Steve Ballmer Speech Transcript – Microsoft Executive Automotive Summit

Remarks by Steve Ballmer, CEO
Microsoft Executive Automotive Summit
Detroit, Michigan
March 26, 2003

STEVE BALLMER: Well, thanks. It’s a real delight and privilege for me to have a chance to be here with you today. I have to say I feel like this is kind of a uniquely automotive day for me. Now, you might think it’s because I’m here speaking at this great event, et cetera, and that’s part of it, a real big part of it. The thing that you wouldn’t know if I didn’t tell you is I actually woke up this morning in the heart of the German auto industry. I was sort of in the industrial center of Germany this morning. I’m here now. And I somehow feel like it would only be appropriate if I got on a plane right after this and flew to Tokyo and finished the day, kind of a follow-the-sun on automotive marketing or something, but this is the end of the day for me here in Detroit and it is a real honor and privilege to have a chance to be with you today.

This is a different kind of event, I would say, for us. We generally lead, if you give us our sort of natural tendencies, we generally lead with .NET and detailed technology, at least six demos of new devices, and I think pretty much from what our planners have told me, we managed to miss most of that during the course of the day, and for those of you who are disappointed, there’s always Q & A to look forward to. I’m going to kind of stay on point and try to talk about the automotive industry as we see it from the sort of, if you will, IT supply side.

I certainly hope you found interesting the commentary by our many partners and customers who had a chance to speak with you today. We’re certainly appreciative, not only of their business but of their taking this opportunity to share their thinking and what they have been able to accomplish with IT in their own organizations.

This focus for us on the automotive industry is part of a general transformation that has really been in effect for about five years, I would say. If I go back and think to when I ran our sales force, which is now five, six years ago, we were very focused in on selling products. We’d talk about Microsoft Windows, its new features. We’d talk about Microsoft Office and its new features, et cetera, et cetera, et cetera; all important and still very important for us to do.

But we’ve had consistent feedback over that period of time that says, look, you’ve got to be able to have a dialogue with us that’s more about the things we are trying to accomplish. Put yourself in our positions: What are the scenarios, what are the solutions, what are the class of employees that we are looking to empower, the class of customer or partner or supplier that we are interested in working with?

And over the last six years we have effected a gradual transformation to a point where I think today you could still get any Microsoft person to get on up and give a little spiel about products, but we’re trying to still come at this thing far more from the perspective of the scenarios that you’re trying to implement; quite different, depending upon where you sit inside the automotive, where you sit inside of a company, whether you’re in the IT shop or not inside the IT shop, so it’s a pretty big surface area, but it’s involved a number of things. It involved a verticalization of our sales force so we have people who understand the specific applications in given industries. It’s involved a refocusing of our sales force along scenarios as opposed to products. It has involved reaching out to partners like CG & Y and HP, and Reynolds and Reynolds, and many, many others to make sure that we had the relationships with the people who build the applications that really power these businesses.

And so this metamorphosis for us is not complete. Everything always feels like a journey to me. I’d like to get there at some point in time. But just when you think you’ve got things figured out, there’s another set of things that you need to go learn. But we’ve really put our heads down and are trying to provide a real crisp focus on the scenarios, the applications, the partners that are very important in this industry and others.

We started our industry efforts actually outside of automotive. For a variety of reasons, there are some industries that are easiest to start with: government, education, financial, and we’ve been at this now about three years. About 15 months ago we decided to set up an automotive vertical to really work with the partners, the systems integrators, the independent software vendors, as well as the customers in this industry in a much more focused way.

In each one of these industries we take a fairly disciplined and scientific view: What are the key solutions, what are the key applications, how do they get mapped, who are the top two, three, four ISVs.

I remember when we kicked off the automotive vertical 15 months ago, I was in here talking to our guys and I said, “Look, high-performance computing is running rampant in the automotive industry. How are we going to get Windows into those high-performance computing solutions?” Because, you know, everybody thinks those are only on Linux, blah, blah, blah, blah, blah. So I said, “Come on, come on, come on.”

And I’ve got to say when I was here 15 months ago, what I kind of got back was a bunch of blank stares about what the applications looked like, the ISVs. What I got today was something completely different: Here are the three ISVs that are most important, these are the applications they’re building, here is the proof of concept that we have in place with these guys. That’s the kind of advantage that I think we can bring to you with this kind of unique focus on automotive, and this solutions map in the automotive industry probably has on it 35 to 40 different scenarios that run the gamut from the sales and marketing side through the supply chain and into the product design side of the automotive industry. We’ve got people who we put full time on just making sure they really understand the industry, the solutions and particularly these ISVs.

