Steve Ballmer: Search Marketing Expo West Keynote

Remarks by Microsoft CEO Steve Ballmer at Search Marketing Expo West
Santa Clara, Calif.
March 2, 2010

Editor’s note – March 3, 2010 –
The audience Q&A portion of the event was added to this transcript post-production.

ANNOUNCER: Ladies and gentlemen, please give a warm SMX welcome to Microsoft’s CEO Steve Ballmer and Search Engine Land Editor in Chief Danny Sullivan.

DANNY SULLIVAN: Steve, thank you very much for being out here today.

STEVE BALLMER: My pleasure, my pleasure. Good to be here.

DANNY SULLIVAN: Great. We have about 45 minutes and a ton of questions for you. I’m going to throw a bunch at you and then we’re going to take some from the audience and you’ve got a shot to throw some questions out there, as well.

STEVE BALLMER: Super.

DANNY SULLIVAN: Great. So the deal with Yahoo! is going to go ahead. Editorial results are supposed to come from Bing by the end of the year and we’re looking at ads. Maybe end of the year, maybe end of 2011. How is that going to help the people here in this room, that deal?

STEVE BALLMER: At the end of the day I think folks in this room probably understand as well as anybody that the quality both from a marketer and from a user’s experience of a search engine depends heavily actually on the relevance of advertising, and the relevance of advertising depends heavily on the density of bids. And the ability to put together Yahoo!’s volumes and Microsoft’s volumes and use that in a way that improves the experience more, let’s call it all involved parties, we think is absolutely fantastic.

So, from folks here it means more eyeballs in one campaign, which is great, and from the standpoint of the user it means the opportunity to see more relevant ads; on top of that we think there’s a huge advantage to scale, just in terms of our ability to get more signals, do more tests, improve relevance, all of the things that should be interesting, I think, to the folks who do search engine optimization.

DANNY SULLIVAN: So, the greater scale, the greater volume, you see that as improving the results also for the searchers, as well?

STEVE BALLMER: Absolutely. Two ways: number one, we get more signals, we’ll do a better job of tuning relevance and experience for the searchers. And number two, I love to make the assertion about apartments in Paris. I have a buddy from Stanford who rents apartments in Paris and if she wasn’t my buddy you wouldn’t find her on page one of Bing, you would find her on page one of the other guy, and that is a quality. From the standpoint of the searcher if you’re looking for an apartment in Paris it’s not going to show U.S. in the algorithmic results. So, it’s really important for us to get scale in terms of value to the searcher themselves.

DANNY SULLIVAN: Did she give you a call and complain about that, I want to be up there on Bing and you can make it happen for me?

STEVE BALLMER: She’s given me a call to say, hey look, it’s a good thing we’re friends, pal. And I said, don’t worry, as soon as we put that Yahoo! volume together, we’re going to deliver real value to you.

DANNY SULLIVAN: You’ve been going after the market share. So far we haven’t had this sort of big game-changing search, that’s made a big shift in the market share. Do you see one that’s going to come? Is there something out there?

STEVE BALLMER: I see the opportunity for a number of game changers. And one of the things that we clearly have decided is it’s really important to be in the game and having positive momentum and making real progress with a differentiated point of view, which I think if you look at the user experience we have a differentiated point of view. Total game changer, we’ll get there. But, we’re going to continue to move, move, move, and the world is so dynamic we’re finding opportunities for game changers, whether that will come from mobile, whether it will come from social, whether it will come from real time.

Some of that is still kind of open, but we’re going to continue to make positive progress. The business model of search we haven’t figured out how to kind of remake it. We’ve done some experiments with Cashback and some other things, but we think there’s a lot of innovation and maybe some game changing on let’s call it the business side, in addition to the user experience.

DANNY SULLIVAN: Can you be number one in the U.S. in market share and knock out the leader?

STEVE BALLMER: There’s no good answer to this question.

DANNY SULLIVAN: Yes.

STEVE BALLMER: If you say yes, you sound arrogant. If you say no, you sound like you have no faith. So the answer is, yes, someday. (Laughter and applause.) You don’t do things, I don’t think most people do things with the goal of being second. And yet, I think, a fair degree of realism is required about where the current state of affairs is; even when you pool the volumes from us and from Yahoo!, we’ve got a lot of work to do, and it’s a really competitive market. I think one of the things that everybody in the room probably should find great is that the level of competition in search has certainly ramped up over the course of the last couple of years. And I think that in the long run that’s going to be great for advertisers, for publishers, as well as of course for the searchers themselves.

DANNY SULLIVAN: Now, you said you don’t aim for number two, but would you be happy there? And, if so, how big of a number two?

STEVE BALLMER: Again, there’s no good answer. No, of course not, you’re not happy. But if you ask me, am I happy tomorrow? Well, it’s not possible tomorrow to go from being number two to number one. So, we’re very focused on our long-term goal. We’ve got great long-term optimism. And, we know that tomorrow’s goal is to gain a few tenths, a point, whatever. Just keep working, and working, and working on that.

