Steve Ballmer: The Future of Cloud Services

Remarks by Steve Ballmer, Chief Executive Officer
Cologne, Germany
October 6, 2010

STEVE BALLMER: Well, thanks, Rene, and thanks to BITKOM for hosting and allowing me to have a chance to talk with you today. It’s a real honor and privilege to have a chance to be here, and to be introduced by an old friend.

The future of cloud services, that’s the talk, and between a big recollection of a little high school German and a little interpretation from Ralph Haupter, who runs our business, it sounded like I have a very kind of strong concurrence with Rene’s remarks about what’s going to happen with cloud computing, not just here in Germany but around the world.

If we had come to this conference three years ago, there would have been a lot of questions about whether the cloud was going to happen. At this stage, I think everybody — or principally everybody agrees that the cloud is inevitable. There are some questions about when the cloud will happen, will it happen for different applications at different times, will it happen for different businesses or governmental organizations at different times, depending upon the maturity and availability of the technologies, but it is an inevitable, inevitable direction.

The cloud is also a very unusual thing to talk about. We can actually sit here and have a meeting where we’re all nodding cloud, it was in the title of my slide in my speech, Rene’s speech — cloud, cloud, cloud.

I’m sure many of you have had the same experience I’ve had where you get up in front of a group of businesspeople, who are not in our industry, and talk about the cloud. I did this for a group of about 150 CEOs last May, and I got up and I gave about a 30-minute speech, and I actually thought it was pretty good, one of my better, clearer speeches, and I thought I kind of nailed it.

After the speech, a very quiet lady, actually a journalist who was there to moderate panels, she wasn’t even there as a journalist, but I watch her every day on television, I think she’s pretty smart, and she puts her hand up and said, “That was great, Steve, but I still don’t really know what the cloud is; can you show me one?”

And we can all kind of nod and smile slightly about that, but I think it does point to the fact that something that we all recognize as a transformational phenomenon in the technology industry isn’t necessarily the easiest thing for us to explain to the businesspeople or the consumers that will ultimately have to buy in and benefit from this transformation.

Even in this room I’ll bet if any two of us got up and described the cloud, we’d describe it differently. So, I’m actually going to give you a little bit of perspective on how we think about the cloud, and the opportunities that it presents quite broadly.

I actually think of the cloud as kind of the buzzword we use that talks about the integration of the best of corporate datacenters with the best of the Internet, the best of the PC with the best of corporate and Internet computing, the best of the mobile phone and other mobile devices and television, all of these intelligent devices coming together somehow into an integrated whole.

And the question is a few-fold: What new applications will we write, how will we write new applications, and, of course, what new opportunities will that present, and to a degree, and I know Rene talked about this in his speech, what new responsibilities will it bring to all of us as we move forward.

So, I think there’s these five key dimensions of the cloud. First of all, let’s stop and reflect on the opportunities and the responsibilities.

The cloud is an opportunity to write new applications. The cloud is an opportunity to drive a new level of efficiency in IT. If you talk to software developers, as I do very frequently, for time immemorial the No. 1 problem a software developer has isn’t writing their creative idea, it’s actually getting their creative idea deployed and available. Even today on the Internet you can put up a website, but you’ve got to figure out how many servers you need, you’ve got to manage your server, a lot of your capacity is tied up, as opposed to investing in the fundamental skills and creativity that you have.

There’s new opportunities to reach customers, there’s new opportunities to offload work that our customers would have had to do.

But there are responsibilities: privacy, availability, data protection, getting those things right in the context of varying frameworks that exist in varying countries around the world. It’s one that we push pretty hard.

One of the things we pioneered in our browser was this notion of in-private browsing. Any user should be able to shut out the world so that nobody understands what you’re doing in any one browsing session. It was kind of controversial actually when we first did it with the marketing and advertising community, but we all have to recognize that putting the user first and at the center will be absolutely a requirement to make the transition to the cloud.

I talk about the cloud learning, and I talk about the cloud enhancing your social and professional interactions. Essentially both of these things refer to the new kinds of applications that will be written in a world in which you can assume phone, TV, PC, Internet, and corporate datacenter come together.

There’s so much information out there in the Internet today in the cloud that we really can’t take advantage of, we need new software and new applications that let us take advantage of it.

Let me give you just a small example. Approximately 21 months ago, we were at the height of the financial meltdown, and I’m sitting there at my desk at Christmas holiday. Most people are on vacation; I don’t have a lot of people running around, analysts who I can give assignments to. And I’m thinking, wow, we might actually have to cut the cost base at Microsoft; woo! Never did that before. I said, what’s the number, how do we think it through, how bad will this economy be?

And I had some vague sense that some of the economic troubles had to do with the amount of debt in economies around the world. So, I wanted to do a simple little spreadsheet. I wanted to show by year, by country private debt as a percentage of GDP and GDP growth. I could describe that that quickly to anybody. I could even, because I’m a little bit of an Excel wizard, I could even have drawn out the spreadsheet if I had to. It would have taken me a couple minutes, but I could have done it.

