Remarks by Steve Ballmer, Executive Vice President, Sales and Support, Worldwide Business Strategy Group
June 2, 1998, Phoenix, AZ
Steve Ballmer: It is my pleasure and honor to have a chance to talk with you today.David Gilmour had asked that perhaps I’d speak 15, 20 minutes and try to give you some projections of things that we think will happen over the next five, six, seven years.Hopefully something that surprises you from the standpoint of somebody on the vendor side who has now has decided to say something that we think’s going to be true, not just possible.
I’ll make one small prediction that runs counter to something David said yesterday, and it’s unfortunate.David talked about objection orientation and the ways in which new applications could develop.Well, I agree absolutely, totally, 100 percent with what David had to say in terms of what we want to be, what could be, what can be, what needs to be.
I’m much less optimistic, frankly, about adapting to something that comes over the next four or five years.The issue is not what can be and should be and ought to be and what the effect will be.But certainly in my travel and speeches with customers and developers, it is my view that there’s a lot of inertia in the development community, and actually things change far more slowly in terms of technique and programs than anybody might ever guess.
I got to speak yesterday to 9,000 people, and I was kind of expecting that this is a revved up audience – they’ve traveled a long way, paid money, who are enthused and involved and excited and leading edge, and I asked this audience, “How many of you have ever used Java?Ten percent of the hands went up, maybe 20 percent of the hands went up.They had not. You could say, okay, I was speaking to an audience of troglodytes.That would never happen if I was speaking with employees of the companies in this room.
I’ll take a bet on it.I think we could well see that it’ll take another few returning classes of college graduates.It’ll take time.It’ll take some real change in inertial patterns before we get possible changes in the way applications are developed.
So while I’m optimistic about what the technology can do I’m not very sanguine today about the role of inertia.
Web Lifestyle to Lead to Better Customer Service
The second prediction that I want to make has to do – not surprising – with the Internet, what’s going to happen to the Internet, because I imagine quite a metamorphosis.Today everybody’s thinking about the Net, everybody’s talking about the Net, whether it’s business or consumers, and consumers – we certainly see people over the next four or five years leading what we like to describe as a Web lifestyle, people who turn to their personal computer as a fundamental place to retrieve information, to find things out, to start or conduct business, whatever the case may be.
Businesses will think about the Internet as the fundamental way in which they contact their customers, their business markets.The world will really transform itself around the Internet.Many people predict that this Web lifestyle will mean a world of fallen margins, commodity pricing, customer shopping.
I believe a world in which the Web is fundamental for the way businesses interact with consumers and consumers interact with businesses will be a world of increased customer service.
I think people are focusing far too much on pricing and shopping and commoditization when, in fact, the things that I see that are good and wonderful about e-commerce and the Web and the Web lifestyle have to do with service.We can, I know, serve our customers far better with a good experience on our Web site than we can even with somebody telephoning somebody.
We have been involved with The Gap, helping them build their Web sites.They can do things on their Web site that they cannot do in their stores.They can store all of the product information from all of your relatives, important dates when it comes to shopping.They’ll store the birth dates, they’ll send you a reminder two weeks before a birthday and say you know,
“Grandma Jeannie’s birthday coming up.Do you want to send her something?Here’s her size and here’s what she purchased the last time she was online.”
That’s not a transactional efficiency.That is an improvement in customer service.
You’ll see the same thing in financial services, information services, the kind of thing that Gideon talked about, the knowledge salon concept, which Giga is pioneering and I think it’s really a wonderful breakthrough in the way we think about knowledge management.But it’s all based upon really a notion that the Internet and the Web represent a form of advanced customer service.
I got a question from a customer the other day, a semiconductor company, who said,
“Does this e-commerce thing have anything to do with us?Tell me, does it have anything to do with us?All I ever hear about is, you know, online banking and shopping and, you know, bookstore buying.”
