Remarks by Steve Ballmer, Jacques Nasser and Lindsay Sparks
September 20, 1999, San Francisco, CA
STEVE BALLMER: Hello.I’m Steve Ballmer, president of Microsoft.And it’s my pleasure to have a chance to welcome you here today for what I hope will be as exciting an announcement to you as it certainly is to us.What I’d like to do in a few minutes is sketch a little bit of perspective on where we are with the Internet and where we — Microsoft — are with some of the things we’re doing, and then set up a discussion of a partnership that we’re announcing today with Ford Motor Company, which Jac Nasser, Ford’s president and CEO will have a chance to talk about in more depth, as will Lindsay Sparks, who is general manager and now CEO of the new CarPoint joint venture that we’re putting together.
I want to start with a little bit of a perspective on the Internet itself because I think we’re going through a fairly radical transformation over the course of the next several years.If you think back to the history of the Internet, it started out in a form where most of us probably never touched it.I certainly never did, despite the fact that I was supposed to, when it was TCP/IP and Gopher.It was unusable.In the second generation of the Internet, I think things were a little bit easier.You know, we had browsers, starting about five years ago or so.People could look at pages on the Internet.And really over the last several years, electronic commerce has come to the fore, but electronic commerce in what I would call a fairly lightweight way.
Most of the interactions on the Internet today are not deeply embedded into the business processes of most of the manufacturers doing commerce on the Internet.Now, there are retailers who have started up on the Internet and their whole business is on the Net.But particularly if you look at the traditional manufacturing companies, I think it’s fair to say that despite the fact that the manufacturers have arrived on the Net, there’s been no deep coupling of the interactions that the manufacturing companies have with their customers with the basic back-end systems that help the manufacturers design and build products.
Certainly we see this next generation of the Internet being a lot about how do you write software that’s sufficiently programmable that it can participate not only in the front-end transaction with the customer, but can also become sculpted in and part of the way businesses run their manufacturing, start to finish.And for this generation of the Internet, there is a new platform of software that we think is necessary, but also a whole new set of partnership models.And the most — the first, and one that will always be remembered as one of the most significant is the one that we’re announcing today with Ford.
So if you think about the next generation of the Internet, a lot of the important work will be done around what I call marketplace services.The Internet is not just a place for a manufacturer to talk to a customer, for a supplier to talk to a manufacturer, for a reseller to talk to a customer or a manufacturer.The Internet is a place where you can really bring together marketplaces where consumers and dealers and manufacturers and suppliers can all interact in the appropriate form; they can interact sequentially, they can interact together as a group.And it’s the nature of that interaction that has yet to be exploited on the Internet.We simply haven’t had the partnerships or the technology building blocks that let’s that happen.
We made an investment about six months ago in a company called WebMD.The vision of the WebMD was simple; they want to bring together doctors and hospitals and drug manufacturers and patients into virtual communities on the Internet.They want to create a virtual health care marketplace.And I think the full power of the Internet isn’t realized until you can really bring together all of the constituencies in a strong form.
At MSN, which is our Internet portal, we’re really trying to be at the cusp of creating and forming some of these Internet marketplaces.We have some experience doing in this in a number of areas: in travel, through Expedia; through our investment in things like WebMD; through our financial services site, MoneyCentral, which brings together brokerage firms and insurance firms and consumers.
But the most profound thing that we’re doing is the work that we’re announcing today with Ford, the work that I think will have the most profound effect on the marketplace of which it is a part, and that’s the work that we started with CarPoint some now almost 4-1/2 years ago.CarPoint brought together consumers and dealers.And essentially, if somebody visits the CarPoint site, they see a car that they like; we send a referral to a dealer, since everything about CarPoint is dealer-centric, and the dealer follows up on that lead and sells the car.It was a great model of what I might call a “version 1” marketplace.
But the next generation of that marketplace, as we were thinking about it, wrestling with it, really had to involve bringing in the manufacturer, because a lot of the complexity in delivering cars, a lot of the costs in delivering cars, a lot of the ways consumers want to configure cars dealt with issues that the dealer and Microsoft alone couldn’t talk about.