DANNY SULLIVAN: Now, on the way up to being number one, since you said that’s the goal, as we’re going to get there down the way, is Yahoo! going to survive as a search player? Because you’re going to have to kind of climb over them. And I know that they said, we’re going to be competing, and you’re saying they’re going to be able to compete as well. But you want to beat them; aren’t you going to just kill them?

STEVE BALLMER: No. Look, for us, the goal has got to be to expand the total amount of searches that are going on on our platform. That’s job one. And we want Yahoo! to do a good job of that, and we want to do a good job of that. And Yahoo! has a lot of flexibility under the contract that we signed in terms of how they go about doing that, whether it’s through integration with the rest of their site, whether it’s the value-add on top of our core search experience, they can go longer, they can go farther down that path, less far down that path. They certainly have a good set of economics, so economically they’re participating in the search business. But growing overall search share is job one. And we need them to be successful with us.

DANNY SULLIVAN: But you want to be doing all the same things as well. So, if they’re going to be successful with you, but you want to be more successful on top of them in the end, you know?

STEVE BALLMER: There are many paths forward. There are certainly, for us, the number one objective is to have Bing be the number one product it can be, and the best way to do that is to actually have two healthy companies pushing the Bing results forward. There is an advantage to having kind of the power of two as opposed to the power of one.

So, I’m excited about the partnership as a partnership.

QUESTION: The Wall Street Journal had a long article, and it sounded pretty convincing that Microsoft is jumping behind these third parties to push against Google in terms of antitrust issues. So, what’s the deal, is that happening, is that something that Microsoft is doing that we’ll be seeing more of?

STEVE BALLMER: I encourage people — actually we have a blog post we put up, we’re being pretty open about our interests and we think there’s a set of issues that are worth commenting about, and we’re commenting about them. Ultimately what’s lawful and unlawful is the purview of the regulators, don’t we know it, so to speak. But, as in our case, a lot of times initial complaints will come from a competitor. We’re clearly a competitor, there are other competitors, as well. But, we have a blog post on our public policy blog that kind of makes clear we’re not being silent in this game, we’re expressing some of the issues and frustrations that we see, and certainly sometimes unsolicited, but oftentimes because we’ve been asked.

QUESTION: So, in the blog post one of the things was said that in the talks with the EU that you’ve been having to reassure them that what’s happening with your deal with Yahoo!, and the quote was Google’s practices that may be harming publishers, advertisers, and competition in search and online advertising that you were concerned, and that it seemed to say that you didn’t think that they were doing some stuff that was legal. So, what are those things?

STEVE BALLMER: No. Legal is determined by regulators, not by Microsoft. We can comment as to things that are making it harder for us to provide effective competition. And certainly we comment when we have publishers and advertisers who are sharing some of their issues with us and there are certainly things that people do share with us. What can a marketer do. How much data does a marketer get back about the outcome of their campaigns, how much of that can they share.

How much of that can they transfer and use algorithmically and other campaigns they’re going to run. I mean, there’s a whole set of things which I think if you take a little bit of a vote of the audience you’ll find that there’s a lot of frustration, but what’s lawful and not lawful ultimately will be a judgment that gets made by, as I said, by the regulators.

DANNY SULLIVAN: Is anybody frustrated with Google? I’m just kind of curious. He wanted to know, so anybody out there frustrated? There’s only one person frustrated with Google.

STEVE BALLMER: Then there’s no issue.

DANNY SULLIVAN: One of the things that  one of the other things in the blog post was that there was a concern that there was a lock-in on publishers or advertisers that made it hard for Microsoft to gain volume. What lock-ins, because it didn’t get into the specifics, so what it is that’s a concern that you want to see curbed and that makes you worried?

STEVE BALLMER: Well, I think there are a number of things. There are a number of things. I don’t want to itemize, because I don’t think it’s appropriate, and I also think there’s a level of nuance. But there are a lot of places where it is very hard to break through. And, believe me, we’re guys who all have had strong positions in other markets, and there’s nothing sort of a priori wrong with having a strong position. But there are certainly some things. I would love it if advertisers would share with us their experience on Google, and we could, if that was allowed to be shared in the right way, with the right algorithmic support, there are certainly things that we could do to help those advertisers on Bing, and we’d be happy to do, and probably offer the advertiser a better value. But there are some things that Google still holds as its proprietary data that makes that tough.

As an example, the book deal. The book deal essentially takes somebody who has a very strong position, and gives them a stronger position relative to everybody else in the space. It doesn’t seem right to me, let alone what it might mean for publishers’ rights. So, we’ll express our points of view, but ultimately it’s up to the regulators.

DANNY SULLIVAN: Are you guys going to jump back into books, though? Because I always find it weak when Microsoft says they don’t like what Google is doing with books, because you guys jumped out of the books standing two years ago. So, and then it’s like, well, now they’re doing this thing, and we’re concerned about it from a business standpoint. You had said, we don’t think it’s a business. So will that change, and will there be a revitalization of that, and are we going to get Bing Book?

