Steve Ballmer: Stanford University

Remarks by Steve Ballmer, CEO, Microsoft Corporation
Stanford University View from the Top Lecture Series
Stanford, California
May 12, 2005

STEVE BALLMER: I’m pretty excited today, I have to say. I’m going to try to focus in on this speech and give you my all and give you my best and all that kind of stuff, but we are launching our Xbox 2 — you’ll have to wait and see the name later on today, otherwise I’ll be taken out by our people for insubordination. But we’re launching the second generation of our Xbox product, and I’m glad we had a chance to give a few away. MTV, 9:30 p.m. Eastern, tune in if you get a minute. For those of you who are second years, you’re not doing anything anyway, you have no excuse. (Laughter.) For those of you who are first years, use your good judgment. And for those of you who are engineering students, keep cutting code, you’ll always be able to see the rerun on webcast anyway. (Laughter.)

I want to thank everybody for this opportunity to speak here at the View from the Top. It has been 25 years now since I dropped out of Stanford to actually at the time become the bookkeeper for a small software startup. And I say that like it’s a joke; I’d been at Microsoft about six weeks when I’d actually thought I had left Stanford Business School to be the bookkeeper of this tiny, little company. And I went to Bill Gates and I went out to dinner with him and his dad — he always brought his dad along when he thought he had a hard recruiting mission. His dad is 6’7”, kind of an intimidating physical presence.

And I said, “Bill, I think I’m going to go back to Stanford.” And he said, “Steve, you just don’t get it, you don’t get it. We have a chance to put a computer on every desk and in every home. Come on, stay! We’re going to change the world.”

Well, that wound up being our mission statement for years. Maybe necessity was the mother of invention, but it got me to stay another month, then the start of school came, hard to drop in October, November, and I’ve been at Microsoft ever since.

Over that whole period of time, I really have lost track of kind of the number of times that people continued to say that personal computing has reached its limit; it just hasn’t happened. And I’ve also lost track of the many times that I’ve answered by pointing out to people all of the innovation that’s going on in the industry and how it really continues to fundamentally transform our lives.

I know this is a ‘View from the Top’ and I can talk broadly about leadership and blah, blah, blah; I’m not. I’m going to talk about innovation, because at the end of the day the CEO has to do a lot of things, but the CEO more than anybody else in the company — unless you’ve got a Chief Software Architect like Bill Gates — the CEO of the company really is responsible for driving the innovation and growth agenda for the company. Innovation, innovation, innovation. Creating innovation with real impact, listening carefully to what your customers want and creating the kind of amazing products that are going to benefit as many other people on the planet as possible, that’s really the reason Microsoft exists.

The next few years are going to see a real revolution in how information and communications technologies fit into our lives. In fact, I believe we’re going to see more change in technology over the course of the next five years than we have in the past decade. Just remember, a decade ago most people didn’t have a cell phone, a PC and didn’t know what the Internet was.

It’s a fantastic opportunity. It’s a fantastic opportunity for big companies, small entrepreneurial companies. But for us at Microsoft, it’s also an imperative. We don’t build a product that wears out. Software is sort of like the Energizer Bunny of the computer industry — it just keeps on going and going and going. I hesitate to say it never breaks, but it never wears out. (Laughter.)

Our previous products are really oftentimes our toughest competition, and innovation is the lifeblood of how we stay in business. It’s also an imperative for us because we’re in one of the most innovative and I think absolutely competitive businesses on the face of the planet. My dad worked at Ford. His competitor’s released new products, if they were lucky, once every few years. In software, in parts of the software business, new versions come out in some cases literally every few weeks. And we aren’t innovating fast enough, if we’re not innovating big enough, if we’re not innovating new enough, if we’re not being incremental enough when that’s necessary, we don’t succeed.

So what I’d like to do today is really try to give you a bit of a feel about how Microsoft approaches the innovation process, where we think some of the big opportunities are for innovations in computing, how we try in our company to really foster and manage innovation to create cutting edge software, software that literally helps millions and millions of people around the world realize their full potential.

Just as past innovations often seem kind of easy with hindsight, future innovations often seem impossibly hard. People are not very good at predicting the future. Bill Gates has often said that we tend to be over-optimistic about the short term and we tend to be under-optimistic about the long term value of new innovations.

Living in Silicon Valley, you really have a sense of these boom and bust cycles. A new technology comes out, people get excited, say it will change the world forever. Then, the hot new technology starts to have problems, a lot of startups go out of business, people get more pessimistic. The feeling that it can go on forever is gone as far as people can see and people start looking elsewhere for the next big thing.