I’d say it was probably six months ago I received a piece of electronic mail from the team that runs CarPoint, and they were scratching their heads and talking about the need for the next step in this automobile marketplace to have deep, technical cooperation and business cooperation with the automotive manufacturing community.About that same time, I also got a phone call from Jac Nasser, who runs Ford, who said, we see a lot changing in our business because of the interaction people have on the Internet.Jac will talk about that more.And we said, Hmm, maybe this is really the time to take the steps to really bring not just Ford, which we’ll talk about in a minute, but over time bring other manufacturers deeply into this process so that the way the customer, the dealer and the manufacturer — and the suppliers to the automotive manufacturers — relate is deeply changed by the Internet.I’m no expert in the numbers, but I guess I was hearing Jac earlier today talk about the fact that potentially 25 to 30 percent of the cost of a car has to do with what I might refer to as inefficiencies in the way today’s supply chains work, getting a car manufactured and delivered to the customer.
The key here is to create an electronic marketplace that is very efficient.It’s not that we have too many people in the chain.You need a manufacturer.You need a dealer.You need a Web site.That’s not the problem.The problem is, how do you use the power of information in this marketplace to allow every part of that chain to be more efficient?
So, with CarPoint, which is today the number one automotive site on the Internet, it helps its dealers sell about $600 million a month of automotive products.It has deep partnership already the partnership already with Reynolds and Reynolds, and we have Scott Waldron, who is the vice president of electronic commerce from Reynolds and Reynolds, here with us today.But Reynolds and Reynolds has been a partner of ours, servicing and selling the dealer community on the benefits of using CarPoint.We’ve had partnerships with people like Kelley Blue Book.We’ve had a range of very involved dealers.We’ve had the relationship with our own portal.But we’ve started to stitch these things together.
What we’re announcing today is that the CarPoint business as we’ve known it will now become a more independent business, a business that takes on additional investors, and that Ford will be the first investor in the CarPoint joint venture.I think that’s important not so much because of a need for equity infusion and cash and all that sort of thing, but it’s important because CarPoint now has what it needs and, I think — speaking for Jac, and he’ll talk more — Ford has what it needs, which is a leading-edge place to really affect this automotive marketplace — consumers, dealer, manufacturer and supplier, and the CarPoint company becomes a company that can provide a broad range of Internet automotive services to car dealers and car manufacturers.
CarPoint remains manufacturer-independent.It will represent the wares of any automotive maker — Toyota, DaimlerChrysler, Honda.Everybody will remain represented.And, perhaps more importantly, we want to have all automotive manufacturers signed up as customers of CarPoint.Today you will notice that we’re announcing a relationship with Honda.Honda is the first automotive manufacturer other than Ford to sign up to buy some of CarPoint’s services for its dealer community.And there’s a thing in your packet that goes through the relationship we have with Honda.So CarPoint is manufacturer-independent, but from both the CarPoint perspective and the Ford perspective, we now have the partnership that we need to go out and do the next generation of interesting automotive marketplace services.
The most significant of those is probably build-to-order.And I’m not the expert.I’m going to let the experts talk about build-to-order in the automotive marketplace. There’s no way to tie the manufacturing process, as I said earlier, with the delivery process today unless you’re deeply involved with the manufacturing and distribution systems not only of the dealer but of the manufacturer.And while we want to provide these capabilities to manufacturers other than Ford, we know through our joint venture that Ford and Microsoft will get leading edge experience in doing this kind of build-to-order hookup between the Internet front end, the dealer and the manufacturer.
One thing I want to highlight out of this, as it will get asked and asked again, is is this venture fundamentally unfriendly to dealers?The answer to that question is categorically no.For both delivery and service, it has been obvious to us before we met the Ford people, and even more obvious to the Ford people, that the dealer is a fundamental part of the delivery and service process for automobiles.So we have consulted with the Independent Dealer Advisory Council, Ford has talked to its dealers, and very, very much, the approach that we’re taking with CarPoint tomorrow is the approach that we’ve taken yesterday, which is a very dealer-friendly approach to the process.
Why Ford Motor Company? I have talked already a little bit about this.
Ford shared this vision.Jac actually initiated the conversations with us about perhaps doing something around CarPoint.We are inviting more players in the automotive space to join as partners in the CarPoint venture.We have talked to a number of manufacturers.Some are interested and not ready to commit.Others have other places they want to put their capital besides into an Internet e-commerce deal, and that’s certainly a fine thing.The important point isn’t who chooses to be an equity investor.The important point is the venture will sell and serve the entire automotive industry.
Ford was an easy first choice.Jac approached us.We shared a vision.We wanted to go the same direction, which is to make the Internet a much more fundamental part of the automotive marketplace.
