Steve Ballmer Speech Transcript – Church Hill Club

Remarks by Steve Ballmer, Executive Vice President, Sales and Support, Worldwide Business Strategy Group

Church Hill Club
October 9, 1997, San Francisco, CA

The following is a question-and-answer session between Steve Ballmer, executive vice president of worldwide sales and service at Microsoft, and members of the press at the Churchill Club in the Westin Santa Clara Hotel, Santa Clara, Calif.The Q & A took place at 8 a.m. on October 9, 1997, before an audience of approximately 400 Churchill Club members.

Moira Gunn, NPR: My first question has to do with mainstream and what’s going on in the United States today–the Internet basically went mainstream, say, three years ago.That’s when people really, in general, who didn’t expect to be involved started to get on and it’s just snowballed since then.Another issue that came along with it, that has escalated, if you will, is the personal privacy…security of personal information that has become a greater and greater issue and obviously will.With Windows 95, with the online registration, people found that the software is able to read the configuration of their machine.As the creator of the operating system of choice for many, many computers, there is almost nothing that can’t be known about what’s on your computer.And certainly if you are connected to, say, Microsoft Network or any network or any application going on, that might be downloaded, there is always a difference between what’s ethical and what’s good business practice and what’s legal.Those are two different things.And even over in the legal area, that’s still evolving.What does Microsoft’s policy–or philosophy might be a better term–if one exists…about data relating to the individual on their machine?That’s registration data, data an application might find on my disk, data that my behavior of using my system–all that data that could be collected and essentially downloaded and used.Is there a philosophy and a policy at Microsoft?

STEVE BALLMER: Yes.Our basic view is the user’s information is the user’s information.And there are times and reasons why we think it might be good for that user to share the information with us, but it’s the user’s choice, based on the Windows 95 registration wizard.As soon as Windows 95 says do you want to register, it asks if you want to tell us anything about your hardware configuration?The user can say yes or no.If the user says yes, it says here is what we will tell you and here is what we are off-loading to Microsoft.Is this okay with you?We went through the same sequence about an inventory of software that was on that machine.And so at every step the user is asked, do you want to report it?Because we think the user has that right to protect their information and their privacy.Now, there were some things that we could do in order to tailor our next set of information to them, our technical support for the user etc.But we weren’t just taking that information in the registration process.It’s something that the user should make conscious choices about what they want to do.

I also think the government needs to set some pretty clear regulations on privacy, because there are things that are more gray.There are cases that get tougher, particularly about how we’re going to use data, and what’s allowed, etc.And it’s certainly an area which I think there ought to be some clear legal guidelines.That doesn’t answer your question about the moral and the ethical, but our basic philosophy on moral ethical issues is that the user ought to be in control of the way they’re represented and how information about them is used .That’s the way we have been pursuing things, through registration, where we have a way of profiling people at three and a half million people have decided personally to tell us about that.

Moira Gunn: Right.Once they tell them…give them their information, what is your policy with the information itself? Do you tell anybody else?

STEVE BALLMER: No.We only use that information to service or market to those users, and to send additional information back to the customer. We don’t sell that information, etc.

Moira Gunn: For Microsoft only?

STEVE BALLMER: We tell the customer we’re going to use this in order to try to personalize our interactions with you.And certainly, whether it’s registration or the information we’re collecting in our Web site, that’s our policy.

Moira Gunn: Do you also tell them it won’t go anywhere from there?

STEVE BALLMER: The truth is it doesn’t.I don’t know what we state during the registration phase and I probably ought to go check on it.But we don’t send the information out.

Moira Gunn: Some day I’ll ask you again.Over to you, Jim.

Jim Goldman, KRON-TV: I just want to say that we just had a pre-breakfast with Steve, here.And it was really enlightening and a lot of fun.It didn’t affect me at all.Steve, my first question is, isn’t Microsoft great?Isn’t it the best company around?

STEVE BALLMER: Hallelujah, brother.And I’ll pay you the five bucks later.

Jim Goldman: It’s a licensing fee.If this appears in video or print anywhere else, I expect five dollars each and every time it runs

All right.But seriously, I do want to thank you for joining us, because it is my first opportunity to sit down and talk with you.How many people in the audience, just out of curiosity, work for Microsoft now?All right.So this question, with all due respect to you and Mr. Ballmer…let me ask you this.Intel has a de facto monopoly.And for the sake of argument, let’s assume that Intel has a monopoly in the chip industry.For all intents and purposes, it controls the microprocessor market, but they’re considered by many in the media and many around here as a true success story, a wonderful company, a do-gooder.The avuncular Gordon Moore, the hard-charging Andy Grove.But you look at Microsoft, you guys also have a de facto monopoly on the operating system.Not even a de facto–a real monopoly on the operating system.But you guys–and with all due respect–are considered evil bastards.I mean, that’s what you’re about.Everybody hates you.Why is that?Why the difference in perception?How does it affect you personally, and how does it affect the way you guys do business going forward?