STEVE BALLMER: No, we’re participating in consortium, albeit at a lower level of investment, but certainly the notion that says, hey, there’s one guy who has a favored economic deal to provide search results on books, whether we’re scanning or not scanning, that doesn’t seem very good to the world. I would think you’d want a level playing field, and a level playing field that’s appropriate in terms of proper returns to the publishers and the authors.

DANNY SULLIVAN: How about over in China, Google is looking like they’re going to be pulling out if they can’t get some of the changes that they’re hoping for. What does that mean for Bing? Will you grow?

STEVE BALLMER: Well, I don’t know what’s going to happen with Google, but as I think we all understand, the real force in China isn’t Google and it’s not Bing, it’s Baidu. And so, in some senses relative to market dynamics in China, I won’t say it’s exactly a sideshow, but the truth of the matter is, anybody who wants to be a real competitor’s sort of number one focus will have to be what does it mean to compete effectively, or partner effectively with Baidu.

We’ll have to wait and see what happens. I mean, so far I don’t think anything has changed with respect to Google search in China. So, I don’t know whether anything will change. We’ll have to wait and see.

DANNY SULLIVAN: Over the past two years, you guys have had a ton of distribution deals with Dell, HP, Verizon, to name a few. Firefox still doesn’t list Bing as one of the default options. So, are you going to yell at them more? Why does that not happen?

STEVE BALLMER: I haven’t found that when you’re trying to sell something to somebody yelling is very effective. Salesmanship, Danny, salesmanship.

DANNY SULLIVAN: I find yelling has worked out very well for me. But I’m not trying to sell.

STEVE BALLMER: We’d love to have more distribution partners.

DANNY SULLIVAN: But, when I’ve talked with them, it has been, oh, no, are the defaults in Firefox have nothing to do with the fact that Google gives us millions of dollars, and that we have a deal with Yahoo! It’s all about the quality and the relevancy, and what’s showing up over there. And from my perspective, Bing is excellent quality, and really ought to be there.

So, why not? What do they tell you? Sorry, we don’t think you’re relevant enough. That’s still not the case? Or, no, you need to 

STEVE BALLMER: We’re always in selling, selling. At the end of the day, we’d like distribution. You could talk to them about their perspectives.

Look, I think we’re having all the right dialogues with all the right people on all the right distribution deals, and we’re going to continue to work hard to improve the quality of our product, the monetization in our product, and the distribution of the product, because we do think, particularly for a low-market-share player like us, distribution is helpful, and we’re trying to get our product out and get it seen.

DANNY SULLIVAN: So, then out of the distribution deal was apparently you’re going to be powering search on the iPhone.

STEVE BALLMER: I read that rumor.

DANNY SULLIVAN: Do you want to confirm that? (Laughter.)

STEVE BALLMER: I read it actually. It was very funny, I was in Europe someplace, and I read it, after a journalist had asked me about it. Weird how rumors start.

DANNY SULLIVAN: Is it something that you could do? Is it something you want to do? Are you talking with them?

STEVE BALLMER: That’s sort of wild stuff. What we want to do is make sure we do a very good job with Bing on the iPhone. And I do think if you just take a look at the Bing application for the iPhone, we’ve gotten a lot of positive feedback and commentary on the application, and we’re proud of that, and other than that I’ve read rumors. But we’re going to continue to do a great job with our Bing for iPhone.

DANNY SULLIVAN: How about in terms of just being a native app? If I’ve got my iPhone, I’m by default a Google, and I can switch it with the Safari browser over to Yahoo! Bing doesn’t show up there. Again, is that something where you have to do a distribution deal with them to make it happen?

STEVE BALLMER: Love to make that easy. We would love to make that easy. Now, the fact of the matter is Yahoo! might also like that. You asked me earlier about the power of partnership. We will have multiple, sort of, forms of Bing being promoted in distribution deals, including by us, including by Yahoo! and others. But part of our job on distribution is buying, so to speak, or making a deal, and part of it is selling partners on the value of delivering on Bing distribution. And we’ll continue to tell the story, but the story starts with a great experience, the core Bing experience, Bing for iPhone, Bing in a variety of other implementations.

DANNY SULLIVAN: I think the stats were that when it first came out, the Bing application on the iPhone was one of the top five free apps that happened out there. Did that surprise you that it took off so much like that?

STEVE BALLMER: No. No, for a variety of reasons it didn’t. We knew we’d done a good piece of work, so you would get kind of viral uptake. We knew we’d get a lot of curiosity. I mean, in a certain sense curiosity does feed these things. And if you take a look, people do like that which is free. So, the fact that it had the right price tag was also going to be interesting.

So, it didn’t shock me. It was very nice. Let’s just say I enjoyed it very much.

DANNY SULLIVAN: There was one report that the queries that you’re getting from the iPhone or actually the mobile queries you handle there are actually in excess from the mobile queries you get off of Verizon where you do have a distribution deal. Is that correct?

STEVE BALLMER: We do get a good — a commercially valuable set of queries from the iPhone, but we actually get better queries on balance than we had anticipated, I think across all mobile platforms, actually.