So, what did I do? Did I draw out the spreadsheet or type in just what I said, and have the computer generate results? No, I did a bunch of searches and cuts and copies and paste, and blah, blah, blah, blah, blah. And after a day and a half of screwing around with it, some analyst came back in off vacation, and I said, “Here, you finish it.” (Laughter.)

That application should become trivial in the world of the cloud. And if I wanted to mix and match Microsoft sales data, that should become trivial in the cloud.

The cloud is a place that should help you learn. The cloud has access to such a high percentage of the world’s information, some of it is private and off limits, but so much of it’s public, and the part that’s private to you should be part of that corpus of information.

The cloud is also learning about you. The cloud, if you give it permission, appropriate privacy, it can learn about me and what I’m interested in. We talk a lot about that, but the number of applications that have been written are still very small.

The amount of new information on the Internet every day is unbelievable, and it’s not just Web pages, it’s Tweets, it’s social networking feeds, it’s geographic data. You know, there’s a lot of sensors. There’s a set of privacy issues that need to be worked through, and that’s perfectly appropriate, but there is a lot of new data coming back that helps us better understand the world, and we need to be able to harness that power and allow people to write new applications.

The cloud enhances your social and professional interactions. Just like the information of the world is getting tuned up and learning about you, and the cloud knows about the world’s information, the cloud also knows about the world’s people. It can help you find and associate and interact with people, with the right new applications.

And we’re still not even close to being there. We’re all excited about social media, which is fantastic. On the other hand, it’s probably easier on the Internet today to find out who’s a fan of Britney Spears than it is to find out who’s a fan of the doctor that you might go see when you have a cancer treatment that you need. We can help connect people in new ways. We need new applications that can do these things.

I’m delighted to be here in Cologne to speak at BITKOM. My fantasy is having technology so good that I could do this virtually, and we would think it was at least as good or better as having me here in person.

Most of you are probably actually watching that image of me, not me anyway, and I’ve got bright lights in my eyes, I can’t see the back of the room anyway. (Laughter.) Geez, we ought to be able to do better if we build the software that harnesses the people and the interactions of the world. And I’m having some fun, but it’s a way to get you to think about the cloud not just as a set of technology, but as an opportunity to build new applications, a lot of work of which still needs to be done.

When we sit there and build our Bing search engine, we’re not just thinking about how do we do search the way it’s been done in the past, we’re thinking about harnessing these corpuses of information to let developers and others build new kinds of applications.

The cloud is revolutionizing not only the way we think about computing in the cloud, but in a sense we have the cloud also driving and revolutionizing the way we think about datacenter construction, server construction, server software construction, database construction; all of these things are being rethought.

When you build applications and you build platforms that now have hundreds of thousands of servers in them, you don’t want to build anything the same way you used to. You don’t want to build the computers the same way, you don’t want to build the networks the same way, you don’t want to build the storage the same way, the datacenters, the software.

When I think about what we do in our Bing service, we’re updating that thing every day, every day, every day, every day. We can’t afford to have the number of people that would have been required to make those updates in classic datacenter land. We need an application model, which we’ve built, and a set of tools that lets you build software that is fundamentally easier to deploy, to manage, to geo-cache and geo-replicate.

Clouds made for and built in Germany, you’re still going to want to geo-replicate from the north and the south, if nothing else for disaster recovery purposes. We need technologies that take us in new ways.

You take a look, and I look out in the audience, and we have some people who are pretty close to my age. You know, when I grew up, a datacenter was a big, expensive room with big fat floors, and lots of wires and huge air conditioners, and a lot of expense.

The dream we’re working on now is you want to build a datacenter, you put down a slab of concrete, maybe a little tin roof, you’d better have a fence and a padlock because physical security turns out to still be important, and the datacenter will just come in something that looks like a shipping container. And that shipping container will have storage built-in, routers built-in — or switches built-in, processors built-in. You’ll plug in the electricity, you’ll plug in a garden hose — why a garden hose? Because we want this to be highly power efficient, so that’s not much cooling you get out of a garden hose. It’s very environmentally sound. And you plug in the Internet connection, and you’re done.

Nobody ever walks into the container. There’s no people, there’s not much construction. It’s better for the environment, it’s better for power, it’s better for cost. The cloud is actually driving these fundamental rethinks in the kind of technology that we all use to do our jobs.

And last but certainly not least, the cloud wants smarter devices. When the word “cloud” first popped up two or three years ago, I think the view was with the cloud everything goes and becomes recentralized, and we use very dumb devices at the end of the day, and all the intelligence is in the cloud.

All the data since then is, no, we actually want smart devices, but we want smarter devices that think more intelligently about how to use the cloud.

Our new version of Internet Explorer we support HTML5 and the standards, but we’ve also taken advantage of the power of the PC to speed those things up and run them faster than you could in any other way.

