Steve Ballmer: The Chief Executives’ Club of Boston

Remarks by Steve Ballmer, chief executive officer of Microsoft
The Chief Executives’ Club of Boston
Boston, Mass.
Oct. 16, 2009

STEVE BALLMER: Well, thanks. It is a real honor and privilege for me to have a chance to be here with you. It was very nice to see that Joe was going to introduce me. Joe and I have gotten to be very good friends. I will maybe just highlight, Joe, just a little fun. We first met when Joe had a little legal problem with Microsoft 17 years ago, but it all worked out in the end. (Laughter.) That’s when there was a Wang computer.

It is particularly – no, seriously, it’s the kinds of things. You go through the tough things with people in business and you grow closer, and I think folks in this room really kind of understand how that works.

It was also fun for me to get the opportunity to do this at the request of the Boston College CEO Club. I have a senior in high school, and he thinks the world of this place, and so – (laughter) – I figured I’ve got to take the opportunity every time I can. (Applause.)

I’m going to share just a few thoughts about the economy, because I think it’s on everybody’s mind, information technology and why I think it’s particularly important the advances that we’ll see over the next few years, and then maybe I’ll just talk a little bit about some of the things we’re seeing here specifically in the Boston area that may be of greatest interest.

I preface everything with the fact that I was a math and an economics major, so I have about four economics classes under my belt. And I don’t speak as an economist, but I’ll talk as a businessperson who sort of gets a good global view of what’s going on, and because we sell both to the consumer side and the enterprise side of the IT market, I have a little bit of perspective.

I certainly would be the first to agree that what we see today feels like a new normal. It doesn’t feel like we took a one-time hit in any way, shape or form. I know people want to be optimistic, and I am optimistic. I’m not sure I’m as optimistic as the stock market, but I am optimistic that we can get things back on track, but I don’t think we’re through all of the issues that we’ve seen.

We continue to see IT spend is about 50 percent of capital expenditure in this country, and we’ve certainly seen a reduction in capital expenditure on IT that was significant, 15, 20, maybe even 25 percent. Joe and I are always comparing notes on stuff like this. There was a major certainly recalibration, and I think business is going to be slow to start rehiring and reinvesting.

On the consumer side, after cars and houses, which we know what’s happened to the cars and houses market, one of the most expensive things most families buy frankly is consumer electronics, and the consumer electronics market in the home has shrunk considerably over the course of the last 18 months, but we see some stability at this stage, and I think a chance for real growth.

That’s a tough climate, but I think it’s time we kind of said, OK, enough is enough. Unless we get a double dip, which is still possible, we’ve got to really say what is it going to take to now drive the next range of growth, what’s it going to take, what do we all do as business leaders to drive economic prosperity.

If you’d asked me five or 10 years ago what leads to GDP growth, I would have told you it was productivity and innovation, because innovation is almost like super-hyper productivity gains. When you can invent something that makes something else obsolete, it actually economically is an amazing productivity boost.

The thing I think many of us missed that the thing that was also driving GDP growth for the last several years was debt, and the fact that we were in a sense as a society borrowing from the future was an issue.

Now that not only do we not have debt increasing but we’re likely to have debt decreasing with all of the issues that that implies, we’re going to have to generate more productivity and more innovation in order to drive more job growth, in order to arrest unemployment, in order to provide the kind of leadership that I think the business community, all of us and others need to provide going forward.

We feel a particular – I’ll say responsibility, but also opportunity – in the information technology industry, because our industry has had a unique impact on productivity growth in the economy over the last 20 years. It’s about the only thing economists can really agree on is that the computerization and digitization of the society, as far as it has come, has been a huge boon.

And one of the questions that I get asked, I’m sure Joe gets asked a lot is, what happens from here, can the technology business continue to help drive and propel productivity and innovation, and on that front I have a good and very optimistic set of things to say.

I look out the next five to 10 years, and frankly I see more opportunity for more IT innovation to have a more profound impact on society even than the last five or 10 years.

In a way that’s quite a big statement. Statistically 10 years ago, most of us weren’t carrying cell phones, statistically, and statistically 10 years ago, most of us had barely looked at the Internet, if at all.

And you say, well, geez, can there really be another 10 years, and I’ll tell you at every level of the information technology chain the answer to that question is really yes.

You know, I look at a meeting like this. This is kind of old-fashioned, right? A bunch of folks sitting in a room, somebody gets up and speaks; it’s an old-fashioned meeting. There’s video cameras. I used to joke five years ago that I’d never actually met anybody who’d seen a video with me in it, because what did you do with them after they were taken? Now we know what happens: They get put on YouTube. So, there are now videos of people available, so it’s a semi-odern meeting at this stage.

And yet look at me. I’m sitting here, I brought paper to this meeting. This is a piece of paper. This is old-fashioned, Gutenberg generation technology. (Laughter.) Our industry has a long way to go.

The next five to 10 years we really will have digital screens that are this thin, this flexible, this light. You really will have a digital connection right there to the world’s information. I’ll make my notes, I’ll annotate, I’ll comment.

If I say something that you think is even vaguely interesting, you’ll just push a button on your phone, write down a note, and it will say, hey, colleague, Steve wasn’t making any sense, boom. They’ll get that e-mail, it will be synched exactly to what I was saying at that point in the video, which will be available over the Internet. Technology has got so much to do.

There’s a lot of big trends changing in our business. Our industry really grew up around the sort of two computers: the server, we call it, the thing that runs the back office of your business, and the screen. It started out something called terminals, and then these things called PCs came along; so the server and the screen, the PC screen now.

And yet information is flowing into your pocket through a variety of smart devices, hopefully increasingly over time from us but probably not too much right now where we’re only about a 15, 20 percent player, but they’ll flow into your pocket.