You know, it is an interesting mix of things, because some of the most valuable commercial queries people are less likely to do from the phone, and yet some, the volume of queries is likely to be higher. And exactly where that will all play out long-term is still open, but the average value of the query is a little bit better than we expected off all mobile platforms, and particularly the iPhone.

DANNY SULLIVAN: Now, when the Windows Phone 7 comes out, we’re going to have Bing in that, correct? I think the dedicated button will go there. Will people have the option as well? Will you play it and say, you know what, we’ve got Bing in there, and if you want to switch, here’s Google, here’s Yahoo! and you can do that, or are you going to say, well, you want to be there, you’ve got to pay us to be there as well, because we’re having to pay all these other people on their platforms.

STEVE BALLMER: It’s a little more complicated actually than that.

DANNY SULLIVAN: Yeah.

STEVE BALLMER: Because the — at least in places where the phones are subsidized, the operator is critical in this equation. So, rather than just pretend that there’s really some answer, whatever happens will be something that happens in conjunction with, at least in the general case, and certainly here in the U.S., with the operator.

My guess is we’re not going to get a huge amount of operator support for Windows Phones who don’t want Bing. I mean, in some senses it’s an essential part of the definition of the Windows Phone, and if you have an operator who would want to do something with another search player, they’ll probably do it with a non-Windows Phone.

DANNY SULLIVAN: Since the iPhone was a nice thing to happen when you had the app out there, will we get one for Android, an official Bing app that we can install on our Android phone?

STEVE BALLMER: It’s actually a little more complicated, because Android is not Android is not Android. So, it’s a little bit more complicated, and I think we’re going to have to see how the Android market develops, which implementations are popular.

Obviously we have done Bing for Blackberry, I’ve got Bing for the iPhone. So, it’s not like our

open religious principles can be questioned here, but it is a little bit tricky to understand exactly where the market opportunity might lie for us in the mix of Android kind of cacophonous implementations.

DANNY SULLIVAN: And how do you see mobile overall in terms of the search space? Is this the brave new frontier, and are we finally at the year for mobile that everybody keeps saying that we were going to get?

STEVE BALLMER: We are at a year — a year for mobile. Look, mobile queries are just going to keep going up and up and up, and that’s going to reflect the number of smart mobile devices and the usage patterns. And people will — these things will rebalance.

I actually am not predicting we’ll see any drop in the number of queries that come from PCs, but we will see a rise in total volumes, and exactly what that mix might be three, four, five years from now is still hard to predict — is still hard to predict.

For a lot of people they won’t even feel as much different, because we’re getting real browsers on phones, so there’s a whole class of query that’s going to feel fairly similar between the two environments, not necessarily identical but fairly similar, and then there will be a whole new class of query that is really much more mobile specific.

DANNY SULLIVAN: Do you search when you’re out on the move?

STEVE BALLMER: Do I search when I’m out on the move? The answer is too much relative to what my wife thinks I should be doing when I’m driving. (Laughter.) So, I’m trying to — I’m trying to tame my search behavior while I’m — I mean, literally I only have a phone when I’m in the car, because if I’m not in the car I’m in a meeting, and it’s impolite, for me at least, to bring phones to most meetings. And on the weekends the fact that I cannot be contacted I view as a feature. (Laughter.) So, mostly I have the phone in the car, and I do have to be a little careful.

DANNY SULLIVAN: I’ve got a few. We are going to take two, maybe three questions from the audience as well, and I’ll give you guys a heads up just before we get to that, so you can put your hands up.

I also asked for some questions for the people who follow Search Engine Land on the various social networks, and Adam Morrow had asked through Twitter if Google’s company culture pays an importance for their success in search, is there something fundamentally different at Google than there is with Microsoft when it comes to search in terms of their company culture?

STEVE BALLMER: I don’t work there, so I can’t comment really. I mean, I can read newspaper articles, but I can’t comment really.

The truth of the matter is the number one thing that Google benefits from in search is they did it right first. And put culture aside and blah, blah, blah, blah, blah, I love our culture, I think we’ve got great people, they’re innovative, they’re doing great things, but we started later. And the other guy had that — and I — look, there’s a value to incumbency, and people can then go back and ascribe these things to a lot of things, culture. We have a value for incumbency in some of the things that we’ve done. And some of it, you know, which came first, incumbency or culture, is never clear.

The fact of the matter is we’ve got a lot of very talented people really focused in and great innovations in the search area, and it’s working. It’s working. So, whatever this culture thing is, we’ve got everybody, including the other guys, moving faster than anything was moving before we got going with Bing. So, there must be something good in our culture that’s pushing the pace overall of search innovation, even if it’s pushing the other guys, who are also very talented, as much as we’re pushing ourselves.

DANNY SULLIVAN: How big a chunk of Microsoft do you see search becoming, like however you might want to quantify it? Right now I don’t think it’s actually making a profit. Other things make lots and lots of profit. Is it going to be a big, huge profit thing? Is it going to be a third of Microsoft’s income at some point?

