Steve Ballmer: North Carolina Technology Association

Remarks by Steve Ballmer, CEO of Microsoft, about the future of innovation
North Carolina Technology Association
Charlotte, N.C.
June 19, 2009

STEVE BALLMER: Well, thanks. It’s a real pleasure and privilege for me to have a chance to be here today. As I was arriving last night, I said to myself, jeez, I think I was just here a couple of years ago. And when I asked our folks this morning, they said if five is a couple, you’re absolutely right. (Laughter.) Which in a sense reminds us how big and how broad, and how hard it is to visit places because frankly this is in the top three or four sites in the world in terms of Microsoft presence and employees, et cetera. So, it is wonderful to have a chance to be here.

We often focus on Charlotte, and well we should since we’re here today where we have close to 1,200 people, but over the last several years we’ve grown in the Research Triangle Park, in the R&D facility now that’s almost 200 people, as well plus miscellaneous folks doing sales and service throughout the state. So, it’s a lot of fun for me to have a chance to come and visit and be here with you today. I’m certainly super, super enthusiastic about that.

Enthusiasm yes, but maybe I’ll just roll a little realism into the start of the discussion, because I think we should be mindful of the fact that we’re still going through the most difficult economic times that any of us has faced. And many people have many theories about the economy, and we’re here to talk about technology, not the economy, but the economy gives us sort of the key insight into what our industries need to do to drive forward.

GDP growth, economic growth comes from three sources. I used to think it was two actually as a young economic student, as an undergraduate. Productivity, they used to tell you, drove GDP growth. That was kind of the introductory economics course that I took. And eventually you learned that actually innovation is a form of productivity growth. You can’t say the car was a better buggy, but you can say in some senses it was an innovation that drove economic growth.

Well, it turns out over the last five, 10, 15 years we’ve also had – 20 years – we’ve also had a chance to see that when society, consumers and businesses, borrow a lot of money, that too can temporarily drive economic growth. And in some senses I think what we’re doing now is resetting the amount of debt that we had all as individuals and as businesses borrowed was unsustainable, and in some senses now we’re back to basics. Economic growth will be driven over the next several years not by debt at all as things tighten up, but will be driven by productivity and by innovation. Those two pillars become the most important thing.

I work in the information technology industry. Most of you I think probably do, but there could be a wide variety of industries represented today. But certainly speaking on behalf of the information technology industry and Microsoft, we have a lot of opportunity to drive productivity and to drive innovation.

The information technology industry gives us a unique perspective, because not only are we driving the innovation in our own industry, and the productivity of IT itself, but information is such a powerful force in life that information technology can fuel innovation in other industries, and productivity growth in other industries.

So, you know, everybody – what’s the expression where you shouldn’t waste a tough time? In these tough times the key thing I think our industry has to take to heart is that there is both an opportunity and responsibility on the information technology industry to help drive the productivity and innovation that can let the economy come back and grow again.

A lot of what we talk about in our industry has to do with productivity. There is an expression, a marketing slogan our company used a few years ago for one of our products: Do more with less. That’s kind of a classic productivity statement. I would say maybe in the year 2009 the theme of information technology will be “with less do more.” (Laughter.) But I don’t think either one of those pressure points – you get it – neither one of the pressure points is going to go away.

And yet when we look at the kinds of technologies that are coming, and the ability of the technologies in our industry to help continue to drive down IT costs, and at the same time continue to improve business productivity, improve ways to help people communicate and collaborate, improve the ability to find and use information, to make the good decisions – you talk to businesspeople in most places and ask them what’s their No. 1 frustration with technology is, I spend a lot and I still can’t get access to the information I want to make a decision.

I love to tell the story of – it’s now a few years old, but it’s still just seared in my brain. I was sitting next to a guy on an airplane, and it must be a long time ago because there were still computer magazines, so maybe six, seven years ago, and I’m reading, and he says to me, “So, you’re in the computer business, are you?” I said, yep. And, you know, I’m stuck. It’s an hour and a half, it’s an airplane. (Laughter.) And I say, yeah, yeah, I’m in the computer business. He said, “Well, we’ve got a lot of computers in our company.” I said, “That’s fantastic. I love to hear that.” (Laughter.) And he says, “But I’ve got a problem.” “What’s your problem?” He says, “My job is to set the price of car insurance for my company in the state of Colorado, and I want to raise prices on car insurance for anybody who buys between Christmas and New Year.” I said, “Why is that?” He said, “Well, who would buy car insurance between Christmas and New Year except somebody who was planning on drinking too much for New Year. So, I think the risk is higher.” And I said, “Well, then what’s your problem?” He says, “I have to prove I’m right to the regulator before I raise the price, and I know our computers actually know whether I’m right, but I haven’t the first clue how to get the information out of the computers.”