The picture that we see in this industry, and we’re not unique — everybody in this room in a sense understands this probably better than I do, but I’m going to give it to you through the lens of somebody who thinks all the time about empowering people with information. That’s our job. That’s how we think about our job. We talk about our company mission as helping people and businesses realize their full potential, because at the end of the day that’s what the kind of tools we build do. They put information in front of people when they need it to make the right decisions.

And through that lens you can sort of see this flywheel of interactions in this business: the customers, the dealers, the suppliers and the technologies that the customers use in the car itself. And they form almost a virtuous cycle. You have to start by understanding demand. It is critical to understand demand. If you don’t understand demand, how do you know what to build, what the trends are, what’s popular? That’s got to be part of driving the design cycle. And the design cycle has to be short enough that you can actually put a car, a vehicle in the market soon enough after you understand the consumer trend to have it be meaningful.

You’ve got to understand demand well enough and design well enough, then to go back to the supply base and really have a relentless focus through information on driving costs and time out of the supply chain.

You’ve got to increasingly be able to put technology in the car, to help the buyer — we’d say user in the IT business; I don’t know, I think buyer sounds better for a car — to make the buyer able to do things that they want to do with the car, and other things that people simply want to do while they’re spending time in transition, being transported from place to place.

And at every step of the cycle the key thing is to have better information. How do you get better information about what’s selling and what’s not selling, what people are interested in? You want to get that directly from the consumer. You want to make sure that information is in the hands of everybody in your organization who needs that information: product designers, marketing people, sales people, manufacturing people — information, information, information.

The design cycle: Design time is all about the ability to put large groups of people together to work collaboratively on a project and bring it to market. That’s about information. In a sense that’s probably the part of this process that we feel like we, what shall I say, resonate with best.

If you look at the two industries that have the largest R & D budget of people working on large projects, it’s the software industry and the automotive industry. Our company will spend over $5 billion next year in R & D. We will tell you that that R & D is all basically related in some way, shape or form. At least somebody will say, “Oh, Xbox R & D can’t be related to what you’re doing in the automotive industry,” and I’ll be able to tell you 10 ways why the kinds of simulation that you want to be able to do in Xbox is also relative to what you want to be able to do when you’re modeling, designing, building a car — letting somebody get the experience of what it’s like to be in a car through an electronic interaction.

So we manage this huge pool of R & D ourselves as an integrated whole, and therefore we’re very sympathetic to what the issues are of trying to get a huge number of engineers both in the OEMs and the suppliers to collaborate quickly.

I’m going to talk later about a project that we’ve been involved in with GM and EDS, and I have to say when we first talked to the General Motors people about the project, I was ecstatic at the opportunity to have a chance to partner on an R & D-oriented project where IT tools were a key part of improving the efficacy of the project.

I want to kind of walk you through a number of these things, but at the end of the day, information — getting it to the right people at the right time in the company, in the dealer, in the supplier — is absolutely critical to making this virtual loop a success.

It is perhaps somewhat overstated, but I’ll overstate it anyway, the companies that will build market share I believe are the companies that will use information more effectively to serve customers. I think that’s true in every industry. I certainly think it’s true in the automotive industry.

The use of information is not a birthright. You can’t get ahead and stay ahead for all years, no matter how good you are. So the fact that folks in this room are thinking every day about how to use information as a competitive advantage and continuously improve and refine that I think is absolutely critical.

I want to start with the customer side and demand. We’ve learned a lot more about driving demand I would say for automotive products than I ever thought we would know at Microsoft when I started 23 years ago. And we know that and we’ve learned about this stuff because of the work that we’ve done in MSN, our portal, around autos. We’ve introduced, really almost from the start of MSN, a site we called CarPoint, and in CarPoint we built a set of technologies, which have continuously evolved.

We started by building essentially an online catalogue of cars. We help people navigate, get more information about the car. We build a dealer-referral system so somebody could go from the Web site, meet up with a dealer. Buzz talked about the fact that we recently figured that it made more sense for that technology to live in Reynolds and Reynolds than in Microsoft, so we’ve moved it.

But we started this process of learning about the supply chain, learning about the dealers, learning about buying habits. We have 10 million people a month, 10 million every month who come and visit us up on MSN to learn about autos, to find out what’s available. We have a global reach. We touch consumers in about 19 different countries with automotive information at this stage.