STEVE BALLMER: Didn’t we answer that question earlier? You asked me what our ambition was for market share. So, I’m going to leave it at that. I don’t know how long it takes. I don’t know whether I’ll be in my 50s, 60s, I don’t know how old I’ll be when all that will happen, but the truth of the matter is we do have ambitions to grow.

I think the one thing that’s interesting to also ask is what’s going to happen overall with the economics of search engines in the future.

You know, in the tech business one of the interesting things that happens is you have good businesses, and then people try to remake them. So, take our operating system business. A very successful business, and we’re getting attacks from people with different business models. So, five, 10 years from now, maybe we have a bigger share, but maybe search engines are relatively somehow somewhat less profitable. So, very hard to predict, but I guarantee you search is going to be an ever-growing share of Microsoft’s profits. That means first it’s got to get to break even, and then it’s got to get to profitability, but that’s a growing share the way I do my math.

DANNY SULLIVAN: Great.

What have you found that’s been different about search and seeing it develop and having to go into versions of software products that you’ve traditionally been doing at Microsoft?

STEVE BALLMER: The dynamics of an advertiser-supported, and particularly an auction bid advertiser-supported business, are really fantastically interesting. You know, there’s something simple and pure about I build X, I sell it to you, you pay me for it. That’s really simple. And then if you want to compete with that, the next guy offers the same product at a lower price, they compete. Now I’m doing something for you, you’re paying for it, he’s not — I can’t cut my price to him because he didn’t pay for it. He just needs to reach him, and he knows the value of that customer to his business. It’s auction bid, so the dynamics of business model competition are fascinating, not just compared to software products, compared to almost anything on the planet they are very interesting. And we now have a lot of experience. We understand some of the moves we need to make, like the Yahoo! partnership, but there are also, I think, a whole set of innovations still to come around business models that will matter and make all of this more efficient for searcher, for publisher, and for advertiser.

DANNY SULLIVAN: How about also in terms of your time, what percentage of your time is taken up by search these days, and do you make it  I was in the Bing-plex or whatever you want to call it. All the Bing people have been moved into this 26-story building in Bellevue, Washington. I thought it was pretty amazing. Are you out there a lot, and what chunk of it is it taking?

STEVE BALLMER: Well, just if you take a look at the profile of Microsoft businesses, we’ve got seven or eight big businesses, plus a lot of customers. And so it’s really hard to sort of tease apart and say, well, I’m working on this one, I’m working on that one. I’m generally working on the things that are at the intersection. What is the next frontier of the way Windows and IE and search should interact? What’s the frontier of what we’re trying to do between search and Office, between Bing and Xbox, and what we’re trying to do with TV? Those are all very interesting questions.

When it gets down to actually driving the search team, we’ve got great people doing that led by Qi Lu, and a variety of very talented engineering and business people. So, I give a lot of feedback. Harry Shum, who runs core algorithmic engineering, was reminding me today, I tend to give more constructive criticism than praise. Bu the fact of the matter is, things have really improved, and yet there’s always sort of a new frontier, sets of queries where we can do better, things that we’re working on. I’ve fallen in love with our real-time search. I have a high-schooler who plays basketball, and if you want high school basketball scores, there’s nothing better than Bing Twitter search, I’ll tell you that. It’s really fantastic.

DANNY SULLIVAN: You mentioned Twitter. Buy them, should you be buying them? Should you get them out there, they’ve got that great data, shouldn’t you just own the whole company and have it out there?

STEVE BALLMER: Not clear. I mean, we have a great relationship and partnership with Twitter. Not clear to me. I mean, I would hate to not have that partnership. Whether we need to own the company or not I think is far less clear. In some senses, as an independent, they have a lot of value and a lot of credibility, I think, with their user community. Would they have that same credibility with the user community if they were captive? Not clear. And they want to be an independent company, which means we want to have a great partnership with them, and do a good job.

DANNY SULLIVAN: And you talk about the data that’s out there, and there’s all this good stuff. Will we get you contributing to that as well? Are you going to get out on Twitter like Bill Gates and start sharing stuff? I think you should be yelling at us through Twitter?

STEVE BALLMER: Yelling? No, selling.

DANNY SULLIVAN: Selling and yelling. (Laughter.)

STEVE BALLMER: I know sometimes you can’t tell the difference, at least in my case. The truth is, no, not terribly much. I mean, the things I really want to say broadly, I’m much more likely to say kind of in a Web page than I am as a set of short tweets, frankly speaking. So, for me, I’m more of a consumer than an author when it comes to the real-time type environment.

Now, the truth is, I was tweeting basketball scores myself, but you wouldn’t know it. But if you were a parent in the Lakeside Basketball program, you might have appreciated it.

DANNY SULLIVAN: So you do have a stealth account, we just don’t know where it’s at?

STEVE BALLMER: Of course.

DANNY SULLIVAN: All right. I’ll follow you later. (Laughter.) I won’t tell anybody.