Now, if you think about that as an aspect of productivity, giving people the information, whether it’s pricing, customer service, sales, taking cost out of the manufacture and supply chain, productivity is well within the wheelhouse of the information technology industry to drive.

And there’s a lot of phenomena inside information technology that will help reduce the cost of information technology, but in every business and every industry, whether it’s manufacturing, financial services, retail, education, government, health care, there are productivity drivers.

And as I look out certainly for the next 10 years, I think we should expect to see – expect to see as much innovation out of the information technology industry as we have in the last 10 years; which I consider to be actually an amazing statement. We’ve gone through a 10-year period that has been unbelievable. Now, I say this every year, so I feel a little bit like a hypocrite, but man, nothing ever slows down. There continues to be amazing change. And it’s not just in all the new things that you hear about and see and read; people really use this stuff.

We’re sitting here in 2009. In 1999, still less than half of U.S. households even owned a PC. Less than half the people owned cell phones. That was about where it was in ’99.

So, things are evolving. The number of sites on the Internet, the information you can find, vroom, and yet the next 10 years should be even better in terms of change, and change that will help with productivity for society, but also that will help with innovation.

Let’s start with the innovations that we’re going to see in the technology industry itself. You know, we have a lot of folks who live, eat, breathe, and sleep information technology. We talk about cloud computing and the notion of really, really for the first time – I know the Internet is super-popular, but the Internet has not been embraced fully still by the information technology industry as a platform for computing. That’s going to happen in the next 10 years.

People will move systems that are currently inside corporate datacenters out into the Internet. Costs will come down. Agility will go up. There will be innovation in the IT industry in that regard that propels things.

Natural user interface: Over the course of the next several years, notions of touching your computer, gesturing to your computer, speaking to your computer; heck, even having your computer really know what you meant the way a human being does – you know, I say to my administrative assistant, “Get me ready for my trip to Charlotte.” She knows exactly what to do. If I want to say that to my computer, I say, File, Open, blah, blah, blah. It’s the same process, go to my calendar, see who I’m meeting, go get the trip reports, copy them to my laptop, go get the customer record, go to their Web site, copy the front page. I mean, it’s as routinized a process as ever there was. But my computer doesn’t understand what I mean. And over the next 10 years these things will come in.

And it’s not all 10 years from now. You take a look at the way you can touch computers, Apple has done nice work in that regard, we have with our Surface computers, with what’s coming in our next version of Windows. You can talk to you computer today in some very amazing ways.

We showed some technology in our Xbox arena where literally there’s a camera that will come with the console or be part of the console, and you can gesture and have the camera recognize you and what you’re doing, and communicate that out to your friends who are engaged with you across the Internet.

You see things of a natural language variety in search today. The way search engines like Bing and others will get smarter is by knowing what you meant when you say something like “Chicago.”

I happened to be in the city of Chicago, but when you type Chicago the computer has got to learn to recognize the behavior of what you’ve done, give you options. Do you mean the city, do you mean the restaurant, do you mean the history or, hey, maybe you even meant the play or movie “Chicago,” and had no interest in the city itself.

So, really learning to understand user intent is going on right now today, and you can see it in a lot of the work being pioneered certainly in the search engines.

The third theme I think for transformation will continue to be the digitization of all information and communications. Now, some of you say, hey, come on, everything has gone digital. Well, not everything – not everything. Try to land a container on a ship going overseas that you want to ship to, I don’t know, Europe. Everything is paper-based in the process; no digital communications.

Take a look at this audience. You’re a very polite group of people, and I notice none of you has digital devices for note-taking. You’re like me; you still use this non-digital, 500-year old technology for note-taking. When are we going to have computers and software that is good enough that you want to take your notes digitally?

It’s really kind of antisocial today, isn’t it, if you’re all sitting there with your laptops open. And if you’re trying to write on your small phone screens, you can barely read it afterward. But we will have screens that are literally this light, this flexible within the course of the next several years, and we’ll continue to see all communications and all information transform.

We won’t talk about newspapers and magazines and TV shows in 10 years. They’re all going to kind of merge together in some senses when you think about a world of digital communications.

So, the information technology industry brings with it – it’s unfortunate, this non-digital technology, I’ve lost my place in my notes here. (Laughter.) Never use your actual notes as a prop; it’s a bad, bad thing. (Laughter.)

All of these innovations and more in information technology are also going to permit other industries to be more innovative.