We have had a very strong relationship with Ford for over 10 years now.And it was just a very logical and obvious thing to put both of our visions together and to be able to approach this marketplace as part of this common joint venture.
I am very excited about the venture with Ford.And Jac and I have probably met four times now over the last four or five months.And every time we sit down, there’s new ideas on how our companies can continue to be part of the process of reinventing the automotive marketplace using these Internet technologies.
So it’s an exciting day for us.Ford picks up a significant minority position in the CarPoint joint venture.And the new CarPoint is open for business for all manufacturers in the industry, and we are very excited about that.
And with that, I’d like to turn things over to Jacques Nasser, president and CEO of Ford Motor Company.Jac?
JACQUES NASSER (president and chief executive officer, Ford Motor Company):(Applause.)Thank you, Steve.And through the wonders of technology, we are being watched and listened to by the media in Detroit, and also some security analysts also are listening to what we have to say.So why don’t we impress them all?And we should have given Steve a standing ovation.
I think most of you have heard Ford Motor Company talk about wanting to be a leading consumer company for automotive products and services.And that is our vision.That’s what we want to be.We feel that’s where we are heading, as we are going into the 21st century.And we are driven by that.
We also feel that, as part of getting there, as part of being the world’s leading consumer company for automotive products and services, we have to be the world’s leading online consumer company for automotive products and services.The two are very much related.
As Steve mentioned, it isn’t only to do with what we tend to spend most of our time on, and that’s the customer service piece.It’s probably the most important piece to get right.But the impact it’s going to have on the whole product delivery and product design process is huge.And I can’t overestimate it at this point.It is going to change the way we think about the business, the way we conduct business.This is not only about a communication channel or a selling channel.It’s a different way of running the business.
The best way to do it is to make sure that the consumer is involved in every step in the process.Steve mentioned the inefficiencies in the delivery chain and in the logistics part of any distribution system.My contention is that that’s probably the tip of the iceberg.There are tremendous synergies in not only the way we deliver the product, but the way we manufacture the product, the way suppliers relate to the manufacturing process, and probably equally as important, the design and creative process of the product.And I think this chart here summarizes our vision and how it connects to online consumers.
This is, again, a simplified version of how we think Consumer Connect, which is an organization that we announced last week headed up by Brian Kelly, will really facilitate the way we communicate with consumers and really put the consumer in charge of what’s going on in the automotive business.And if you look at the ovals that we’ve got there in green in particular, where we talk about retail stores, cost centers, in-vehicle communication, these are what I would call the more traditional communications with consumers.Then there are all the other independent sites, the community sites and the Ford-dedicated site, the Ford.com site.
What we want to do here is to make sure that consumers have a variety of channels that they can look at.We want to make sure that there’s filter-free information going back and forward from the consumers.We want to make sure that the dealers are absolutely at the center of the delivery and the service process, but the consumers see transparent information on the product, on the status of production, on design, on pricing, exactly where they stand.
And we feel that you can’t do that with just one single shot.We must offer consumers a choice.And we feel that Ford Motor Company at this point is very well-positioned here, because if you look at each one of these different areas, if I start with a community site, these are general community interest sites, and I think probably one of the best examples there is iVillage, where people can come on and be interested in a multitude of different consumer products or information, and we want to be there.We want to be able to connect with people at that level.
If you go to independent sites, CarPoint is a great example of the leading independent site — all makes.And Steve stressed it, I want to stress it again, this is an all-makes site.We do not want this to be read as a Ford site.That’s not what we’re about.We already have our own independent site, the Ford.com site, which is dedicated to the Ford brand.
We talked about multiple Internet touch points, and no matter where you start as a consumer, we want the consumer to have the ability to go from what we call a virtual world to a physical world, and the physical world is when you start to really connect the consumer with where the product is, where is it in transit, where is it in product delivery, and the ultimate is when we can start to use that data to actually get better customer satisfaction for our products and drive right through to the supplier chain, eliminate the waste, only build those combinations that customers really want; only build those specifications that customers are really prepared to pay for; only build those specifications and product levels that dealers can make a profit on, turnover is faster, revenue is faster, satisfaction is at a higher rate.And I think this chart probably summarizes that best in terms of linking those worlds together, and I’ll talk a little bit more about it in a minute.
The alliance is more than an partnership, and Steve’s right, when I called, I called because we think Microsoft is the best in this business, and we looked at CarPoint and we wanted to make sure that it was an enterprise that crossed different makes, different types of choices for consumers, yet at the same time gave us the capability of continuing with giving consumers choices in other areas as well.