And what we’re trying to do now is really evolve that site to be a fairly definitive best-in-class place for people to get vendor-neutral information about car buying, and we think we’ve accomplished that goal. Most people would tell you MSN Autos is the state-of-the-art in this practice.

It gives us a lot of opportunities to work with many of you to provide opportunities to drive customers, people who are in the market for a car, from us to you. As they learn, as they find information on MSN Autos they can be driven to a given Web site for a given manufacturer.

As we got into this thing though we learned we could take it a step further. We learned that we’ve got a lot of people who we can profile, who we can understand, who not only come specifically for automotive information but who come generally and have the right demographic, who are interesting to car buyers of different forms.

We did a piece of work that’s been very effective in brand-building for Lexus. We created a special presence for Lexus on MSN that’s called Lexus.MSN.com. It’s essentially, what shall I say, it’s essentially a piece of advertising. You wouldn’t look at it and say that, but it’s essentially a piece of advertising integrated into the MSN experience that we can drive people to for additional information about Lexus. It’s not unique to Lexus. It’s not exclusive to Lexus. But Lexus really jumped on it and they’re just getting amazing traffic of people who not only never have to leave the MSN experience and navigation, who can then if they want to actually go to Lexus.com, but where we have a rich and deep editorial set of content that the many, many visitors to MSN can use to learn more about Lexus, and we can drive people there from Lexus advertising literally anyplace within MSN.

Focus on the dealers: I have to say despite growing up in Detroit I don’t think I knew much about how cars are sold at all until we started this CarPoint site, until I met the folks from Reynolds and Reynolds. That may sound funny, but my dad was an automotive employee. I never really bought a car. I always went in, I bought on the employee plan. There was no negotiation. The dealers never really spent much time telling me about their stuff because I was just kind of a not very interesting customer.

So about six years ago, we’re building out this CarPoint Web site. I’m learning more and more about the process. I meet the folks at Reynolds and Reynolds. I learn about the complicated downstream sales chain, if you will, for cars, which struck me as almost as complicated, frankly, as the supply chain can sound. And certainly if you look at the key trends, the key trends on the retail side are very similar to the key trends on the supply side. How do you integrate the work of many OEMs, many suppliers, dealers, after-market service companies? It’s an information integration challenge, if you will, that’s very, very extreme.

And we’ve had a chance to really have not only the partnership that Buzz was able to describe with Reynolds and Reynolds, but we’ve actually had a chance to also work with a number of OEMs on their dealer management, dealer contact, dealer information systems.

One particularly I’m familiar with is the dealer system of Toyota, which we partnered with them on. The systems used to run on AS400. They used to send all these printed reports out. Dealers’ information was by and large old and out of date. I think the system was 20 years old. And we worked with them on a new system to keep those dealers up to date, current, et cetera with the information.

Charles Johnson, who joined us at Microsoft recently, was telling me a little story that as he was preparing to move out to Seattle from someplace here in the Midwest, he and his wife went into a Toyota dealership to buy her a car. And I kind of gave him a hard time, having grown up in Detroit, but, you know, he said it’s also a perfectly good car, this Toyota, and I said OK, that’s great, how did you buy it. And he said, “Well, I go into the place and they sit down at this terminal. And they’re just pinging away at this PC.” And this was before he’d come to Microsoft. He said, “What is that? What are you using over there,” because literally every question they’re answering and they’re finding they’re moving; I mean, he was really impressed. He actually even bought the financing option, which he’d never bought on a car in his life.

And he said, “Wow, these guys are good; they’re coming up with great stuff.” They turn it around and it was this dealer system, which, after he joined Microsoft a few weeks later, he understood that we had the honor of participating with Toyota in the creation of this dealer communication system.

And the amount of value you get by putting the right information in front of the people who are selling and servicing your car and their ability to sell higher-end options, their ability to sell financing, their ability to sell the things which can bring additional profit, can be dramatically, dramatically enhanced.

In the OEM and supplier area, there’s a lot to be done and this is kind of in many ways the center of the industry, of course, and the issues both on the supply-chain side and the design side, as I said, are quite extensive.

I mentioned the project that we have been working on with General Motors, which I’m really very, very excited about. I’m going to guess it was probably two-plus year ago now that we sat down and talked about this notion of literally integrating not the supply chain so much as the design chain in an automobile.