Let me just take a few examples. The first is simple: media and advertising. The way those things work obviously change in the world that I described. There will be innovation.

Science: We talk about the great problems in society today like energy and the environment. The keys to actually getting solutions have a lot to do with more rapid scientific exploration and development. With new high performance computing clusters we can now actually model the physical world in the virtual world. And you see it in a lot of areas: The speed of scientific exploration and discovery is accelerating. Just take the pharmaceutical industry and what’s happening with the mapping of the genome, and how that’s allowing more rapid drug discovery, or what’s going on in the petrochemical industry for oil exploration. When people say, hey, how are we going to derive and find new energy sources and new ways to store and protect energy, science, engineering, science, engineering wind up being super important, and we have to provide from the information technology industry the tools to speed those things up.

Innovation in health care, whether it’s on the pharmaceutical side or the health delivery side, I think we all understand, and certainly the administration has put a real theme out that says we need IT innovation to improve the productivity and the innovation and quality of health care. It’s a challenge to our industry.

The way products are marketed, sold, serviced, those will all be supported by IT systems as we go forward.

So, the chance to make a difference on both productivity and the development of new products and new ideas that will spur economic growth, we have a really unique and positive opportunity in front of us at this time.

What’s it going to take? Well, it’s going to take – America has always been the center, if you will, of innovation. We have the most well-educated, well-developed workforce in the world. We have had traditionally. And we’ve got the largest market, and this has been really the center of where much of the new productivity and innovation in the world’s economy has been driven.

But to stay there, we need to continue to be a place that develops and attracts and supports the best and the brightest. Our educational system is starting to fail us. We need to double down and bet on the K-12 education system. We need more emphasis on science and math as part of the K-12 system, whether for careers in technology or simply to have people literate and prepared to work in a 21st-century workforce.

Our universities today are the best in the world. We have to keep them at that level. That is super important. And, in my opinion, we have to make it easy for the people who go to school here to stay in this country, whether they happen to be American-born or foreign-born. If we’re going to educate the best and the brightest to help spur our economy, then we need the best and the brightest to be able to do their best work here.

We need to make sure that this remains the one country – today, we are the one country in the world that the smartest folks, the most productive and innovative folks everywhere in the world will come and live and work. And as we’re both developing American born citizens and allowing folks to come from around the world we need to invest in the education. We need not only K-12 and higher ed, but we need to make sure we’re investing in the ongoing workforce training.

David was kind to highlight some of the things Microsoft has been involved with here in North Carolina, but we’re going through a tough economic time, and there’s a lot of folks out there who will need extra training in computer literacy, computer skills, technology, science, engineering, in order to be able to participate on a go-forward basis.

It is a tough time, but it is a time for those of us in the technology industry to say, hey, it’s our time, it’s our time to do something great, it’s our time to drive innovation, it’s our time to drive productivity.

You know, when the going gets tough, I guess the researchers get going. So, all of our kind of economic researchers have gone back, and we actually had a bunch of guys read the annual reports of a bunch of technology companies for every year between 1928 and ’39 to find out what happened in the Depression, and blahty-blahty blah. Out of all of that though I’ll give you two pieces of – one statistic and one piece of learning.

The statistic is this: 250 of the 500 Fortune 500 companies were started during a recession or an economic downturn. So, don’t say now is not the time: Now is the time. Now is the time for new ideas. We’ve got partners, companies that we work with here in North Carolina that are doing incredibly interesting and exciting work, companies like Yap and many others who are doing innovative and exciting stuff. Now is the time. Now is a fantastic time.

The other thing which you’re reminded of when you study particularly the Depression on this, now is not the time to de-invest in R&D and de-invest in our future. Now is the time to rethink and correctly balance future investment in R&D with short term returns.

I’m not trying to say anybody should be cavalier about that. We’ve gone through an exercise ourselves where we’ve rebalanced our cost base. And yet more than ever now is the time to be patient, persistent, and really focused in on the kind of long term innovation in R&D. That’s what the great companies did during the Depression. RCA basically, even though they don’t exist anymore, they basically invented the modern television industry by continuing the pace of R&D throughout the Depression. DuPont did much of the same thing with some of their work in plastics during that period of time.

And I think the lesson for all of us is now is a good time to invest. Information technology does make the difference. We can be a source of economic growth and recovery, and we can go out and build some pretty interesting businesses that change the world in ways that we all could be proud of.

I thank you for your time. I thank you for the support. I’ll look forward to some questions. If we don’t get to a question on your mind, my e-mail address is SteveB@Microsoft.com. Please feel free to shoot me a piece of e-mail. Thank you all very much. (Applause.)

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