Microsoft is, if course, number one in its industry, and we value that.We think we’re leading edge in terms of the perspective that we have got in terms of on-line consumers.It’s a leading enterprise in software, an e-commerce developer.We wanted to be part of that.
We wanted to learn from the best and we felt that if you could take the best of both worlds, if you could take the best of the automotive manufacturing product design process and link that with the best there is in terms of on-line consumer enterprises, then we’re going to offer consumers the highest satisfaction possible.Ford put the world on wheels almost a hundred years ago, and Microsoft has wired the personal computer for the world.And we think that marriage is going to be magic in terms of the results for everyone.
Why invest in CarPoint, from a Ford perspective?Because if you look at the behavior of consumers on manufacturers’ sites — and this chart shows the percent of consumers visiting sites during the online buying process — 76 percent go through manufacturers’ sites, and 43 percent go through all-make sites.But the interesting thing is, a large percentage of people actually go to the all-make sites first.And we wanted to make sure that the best message, the most filter-free, transparent message, was getting through.
In terms of the manufacturers’ sites, Ford.com is the number-one visited site by any manufacturer, and CarPoint is the number-one visited site in terms of all makes.And again, putting those two together, we felt, just gave you an unbeatable combination.That is not only for Ford Motor Company, as the traditional Ford oval, but of course the Volvo, the Lincoln, the Mercury, the Aston Martin, the Jaguar, Hertz — all of this becomes available to our consumers.
It’s a new way of doing business, and we feel very strongly about this.This is not only about a retail-distribution connection.That’s an important piece of it, but it’s probably — let me guess — 10, 20 percent of the ultimate impact.And it’s what we can do today.If you look out over the next several years, this is going to reinvent the way the automotive business works.It’ll concentrate on design, the supply chain, capital requirements, inventory, stock, the logistics of vehicles, the stocking of vehicles.It’ll affect so many different things.It’ll affect everything that we presently do today, starting from an idea in someone’s head as to what a product is going to be, all the way to the delivery process, and touch everything in between.And I think this is really going to drive the value chain in an accelerated fashion that probably takes the last 20 or 30 years of development inside the value chain and compresses it over the next five years, in terms of velocity of change and impact of change.
I think it’ll also set the industry standards in terms of how the business works and the relationship with dealers and consumers.
It’s not often that you can stand back and say, “Everyone wins,” but I think this is one of these rare instances where everyone does win.The consumer definitely wins.The dealers win.The dealers win because they’ve got a better view on their radar screen on what they should be stocking, what consumers really want, where consumers are really buying individual products, and what is generating the best revenue and customer satisfaction.
Manufacturers and suppliers win because we’re able to give consumers what they want.We’re able to concentrate our product development, design, and manufacturing efforts on those products that have fast turnover and high customer satisfaction.And I think, over time, it is going to redefine the whole value chain, all the way down to second- and third-tier suppliers.
And of course, shareholders win because this is going to be about efficiency, about keeping prices low, about giving consumers what they’re really prepared to pay for, and eliminating waste in the system.So there’s a big win for shareholders as well.
You can tell we’re very excited about it.When I called Microsoft and Steve talked to me about six months back, it was interesting, because he started to read out an e-mail to me, and I said, “I wonder, is that my e-mail?Or where did he get it from?”And almost — it would be the type of summary of where I thought the automotive industry was standing at that particular point in time.And it was an internal e-mail, I guess, from Lindsay and his folks.
And it’s interesting.When you get a company like Ford Motor Company and Microsoft to be looking at solutions to probably one of the biggest industries and value-added manufacturing and design processes in the world today, when you get both companies looking at it with very similar views, I think that’s where we’ll get the magic of this relationship.
At this point I’d like to invite Lindsay to come up.(Applause.)
LINDSAY SPARKS :The first thing I’d like to say is I am very, very excited about the future ahead of us.Four years ago, when we architected the consumer experience for CarPoint, we envisioned it being complete through the buying process, being complete through the research process, being complete through the services process.And today I think we’re realizing that vision.Certainly we have a long way to go.My job is to make that happen.But it’s the beginning of the next stage of the automotive buying category.