If you think about the number of people that the OEM needs to work with in the supply base, the tool and die manufacturers, in order to conceive a car, get it designed, work the design through with a set of suppliers, and get sort of the concept realized, it’s large. And as everybody in this room knows, the cycle time on that has compressed or has needed to compress fairly dramatically. And GM set out on a project to use a new form of collaboration to really drive down cycle time.

We took a look at this thing from an IT perspective. There was a great team at GM involved. We partnered with EDS, who had the fundamental application and PLM, with Hewlett-Packard, with Intel and, of course, with GM to see what it would take to build the kind of collaboration system that would allow GM to collaborate electronically with folks like Lear & Delphi, Johnson Controls, General Motors JAVs, partners like Fiat and Toyota and do this collaboration across the 14 places in the globe where General Motors does car design.

The complexity of this, frankly, when I first heard about it, blew me away, but the results here have really been fairly dramatic. The improvements that GM is seeing in cycle times are of order of magnitude many, many months, and many, many months is at the end of the day what really counts in terms of the measure, one key measure anyway of product design at General Motors.

The next area I want to talk about on the supplier side is the partnership that we’ve had with Delphi, which now stretches back, I want to say, probably about four or five years. And there were a number of challenges Delphi faced as it became an independent, as they looked for opportunities outside of General Motors and the automotive industry and they looked for a variety of IT solutions. We partnered with them very early on a set of technologies on the manufacturing side to integrate the shop floor back into, if you will, the businesspeople, the general managers, to have better and better visibility in terms of what was going on on the shop floor and to increase the efficiency with which Delphi could interact with its suppliers.

They now dynamically schedule over three million parts per day on a very automated IT system, which I think they would tell you has dramatically improved their inventory turns and their agility as a business.

The last place I want to touch on is, I’d say, still in its infancy. It’s the newest, but it’s probably the one in a certain sense where our core competencies historically best intersect some of the most important things that need to go on in the automotive industry, and that’s in the car itself.

There are two aspects to what goes on in the car. There’s the control of the car, and there’s the involvement of the user, and the users want to do lots of things in cars. We think we understand users of IT pretty well. We think we understand pretty well the kinds of things they’re interested in that don’t involve the car. And the partnership that we’ve started putting in place with the automotive industry in terms of what goes on in the car is really quite amazing.

This is a trend probably very well known to folks in this room, but frankly surprised me to see how commute times in the United States just keep increasing and increasing and increasing, and as we think about sort of our notion that says, if we’re not helping our customers with information technologies 24 hours a day, we’re failing. People say, “What do you mean 24 hours a day? I sleep eight hours a day.” Well, at our company we think if you sleep eight hours a day, there’s 16 hours a day when we ought to be providing you some IT device that helps you. And some of you say, “Ha, no, I want television,” and I’ll tell you about our interactive television efforts. And some of you will say, “Well, I commute two hours.” Well, I’m going to tell you what we want to do there.

Some of you will say, “I’ve really got you, Steve. I am a jogger.” Well, we announced this Dick Tracy Microsoft technology watch last year, which will ship later this year, and believe me we’re going to want to feed you the latest and greatest sports scores, stock quotes, news, you name it, instant messages from your spouse, whatever it’s going to be, right on that little athletic watch that you wear, too.

So this notion of information anyplace, anytime, anywhere certainly has to extend to the amount of time that people are spending in the car; interesting market research, I’m sure, for all of us, in our case I’ve got to say maybe a little bit steered by our own company.

I do think, though, if you step back and say, what are all the different kinds of scenarios that people are really going to be interested in, people want to watch television in the car, people want to get map data in the car, people do want to get instant messages and e-mail in the car. People certainly want to be able through voice activation get some of the information, whether it’s navigation information or other, so speech and natural language becomes important. There are a number of key scenarios.

We started about eight years ago building a technology platform for small form factor devices that might require low power. This was our so-called Windows CE operating system. We’ve developed that, we’ve worked on that, we’ve really refined that in terms of its ability to do things on very small form factors: phones, PDA devices. We’re now a clear No. 2, and building share in the PDA marketplace. We’ve recently launched our first phone designs with Orange in the UK, with AT & T Wireless here in the United States.

That same technology, reshaped, repackaged, with more applications, value add that comes from a variety of different automakers, is in a sense the core of Windows for automotive. And we’ve had partnerships now with a number of OEMs to put the Windows technologies into a variety of in-car devices, with Volvo, with Toyota, with Subaru, with Citroen, with Mitsubishi, with a number of other folks. We have worked very hard on a set of in-car devices that actually participate in a variety of different scenarios.