Many people will think the story ends there, but then you wait a few years and suddenly the technology that everybody gave up on is really everywhere you look.

There is an interesting story that I think really illustrates this pretty well, and it’s the story of the ATM machine. As funny as it is, I remember ATMs as a new invention about the time I came to Stanford. I remember having my first ATM card when I was living in Cincinnati working for Proctor & Gamble. And analysts were saying at the time bank tellers are going to be obsolete within a few years. At that time, ATMs actually went down a lot, the networks weren’t very reliable. And after a while it seemed like the only people who thought ATMs were convenient were bank robbers, because they were always loaded with money and they could just lift up the whole ATM, put it on a truck and drive away. The next thing you know, the same analysts are saying that ATMs are dead, they aren’t the big transformation that’s coming.

Obviously I don’t need to finish this story. How inconvenient would it be today to go without your debit card, your credit card, instant availability to cash?

And it was incredibly hard work to make those kinds of new technologies really ubiquitous and easy to use and economical and sensible for millions of people around the world. And it’s a job that involves not just engineers, but also involves a lot of other disciplines and people with other skills getting involved.

With the ATMs, it took technology innovation to get the security right, it took cooperation between all of the banks and a business model to connect these networks together so that people’s cards would work pretty much anywhere. It took business innovation to figure out the right structure and fee structure and marketing and so on to make the whole phenomenon really happen. And that’s when the real impact starts to kick in, once everybody has an ATM card, it got so much more convenient to use them for more than just withdrawing cash. An as they got easier to use, just about everywhere you buy stuff people started carrying less and less cash and suddenly we really are on our way to becoming a cashless society.

I would say that right now where we are with computing has a lot in common with where the ATM was maybe, I don’t know, 1992, 1993. Technology is all around us. It pretty much works like we expect it to — most of the time, some of the time. And perhaps even some of the novelty of computing technology is wearing off. But the potential is unbelievable. Our industry has a lot of unfinished business to really drive forward the world. Compared with what you can do with an ATM, software can do so many more things, and I feel like we’ve just barely begun to tap the potential in computing and software.

There are big dreams we have and others in our business that are still to achieve and we’ve been thinking about this stuff now for years, 30 years for Bill Gates, 25 years for me; it’s a long time.

We think we have an opportunity today to really re-imagine the role that computing can play in all of our lives. So I want to talk a little bit about some of the big dreams and aspirations that at least we have.

The first big dream is really the one that the company was born on. We want to take all the amazing technology in the PC and create software that brings it to life for literally billions of people in a way that’s as affordable as we possibly can.

And we’re not there yet. More than 1 billion personal computers have been sold to date, and yet we anticipate — and Gartner, the market research firm — anticipates that number will double by the year 2008. And the second billion PCs are going to be quite different than the first billion PCs.

Twenty years after the first release of Windows, our Windows platform has evolved from a single graphical user interface into a rich platform that’s the center of everything from high performance servers to the TV and movies increasingly in your living room. It’s the foundation on which thousands and thousands and thousands of developers and software companies and hardware manufacturers have built strong, profitable businesses. It’s an empowering technology that really has helped create a world of ubiquitous, relatively secure and easy to use computing.

Another of our big dreams is helping people find and organize and manage the information of the world, the ocean of digital information that the world is creating and that they’re creating themselves. We’ve got information on our PCs, in the network, in our corporations, on the Internet, at home, in our phones, in our television sets and it just continues to mushroom. Just about everything in the world is being digitized; libraries, videos, everything is going to digital. All the information we could want is there, it’s just very hard to organize, to find, to manipulate and to use.

People say, well, there are great search engines out there, which is the case. I’m particularly fond of the one we make, MSN Search, but I’m sure everybody gets to have their favorite. (Laughter.) And those search engines have made it a little bit easier to navigate the ocean of information, but I can fairly say we’ve only scratched the surface. When we look back five years from now, people will really be mind-blown, in a sense, about how much easier it is to manage and find and retrieve the information of the world.

So, big advances that have happened but, there are also big advances coming in other areas. The way programs get built are being revolutionized by Web Services, standards that help people put together software programs in new ways and make engineers fundamentally more productive than they were in the past.

With software like our SharePoint software, there are ways you connect people and teams together and really let them collaborate and share information in a way that lets them get things done and innovate in seamless and creative ways.

With the next version of Windows that we’re working on, we’re including features that go beyond the icons and the folders and really help people organize and visualize their information in new and rich ways.

