was going to save till the end but it’s popping up here so we’ll talk about it, one of the things that the Outlook and Exchange teams have been very focused on is this thing that Steve mentioned about making it a lot easier for users to move from context to context. So when I’m sitting in my office, I’m tethered to the corporate network, much the same way that I am here, if I have to move and go into a meeting I’ll unplug the network from my laptop, go into the meeting and in the past what I’ve had to do is shut Outlook down and bring it back up in offline mode so that I can continue working.

What the Outlook and Exchange teams have done with Office 11 and with Titanium is to build some technology that enables Outlook to dynamically switch modes not just between online and offline but to kind of sense what level of connectivity I have and provide the best delivery of information based on the available connectivity.

(Applause.)

That’s something people like. That’s one of those peccadillo things you were talking about.

STEVE BALLMER: It sure is.

JIM BERNARDO: So let’s step back a second and let’s just look at this new version of Outlook. What you’ll notice is that the user experience just feels more natural to me, and, in fact, things flow in much the same way as a newspaper, for example, from column to column moving from the left to the right.

So over here on the left I have my folders and my shortcuts. Then I have my inbox. And we’ll come back to both of those in a second, but I want to spend a second talking to you about the new mode for previewing messages in Outlook 11.

First of all, you’ve noticed we’ve moved it to the right instead of on the bottom and I have a much larger viewing area so I can see all of a message or most of a message if it’s really very long. And you’ll notice that it’s very readable. It just feels easier to read and that’s thanks to the incorporation of some ClearType technology in the preview pane.

Now, you’ll see that this is dynamic so that if I resize the window the message is also going to automatically resize and it just reads the way it would look if I printed it out on a piece of paper.

Now, how do we like that? (Applause.) Good.

All right, so let’s move to my inbox and again I told you this is real. I’m getting the weather forecast and an invitation to a ballgame. I know for me personally — I’m sure it’s true for everybody in this room and for all of our customers — I’m getting way too much e-mail. I’m getting more and more stuff that I need to figure out what to do with. And I could waste a lot of time maneuvering through trying to find the right information that I need to take action on, messages that I need to respond to and so on, but at the end of the day Steve doesn’t pay me for maneuvering through my inbox. I get paid for taking action on the stuff that’s there.

So one of the things that people often do is they’ll flag a message to me for follow-up, you know, please do something with this message by tomorrow at 5:00 in the afternoon. And, of course, that’s very important for them but I need to fit all of those flagged messages that I get into my own set of priorities to make sure that I’m responding to things in the way that I should be responding to them.

So one of the things that you’ll see now, Steve, is we have the ability right here by right-clicking in my inbox to not only set a flag but I have about half a dozen or so different colored flags that I can set. So this message here that Jensen sent to me yesterday is really kind of a purple flag; it’s not something I need to follow up on right away, but it lets me in essence create my own taxonomy of priorities for the things that I need to follow up on, because my inbox really is like my to-do list.

Now, I also usually file things into folders, right, and there are a lot of people, and I’m sure a bunch of them in this audience who have trees of folders in their inbox a mile long. So I may drag this off and put it into my Jensen mail folder and then I may forget about it, or tomorrow or the next day I go look for that e-mail and I can’t remember which folder I put it in but I know that I need to go find it. And today in Outlook I can do some searching but it’s not really easy to do.

What we’ve done with Outlook 11 and Titanium is we’ve introduced this concept that if you think about a database as sort of like a stored query, and there are a couple of these that will come pre-built with Outlook 11 and it will also be extremely easy for me to create additional ones on my own, but you’ll notice that there is a thing here called For Follow-up, and if I click on it what’s going to happen is Outlook and Exchange are doing a search across all of my folders in my inbox for anything that has a flag and surfacing that for me so it’s very easy to find the information I need to follow up on.

(Applause.)

The next thing I want to show you is if you look at my list of folders in the left column you’ll notice that there’s not a whole lot there, right. Outlook is doing a lot of things kind of off the bat that just make it easier for me to navigate through information.

So first of all Outlook and Exchange are keeping track of which folders I go in most often and those are the ones that it’s showing to me. Now, if I want to go find another folder that I haven’t gone to in a while I can simply click here on All Mail Folders and immediately it will show me my full tree.

So a lot of the focus here is not on bringing new features necessarily but making the features that already exist much more accessible.