Every television set will be an interactive digital device that you will activate with your voice and your gestures. When you’re watching that Patriots game on – was it Sunday night? – you guys play in London, is that what you said, a week Sunday? We’ll be sitting there watching that game, and I’ll yell out, hey, Bill, did you see that hit? Boom, it will find Bill Gates wherever he is, assuming he wants to let me interrupt him, and boom, it will take him exactly to that point in the game, because, I don’t know, maybe he’s watching some tennis match or something – (laughter) – boom, hey, Bill, did you see that hit? Boom, it will show him exactly what I was looking at. And I won’t have to stop, hit buttons. There will be a camera on my TV. When I go like this, it will know I want to speak, it will know I want something to happen. It will recognize my voice, it will know who I mean when I say Bill. And it will wake up and go find him.

And you say, ha, farfetched, and I say, ha, ha, ha, next 10 years. I won’t say next year or the year after, and yeah, I come from a technology company, so we’re notoriously overoptimistic and over-bullish, but that’s not really the point. The point is it’s within the realm of what we can see and what’s possible.

The impact that these kinds of innovations can have, not just on us in our consumer persona but in our business persona – you know, in most companies someplace between 2 and 5 percent of what they spend, they spend on IT. It will be more in financial services type companies. And you say, how do you help not only reduce that cost but how do you get the benefit higher.

Every leader in this room I bet if I talked to you, you’d say, No. 1 frustration other than we seem to spend a lot on information technology, I still can’t find the information I need when I want to make a decision.

What really happened on the production line in factory X yesterday? Vroom, you just want to be able to just click and go find that. It should be just that simple.

You really want to compare which of your sales teams are performing better. It should be easy to say just compare the sales from territory X to territory Y.

I’m a road warrior. I say to my secretary, get me ready for my trip to Boston. I do the same thing every time. Everything is online. She goes to the same calendar, she sees the agenda, she goes to all the Web sites, she downloads data about the customers I’m going to see, she goes to our customer relationship management system, she downloads the account record, blah, blah, blah. Why can’t my computer learn to do that? Get me ready for my trip to Boston: It’s not rocket science, but it is, but it’s within the realm of the possible.

So, it’s not just about the kinds of impact it will have on us as individuals, but the ability to move quickly in business, to get the right information, there’s so much coming technologically that I think will make a huge difference in those areas.

One thing that I think is probably important for me to highlight is also the changes that we can expect out of technology that are maybe even more societaly profound. Information technology is not just going to drive improvements in terms of how you operate. Literally we think that the speed of innovation in businesses outside of IT can accelerate with the use of information technology tools.

Take bioinformatics and the discovery of new drugs. The fact that you can model the genome and model the body is speeding the rate of scientific exploration, even if it’s only to eliminate new alternatives.

If we’re going to have solutions to our energy problems, to our environmental problems, to our financial and economic problems, the ability to use new technologies to simulate effectively the real world and the computer world should be a boon to science.

Education: The impact of technology on education has been more minimal to date than it has been maximal, if that’s a word. There is a real opportunity to transform and improve the way education gets done. We, nobody has it all figured out yet, and yet it’s an area where I think everybody clearly can see that a student that’s more engaged pedagogically, that gets access to different teachers and different course alternatives – I was talking to the governor in Alabama. They used to offer very few AP classes in almost every high school in the state. You can now take a range of AP courses in every high school in Alabama, because the pedagogy all gets done over the Internet.

He was talking about a kid who’s coming up here to Harvard who never – as a Latin scholar in a school that couldn’t offer Latin without the Internet. He had done all of his study in that particular subject over the Internet.

Take health care: We announced a partnership this week with Caritas Christi Health Care here in New England, really working on the new tools that it takes to manage health information, not only inside the health care institution, but also with Caritas we’re working on what it means to provide individual citizens, consumers with their health information, because we think at the end of the day whatever the solution is to the health care dilemma and debate, having consumers participate more intelligently in their health care I think everybody agrees is an important part of reducing the cost and improving the efficacy of health care.

Microsoft is a global company. We’ll invest this year $9.5 billion in those technology alternatives. That is a lot of money. It’s a lot of money. We invest more in R&D than any other company in the world, because we believe in the power of these innovations. We believe they’re a great business opportunity for us, and we believe that they have the ability to drive these kinds of important advances in society.

We’re investing not only in our headquarters – when we grew up, everything got done in the old days, the old days, old times, we liked to have everybody within walking distance of Bill Gates’s office. That was the design parameter for our campus. That is neither practical nor modern in this day and age.

I was over – we have two campuses here in this area, one in Kendall Square, and we have another one up in Beverly. We have over 700 R&D people living now and working in New England. We have a Center for Social Computing and Social Networking here. We have a pure research group with a lot of focus on sort of changes in economics and math, in addition to raw computer science.

We acquired a company in the supercomputing field based here. We’ve acquired companies in software management.

For Bill and I particularly growing up, going to Harvard in the ’70s, I’ll tell you, the world of computers was Route 128 and was DEC, and there’s still a lot of talent in this area, both because of the universities, Harvard, BC, MIT, many other fine universities, but there’s also a real startup culture, and I had a chance to meet with a number of folks from the Mass Tech Leadership Council this morning to talk more about what’s going on here in terms of driving the kind of innovation and productivity that I think is important, valuable, and can really help make a difference not only in all of your businesses, but also hopefully be a major propellant for the world’s economy.

I want to say again thanks for the opportunity to be here. I’m sure I went longer than I intended, and I’m sure I have enough time to take questions. I look forward to it. If we don’t get to something that’s on your mind, my e-mail address is Feel free to ping me with a piece of e-mail afterwards. Thank you all very much. (Applause.)

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