STEVE BALLMER: If I really understood why, if I really, really did, we would certainly take some action.Because in point of fact, it’s not good for us, for our partners and our potential partners, and it’s not good for our customers.It is my sense today that there many people where we would probably unusually benefit, for example, by having a closer relationship, particularly with ISVs, software developers. Outside Silicon Valley it’s not quite as bad as what we just said, but nonetheless, I think the fact that there is something in our image which is a little different than I would like is not a very good thing.So we are really trying to understand that, really trying to dissect that, and really are spending a lot of time trying to reach out to software developers and to customers.

We actually have to work a lot harder than we probably would with a different kind of image and reputation.I don’t know how to magically change that.Certainly government inquiry taints one’s reputation.Certainly Bill Gates’ personal fame and fortune taints our reputation.There must be some other factors, and in some sense we have to work harder to appeal to the partners and customers.

Jim Goldman: But I can’t picture you in your office trying to figure out a warm and fuzzy way to approach Jim Barksdale and say,
“Hey, buddy, let’s sort of smooth the waters a little bit; enough of this squabbling.”
I look at you more as a guy in an office pounding the table and saying,
“Jim Barksdale?Screw him.They’re nothing.”
I mean, I just…

STEVE BALLMER: There’s a third option.One is, how do we make nicey-nice?I agree.One is, they’re nothing, screw them.The third option is, they’re something; how do we really compete aggressively?And I would venture number three as a more likely scenario.It is out of respect that we compete.I don’t think that that’s the heart and soul of the issue. I think people actually do expect us to compete with our competitors. And I don’t think competing with competitors is the thing that taints our image, or at least I hope not.That would be sort of un-American, un-capitalist, un-all that is good. Nonetheless, competing is a very good thing.It’s fundamental.

I think the bigger problem is…and it’s not so much a problem for Intel, partly because of the much more fixed nature of their product.There are many, many people who aren’t quite sure where the boundaries are between the kinds of product we build and the kinds of products they build.And frankly, we’re not sure either.We’ll spend $2.6 billion, this year in R & D.That mostly goes into five products: Windows, Office, Windows NT Server, BackOffice, and our interactive media products.But if you think of $2.6 billion getting poured into five boxes, it’s pretty clear that they’re going to do a lot of things next year they didn’t do this year.And there were probably a set of companies that were living on the boundaries of what we were doing.That’s sort of an uneasy relationship almost by definition.And to manage that better, I think that means being even more forthcoming about where we’re going and what we’re doing.Some people call that vaporous; I actually think it’s more helpful to potential partners.I think that’s critical.But we certainly do spend a lot of time focused on that.We don’t spend a lot of time focusing in on how to make nice-nice with guys we’re supposed to compete with.We do try to figure out how to interoperate, and we do spend a lot of time actually sitting and thinking, what is it going to take to really work more closely with different partners.

Dan Gillmor, San Jose Mercury-News: I can’t believe we got to the third question without this having come up already.

STEVE BALLMER: I win the five bucks.It wasn’t the first question.

Dan Gillmor: So I will ask.A small little lawsuit was filed here this week that you might have heard about by now.And so I’ll just ask the obvious question.Talk about the Sun lawsuit regarding Java and how you see it.

STEVE BALLMER: OK.Let me give a couple perspectives. Number one, I’ll talk a little bit to the legal side first, because a lawsuit, by definition is kind of a legal thing.And then I want to talk about [inaudible].But nonetheless, let me do the legal bit first.We signed a contract roughly a year or so ago, with Sun.That contract was signed by two reasonably competent companies, hopefully, that knew their interests were not aligned.We saw that there was an opportunity for both of us to do a better job for our customers.Great.Here it is a year later, or whatever it is.We have been, I would argue, scrupulously following, very faithfully following that contract.Anybody here who doesn’t believe we have lawyers who are pretty good at this stage, that would be a false assumption.We’ve got plenty of practice, the lawyers do, on a lot of issues, maybe more than we’d like.But we’ve been following that contract very, very carefully.And we feel like we have lived with both the spirit and the letter of the contract, and as this thing goes to court, that will bear out.

To the more important point, perhaps, for a lot of developers, is the issue of what is our tack conceptually is, what is Sun’s? What is the real debate about?Our job is, we build great software. We’re not just a Windows company.But we are also the Windows company.I don’t think anybody is confused about that.Our focal point with our efforts around Java is to make sure that that Windows is the best platform for Java development, a); and to make sure that Java programs can take advantage of our operating system, which also happens, today at least, to be the most popular operating system in the world, and to do that in a very rich way.

Sun has a goal of popularizing what we’ll call a little middleware operating system they’ve written.I don’t even mean that facetiously.It’s a little operating system embedded in Java.They want to popularize that, and their strategy to popularize that is to have it live on a bunch of other operating systems and eventually replace them.Our goals are not in alignment on that.They aren’t today, they weren’t a year ago, they never have been.What we are doing is letting Java be a great Windows development platform.What we are also doing is, in places where we have a commitment to Sun to deliver software to our customers, we are.This debate about something called the RMI code, the remote method invocation code.We don’t ship it in our Internet Explorer 4.0.I mean, we don’t ship it with Windows.It’s part of this Sun operating system.We’re not trying to popularize it.If customers want to use it they’re free to.We put the RMI code up on our Web site and people can download it, and it’s certainly there and available.But we don’t see any reason for us to bundle it, us to package it, us to promote it in our products; the customers can’t use it.There’s a dispute about something called the JNI, the Java native interface, which is, by definition, not portable across platforms.We don’t even understand what that discussion would be about.