Similarly, we talked Twitter, what about Facebook? You’ve got a chunk of it now, should you have the whole thing there?

STEVE BALLMER: Again, a great partnership, a company that is doing, I think, a very nice job, very much wants to be an independent company, so we continue to work the partnership with them, and we’re pleased to have extended our search relationship with them a number of years into the future. And, I think, that’s good for them and good for us. Whether it’s people, or some of the other kind of entities that get added into the Facebook system, we think that great collaboration between them and us will permit best experience for the search, and the best experience for the Facebook user.

DANNY SULLIVAN: I wanted to go back, you said you have constructive feedback sometimes. Can you remember the last thing you had that you sent over?

STEVE BALLMER: Key Lime Pie.

DANNY SULLIVAN: Yes?

STEVE BALLMER: Key Lime Pie.

DANNY SULLIVAN: You didn’t like it?

STEVE BALLMER: No, I didn’t get the recipe. I went to do a demonstration for my wife with the new recipe stuff, and we typed “key lime pie.” Believe me, we do a great job now on key lime pie. (Laughter.) I happened to pick the thing she was baking. I said why didn’t you just go to blah, blah, blah. You should use Bing, blah, blah, blah. Harry heard about it. For some set of reasons, it was early in the recipes thing. But that was the last I think piece of feedback I sent.

DANNY SULLIVAN: I thought everybody in your family is forbidden from using blah, blah, blah.

STEVE BALLMER: No, no, no, she went directly to a site. Nobody in our 

DANNY SULLIVAN: All right.

STEVE BALLMER: We have Bing evangelists, age 18, age 11, and age 15. We are definitely a religiously pro-Bing family. (Laughter.)

DANNY SULLIVAN: Have you considered renaming children Bing?

STEVE BALLMER: Nope. I never thought about that actually. My dad worked at Ford for 30 years, I still drive a Lincoln. I hope my kids 30, 40, 50 years from now, they’ll still be using Bing.

DANNY SULLIVAN: When you get one of these things, by the way, do you have like a red hot line that you pick up, or do you have a special button and in Internet Explorer you can push that lights up over there at Bing, and they go, oh, shit, we’ve got to fix this now? (Laughter.)

STEVE BALLMER: Actually no. I would advise, it’s important not to run the place that way. You really want the guys working on the things that are statistically a problem, not just a problem for one person. If you start optimizing for any one customer and you don’t look at the statistics, it’s a problem. I do know they pay extra attention, but I usually just shoot a little piece of e-mail to somebody over there, and things do seem to get better.

DANNY SULLIVAN: Right now, when you look at them, what do you think needs the most improvement, or what would you like to see Bing do better or go forward in?

STEVE BALLMER: Well, I think we’ve done a lot of great stuff in the user experience. I think there’s two, at least, very big steps. One, I think we have to consolidate some of the stuff that we’ve done, and continue to work at the overall usability, and I think we’ve got great ideas on that.

And, number two, I think we’re absolutely onto the right thing when we talk about making decisions and taking action. And I think there’s a whole lot more we can do in the user experience to continue to drive that. And how we do that, ourselves, what kind of relationships we build up with SEOs, with Web site operators, new techniques to enable that, and then we’re kind of brainstorming, and thinking, but we’re on the right wavelength. Most of the time, people want to take action.

The third thing I would say in our case is, there’s still great opportunities for us to improve relevance, particularly in tail queries. We’re doing a better job these days on freshness. A much better job, we can always improve there, but tail queries.

Then we’ve got to take the show on the road. We are on the U.K., we are in Canada, a few other countries. But we want to make sure that we build out the breadth of our experience in more and more countries over the course of the next few years.

DANNY SULLIVAN: What are you happiest about, what’s your favorite thing on Bing?

STEVE BALLMER: Well, Bing Maps I think is fantastic. I love our current kind of service, if you will. Some of you may have seen the video of some of the new things that we’re working on that we demonstrated at the TED Conference that I think are really quite amazing.

My favorite Bing Map thing, though, is this thing called the Newseum app from the News Museum called the Newseum in Washington, D.C., where you can drill down and see the front page of the newspaper in literally hundreds of cities across the world, and then you can drill in, if you want to, and of course with the translation capabilities, you can then also kind of understand what’s being talked about, on let’s say, the front page of the newspaper in Athens, might be interesting during this day and age as they deal with their debt crisis.

DANNY SULLIVAN: I’m going to do one more question, and then I’ll go the audience. So, if you’ve got questions out there, put your hands up, and we’ll get some microphones out to you.

What do you see as the biggest opportunity in search that’s out there?

STEVE BALLMER: Yes. I would say the biggest opportunity, it ties back, again, to this notion I talked about of action. The biggest opportunity is really helping people get done what they’re trying to get done. I mean, that is a marketing campaign, but it’s really true.

I’ll give you a personal example. This would have been a year and a half ago, right when the economic turmoil, blah, blah, blah I literally just wanted to go get some statistics about what debt as a percentage of GDP had looked like. And you can search, and you get this Web site and that Web site, and they don’t exactly have the data you’re looking for. They all have a mix, and then you’re cutting and pasting, and organizing, blah.