If somebody wants to take digital music with them on the road, we want to make sure that’s easy. If somebody wants to get access to information from the Internet, we want to make sure that’s easy. If the record company wants to protect the music that somebody took on the road with them, we want to make sure that’s possible. It’s easy for the record company; I’m not going to get into the political issues that surround that, other than to say that, of course, we want copyright holders to be able to enforce their copyrights. If somebody needs emergency services, somebody’s car needs to register and send back some information about what’s going on in the car, we want to enable those scenarios.

We’re not the expert in what needs to happen on the car side. We do think we’ve got a lot of expertise on what needs to happen on the personal information management side. And we think that by applying our expertise in partnership with a number of the suppliers but particularly OEMs in this industry there are a lot of very interesting scenarios to participate in. There are opportunities in information and entertainment. I talked about emergency services, mapping and geography services. And this just isn’t, “Show me how to get from here to there.” You might say, “I’m hungry; show me the closest restaurant. I need to stop for the night. I’m camping; show me the closest campground.”

People are going to want to take information with them, pictures with them from the home, from their offices. How do you move that information between PC and automobile seamlessly?

Usage-based services: We’re talking with a number of the insurers about whether or not there’s ways of capturing usage data on how the car gets used and from the usage data the car insurer would be able to quote the customers different rates for insurance based upon the observable patterns of how they have driven the car.

Connectivity back to the manufacturer for servicing, for information, for follow-up selling.

Mobile payments: Wouldn’t it be nice if when you drove through the drive-through at McDonald’s, your auto in-car device could automatically pay that $9.63 for the two Happy Meals and the Big Mac that you ordered. That’s our family, anyway.

These are the kinds of scenarios that we think a lot about, talk a lot about and really have had some great partnerships with the OEMs to try to make come alive, but I think so far we and the OEMs are really only scratching the surface in this area.

Before I wrap up I want to talk about one other area, and that’s this notion of what we call Trustworthy Computing. If you’re going to bet on us as an IT supplier in the automotive industry, you do need to be able to bet that our stuff is reliable, that our stuff is secure, that our stuff will enforce your important privacy regulations, that our stuff is manageable, because in a certain sense the key to security, the key to privacy in some senses is being able to manage these systems to react, to change, to keep them up to date.

We set ourselves on a mission a year and a half ago now, almost to really be the No. 1 company in this industry in terms of providing technologies and behaving in a way in our support, in everything we do, to allow you to implement trustworthy computing systems. This, too, is a journey. The installed base of Microsoft products out there are good, but they do not all meet the new standards, which our customers have for them. The hackers of the world know how to exploit our systems and competitive systems.

And so the need we see to raise our game up, to build products that are more secure, to give you tools to manage security, to give you tools to deploy fixes when fixes are necessary, to give you the tools to make sure that the systems that you deploy, whether they’re on the shop floor, in the data center or they’re the telematics device in the car that you sold, can be managed and taken care of; that’s really a job one mission at Microsoft today. We recognize that if we don’t get these issues square, not only do we have a problem but our customers have a problem. This is a bar that everybody should be jumping over.

Tony talked earlier about some of the issues in terms of certification and how do you get these systems in a certifiable shape. That’s a challenge we think we need to rise to. We think in some ways we are uniquely equipped to rise to that challenge.

If you take a look at the technology suppliers in the industry today, essentially we’re the only one that’s really building — well, one of only a few on the platform side — who are early building and driving their technologies. Our products are not built by people at home, on their spare time. We are a company. We can stand behind our products. It should be a unique advantage we can offer versus Linux or any of the other open-source alternatives particularly. And this bar, being able to differentiate ourselves and being able to meet the incredible requirements that we see from you, is absolutely a ob one, priority one issue at Microsoft.

I just want to wrap up by saying what an amazing opportunity I think this is for all of us. It’s certainly got to be just a lot of fun, a lot of excitement and a lot of opportunity for anybody in the automotive industry. And for our company, the chance to provide technologies that the dealers can use, technologies that the suppliers and OEMs can use, for applications and information distribution, the technologies that go in the car and let people pack and go their music and pictures and take them with them, the consumer technologies that people interact with, we think we’ve got the most complete set — not complete but let’s say the broadest set — of technologies to help the automotive industry of anybody in the IT business, and we certainly look forward to building on this start our relationships with all of you and making sure that we’re absolutely doing what you need us to do to help information technology be a competitive advantage in your business.

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