And if you actually read the reviews, for example, of our Internet Explorer 4 product, we think we have a very, very compatible–perhaps the most compatible–implementation of Java inside IE 4, compared to other delivery vehicles for Java today.So in a customer sense, we’re telling our customers we’re going to make sure Java does a great job of letting you write great Windows programs.Sun’s saying, hey, you can lose just this little subset in here and then you can write once…and I don’t want to be facetious, but some people say run anywhere, and some people around our place say test anywhere.But there’s at least a little piece in here, and that’s great.Sun can try to popularize that.But we just have different agendas, and I think customers can sort of sort that through fairly well on their own and decide what’s right for a given set of applications.

Moira Gunn: Is this a suit that you believe is going to settle or get fought into the courts?

STEVE BALLMER: Well I’m not the lawyer or the businessperson sort of running it day to day.Somebody files a lawsuit instead of talking with you about the problem, the best guess is it will probably be a lawsuit for a long time.But who knows?

Moira Gunn: Well, I really do, Jim, think it’s an overstatement that everybody hates Microsoft.I mean, there are people in Third World countries who don’t even know who they are.


Moira Gunn: Yes.

STEVE BALLMER: That’s not true.

Moira Gunn: Before electricity, we know who Microsoft is.I love it.There is a…most people have…there are different feelings and different areas of, I would say, discomfort.I wouldn’t exactly say hatred.There’s different discomforts in different areas, and as a member of the media, it’s sort of interesting.I mean, there’s been a steady stream of Microsoft books, some of which were management-approved and some of which were not.I remember the first interview that I did on the first management-approved book, was back a few years ago with
“Microsoft Secrets”
by Richard Selby and Matt Cusimano.At about the same time came out one of what I would call the inside books,
“I Sing the Body Electronic,”
by Fred Moody, who was a journalist who was actually allowed to come in and participate in a project for a number of months and then go off and write without any review…all the way down to
“The Road Ahead”
by Bill Gates with Nathan Myhrvold.

And I think while I was coming down here today, someone said to me…actually not today, since it’s so early, but in the last few days, oh golly, what questions are you going to ask.And I think the answer…I said, you know, in some sense that’s not all that interesting, because I’m never quite sure how real the answer is.And as a member of the media, that’s a difficult thing.And if I just hold up those books, I remember Fred Moody sitting there talking about Bill meetings.Now we all know about Bill meetings–we’ve read about them, we’ve talked about them, people have their own…just like, this is the Bill Gates meeting, and you work on it for months because you’re going to have the Bill meeting, and then Bill acts out at the meeting.And it has a huge effect on the organization, and not everyone is crazy about that behavior.

When Matt Cusimano showed up, who had the management-approved book and had talked to many, many managers and all the way around, I said, well tell me about these Bill meetings.He said, what Bill meeting?Didn’t know anything about Bill meetings.And so my first question to you is, do you know what I’m talking about?Have you ever heard of a Bill meeting?


Moira Gunn: There we go.

STEVE BALLMER: The word’s not used.I’ve never heard that word used that way, but I know precisely what you’re talking about.

Jim Goldman: It’s a Mr. Gates meeting.

Moira Gunn: Yeah.And one thing that has not bode well for people’s reactions to Microsoft has been this behavior from the top, the behavior of Bill in technical meetings, and how he treats individuals and how he treats the team, and that type of thing.Has Bill’s style mellowed, or has that style changed, or is that still very present in Microsoft?That’s something that one has to live with.

STEVE BALLMER: There are three things.First, there aren’t many people who leave Microsoft, at least not at a senior level.And so in a certain sense, maybe it’s sort of a bad thing outside the company.Inside the company I’d say it’s a very…somebody described it as a roller coaster ride.Sometimes you like it and sometimes you don’t, you’re always glad you did them when you’re done, but not always while you’re in the middle.But internally, I think there’s a little bit different view, maybe, than the one you espouse externally.Microsoft is a company and it comes from Bill, it comes from the top, where being blatantly self-critical and blatantly honest about what is true and what is not, in almost a fairly literal way, is very important.Almost non-emotional.I mean, when you get there, it might have some emotion to it.But you have to say, you can do this right or did we do this wrong.Is it screwed up, or is it in good shape?Are we winning or are we losing?If we’re losing, and we often are, and let’s really dissect that.

