Steve Ballmer: Japan Partner Conference

Remarks by Steve Ballmer, CEO, Microsoft Corporation
Japan Partner Conference
Tokyo, Japan
November 6, 2006

STEVE BALLMER: Well, thanks. It’s a great honor and privilege for me to have the chance to be here with you today. I enjoy coming to our Partner Conference here in Tokyo. Unfortunately for me, I will not be able to be at the awards ceremony tonight. It’s always a lot of fun, the banquet afterward, and I hope you all enjoy yourself.

I also at some point will have to learn enough Japanese geography to know where Asahikawa is. I’ve never heard of it before, but it sounds like a trip to the zoo is now necessary.

I want to start by saying thank you to everybody in the room for your support, your commitment, your energy. We understand that for all of you the number one resource that you allocate, that you control, that you work with is your time, and the time of the people who work for you. And the fact that you’re not only devoting it to us here today, but the fact that you invest consistently in having your people learn and understand our products, our technologies, our marketing programs is essential to us. And, in fact, we have built our entire business on our relationship with business partners, from people like Intel and AMD to Fujitsu and NEC and Hitachi, to people who build applications, to the people who provide systems integration services, training services, and distribution services around the globe.

So it is an honor and privilege to have a chance for me to talk with our partners and it will be my pleasure to take some of your questions at the end.

I want to start with a particular thank you to some of our award winners at this year’s Partner Conference, if I might. I want to start with congratulations to Third Wave Corporation, to Nihon Unisys, to Intech, and to Otsuka Shokai. We have many winners, we’ll honor many people, but these four partners have really distinguished themselves over the course of the last 12 months with some of the creative and interesting things that they’ve done with our technologies and their various products and services to transform the marketplace.

We have a lot of people doing great work, but it’s always fun to be able to pick a few. And as you hear this evening about what they’ve done and what their accomplishments are, perhaps it will prompt some additional ideas for all of you on how to take your businesses forward together with Microsoft and continue to very much grow and prosper.

Darren talked a little bit about this year and what it looks like for us in terms of new technologies. This is the biggest year we’ve ever had for new innovations, and Darren ran through very nicely many of the products and initiatives, but I really want to put some emphasis on that discussion.

Make no mistake: Windows Vista and Office 2007 are very exciting releases in terms of what they mean for the desktop, client, notebook business, and what they I think will mean for the PC market here in Japan. These are products that are more exciting, easier to use, more capable, more secure, and enable more third party application development innovation than anything I think we’ve ever done, including Windows 95 and Office 95. When you couple them with the new release of Internet Explorer, Internet Explorer 7, I think we have the foundation to do a lot of great things together.

Some of you would benefit by those products on their own, but those products are also the enabler of a number of new People Ready Business scenarios in which Windows and Office are complemented by new e-mail and collaboration technologies, by new business intelligence and search technologies, by new workflow and document management technologies, new security and information protection technologies.

So these products are the cornerstone but we’ve dramatically extended the new capabilities through Exchange, through SharePoint and SharePoint Portal, through our Office Communications Service, through CRM, through our new business intelligence products, Business Scorecard Manager and Performance Point; we take these products to the next level.

And I really want people to have a chance to appreciate it. I think we will surprise ourselves, all of us, on the amount of new business value we can create for our joint customers who share the view that we have, that people are the number one asset of any corporation, and what we are all trying to do is provide tools that enable people to find what they need to find, collaborate with whom they need to collaborate, get insight to the information that makes them most productive and lets them serve the customer in the best ways, and allows people to deal with the exceptions and issues that naturally fall out of our basic business processes.

For Microsoft as a company there’s a lot of new stuff here. We have not been in the security business. And while we welcome our partners — McAfee, Symantec, Trend, and others — for the first time we will have a full security product lineup.

We will enter — and I’ll talk about this in more detail — the voice over IP business.

We really take our enterprise search and desktop search and Internet search to a whole new level with the technologies in Windows Live, SharePoint Search and Windows Search.

SharePoint comes with workflow and document management capabilities built in, taking us to a new level and a new presence in that marketplace, and for the first time quite fully we will enter the business intelligence world.