I really knew what I wanted, I could have drawn the Excel spreadsheet of what I wanted, and I just wanted the search engine to get the data and put it in the spreadsheet for me.

And that shouldn’t be that hard. If we understand more about user intent, we understand more about the data and the structure of the data so that we can marry those two things better, we really can take steps down that road.

Healthcare, because of the current healthcare debate, I’ve been sitting trying to understand how healthcare money gets spent, how much of it gets spent on old people, young people, employed people unemployed people, last year of your life. And you can find all that, only blue link, blue link, blue link. You can’t. I’d like it assembled for me, and I think stuff like that should be the job of the search engine.

DANNY SULLIVAN: That’s the similar thing that Wolfram Alpha when they launched said that they wanted to be doing. You have a partnership with them now. So, is that part of satisfying them?

STEVE BALLMER: Sure, that’s part of it. And yet I think we’re going to have to all go further and further down that path. Some of it is calculation. A lot of it, though, is really understanding how do you understand user intent, and how do you glean structure out of unstructured data. Those two problems are both great opportunities of innovation that we’re excited about.

DANNY SULLIVAN: We’ll go to questions. Then I’m going to give you a chance to throw some questions to the audience, as well, if you want. Then I’ve got one last question for you at the end. So, we’ll get to it, so yes.

QUESTION: Good morning. Thank you. Great stuff. I’m curious about the Cashback program. Did it work, and will you be investing more, the same, or less in the coming 12 to 24 months?

STEVE BALLMER: The Cashback has been interesting. I would say it has worked. It hasn’t worked fantastically. I mean, in the sense that it has completely changed the economic structure of the business. But, it has  for the user, or for anybody else. But, it certainly has had positive results. So, I’d expect to see us continue Cashback, continue to kind of rethink it, morph it, try some new things around the basic Cashback concept to try to make it a more potent and important thing for the merchant, as well as for the user.

QUESTION: First off I want to say, I was impressed with Windows Phone 7 over at the Mobile World Congress. So, my question to you is where does Microsoft really see the money to be made in mobile going forward? As you said before, you are not going to remove the licensing fees that you charge, which is like $7 to $25. And James DeBragga said, Android is free like a puppy, the fact that they don’t provide  they don’t charge for having their OS on phones. So, that’s why Google has the long-term plan of making that money in search. Does Microsoft really see that, are you looking more at the licensing, or are you trying to get into the monetization of apps.

STEVE BALLMER: Yes. Stop and take it outside of the specific Android-Windows phone debates. How does Apple make money on phones, basically with a licensing fee on their own phones. It’s a positive gross margin on the phone. If you offer a phone of high value, there is money to be made. We happen to, in our model, split that with a phone manufacturer who makes some of the money that Apple might have made and we make some of the money that Apple might have made.

Is there also going to be search revenue and search profitability, and other application profitability on the phone? I think the answer is, again, yes. So, we will seek to build multiple revenue streams around the phone, including perhaps a certain set of subscription services, advertising and search-based services, as well as the basic licensing fee on the operating system itself. And I don’t think it’s all that complicated in a sense, but we think there’s multiple revenue streams out there.

QUESTION: As a follow-up, do you feel there will be any monetization of apps, or do you feel HTML 5 apps will be irrelevant?

DANNY SULLIVAN: So, monetization of apps, or do you think HTML 5 will take over from apps.

STEVE BALLMER: HTML 5 is apps. I mean, the truth of the matter is how you construct an application, or a Web site, how you construct something, and how you monetize it only have the vaguest of relationships. I mean, there is a view, that says, because you construct something one way or another as a different economic model, I don’t think that will prove to be the case, nor do I think that HTML 5 will be exactly  the standard will be identical in all implementations. But, there will be devices where you’ll say I prefer to run these HTML 5 applications on this device than that device. And certainly that’s a core part of what we’re thinking, as it relates both to Windows and Windows Phones.

QUESTION: Yes, following along with that you had mentioned the open religion with mobile, and I was wondering if you see Flash as a component that would be out there and what you’d see for Silverlight, as well.

STEVE BALLMER: Well, we continue to push forward with Silverlight, we’re on about 40-50 percent of all of the PCs in the world. We support Flash, Windows Phone 7 for a lot of schedule-based reasons, we feel a lot of schedule pressure, let’s just say, on Windows Phone 7. The first version this Christmas will not support Flash, again, not a religious issue. We’ve got to make sure we’re doing all the right work with Adobe on performance, and blah, blah, blah, blah, blah. That’s all super-important.

I do think it is interesting, as we think about the future, certainly Windows apps are going to be important in the future of the world, and iPhone apps look like they’ll be important in the future of the world, and from our perspective Xbox apps. Certainly HTML apps, if I could use that word, because it’s a form of construction, will be important. But, it also looks like for the foreseeable future there’s another class of app that will be important, that is the Flash/Silverlight application. So, we’ll continue to motor down that path both sort of in competition and in collaboration with Adobe.