And down in the underlying guts of the operating system, the file system, we’re trying to make it more like a database so that all the little scraps and bits of information you deal with can be tagged and organized and managed in ways that really you can’t do today.

All of this will transform the role that computers play in our lives.

Another of our big dreams is around what we called unified communication. There are so many ways today to touch people: regular phones, cell phones, e-mail, voicemail, instant messaging. And while it’s great to have that many options, it’s pretty inconvenient to try and figure out the best way to reach someone or decide who can interrupt you and who can’t and how you can get contacted and by whom at what time.

These are tough, tough challenges. It’s another place where software innovation can help. People talk about VoIP like it’s a strategy to reduce long distance phone charges. That’s not what it is, VoIP is a way to allow software to help you better and more intelligently manage all of the communications that you’re involved in.

All across our company we’re investing in new ways to bring together these modes of communication so you can keep in touch as an individual not as a big dispersed pile of phone numbers and e-mail addresses and voicemail boxes. We’ve got a product that we launched called our Live Communication Server product that does a lot of this for the business customer today, but it’s really just a tiny step forward in terms of the kind of innovative progress that we know we and others will make over the next several years.

Another dream: take this whole notion of the paperless office. We’ve been talking about the paperless office basically since I left business school, frankly. And do most people here operate in a paperless fashion? Put your hand up if you do. I do personally. Why? Because I’ve gotten tired of carrying a lot of paper in my backpack around when I go on trips, and because I’m CEO of Microsoft, I can actually tell people, we’re going to live a paperless life, I won’t read it if you don’t send it to me electronically. It’s not a prerogative some other people have. (Laughter.) But at the same time, I think we can accept the paperless office hasn’t happened.

We see huge opportunities in productivity software. The way people work is really changing. We used to have teams of people that all sat together in the same building and focused on a handful of projects. Now those teams are literally scattered around the world across different companies, even and the work they do changes overnight. People need to be able to capture the information they need, visualize it, understand it and act on it in a completely seamless way.

I was talking to Efe back stage who’s going to work at one of our partners and our competitors, SAP. We have a joint product we just announced a couple weeks ago, all focused on helping people manage and productively use business information in a new way. I’m still trying to recruit Efe, this is a little bit of recruiting going on right here from the stage.

But software is really the magic ingredient that makes all these things happen.

Another big dream for all of us should be digital entertainment, bringing the power of the PC to the videogames you play, the photos and videos that you take, the music you listen to, the movies and TV shows you love to watch. We’re not at the end of that road.

I spent all day yesterday walking in and out of Best Buy stores with the CEO of Best Buy. All you have to do is walk through a Best Buy store and ask any one of the sales associates on the floor, and they’ll tell you that the world of digital entertainment does need to improve, can improve and it’s just ripe for huge innovation.

With cool devices like our next generation Xbox product — 9:30 tonight, MTV — and these new Media Centers, we think we can really revolutionize what’s going on with digital entertainment. We want to really make a more interactive and social world, richer graphics and sounds, new digital experiences that will really just blow people away. We can then take those experiences and put them anywhere you want, anywhere in your house — any living room, any device — so you can experience them in a wide variety of ways.

There’s also a lot of innovation in what we would call the world of social software. Our MSN team is doing some incredible work in this space trying to really bring together things like blogs, Wikis, e-mail, instant messaging, photo and video sharing in a way that millions and millions of people around the globe can use seamlessly to keep in touch with friends and family.

So that’s just a handful of the kinds of things that we’re hoping to achieve, just a fraction of some of the things that we’re excited about.

I want to talk a little bit about how to make those dreams a reality. Successful innovation is a lot like hitting in baseball; no one hits it out of the park every time. Despite all of our best efforts, all the testing, the market research that anybody does, you’re never really sure how the market will respond to a new idea. Your success can depend on a variety of factors — internal, external, factors that are easy to control and difficult to control.

In the early 1990s a lot of companies invested billions of dollars in interactive TV, and then along came the Internet. I think interactive TV will still be a very big idea but you can strike out by being too early just as you can strike out by being too late.

On the other hand, the only way really to hit a home run is to keep taking swings, got to keep getting up there and striking at the ball. Sometimes you miss, but really successful innovation is a matter of probabilities and patience and tenacity. No one bats even close to a thousand, which is why the hot company of the moment, the one that people really think could do no wrong, may just be a one-hit wonder. What counts is sustained, successful, tenacious innovation over time.