And you also notice, by the way, this is something I neglected to mention before, Steve, but if I go back to my inbox, you’ll notice that Outlook is sort of automatically categorizing things for me by when they arrive. So you’ll see I’ve got messages grouped by everything that came in today and what shows up when I look at those messages is the time that they came in. And if I go a little bit farther down, for example to messages I received three weeks ago, Outlook is only giving me the date, because three weeks ago I probably don’t care what time of day it came in, I care about exactly which day it came in.

STEVE BALLMER: The guy’s got 2,383 messages in his inbox. How can you care about anything?

JIM BERNARDO: I’m a piler, not a filer. (Laughter, applause.)

STEVE BALLMER: That’s just you’re on Red status, for gosh sakes. (Laughter.) I hope none of those are from our partners.

JIM BERNARDO: No, those are the ones I answer right away, Steve, right after your e-mails. (Laughter.)

So that’s really all I wanted to show you today. (Laughter.)

STEVE BALLMER: Is it really? Good for you.

JIM BERNARDO: Thanks, Steve.

STEVE BALLMER: Thanks, Jim. (Applause.)

STEVE BALLMER: We though we’d wet your whistle. I hope for demonstration purposes that makes things fun, but I’ll tell you it’s one of the issues we’re battling and I bet some of you are also battling is how do get your people to keep their inboxes fresh enough that you know that no customer or partner of yours e-mail is going unanswered. I think we’re getting almost to crisis proportion in terms of making sure we give people the tools they need, because e-mail has become such a vital part of the way I think all of us now communicate with our customers, but the tools we need to really manage it as the kind of responsive, customer-oriented tool it needs to be.

Competition: I want to talk a little bit about competition. I want to talk about it in a different context. Up at the front of the presentation I talked about the tenets of customer connection, trustworthiness, et cetera, that are important to us. We know at the end of the day we really only have one mission. It’s not to beat competition or grow revenue. Those things are important, but the real mission we have is to have lots and lots and lots and lots of very satisfied customers.

It doesn’t matter where you are, who you are, whether you’re Microsoft or a smaller company. It doesn’t matter whether you’re in the software business or anything else. You succeed in life by having lots of customers and having them happy. And neither one of those two attributes can you fail on. At least in the kind of business we’re in, if you have one happy customer you’re in trouble.

So it’s not enough to just have happy customers, and it’s also not just enough to have lots of customers. It pains us when we see people with issues, questions, problems they’re trying to resolve with Windows, with our development tools, with the Office product line, et cetera.

So we have to push hard, push hard. And in some senses I think the down economic climate and everything else has only put greater premium on all of us to focus in on the satisfaction of the customers that we have.

We’re living in a bit of a new world competitively, not one I recommend to most people out there, but we do have a bit of a new world. We have one competitor who competes with us in a new way. We have prided ourselves on always being the cheapest guy on the block. We have always told our people we’re the high volume, low price guy in the software business. We’re going to be higher volume and lower price than anybody else out there. And whether it was Novell or Lotus or anybody else we always pushed Sun, Oracle, IBM, low price, high volume, because we think at the end of the day that when you start with a lower price than the other guy, that’s going to make customers happy. Customers like low prices, and a good part of what has happened in the PC industry has been cost has come out of IT as things have moved to a more specialized higher volume model.

The one issue we have now, the unique competitor we have is Linux. We haven’t figured how to be lower cost than Linux. (Laughter.) Lower price, I should say. We can be lower cost; we can’t be lower price.

And so for us as a company we’re going through a whole new world of thinking. We know that many of you do work around these other platforms and what we need to do is always have a value proposition in front of you and for you to be able to have in front of your customer on why a solution from Microsoft delivers more capability at an appropriate price.

In the old days we used to just say we had more features, more capabilities, more ease of use and a lower price. In the case of this special new competitor we have, Linux, we’re actually having to learn how to say we may have a higher price on this one but look at the additional value. Look at how the value actually leads to lower total cost of ownership despite the fact that our price may be higher. Look at the difference in ease of use. Look at the difference in terms of how comprehensive and integrated our offer is.

I know Bill Veghte had a chance to walk you through many of these attributes on the server. The thing I want you to know as our partners from me is this is a new kind of competition for us. We’re competing in a world in which customer satisfaction is prime. We’re competing in a world in which we don’t always have the lowest price. And so it’s got us riveted — value, value, value, value, value — it’s got us riveted on how to work with you to tell the story of the value that our products can deliver to the customer in the most powerful way. It has us as riveted as we have ever been on making sure we have all the customers we could possibly have.