And Bill…the tone of getting to that is not something everybody’s comfortable with, that kind of relentless self-examination.And I’d say certainly the way in which not only Bill but other senior people do that is quieter than it would have been 10 years ago or 15 years ago.On the other hand, it’s still the hallmark of the company, and I think it’s a great thing.It means that we’ve really dug in and really asked, how do we make this thing better, how do we fix this, how do we do that.We don’t end the meeting.And the worst thing you can do at a meeting like that is pretend you know something you don’t.That’s the only time it’s painful.Things that are screwed up aren’t painful.Things which are screwed up and somebody acts like they’re not screwed up, ooh la la.And I think that’s good for our customers, it’s good for the company.I think it’s actually a good management practice, but not one that’s shared very broadly.

Moira Gunn: Pain, pain inside.OK.Go, Jim.

STEVE BALLMER: Well, only pain for posturing.Not pain for reality.

Moira Gunn: I’m not sure if that’s not relative, but…

Jim Goldman: I’ve got two questions here.Before I ask one, anybody in this room care about what happens to Apple Computer?Raise your hand.Does anybody…OK.So let me ask you this.Question asked and answered.What is going to happen to Apple Computer?When you look at that company, it’s a mess.It’s been a mess.And we’ve all been watching this slow-motion car accident in the media, and we can’t keep our eyes off of it.And if it’s not one thing, it’s another.If you were the CEO of Apple, first of all, what’s the first thing that you would do that hasn’t been tried before?And secondly, would you be interested in the job?

STEVE BALLMER: I’ll take the second one first.No.

Jim Goldman: OK, good.

STEVE BALLMER: Because I have a great job.Although I happen to think, personally, it would be a fascinating challenge, and I happen to believe there’s a lot of untapped potential in Apple.It is not something I would go do, but I happen to think there’s a lot of untapped potential.Getting that potential, realizing it, I think is a very hard job as you point out.Apple’s done a little shooting itself, time has passed, there are some things that need to be worked on.There are really, I think, two approaches for Apple, and they’re not mutually exclusive.One is to try to really innovate its way out of this situation and to shore up its position in the marketplace.That’s hard.Innovation is hard; it’s not predictable in quite the same way.That’s a hard path, but it’s one that I would invest something in as an Apple, or somebody running Apple.

The other way out of this jam, so to speak, is to invest more and try to get more mileage from the Apple brand.The Apple brand, I think, is still a very valuable asset.I don’t know what Apple’s current market capitalization is, but the Apple brand alone, I happen to believe–at least last time I checked–is worth more than the Apple market capitalization.So you ask yourself, how do you get more out of the Apple brand?Now I almost have to disqualify myself because of where I work, but I’m still going to go through this.People can listen and see what they think.What’s the market capitalization on Dell or Gateway or Compaq?Ten times Apple?Eight times Apple?In the case of Compaq, something like that?Somebody go check today’s paper, but that order of magnitude.If you took that Apple brand and you really want to just ride the brand, I believe…just slap the Apple brand on a PC.Is it worth an eighth of Compaq or is it worth more than an eighth of Compaq?Just ask that one question.And I’m not saying Apple should follow that strategy; that’s up to Apple.But if your goal was shareholder wealth maximization, there may be other strategies open to you, where you really try to make the brand more valuable by applying the brand, not in a way that’s inconsistent with what it means, but applying that brand to other things.

Jim Goldman: Just a quick follow up–I don’t know if anybody else catches the irony here of Microsoft telling Apple that they need to innovate, but I think when you look at the…

STEVE BALLMER: But it’s true.

Jim Goldman: But when you look at the company, can it survive?Is it going to survive, and should we necessarily care if it survives?

STEVE BALLMER: Number one, it depends upon strategic decisions and investment decisions that Apple makes now.It’s not known one way or the other, in my opinion.Number two, should we care?I care about the Mac, and I would find it sad, very sad, if Apple was not a thriving part of the computer business.Because it’s always added value in unique ways, done good work, and I would find that a very, very sad thing.So from my personal perspective, yeah, I do care.But should the average customer care?Should the average investor care?I don’t know.

Dan Gillmor: OK, we’ve solved Apple’s problems by turning it into a Windows-Intel reseller.

STEVE BALLMER: I’ve got a question, one question the audience.How many people think they could drive up this Apple market capitalization with a strategy like that?I know that could happen, whether that’s a good thing for Apple or not.

Dan Gillmor: I’m going to take one of the questions here that came from the audience and I’ll just read it out.It says
“print clearly”
on here and someone actually did.It appears that Microsoft is attempting to control consumer access to content on the Web through investment in such things as Web TV, Internet Explorer, Microsoft brand development, and establishing preferred relationships with other companies.How do you respond to the idea that this is anti-competitive in the marketplace?

STEVE BALLMER: Well I don’t think anybody can, nor is it our strategy to try to control access to content on the Web.It is impossible.So having that as a strategy would be a bad thing for anybody to pursue.I do think, though, that there is a business that many people are pursuing.We are not the most successful in this business.But there is a business to try to provide, essentially, a base station on the Web that helps people navigate and find what they want.In some senses you could say WebTV is sort of about that.We could say something like MSN is sort of about that.The guys are really successful at this today, guys like AOL, Yahoo, C/Net is going after that…C/Net is going after that opportunity with Snap.And so there is opportunity.It’s not so much to control access–that is not possible–but to help people find what they’re looking for.And I guess you could say there’s sort of a blurry line.That’s a business that we are in.We would like to be more successful than we are today.And we will continue to be in and we’re just pursuing that as as good a competitor as we can be.