We know we need to build partner capability in all of these new areas. We know we are going to need to build our own technical capability to support you. We know that many of you will work with other companies who have been in these markets for a number of years. And yet we welcome you and we will encourage you to bring your good work to our technologies and our platforms in the course of the next 12 months.

Things do start with Windows Vista and Office 2007. And frankly it doesn’t matter who you are, an end user, a business that’s trying to drive value, an IT person, or a developer who’s trying to create a new application; these products bring value to all of those scenarios.

We’re going to start with a big push on the business or work style side, starting this month, and then we will introduce these products to the consumer starting in the month of January.

I saw Darren mention how excited he is about these products. I really encourage you to run them yourselves. You’re going to be talking to customers about them, your people are going to be showing these products to people, and I think our partners are always more effective when they’re using these products themselves.

The initiative from us in the security area is a big thing. We have worked very hard really with security as our top priority over the last three years. And as we really got into this with customers, they really said, look, we like your partners, we like your ISV partners’ products, but we think Microsoft needs to be more completely accountable for security.

And so we decided we’d build a full product line under the brand name Forefront of security offers: client antivirus and anti-malware protection; protection for servers, Exchange, SharePoint, Office Communications Server; protection through the firewall at the edge of the network. These are all new areas for us, and areas in which we want and need your support, and we think we can offer a very strong and compelling product line to our customers.

When you put this together with our Information Rights Management technologies to help impose policy, security, and privacy on Office documents, from e-mail to spreadsheets to word processing documents, we think it gives us a fairly complete story.

Some of you will have to decide, do you want to work with us, do you want to work with one of the other traditional security vendors. I know many customers will actually want multiple security solutions. Security is an area where in a sense you can never have too much.

The second area I’d like to mention is what we’re doing with Office Communications Server, which is the new version of our Live Communication service. What we’re trying to do is build out what we call unified communications, bringing together e-mail, voice communications, instant messaging, video, and other data communications into one easy, consistent user interface.

What all that means though for us quite precisely is we are going to enter the voice over IP market the beginning of next year. We’re going to enter the videoconferencing market the beginning of next year. We’re going to come at this from the standpoint of the end user, and we’re going to come at this from the point of view of Microsoft Office and Office applications.

If I want to communicate with you, I’ll see the information, are you online, what are you doing, what is the best way to communicate with you, and I’ll be able to initiate a voice call, a video call, et cetera.

We will have phones that support, video cameras that support these technologies, brought to market by a wide variety of our partners.

And again, many of you are already offering these kinds of voice and video solutions, and we’ll give you another alternative to pick from as this part of the market really explodes in the next few years.

As I was talking to a number of the big computer makers here in Japan earlier today, I certainly noticed how focused people were on the integration of the PC with voice, audio/visual and video communications, and I think this phenomenon could perhaps happen more quickly here in Japan than it happens even in some other parts of the world.

The last thing I want to talk about before we move to our Q&A session is what will happen over the course of the next few years as software transforms, all software will move to be a business that has both software and Internet service and connectivity built in. Microsoft’s platform for that transformation we call our Live platform. Our Live platform will allow us to provide more integrated communications, desktop management, productivity services, business services with software that both runs on PCs and in Internet servers. We’re literally going through every one of our products and asking how do we make it not only a piece of software but software and service.

We think it’s very important that as we go through this transformation we’re having the right dialogue with our partners. Some of our partners at our Worldwide Partner Conference this year in Boston expressed concern that this could make our working with you more difficult.

We and our partners have been through a lot together. There was a day when we had partners who made their business by installing TCP/IP protocol stacks into Windows. That business has disappeared, and yet our partner network today is stronger and more effective than ever before.

Some people say to me, okay, if Microsoft is part of hosting some of the customer service needs, does that put us in conflict, and I say the answer to that is no, we see opportunities for customization, for deployment, for security. And if we have the right dialogue and working relationship, we will continue to have this strong partnership that is so important to us.

Most of this transformation is way in the future, but as you’re reading in the newspapers, in the trade journals, on the Internet about this transformation, I wanted you to hear from me how committed Microsoft is to enhancing our partnership through this transformation, not allowing this transformation to be a source of friction in our relationships.