DANNY SULLIVAN: I’m going to squeeze in one more.

QUESTION: You talked about the significant traffic you’re getting from mobile to Bing. Does pay-per-click monetize on mobile? I mean, I’ve never clicked on an ad coming from a mobile device yet.

STEVE BALLMER: It turns out some people do, hence my surprise that perhaps you’re doing a little bit better with mobile monetization than we thought. I do believe that in the general  what happens today mostly is people doing a general Internet search, getting a page back, and, you know, you’ll find an ad.

I do think in the general case, there will need to be more innovation and IQ applied towards the right way to surface ads in the experience. Remember, an ad is not a bad thing if the ad is the most relevant thing that you surface. And we always have to think about that in the context of search, because that corpus of information may be the best place to satisfy your request. And so the question is, how do we bring that all together and rethink, essentially, the fundamental UI and design model of search. You still have two corpuses, the algorithmic corpus and the ad corpus of information to apply to satisfy user intent. And the way you lay that out on a “page” on a phone is going to look quite different. But I think both corpuses will be relevant to the user at different times.

DANNY SULLIVAN: A question of the audience?

STEVE BALLMER: Yes, one question, I’m curious for perspective. One of the most kind of, I won’t say controversial, one of the things we have to spend a lot of time thinking about is how really to think about the evolution in privacy and confidentiality from the user perspective. Different users have a range of interests and needs as it relates to privacy. My basic bias is the user’s interests and needs are primary. We should optimize around that. And as marketers and others, we should all want to respect that sort of contention.

On the other hand, we don’t want to go to the other extreme, because there are people who would say, hey, look, if you’re going to offer me better service, I’m happy to give up a little of my privacy for better service, better value, better opportunity, et cetera.

And Danny and I were talking about it a little bit backstage, but sort of from this audience’s perspective, and if I think about a little bit of the brouhaha when we first were launching IE7, and in private browsing, and whether that was a good thing. I’m curious to know whether that’s a major issue on people’s minds. Danny and I were sort of talking, it seemed like it was. And, if so, I would love to hear one or two of you just frame how you’re thinking about the issues?

DANNY SULLIVAN: So, privacy, anybody want to shout out. How many think privacy is an issue to you, then, when you are concerning with search? (Show of hands.) A good mixture.

Solutions, anybody?

STEVE BALLMER: Concerns, kind of design input. And I would take this both from the search engine perspective, and the browser, and other things. Certainly, it’s a little more on our minds post the buzz around buzz.

DANNY SULLIVAN: Yes. Actually, what I can say is, if you have things that you guys think of, you can tweet them back to @bing.

STEVE BALLMER: Yes, or my e-mail address is SteveB@Microsoft.com, shoot me a piece of e-mail.

DANNY SULLIVAN: Okay. Everybody do that now.

STEVE BALLMER: I will promise 24-hour turnaround. Let me say that.

DANNY SULLIVAN: You may get a few people asking you if you want to swap links. But you can explain to the people at Google  (laughter) 

STEVE BALLMER: That’s a one-word answer, it’s perfectly okay.

DANNY SULLIVAN: You can explain to people at Google, you’ll do it, but only if it’s not following from their home page, and we’ll go from there.

Actually, I’m curious, how many of you are advertising on Bing now doing PPC? (A show of hands.) How many of you are likely to increase that with the Yahoo! deal going on? (A show of hands.) I’m just curious how many of you are pleased with Bing, and you like seeing it out there? (A show of hands and applause.) All right. (Applause.) They’re really pleased.

I saved the most important question for last. I’ve got two boys, they’re eight and eleven, and they just slaughter me on Xbox. So, I was searching on Bing for like secret god codes, and I couldn’t find any. So, do you have one you could just share with me, or you could share with everybody? (Laughter.) I just need to really 

STEVE BALLMER: You really want to know the secret?

DANNY SULLIVAN: Yes, yes.

STEVE BALLMER: Get younger fast. My kids slaughter me, too, and I don’t think I have enough manual dexterity to beat them at anything anymore on Xbox. I just give you kind of a cloudy outlook on that one, Danny.

DANNY SULLIVAN: I was hoping I’d get a good one.

STEVE BALLMER: It’s the old-fashioned thing. What is it that Malcolm Gladwell says, how many hours of practice do you need on Xbox to catch your kids?

DANNY SULLIVAN: Yes. I’ve been waiting 

STEVE BALLMER: Ten thousand hours. Ten thousand hours of Xbox and you can be as good as your eight-year-old.

DANNY SULLIVAN: I’ll stop writing about Bing more, and I’ll go for that.

Steve, thank you for being here. If you want to lead a chant for search marketers, search marketers, or Bing, Bing, feel free to go at it. But thank you very much for being out here. We really appreciate it

STEVE BALLMER: Thanks.

Thank you all very much. (Applause.)

DANNY SULLIVAN: Thank you all.

Thank you very much. We really appreciate it. (Applause.)

END