Dan Gillmor: Are you not telling the manufacturers that the first screen that they show when you boot up the computer will be Microsoft Windows with your decisions on what content is going to be shown first?

STEVE BALLMER: What our posture and agreement with our manufacturers really does, and really focuses in on, is to sell their machines, they sell Windows, and they’re using Windows as part of their selling proposition.Of course, customers can change anything in any way at any time.But if the customer gets Windows, we want them to know that after they turn on that computer, it’s to a screen that really is
“the Windows experience”
if I could say it that way, is what we deliver.From that point on, if the OEM wants to make changes, if the customer wants to make changes, it’s fine.But in some sense, if the customer thinks they’re getting a Windows machine, and what happens is they never get to a screen or a place that looks like Windows, that, too, is potentially confusing and disruptive to the customer.So it’s not that the OEM can’t make changes and it’s not, frankly, that the customer can’t make changes.We want to make that there is an experience.And yes, the channels happen to be part of that, but there are a lot of other things that are also part of what I would call the Windows experience.Try to make sure that that’s a faithful experience for any customer who gets a Windows machine.

Moira Gunn: Let me first make a comment, since I have a microphone in front of me–it’s my turn.And then I’ll ask a question generated, actually, from the audience here.The first thing is, I keep trying to look again and again about why is there a negative image of Microsoft.And in our earlier conversation today, and what we’re saying today here, it is…again and again it comes back to me.If we look at the Sun-Java lawsuit and what we were talking about earlier and some statements you made here, it was a question of, well, we looked at that contract and we went over it and we know what the letter of the contract…you were saying about a relationship, well, we have this contract over here.Bill’s father was a lawyer and we take this very seriously.And I think some of the confusion, if you will, or some of the reaction has to do with when you ask somebody a question about what’s the relationship, and you say the relationship is the contract.That’s not a relationship.And I think when that gap goes to zero, if the relationship is the contract, I can see where businesses don’t feel they have an alliance with you; they have a contract.So if it’s not in the contract or it’s not in the contract the way everybody has in mind, then they call the lawyers.And I think that no matter how you read it in the media, no matter how friendly or unfriendly the media may be, I think that those kinds of responses lead to a negative result, if you will.

STEVE BALLMER: Well, let me respond to this like a question.Nobody ever pretended we and Sun had a relationship–not us, not Sun, nobody else.That was always clear.We have a relationship with so many companies that is deep and goes far beyond the contract.I mean, it’s one of the things that’s unusual for me to think about.Our best partners are the biggest companies in Silicon Valley: Intel, Hewlett-Packard.I mean, just great, great partnerships which we have with those companies where we’re doing great work together, where the contract is a meaningless part of what we do together.Many, many smaller companies.A lot of what we do, we just go around, Digital, a lot of the hardware manufacturers, software vendors, SAP.PeopleSoft–we just announced a much-deepening part of our relationship with PeopleSoft last week or two weeks ago that we’ve have been working on for a while.So in a wide variety of ways, we have these deep and important relationships for us and for our partners.We don’t with three or four big, noisy guys.And I’ve got to admit with those guys, like Sun, the contract is the relationship.But if you look at it, there are far, far, far more companies with whom we have partnerships.We’ve never had a contract with Intel, as an example.But at some of these companies we have contracts, some we don’t.But they’re very deep and very important relationships to us.But I guess I don’t agree with at least some of the fundamental point.They’re not very loud sometimes, but sometimes they are very loud about partnerships.But I think they’re very important.If you asked Hewlett-Packard, if you asked Intel, if you asked SAP, if you asked PeopleSoft, I think they would tell you those are important relationships and we are together a good partner.

Moira Gunn: Well that’s true.I’m also reflecting on your energy earlier of
“how do we compete”
and the more recent sense toward alliance,
Take some of that charge out in competition and that charge always appears to be there.Even when you have a good relationship, it always appears to be there when Microsoft enters a room, if you will.

One question that I’m seeing here has to do with…actually there’s a couple here…have to do with the penetration of PCs into the home.Some people say they look at them topping out around 50, 55 percent on the American scene.How much penetration do you anticipate into the home?

STEVE BALLMER: I think we’ll see PC penetration…within three or four years you’ll see PC penetration at least 70, 75 percent and going north from there.It is my personal view that PCs will, over time, become at least as penetrated, for example, as VCRs in the United States.Today, things are hanging around 41, 42 percent.Penetration grows, on average per year, by about two points, three points.And I think we’ll need to see some quantum breakthrough, but particularly with consumer PC price points coming down,because I think that is a major impediment, to some of the kind of work that a lot of the hardware manufacturers are doing to try to improve usability.I think we’ll see a couple years of quantum pickup.It may not be this year, but within the next four or five years, certainly, we’ll get that and that’ll get us over 70-75%.