This year is a very exciting year. We have a lot that we are trying to do. Our partners often ask me, “What are the top priorities you’ve set for your own employees? If we understand how you’re missioning and chartering your people, it helps us better intersect our activities.”

Our people are being told a few things. Number one, we’ve got to make Windows Vista and Office 2007 popular.

Number two, each product we have — Windows, Office, and our Client Access License — now has enterprise capabilities. We want to sell enterprise Windows more than regular Windows. We want to sell enterprise Office more than regular Office. And we want to sell enterprise Client Access capabilities more than the others.

We’ve done very well with .NET versus Java over the last five years, and yet we have more to do to drive .NET and Windows and SQL into datacenters in businesses large and small, and we now have a complete line of management products to take care of those through our System Center management efforts.

The CRM product, Dynamics CRM is a great product. I actually think, as Darren said, it will be quite surprising. We’re telling our people to go drive it, as well as build new business for us in VoIP, in business intelligence, in portal, and in security.

I think there’s a lot of opportunity there for us to really intersect to create great value for the People Ready Businesses of Japan, to create great business opportunity for our partners, and to create great upside and growth potential for Microsoft.

We’re excited about that, we’re excited about the relationships we have together. I want to say thank you very much for taking the time. I’ll look forward to the question and answer session, but it’s a real privilege and honor to see so many great partners in the room here today supporting us here in the Japanese market. Thank you very much. (Applause.)

DARREN HUSTON: Okay, great. I get the double duty here of answering questions and asking questions. So I’m going to start out with a question that was sent in beforehand to give you a minute or two to think up a question, and we’ll see if we can do four or five questions before Steve has to leave.

It’s funny, this question sounds like it’s coming from me to Steve, so I’ll try to — Steve, the Japanese market is quite unique in business custom and culture. How much will you commit to the localization of your marketing efforts in Japan this year, and how much will you invest in the Japanese market overall?

STEVE BALLMER: Japan is the second largest country for Microsoft doing business, and much larger than the third largest country. The United States and Japan are both very important.

I think that what we’ve learned in our industry is that much of the technology needs to be global, and yet technology as well as sales and marketing practices benefit by being strongly localized to the needs of individual countries and marketplaces.

Japan is interesting. The e-mail phenomenon in business happened at a different time and in a different way in Japan than other places. The way calendaring gets done is somewhat different in the Japanese market. The small and medium businesses have yet to embrace technology as much in Japan as in some other parts of the world. Each and every one of these things to me is a reminder that we do need very much to localize our technologies and our sales and marketing practices.

Sometimes I think I’m quick to embrace this, sometimes I’m not. I remember a discussion I had with Magara-san about a product that we call the Small Business Server outside Japan, and I guess we call it the Smart Business Server inside Japan; very much localized marketing. I guess in Japan nobody wants to be a small business. In the United States most people are afraid of being a big business; sounds complicated.

So we do need this level of localization in marketing, in naming, in sales approach, and yet there is an advantage also to global technology and global market approaches. The world moves much more quickly on those things which really can be global.


STEVE BALLMER: I guess the last part of the question is how much will you invest on the Japan market overall. We spend literally hundreds of millions of dollars every year, billions of dollars every year in Japan, and we think that is certainly important, in people, in marketing, and the like.

DARREN HUSTON: I should also — there’s another point. We actually have a product development organization in Chofu of about 400 people who’ve worked on some great innovations we didn’t talk about today in Windows Vista and 2007 Office System, including the new JIS standard on Kanji characters, a dramatically improved IME technology to convert Romaji into Kanji, so some interesting elements of localization that we’ve driven because we have local product developers here in Japan who, by the way, work on mobility scenarios actually for a lot of our global products, as well as a product called MS Automotive because of the deep penetration navigation systems here in Japan.

So I’d love to take some questions from the audience. You can just put up your hands. We have some microphones going around. Right over here.