You take a look at what everybody — us, our competitors, everybody is doing in the Smart Phone business, phones aren’t getting dumber, they’re getting smarter, but they’re being done in a way that they’re good, intelligent front-ends to the cloud.

The kind of work that we’ve been doing with Deutsche Telekom on TV services has that same model of the world.

We’re going to launch a new version of the Xbox here in the next month called Kinect where literally you can control the TV set with your voice and your body motions. Well, that takes some intelligence, but you still want it designed so you can play games and connect with people intelligently across the cloud.

So, it will be a world of a next generation of smart device, a next generation of datacenter, a next generation of software that supports those, and a next generation of applications built on the corpus of information of the Web and the corpus of information of the social graph.

I think it’s really, really exciting, and yet that’s the broadest view.

I didn’t say it’s all about a new business model, charging people for services instead of software and hardware, but, of course, that’s part of it, too, that’s part of the opportunity, but it’s about a different way of doing things with new applications, with a transformation in business model that should hopefully save everybody some money.

These are early times, but we’re past the bleeding edge. We’re now just on what you could probably call the leading edge.

We’ve had the privilege of working on two projects in the cloud that I’ll tell you a little bit about, because I think it tells you exactly how far things have come.

With Daimler we’ve worked with a project on our Azure platform, which is a set of applications that tracks the battery status of electric cars, and then sends appropriate suggestions to drivers on what they ought to do for recharging. It’s kind of a mission critical application to a company who believes in the future of the electric car.

With Siemens we’ve worked on an application that runs in the cloud that feeds information to their systems engineers in the field who need to repair and update health equipment, the health devices that Siemens makes; again a mission critical application.

So, we’re not right at the very beginning, we’re down the path where serious companies are taking serious steps.

From our own vantage point we now have quite a wide range of our traditional value propositions and products that we have transitioned into services, either directly or with our partners here in Germany and around the world: CRM, ERP, e-mail, productivity, communications, platform, database as a service. We’re working hard on not only putting these in the public cloud, but enabling our customers and partners where they need to — it may not be the most efficient, but we’re going to have customers and partners who want to also run these things in a private cloud, or a German cloud, or somehow separated from the rest of the grid. And we’ve got a collaboration that we’ve done with Fujitsu, with HP, with Dell, and eBay, to try to ask what it would mean to take the same technologies that we’re using to build the cloud, and put those into a form where they can be offered on a private basis in a set of other ways.

I talked about a couple of the customers we’ve had the good fortune to work with in Germany. Across the globe you can see a list of more customers who have chosen to move to the cloud. And all I’m trying to do is say it’s not that early. We can tell our customers — I won’t say — I think we can tell our customers it’s time to jump in.

Will there be issues? As long as there’s bad guys in the world, there’s going to be issues. So, I’ll never say everything is entirely safe. But we’re proving out the security, the data protection, the availability, the reliability, and that’s why the kinds of people on this list have made the jump.

I’ll give you two other cases of people that we’ve worked with that I think have done interesting things. There are customers who want a cloud that is somehow much more isolated and private than we will provide today. So, with Host Europe, who’s the third biggest hoster in Germany with about 175,000 customers, we have worked with our server infrastructure for them to build out a private cloud capability which they can offer, built in Germany and for Germany, but building on the global building blocks that come from multinational companies.

With the state of Baden-Wurttemberg — I was hell-bent and determined not to put more Us in that state in my pronunciation — Wurttemberg we have done an interesting cloud project. The state there has done a crisis information system for citizens of the state that’s built on top of Windows Azure and SQL Azure. They need scalability in that system in case of a crisis, they need system stability and geo-redundancy in case of a crisis, and it’s really just a front-end communication vehicle for the citizen that benefits with the elasticity that cloud services can provide.

So, you see a number of interesting cases where mainstream customers are moving forward aggressively to the cloud.

I’m excited about where we are, I’m excited about the future. I think if we look forward five, 10 years, we’re going to be nothing but excited about what’s happened over the course of the next several years.

You know, for companies like all of ours in the room it’s going to mean a lot of change. Never will we need to be more agile, more on our feet, more forward-looking. Things will change in all of our existing business models, from Microsoft to the smallest company represented in the room today.

But the opportunity to do great work, to do great work for the consumer, to do great work for the enterprise, I think that opportunity has never been better than it has been today, and I think the opportunities in what I see happening here in the German market get me excited.

This theme of a cloud that is made by and for Germany, I think getting the idea of global parts is a good idea, and I think tending to local needs is a must. And certainly as we think about our strategy, public cloud, private cloud, privacy requirements, particular government data protection requirements, having the chance to partner and work with the companies in this room to both innovate in Germany and also benefit from the work that’s been done globally, I think is an exciting opportunity and we welcome the chance to work with you.

If I can help, I’m Feel free to send me a piece of mail. If you write something that doesn’t look like spam to Outlook, I promise to respond to you. And it certainly has been my honor and privilege to have a chance to speak with you today. Thanks very much. (Applause.)


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