Jim Goldman: If you walk up and down the streets of Silicon Valley and you ask them about Microsoft–people about Microsoft, companies about Microsoft–I would say between seven and 10 people would say that they have some negative story, anecdote, problem with the company that they could relate.

STEVE BALLMER: How many people in this room have a negative story about Microsoft?

Jim Goldman: Let’s go table by table.

STEVE BALLMER: How many people in this room have a negative story, anecdote, etc. to relate about Microsoft?So give me some feedback.

Moira Gunn: How many have heard a negative story?OK.

Jim Goldman: Incidentally, Steve will be collecting phone numbers afterwards.

STEVE BALLMER: [inaudible]

Jim Goldman: Those are on the red sheets.

STEVE BALLMER: [email protected] me some mail.

Jim Goldman: Well, let me ask you this then.You partner with a lot of companies around here.Nobody’s twisting companies’ arms to accept Microsoft money.You invest in a lot; you take over a lot.How many companies in the Valley right now do you guys have an active investment in, an active interest in?How widespread is your reach in this area?

STEVE BALLMER: Interest or investment?Financial investment or actually just interest?

Jim Goldman: Financial investment.How…

STEVE BALLMER: Financial investment, I actually wouldn’t know off the top of my head.But probably the answer is order of magnitude, dozens.Not too many dozens, but I actually just don’t know off the top of my head.In terms of interest, the number is, at minimum, hundreds, and potentially over a thousand.There are so many ISVs, software developers, here in the Silicon Valley, and actually throughout the San Francisco Bay area that we spend a lot of time working with.Hardware vendors–people like Cisco–we spend incredible amounts of time working on our partnership, both tactical and marketing, with guys like Cisco, with Bay, with 3COM, with small software developers, with large software developers, people that do business products, with people that do consumer products.You know, we have a very active group here in the Bay Area that focuses in on those relationships.We have people in Seattle — I’m the executive partner on at least 10 relationships with companies here, which is a lot, given just how busy everybody gets in their day-to-day lives.But in terms of important relationships, it’s at least hundreds, and my guess is, if I did a database scan, not counting even customers, we’d come up with numbers over a thousand easily.

Jim Goldman: Quick follow up–is there a single company that you’re aware of in the Valley or maybe the top two that you’ve heard about, had a relationship with, sat down with, who you say, God, they are doing some cool thing.They are really doing some hot technology.Who should we be paying attention to?

STEVE BALLMER: Well, the nature of your question sort of points more to smaller companies than the larger companies.And there are a wide number of companies doing very, very cool stuff down here.I was with…let me think who I really want to highlight, since it’s a very large audience, and I get in big trouble with the rest of our partners down here.But I would probably highlight, in the Valley, as much the guys who are doing cool hardware products as cool software products.There’s a Kleiner-Perkins investment–I’m not going to remember the name of the company.But they’re working on a very clever, integrated product–hardware, software, designed to go into small businesses and sort of solve all of their voice, video, Internet, communications needs.It’s an incredible, incredible–from my view–product.And we have our people talking to them, providing technical support.I can’t remember the name.

Jim Goldman: It’s killing everybody in the audience, believe me.

STEVE BALLMER: Anybody at Kleiner can point you in the right direction.[Inaudible] But it’s that kind of opportunity where people are trying to meld business focus and a tactical focus.They have a great, sharp technical guy, and very, very focused now on this small business opportunity.It’s incredible.

Dan Gillmor: The last time I heard a senior executive from Microsoft mention a specific small company that no one had ever heard of was when Bill Gates mentioned this little Web development tool at a meeting that was the product that ended up as Microsoft Front Page.And so whatever this is, I’ll be watching closely.

You have been quoted as saying you’re a student of history.And so I’m going to ask you to answer a question that another journalist asked me to ask you before I came up here.And that is to compare Bill Gates and John D. Rockefeller.

STEVE BALLMER: Thanks, Steve [Hamm, Business Week, who submitted this question directly to Steve Ballmer prior to the panel.]

Dan Gillmor: Oh that’s right.He gave him the question first.

STEVE BALLMER: I can actually say I was…I think I know what quote you’re referring to, and it’s actually misquoted.Bill is a student of history.I’m a student of basketball, personally. And Bill doesn’t compare very well to Michael Jordan, so I have a hard time with that one.

Jim Goldman: How about Dennis Rodman?

STEVE BALLMER: Rockefeller–I don’t know much about John D. Rockefeller, honestly.

Dan Gillmor: He used to hand out dimes to kids on the street.

STEVE BALLMER: That’s what I hear. John Rockefeller was a rich guy in his time; Bill Gates is a rich guy in his time.If there’s any more deep analogy than that, I challenge everybody else to go find it.I’m not particularly focused on the issue.

Moira Gunn: You know, I’m a little surprised that we’ve been talking about the negative image of Microsoft–and by the way, you don’t personally have a negative image, Steve.I just wanted to say that.