QUESTION: We are one of your partners, and we have expectations for two businesses. And I want to ask about one of them, which is the search business today. On November 1st the license began for Vista and Office 2007. And the GUI I think is the focus for Vista, I believe that’s the momentum. However, having said that, one of the basic important technologies is the search technology, and I think that is where Vista can be fully exploited. So when you actually use Vista, when you compare it to XP, you just cannot go back. And in a sense maybe it’s so dramatic that you just don’t want to ever go back to XP. And for the SharePoint Portal Server 2007 will be launched as well, so SPS 2007, the affinity with Vista needs to be exploited again as well, and the search functions will be leveraged to its full potential. So Vista, SPS 2007 versus Google, what’s the strategy there, if you could perhaps shed some light on that and how are you projecting the search business?

STEVE BALLMER: Search has really three interesting contexts: I want to search my desk or my world, I want to search the world of my organization, I want to search the world outside my organization. And Microsoft is really making core investments in all three of those areas: Live Search, SharePoint Search, and Windows Search, as you highlighted.

Google is certainly, yeah, they’ve got a strong position. I think in terms of Internet search, if you actually look at the technology, the technology is actually about comparable to what we have in Live Search. If you look at the ease of use and the technology for the desktop and for the corporation, the intranet, I think we’re much, much stronger, and we have a solution that doesn’t require you to send your private information and documents out to Google itself.

So we think we have a strong story today, we think our story only gets stronger as our Internet search product continues to improve and become more competitive, and in the meantime we need all the partner support we can to really drive Windows Vista with its new search, and SharePoint into the corporate market.

DARREN HUSTON: And also just one other comment is that the SharePoint opportunity in Japan is really starting to take off. I was just looking at pipelines the other day: Just on the enterprise side over 300 opportunities just to do the basic thing that you mentioned, which is linking the new desktop with SharePoint Search, which is really a fantastic solution.

I might flag one other opportunity in Japan that I know a lot of you are focused on is Exchange. So our e-mail share in Japan, it used to be about 20 percent, I’m hoping we’ll close the year like 30 percent, but in the United States it’s 70 percent. So there is still a tremendous opportunity here in Japan on top of Active Directory and the core CAL to sell in the Exchange e-mail system. So the combination of an Exchange e-mail solution, the SharePoint solution and the new desktop is a very, very powerful collaboration story that I think we could do more to sell in as part of the digital work style here in Japan.

Next question. In the back here.

QUESTION: We are still not yet in the process of incorporating Dynamics, but we are really interested in Dynamics. Now, in regard to the Japanese market, what is the kind of investment you’re thinking about for Dynamics, especially in terms of human resources for us partners? What kind of support are you considering?

DARREN HUSTON: With the initial launch of Dynamics, which is on the CRM side, I think first of all a lot of you will appreciate it, because we took the Japan partner leader, Munakata-san, from this huge job, and gave him as one of our super high performers in KK the job of leading our introduction of the Dynamics business.

We have a little over 20 people right now, and I think we’re well invested. The team is actually a lot of the work actually is getting caught up in the localization of selling and marketing materials. I know they’ve spent a ton of effort. And I’ve actually gotten some feedback from many of you saying, more, more, more, we need the brochures, the booklets, the manuals. And I think on CRM by now you’re probably hopefully feeling a little bit better about that.

And we’ve also hired some real superstars who have had past experience in the CRM business to help be your technical fallbacks in terms of building pipeline at this early stage.

We are looking at an introduction of enterprise resource planning. There’s a lot of work going on to the localization of the Dynamics Axapta products. We’re not going to release it till it’s really ready in the Japanese context. I’m really hoping that it’s the first half of next calendar year. And with the introduction of our ERP product, we’ll make more investments in both the team and the marketing materials and the localization than we’ve made with CRM.

You know, I should say though that ultimately like all of our products, the products in Dynamics are really a big partner opportunity. So what we’re also looking for is our partners. We don’t want to stand in your way, we want to work with you to help build the teams that can go out and evangelize Microsoft Dynamics and build a business. This is a great business. It comes still today with good product margin. So I encourage any of you who haven’t looked at our Dynamics products, at least CRM, which is now in the market, to take another solid look at it because I think it does itself demonstrate some good business potential.

But Munakata-san is in my office once a month with Magara-san pounding on the table, an extra half a million dollars here, an extra couple of million dollars here, and I want to let you know that he’s getting my full attention and support as I push him to continue to build that business.