I still tell our sales force there’s never any reason to lose a piece of business, and the day you find a reason that we should lose a piece of business we need to make sure that our development teams, our marketing teams, our support teams are taking away those reasons. We have to push ourselves to be better. And I want to have you push us to be better.

We want to have more customers than these guys. We want to win business versus these guys. But we need your help in pushing us, not only pushing the customers but pushing us on what we need to do technically, business-wise, et cetera to have a better, more compelling, higher value proposition in the market than any of the folks that we compete with.

I talked at the beginning of the speech today about the fact that we’ve got over 800,000 partners, about 35,000 certified. You are really quite a diverse lot who are here today, people who build computers, large account resellers, direct mail resellers, integrators, distributors, retailers, consultants, trainers, support providers, development companies, ISVs. It’s really quite a diverse lot. Some days I wake up and I wonder, my oh my, how do you even have a conference like Fusion, because you have such a diverse set of interests.

We think though it is important that we continue to do this kind of an event. We think there are some things you all care about. There are some things about the way we’re running our business, our focus, the technology direction. It doesn’t matter which walk of life you’re in; we want to make sure we have this kind of an opportunity to share with you.

I gather at this meeting we were light on content that was appropriate for the independent software vendors particularly. I’ve gotten that feedback. I don’t want anybody who’s an independent software vendor to think we’ve lost our compass. We think the independent software vendor is an incredibly important part of our partner community. We think not only from our perspective but on behalf of all other partners the best case oftentimes is when a Microsoft platform and an ISV partner solution can come together and solve a customer’s problem.

And so each and every person in this ecosystem of partners is important. Even the taxonomy is tough. We use this list and somebody will say, “Well, I’m not any of those things. I’m a FU.” And we’ll agree you are who you are, but it is interesting to note that to successfully serve customers around the kinds of products that we put in the marketplace we actually need an ever-expanding group of partners and you will be as diverse as possible. You will be interesting mixes of all of these things and things that we haven’t yet anticipated. And if we are not doing a good job of coming up with the content, the community, the support that you need, you’ve got to push back and let us know. We’re dialed in on improving our ability to go to market with you.

You’re diverse also in size. Some of you represent companies that have over 100,000 employees. Some of you are sole proprietors of your own businesses. We will try to do as good a job as same, shall we say, in supporting that broad set of needs.

That diversity is a challenge. It’s a challenge for us. We stand up here and I tell you we’re going to do more next year to go to market with you than we have in years past, but what we’re able to do for some of the smaller companies, the larger companies will continue to differ.

All I ask is that you push back. Keep telling us how we can be better. Sometimes we’ll come back and say we can’t afford that, and you’ll say, “You’re Microsoft; can’t you afford everything,” and I’ll point out that we’re competing with free software these days so even we are trying to manage the expense levels a little bit more carefully than ever before.

Competition is a brilliant thing actually. I love it. It helps you keep your costs down. It helps you keep your prices down. It helps keep you sharply tuned on your partners. The competition thing is working very well at making us responsive, but any day you wake up and decide it’s not, I’m SteveB@Microsoft.com. Send me a piece of mail. And I suspect you will. I get lots of mail. I probably get more mail from our partners than any other constituency other than my own secretary, who’s pretty active peppering me with calendar questions.

So if we can help, let us know. Sometimes we will, sometimes we won’t think we can, but give us a chance, give us a chance locally, give us a chance at headquarters. If you think it’s something that’s a real policy issue and you want to put it on my radar screen, please do. Put it on Allison’s radar screen. Put it on Lindsay’s radar screen, whomever. We want to make sure that we’re thinking through and understanding what’s on your mind.

Rosa Garcia over the last year has driven us hard to step up the level of investment in partners. We talked about a number of those investments over the course of this meeting, 400 additional people focused on working with partners in the field, more training money, more marketing money, improved support offerings for our partners. There’s more that we’ve got in the hopper that we don’t think is fully baked that we’re working on. Even in a tight environment with the economy where it is, with the new level of competition we’ve decided that this is an area where if anything we have under invested, despite our best intention, over the last several years.

We need your support. We want your support. We value your support. And I’ll look forward to your questions, your comments during the Q & A. We think we’ve got a great line of innovation starting from where we are today and going right on out over the next two or three years. We’re spending on R & D like nobody else in the software business. We’re committed to your success and to the success of our mutual customers.

Thanks again for all you do for us and I’ll look forward to our panel.

(Applause.)