Well, the problem is very different for him.He doesn’t need to go out and broadly search for all the customer support.There are a hundred thousand, possibly, electrical engineers around the globe who need to know about his product.His mission is to give them all the information they need, the support that they need, when they need it, to improve his customer contacts and customer experience in precisely the right way.
So I think there’ll be an explosion of Web lifestyles, but the thing that will actually cause it is, as much as anything, businesses investing in improving the customer service experience for their customers and their trading partners.I think that’s a very important concept.
Increased Business Value from PC Technology
The second prediction I’ll make is that businesses five years from now will be clearly recognizing and admitting and understanding increased value from the investments they make in information technology, even if, as I predict, spending on information technology continues to rise as a percentage of revenue or any other measure over the next five years.
Today I’m sure many of you, as I do, see frustration among business managers, CEOs in your company, whohave production as their top objective.There are a lot of companies who still don’t have a lot of understanding of what can happen, what should happen, what’s possible.
I think there will be a shift over the next four or five years.We recently had 125 CEOs in Seattle to meet with us to talk about some of these ideas, and we’re starting, even versus a year ago, to get real change in the way people think about IT.People are thinking about IT as a tool to improve customer service.People are seeing IT as a tool to connect large global businesses together.People are seeing IT really as what we call a Digital Nervous System place, where the information technology is not just there to make sure the books get closed and the manufacturing line gets launched, but IT is really there to help the companies communicate, to train its workers, learn, make better decisions, communicate better with its customers and its suppliers.
Today, over 50 percent of the capital spending in this country on business is spent on IT, yet most business managers don’t feel very comfortable with that.I think we’ll see a change over the next five years and I predict five years from now we will be doing –
meaning the vendor community and our customers in IT – will be doing a far better job of demonstrating the value to the business in the ways the CEO, the vice president of marketing, the vice president of customer service really understand. A better job of delivering value.
I had the experience of sitting next to a fellow who runs in the western part of the United States one of the largest auto insurers in this country.We sat next to each other on an airplane, he noticed me fumbling through computer-looking stuff.He says,
“Well, you’re into computers.”
“Why, yes, I am.”
Then he says,
“We get a lot with computers.”
That’s great.That’s great.He said,
“We have a lot of computer people.”
Aha!That all sounds good to me.He said,
“You know, it’s kind of frustrating.I have to write auto insurance in Durango, Colorado, and I have to decide how we must change our prices over the course of the year, what the price is.I would really – and I know those IT guys have this someplace – I wish I could look at all the claims we paid in Durango, I could look at those by time of year.I’ve got to have a judgment that says we’re going to raise our rates on, New Year’s Eve, we probably ought to charge more to the people who come buy insurance that day, and, you know, just general information.”
“Why is it with all those computers and all those IT guys I don’t have what I need?”
“Well, you know, I have things I’ve got to go back to reading here.”
I was ashamed on behalf of Microsoft and what we’re all able to accomplish, and I see that really changing over the course of the next five years.
Cost.I think we are at a turning point in terms of manageability of cost of ownership.Certainly I have a view that five years from now, people will look back on 1998 and we will say,
“That was the turning point.That was the time in which the PC industry, Microsoft, Intel, Compaq, HP, and others got their act together.They really went after and improved the cost of ownership.”
But there’s no doubt in my mind that whether we succeed-and I think we will – or we fail, five years from now, we will view this as a turning point.If the PC industry does not get its act together to help reduce the cost and the complexity of managing large networks and PC clients’ servers, this will be viewed as the time in which alternate architecture and alternate computing approaches really take off and come to the forefront in terms of what is popular five years from now.
While the PC may not be dead five years from now, we will all understand that the PC lost its central position in the infrastructure based upon the inability of the vendor community to respond to the challenge of cost of ownership.
Now certainly it is our job to make sure that we respond, that we in the PC industry respond to the clarion call here on cost of ownership.Five years from now, either we will all see the industry responding to the needs that have been expressed or you will have voted with your feet and be buying, at least down the road, different architecture devices.