Achieving it in our industry has become much more challenging over the past few years because there have been some fundamental shifts, really, in how our industry makes and sells computers, services and software. First the pace of technological change has actually accelerated. In the consumer technology business, product cycles have been shrinking for at least 30 years, but in the past few years it’s unbelievable how short cycle times have become. There is a whole generation of customers out there who equate innovation with speed and nothing else. But sometimes substantive innovations and rich, powerful platforms can’t be built in a short cycle. If you’re always creating instant obsolescence it’s hard to satisfy your customers over the long term, particularly if they incurred costs because of the constant change.

I saw this yesterday at Best Buy. There’s been so much change in PCs and portable music players that in some of these categories you’re not getting a critical mass of sustained innovation building up around the core platform. So you really have to strike a balance.

Second — and this is really related to the first point — is what we can think of as computer, that basic notion is evolving very, very quickly. Your cell phone, your TV, your home appliances, they’re all morphing somehow into computers with the kind of processing power and connectivity you used to only think about being built into the PC itself. And almost everyone I talk to in the industry agrees we can expect Moore’s Law style advances in every technology area for at least another decade.

The one big area I worry about, frankly, is battery power, and I’m hoping maybe some Stanford engineers will get longer life out of some of these batteries because it’s still kind of heavy to carry those around.

So we absolutely have to keep pace in the software side with this rapid hardware innovation that’s going on and make sure that our software development is absolutely targeted on that.

Third is the pressure of globalization. It’s forcing companies to customize more and more of their products and services by market and by demographic. It used to be that a multinational company could pretty much impose their products on the marketplace. Today, customers want the best solution for them, not one size that necessarily fits all. And that means that the real opportunity lies in areas like services, rich customization that enable companies to tailor their products to specific markets, regions and demographics. The middle class in China is a huge market, for example, but it will require innovative products to extend computing’s reach to that next 400 million people in China.

Next is kind of related, and that’s the economic balance of power that’s going to change between countries more than anyone can imagine. The markets that most of America’s companies rely on today will probably grow moderately at best over the next decade. The fastest growth is going to come in Asia, and other so-called emerging markets will actually emerge.

So American companies have to really ask themselves quite a few hard, hard questions. Are we really innovating for a world in which China is in the top three markets for technology products? Are we innovating for the specific needs of China’s or India’s businesses and consumers? Are we aiming for where the ball is going or are we still looking back at where we’re coming from?

The last thing I want to put on the list is services. The IT industry itself will be transformed by the Internet, and taking most of what have been technology offerings as products and morphing those into services.

So there’s lots of change. I love change. Change is exciting, it’s enervating. But it also can make you kind of nervous. I tell our people we’ve got to be first with new innovations, we’ve got to be first to get those new innovations to popularity, we’ve got to be first to make money from these new innovations, we want to be first in so many areas. It’s hard. We get it right a lot of the time, and we don’t get it right some of the time. When you get it right, you’ve got to make sure you stay, you get the people, the talent around it to really propel these innovations forward.

If you miss an innovation or you have not the right implementation the first time, you can’t give up, because the pace of change is so great you need to make sure you go get all of the right talent that you need to drive forward and to make a difference.

Innovation is fundamentally rooted in people. I always tell the folks who work at Microsoft, as long as we have the greatest environment for software people — not just software engineers, but the people who want to market software, think about it, drive value from it — as long as we have the greatest environment for those people and we’re putting all the energy we can into recruiting and hiring and retaining the best and the brightest, we’ll be a company that’s really at the leading edge of innovation.

And I guess that’s where you sort of come full circle on how I see my job as a leader. My job as a leader is to try to set a tone about the kind of big, bold innovation that we need to pursue, to show people we’ve got the willingness to bet early, and the tenacity to stay with those innovations and to make sure that we’re hiring and creating a culture for the people who can really take those kinds of innovations to the next level. Some days we’re good at it, sometimes we’re less good at it but it’s a very exciting thing to do.

And whether you’re running a software company or a retailer or a financial services institution or a private equity fund, since I think that’s the MBA career du jour, whatever it is, you have to put your mind on the fact that innovation and growth and creating a climate for innovators and growers is at the heart of what you have to do as a leader.

It’s been a real pleasure and honor for me to have a chance to be here today. I am pretty excited. I see a lot of folks I don’t know, some old — and now I guess I really do mean old friends, folks that I’ve know basically since I was in business school at Stanford and shortly thereafter in my Microsoft career. But it’s fun to have this opportunity, I want you to all go forth as engineers or as businesspeople and be innovators and be leaders and certainly for those of you who are looking for a good environment to do it, I’m steveb@microsoft.com, feel free to drop me a line.

Thank you very much. (Applause.)

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