STEVE BALLMER: Well that’s the problem.Nobody personally does; that’s why it’s so hard to pop that little weasel.

Moira Gunn: Yeah.But…because I’ll tell you, that didn’t come up in any of our earlier conversations, but it kind of replays itself out again and again.I asked you for some numbers earlier, and we’re talking about software piracy, and I would say software not paid for as opposed to piracy.It’s sort of like having your eye patch on and going in there and grabbing something.In the United States, you were saying it represented about 30 percent of your revenue stream.So that would say perhaps $3 billion plus revenues in software in the United States and $1 billion in revenues not collected because of software piracy each year — obviously an estimate.Could you break down for us the $1 billion, and given the profits of Microsoft, the personal profits of Bill Gates, the negative image, how do you propose to get these people to pay without increasing your negative image?

STEVE BALLMER: That’s a way I’ve never thought about the question.Let’s talk about piracy.There are counterfeiters in this world.They don’t just counterfeit our products; they counterfeit lots of people’s products.I don’t care whether people think we’re successful or not successful, if Bill has too much money or he doesn’t have too much money.That’s not right.It’s not right that the customer should pay legitimate money if somebody else gets something for free and that these people set up factories and are printing and stealing somebody else’s goods.They’re not just doing our stuff.They can set up CD manufacturing plants that are also taking from people who do other software products, music products, etc.I’d be hard pressed to understand how busting counterfeiters could hurt our image.I would hope it would help, because it generally elevates the software business for everybody.

Take the small business market in this country.There’s not a lot of piracy in large businesses.At least if there is, it’s not very deliberate; there’s not much action.In this country.In other countries, it’s an issue and we have to be sensitive to make sure we do it in a way that doesn’t cause degradation in our image.Particularly abroad, it’s not just sort of Microsoft negative Valley thing.It’s just American company comes in, and does the American company try to disrupt business with local companies.But go to the small business market in the U.S.There’s a lot of piracy in small business in the U.S.And a lot of it’s an education issue.Most of it is not about eye patches and busts and blah-blah-blah.It’s really helping people understand licensing.I think that’s generally helpful for anybody who’s in the software business.

The second part of the problem is there are a few guys, maybe more than a couple, particularly dealers, who will, as a way to enhance profitability, make extra copies of software products when they put them on a machine. … and it’s not fair, frankly, to other software companies who are in the same boat. … It’s typically not just us; it’s us and the Business Software Alliance, the SPA, it is generally about helping the software industry.But I’ll tell you, the guys who compete with them fairly and play by the rules appreciate that more than you understand.So while I’m sure there would be a couple people, like people who are cheating, who wouldn’t like it, I think the people who are paying and being lawful would very much appreciate our attention, the BSA’s attention, the Software Publishers’ Association’s attention to this issue.

Moira Gunn: Well I think one of the things that happens individually…and we’re talking about human behavior.We were talking earlier about, well gee, some people may not like Bill Gates just because he has a whole lot of money, you know.And that’s perfectly true.I think that there is a direct link, that people say, if I knew that your program that collects revenues from people who haven’t paid turned around and lowered my cost or ended up in an increased benefit to me individually or my company individually, as opposed to simply increased revenues to Microsoft, that’s the kind of programs that would have a positive orientation because it would end up benefiting those people as opposed to hurting them.That’s the kind of twist that we’re seeing.Jim?

Jim Goldman: You guys are facing investigations from six Attorneys General in the United States right now–the ones that we know about.The Justice Department, Federal Trade Commission.Various companies have made charges, but they’re always looking into you guys.

STEVE BALLMER: I don’t think the FTC is right now.

Jim Goldman: Well, you never know. … I’m sure some poor slob in Washington is poring over some Microsoft document, hoping, praying, that there’s something there that he can hang his hat on.Everybody seems to be after you.Attorneys are making a fortune off of this.Gary Reback in Palo Alto has put together this coalition of anti-Microsoft people and if he had his way, you’d be deposed hour after hour after hour every day.Why is it that everybody is after you and they can’t seem to find anything really to hang their hats on?Is this a signal that you’re doing something wonderful in terms of business but horrible in terms of PR, or are you pushing the envelope too much?Are you doing something wrong?

STEVE BALLMER: I think it is a reflection of the following chain of events.We’ve been successful; we have competitors who are smart and good and crafty; we had an initial set of investigations, which got people to understand that investigations can make good PR and trouble for us.And then eventually you just get a snowball.It’s kind of a perpetual motion machine here.It’s in some of our competitors’ interest to fuel the snowball, so they do.You have lawyers who’ve made a business of fueling the snowball, so they do.And you have lawyers on the other side.There are guys at the Department of Justice, probably at this stage, who’ve spent their entire careers at the Department of Justice studying us.So they know how to do it and they’re down the learning curve.Now we need to make sure we’re always behaving both ethically and legally correctly.We feel very good about that.In some senses, the fact that we’ve had so much legal examination with nothing uncovered, we think is almost sort of a sign-off that what I’m saying is true.But it certainly won’t stop competitors from waving flags, and it won’t stop people from doing their legitimate job, which is to make sure that the laws of this country are being followed, and that’s the jobs of Attorneys General and Department of Justice, etc.