We will do it!There is no doubt in my mind – none, nada whatsoever – that five years from now, we will all agree that the PC server is absolutely the most powerful computing device, the most available, the most reliable computing device in the world.
I’m not predicting that five years from now there will be no mainframes left.We’ll have applications and those things don’t go away, but based upon the availability of other hardware – certainly the hardware from the work that Intel does to the work the system vendors do – powerful and large scale application developed will be started on top of the PC.And I base that prediction on my view of what Intel is capable of and of the incredible investments going in from Hitachi and NEC and HP and Compaq and others into high availability and high performance systems.
On the plus side, I also predict that on the low end, we’ll all agree that there’ll be PC style, PC architecture devices that are scaled down and make sense in the smallest jobs.Instead of my coming up here carrying a silly piece of paper on which I write notes, I’ll have my palm-sized PC in my pocket
Literally , in my car – wherever I go – I will have access to the same quality and type of information because of the incredible scalability that the PC and that the Windows architecture provides. Within five years, I think it will be eminently clear.
Investment in Innovation
We are very proud with our company’s record and focus on innovation and the core products that we provide-Windows, Office, and BackOffice.Five years from now, I predict we’ll be doing and our industry will be doing exactly the kinds of things that everybody’s trying to do today – investing aggressively in R & D, improving the product, providing more capability, teaching computers in key states to speak, to listen, to learn, adding artificial intelligence and natural language and voice recognition and improved security and improved information management and knowledge management, information handling capabilities into the heart and soul and core of all the products in the market place – our products, NEC’s products, Peoplesoft’s products, Oracle’s products, IBM’s products.
Everybody will push forward relentlessly, and our goal has to be to develop things in the kind of modular component type fashion that David described yesterday.But nonetheless, we and other vendors in the business have to take on the obligation to make sure that these components really are tested and work and come together for you seamlessly.
The goal of the PC revolution has to be to get the best of both worlds-the best of the specialization of the PC industry, but with the benefits of integration and things working together that people associate with the mainframe industry.
So wewill continue-by the way, we will defend our right to continue-to add value to our products.-Next year, the budget is $3 billion in R & D.Five years from now, I would certainly anticipate that our company could be spending as much as $7-8billion on R & D.
The goal has to be foremost a value added to our core products-Windows, Office, SQL Server, Exchange Servers-and we need to enhance and improve, make those products better for you, for the developers who work for you, the IT people who work for you, and for the end users who work for you.And whether it’s our company or anybody else, that will happen.
Sometimes I ask people, what if Microsoft is put out of business somehow, either regulated or out in another way, but put out of business, can you imagine an operating system in 10 years that wouldn’t have Internet access built in?That wouldn’t have speech recognition built in?That wouldn’t have natural language capabilities built in?
That’s what you’re going to want.That’s what you’re going to demand.That’s what you’re going to insist on.That form, capability, functionality will be there, be available to the developers in your organizations to build on, so the IT people do not have to worry about integrating and pulling things together.
I sure see a world that’s rich and wonderful and rosy.I’m very excited about the five-year time frame.I do worry about the inertia – inertia inside the IT industry itself.The IT industry in the United States is over five million people, five million people.The only industries or professions that are larger in the United States today than IT are electrical manufacturing and auto manufacturing.And to move an industry with five million people very quickly, that’s a difficult challenge, and it’s a challenge that affects all of the people.We’re going to get the full power and full capabilities, the customer service on the Internet, for improved decision making internal to our companies.If we’re going to get either of those benefits, we’re going to have to all take on the challenge of staying current, of educating our people, training our people, and being quick and fast moving.
We certainly will do our best for the companies to help with that education process, to keep our products moving quickly, and reacting to the kinds of issues and concerns that you raise.
My thanks for the opportunity to address you.