You know, we’re number one today.That’s a great feeling.But today only matters in a historical sense.We have to move this thing forward.We’re selling about $600 million in auto sales, 140,000 leads a month, and there’s lots of upside there.But we have to move it beyond just creating research and information to actually be able to transact and move the efficiencies back into the supply chain to provide the ability for great value, whether it be to the manufacturer, to the dealer, or to the consumer, or out through the suppliers in the network.
We’ve built on partnership.Microsoft is about partnership, we are about partnership.We’ve had great partnerships with Reynolds & Reynolds, who helped us build our sales capacity and maintain our dealers, and will into the future.We have great people like content providers, like Kelley Blue Book.Tomorrow we’re going to develop that into the industry and create the marriage between partnership, great consumer devices, and ability to reach out through technology to create that marriage to complete the consumer experience.
We have a great experience today.Better research; I’d say we’ve taken it all the way along to the point where it’s just at the transaction level, but it’s not there yet.Today the consumer still has to compromise too much.They often want the great sunroof, this color.And I don’t know how many of you have driven down the road, after you’ve settled for something else, and actually seen that color a hundred times.That is what we have to solve; put the right car in the hands of the consumer and do it efficiently, with the best services through the dealer and the best product in the marketplace.And that’s where we’re going with this venture.
So what is the new CarPoint?What, really, is it?What’s the nuts and bolts?It’s really three things that we’re going to do.We are going to build out the build to order systems that allow the consumer to really configure the car that can be built, as opposed to the ones that can’t be built nor located.We’re actually going to open up our platform, take those platforms and put them out into the industry to create the real solution for consumers and a consistent way of applying it across the industry.And then we’re going to integrate it all together with great tools for the dealer so that they can manage that process with the consumer to the highest expectations possible.
What does the consumer really want?Well, number one, a great shopping experience.And both Jac and Steve talked about unbiased, neutral sites.I want to tell you, the number one thing we have to do is have the very best information on all makes and models across the site, and be totally independent of you.Why?Because that’s what’s going to create the virtual marketplace where people like Ford, who believe strongly in their products and their ability to compete in there, can go out and through great services and products and win.The same is true for accurate, detailed information.Today it’s possible, with all the configurations, to actual detail on a lot of sites cars that can’t be built.Fundamentally, we have to make sure we can build them.We have to provide the ability for them to choose the facts and the features of the vehicles that they really want.And finally, we have to be able to get the car in the hands of the consumer.
So, what is build to order?Well, it’s the ability to really build the car they want, and then it’s the ability to go out and research and find that car, whether it’s in the local dealer’s inventory, whether it’s up the line in the distribution in-transit systems or the mixing centers, or whether they have to go and custom build that at the point where they can still put the paint and the features on in the order bank in the factory.If we can do that and then extend the information that that consumer process went through back into the supply chain, efficiencies are going to take place, and efficiencies can only mean value to the manufacturers, to dealers and to consumers.
The second thing, we have to provide great tools, because customer management is all about customer success.And we’re providing DealerPoint today.In fact, today we’re announcing, independent of this venture, but Ford and Honda of America standardizing on DealerPoint as a common offering for their Internet dealer tool.Obviously, we’re going to link in with our partners, like Reynolds and Reynolds, on the back-end system, but this will be a fulcrum point for helping manage that consumer, providing great values to the dealer in a very optimized way for services over time.
And third, we’re extending the platform.We are externalizing CarPoint.Today we already do that in Japan.Our Japan joint venture with Softbank will use the CarPoint-based platform.We’re going to take that out, and whether it’s on CarPoint, whether it’s on Ford.com or it’s on Industry.com, we are going to provide a common set of tools, frameworks and decision support capability that will allow the consumer to have a great experience no matter where they are.And we’re going to extend that so that there’s a vision across the consumer, the manufacturer and the dealer of the transaction that’s being undertaken.
Finally,the great thing is, it’s alignment.Vision is all about alignment.And this is a great alignment.This isn’t just another business model.There’s lots of business models, probably 50 that have been announced in the last year.This is about enacting a marriage of technology and partnership to give the consumer the very best experience possible in the automotive process, whether it be the dealer for a lifetime of service and support, whether it be at the manufacturer putting the right car in the hands of the dealer or the consumer, or whether it happens to be at the manufacturer to get the efficiencies and the high customer satisfaction that over time can only result in higher value.
So at the end of the day — we’re number one today, we’re going to be number one in the future, and we are, through partnerships on a global basis, going to push the levers that give the very best consumer experience possible over time.
Thank you very much.(Applause.)