Jim Goldman: If one of your sons came home from school one day and said, you know, this teacher keeps picking on me, and a semester later your kid is still staying after school, detention.Always, always in trouble.Kid keeps coming home and saying, but dad, I did nothing wrong.At what point do you start believing the teachers and saying, well, you know, kid, they’re seeing something wrong, so you’d better shape up.

STEVE BALLMER: It’s a legitimate issue, but nobody’s ever said we did anything wrong.The analogy here isn’t the teachers are saying that we did anything wrong.The teachers are saying, Johnny, you are three times bigger than anybody else in this class.John, I’m going to watch you, because if you even fall down wrong, let alone beat some other kid up, you’re going to hurt him. So I’m watching you, Johnny.Now don’t fall over, Johnny, or we’ll put you on a diet, or we’ll do something to you, Johnny.That’s the analogy that applies here.Johnny hasn’t been a bad kid.At least, not my Johnny.

Dan Gillmor: I’m told we have time for one more.The one name that was not mentioned in that litany of people asking questions is in some ways the most interesting new name to be added to the list, and that’s Ralph Nader.He’s been putting together a conference in November in Washington to discuss these issues, and has invited Microsoft to participate.Is Microsoft going to participate?And if not, why not?

STEVE BALLMER: I don’t know anything about his request to us personally.

Dan Gillmor: Would you like to be there?

STEVE BALLMER: No, not particularly.I have customers.My job basically is to be out seeing customers and partners to try to figure out how to make our products, our services, our support work better.

Dan Gillmor: Would you like someone from the company to be there to give your side?

STEVE BALLMER: If it’s a legitimate forum, it might be a good idea.I’m sure our people will take a look at it.It’s not something that I can say I would go do; it’s not something I would recommend that Bill go do, because he’s got a set of things where he can add real value to our customers.But if it’s an appropriate forum, I’m sure someone will show up.

Sheri Benjamin, (sp?) Churchill Club: Steve, why don’t you take a few minutes to just give some final words to the Silicon Valley.

STEVE BALLMER: This has been even more eye-opening morning, frankly, than I thought.For us, we are a company that focuses in…we really do.Maybe too literally, maybe too dispassionately in a certain sense.But we focus in on really trying to build great software products and enhance them and improve and get customer feedback, and refine them, and really understand the market better.And the measure of whether you’re doing a good job of that is whether somebody buys your product or buys the other guy’s products.So yes, we are competitive about that.It’s the only way we know whether we’ve done a good job, is if somebody at the end of the day buys something from us.We think that’s good and legitimate.

We think our image here in Silicon Valley is, I’ll say, more extreme, and I’ll leave it at that, than it would be anyplace else in the world.Yet it’s even more important here that we have good relationships with partners and prospective partners.Because our products themselves don’t solve customer problems. Our products, by and large, only solve customer problems when they’re used in conjunction with third party software, third party hardware, third party development services, systems integration services, etc. And the notion that the top place in the world for innovation in software, in hardware, that we have such a negative image as Jim would describe–that’s an awful thing from our perspective.I mean, we do want to reach out.We do want to figure out how to build these relationships.We do want to deal with tough issues, because there are tough issues.It is our job to make our products better and more comprehensive every year.And adding value that way to our customers is a fundamental and important part of our strategy.How we do that in a way that is consistent with, encourages, and sort of helps the people who are innovating is very important.

I think it’s particularly unusual we would have this sort of negative reputation in the Valley.Most companies in the Valley have thrived on the success of Intel, Microsoft…or with the success, I should say, of Intel, Microsoft and many, many other companies.If you really look, I’m sure most of the software revenues for most companies here, or the lion’s share, come on top of Windows.You look at the hardware revenue–a lot of that comes because of the explosion of the PC and its use.Whether you’re talking about networking infrastructure or PC hardware or chips or anything else, there’s been an incredible boom.So the notion that somehow there’s not as good a working relationship with the companies in the Valley as we might like, that’s an awful thing.

And all I can really say, to conclude here is, we’re going to reach out, we’re going to continue to work hard, we’re going to earn people’s respect as partners–that’s very, very important to us–and we’re going to keep doing what we do best, which is try to do new R & D, expand the scope of our products, communicate about that, and sort of build a foundation on which other people can add value and make money.And that certainly is very important to us.And we’re going to continue to compete with guys like Netscape and Oracle and Sun who are logical competitors of ours.We interoperate — our customers would say we work harder today than we ever have at really interoperating with the products of our competitors, but we do that in order to make our customers successful.Not out of some desire not to compete, but a desire to make our customer succeed.And that’s, I think, the right kind of coopetition, if you will.

So I really appreciate the time everybody here has taken this morning.I am [email protected], and I do read my own mail, so every hand that went up, if you want to air your problem or issue or gripe, please send me some mail and I’d love to see it, and I’ll respond.And I thank the Churchill Club very much for the opportunity and thank all of you for your time.

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