And if you’re missing something, please, the feedback through Munakata-san’s team, and if he needs you to speak with me or Magara-san, send that feedback up the line so we know where we’re falling short.

Okay, another question? Way over here.

QUESTION: I’m in charge of solutions, and I have three questions that I’d like to ask about. First, in regard to the .NET framework, it seems that the marketing support is not that strong in Japan, but for .NET to be used more widely in Japan are there any plans for some kind of a campaign to be implemented? That’s my first question.

The other question is that in the past when .NET first came out in the market in Japan there were a lot of expectations from people. At that time though when a lot of people tried it out, they found that the capacity was not sufficient. Because of such doubts, .NET has not spread that widely, especially in Korea there is hardly any progress at all. In Japan most likely there may be more possibilities of progress. But in regard to capacity improvements, what is the situation there?

And my final question is in regard to the comparison between .NET and J2EE, the comparison with Java. I think that when it comes to a C level manager, .NET is very useful in their business. It’s not that expensive, it’s inexpensive, and is of good quality for the application that can be built. However, despite the fact that you have such a wonderful thing, in order to have it used more widely I think that from Microsoft you need some kind of a marketing campaign. And so therefore if you could move forward and appeal to the C level that would be very much appreciated.

So I would appreciate your replies to the two questions I asked.

STEVE BALLMER: Let me start maybe with a little bit of a global perspective and then let Darren take the specific feedback about the need for a local marketing campaign.

DARREN HUSTON: Absolutely.

STEVE BALLMER: In terms of the overall scalability of performance of .NET I think we are very strong. If you benchmark most applications on Java and .NET, there’s less code, higher performance in the .NET environment. If you look at large installations, the London stock exchange, for example, runs today on top of .NET, and it’s easy to find big financial companies, manufacturing companies that have built their key applications run on .NET.

We have had a lot of progress. We launched .NET about four and a half years ago, and today around the world .NET is a more popular choice for application development than Java is. And that’s a lot of hard work, a lot of good market acceptance.

I do think you’re right, there are still parts of the world where we’ve had less acceptance. Korea actually is a very good example. Korea is a market that has been and continues to be very UNIX focused, and the issue is not .NET versus Java, it’s really Windows versus UNIX where we’re farther along in that competition in some other countries than we are in Korea.

I heard your feedback that we need more marketing effort on .NET in Japan, and I’m going to let Darren address that. Also I think just given the numbers I’ve seen, we actually have had a lot more market success in Japan with .NET than the question might imply, but I’ll let Darren take it from there.

DARREN HUSTON: Yeah, actually our success here has been pretty dramatic recently, at least vis-à-vis J2EE, and you’re really seeing .NET penetration. As I had mentioned in my speech, at least our internal statistics would say it’s highest in Japan versus anywhere else in the world, and that’s an internal statistic.

However, it was funny, you and I sat on a Q&A session in Cincinnati — you won’t remember this, I don’t know — a couple of years ago, and had the same question asked about the .NET brand, has it got lost in the People Ready and all of this stuff. And the reality is maybe it has gone a little bit more underground, but we are seeing a dramatic increase in our Visual Studio business here in Japan. People are being reintroduced, we’ve got a team here led by Kyoichiro Suzuki, our developer and platform evangelism team that really is trying to push the .NET philosophy into the developer community. Obviously if you go up on, which is one of the top three Web sites in Japan actually, the developer community is very, very active in the sense. But to be honest, I think it has gone a little bit underground as some of these other messages have popped, and I’d take the feedback, there may be more we can do to really give .NET another push.

I did mention in my speech one of our challenges in Japan unfortunately is not as much demand, we’re having a supply issue on the developer side, getting more and more developers to teaching new tricks to people effectively to get onto the .NET platform, and that is something we’re very, very focused on, and it’s been frankly a tough battle because of population issues in Japan and getting people interested. We’re working with a lot of you and doing our best to try and achieve that. But thanks so much for the feedback.

Okay, I think unfortunately we’re out of time. And I don’t know if, Steve, you have a few last words?

STEVE BALLMER: Yeah, let me just say again to all thank you, thank you, thank you. Vista, Vista, Vista; please, let’s have a great year together. Thank you very much.

DARREN HUSTON: Thank you. (Applause.)


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