Steve Ballmer: Houston Technology Forum

Remarks by Steve Ballmer, Chief Executive Officer
Houston, Texas
March 10, 2011

STEVE BALLMER: Well, thanks, Walter. And thanks to the Council for having us here today. It’s a pleasure to get a chance to talk to you. I’ll share a few thoughts, and then I’m sure we’ll dive into things that are on your mind as we get into the Q&A session.

As Walter was talking, I was saying, gee, I bet everybody feels like they’ve got a job that’s like that, a tough job, a job where you have to kind of put your heart and soul into things every day. We were certainly talking at our table, and I know we have plenty of people who have that characteristic. The thing that I think is kind of unusual about what we get to do at Microsoft is, we get to do things that are global from the get-go, that affect businesses in their everyday lives, but also consumers around the planet in how they live, play, do their daily business, if you will, just conduct their daily lives. And it’s sort of a grand  it’s the most grand commodity of all, information.

You come here and you say, OK, well, energy, energy is the grandest commodity of all. And I say, yes, it’s some one of energy, money, that’s what the financial guys deal with, and information, and that’s what we deal with. Those are the three things everybody has to have. Those are the things that people really care about, are passionate about. I was with a guy from the entertainment business earlier this week, and he says, the one thing we know is people have an insatiable appetite to consume more media, to consume more entertainment. People say, well, what’s going on with information? We had e-mail, and then we got Twitter, we got Facebook, we got this, we got that. None of the others have gone away. Sometimes things will shrink a little bit, the next layer gets put on, because people have an insatiable appetite to read, to communicate, to participate, and in a sense, whether it’s for consumers or whether it’s for businesses, that’s the industry that we get a chance to participate in is one of those broad, broad businesses.

It’s also a business that changes all the time. It’s funny, because in our industry it’s very obvious, and I know in some other industries there’s really a lot of technology change going on, and yet it’s not always as obvious, frankly, every day.

I had a chance to speak last night at the CERA Conference, and it’s just a reminder how much innovation and invention is going into energy and transportation, and a lot of other areas. We live in a business, though, where the capital requirements are so much lower. The speed to which you can go from invention to broad acceptance is really quite remarkable.

Sometimes it’s remarkable for you on the good side if you’re kind of on the positive side of that curve, and sometimes you’ve got to say, hey, look, this one is not in my favor, but I’m going to flip this game around. I’ve got the next one, the next one is mine, the next key invention. And it’s an interesting business.

I got to Microsoft 31 years ago now. As I said, I think I’m the only guy on the planet who has worked for a company of 30 employees and 88,000, and every size in-between. I have not missed one of them between 30 and 88,000. It reminds you, there are things you’re really good at when you’re small. There are things you can only do when you’re larger. There are things that you can do when you’re willing to take long-term risks. There are things that you’ve just got to go do quickly. You just have to. And in our industry we’ve certainly seen that full spectrum.

I grew up in Detroit, and even that’s kind of a bit of a reminder. When I was a kid, the notion that GM and Ford didn’t reign supreme, any such notion would be alien, and today GM and Ford are the scrappy competitors, trying to be part of the reinvention of an industry. And it’s fantastic to see the amount of innovation.

So, I sit here, and I thank Walter for his description. I know we all have jobs like it. I’ll just say I love mine. I love the chance we get to make a difference, and I relish the kinds of opportunities we have over the next few years to help drive yet another wave of technology and innovation.

Lots is changing. Everybody sees it every day. You can see it through our products. You can see it sometimes through our competitors’ products, I’m sure. But here are a few themes that I thought maybe I would talk about that will drive these innovations over the next few years. I think they’re themes that ought to be able to resonate with you, whether you think of yourselves as “technology savvy” or not, and when we look back four, five, six, seven years from now, it will be a not very bold prediction that we’re going to look back to the year 2011 and say, whoa, that was sure a primitive time back then. Things have really changed a lot.

Most of the discussion on this starts with the devices I use, the things that I use to access information. And what information can I get, when can I get it, how available is it to me, how portable, convenient, accessible is it for me? While I’m sitting there being a couch potato, does it work for me? When I’m sitting there on the go traveling around carrying my portable notetaker, phone, notetaker, they’re all everything now, how well does it work for me? When I’m trying to get some serious work done, when I’m trying to watch a movie? The truth of the matter is, what we see is that things are going to be, in a sense, in a technical way, a lot of the themes across these devices are coming together, and are looking internally more the same, and yet externally they’re looking more different than ever before.

We want to be able to talk to these devices. We want to be able to touch these devices, write on these devices. We want to be able to wave at these devices. Think of yourself in your living room instead of sitting there with the remote control, just wave, you know where you want to go, you want to go down in that program guide, or you just want to say “Sports.” Show me what I’ve got. So, the nature of where and how we get information and how the user interfaces become more natural for us to interact with will be a continued theme over the next few years.

The advances in hardware will propel this. You’ll see processors have gotten lower power, they’ve gotten smaller. They’re still getting faster, and more powerful as well. And we need to have devices that let you take advantage of the whole range of those innovations.

This year there will be about 350 million PCs sold around the planet. There will be something like 200 million smartphones sold this year around the planet. There will be, I don’t know, 35-40 million tablet devices, which are other mid-screen size devices, whether they happen to come from us with Windows technology, or Google, or Apple, of course, or Blackberry, a lot of people trying to innovate. That’s a lot of devices, and yet there are six-and-a-half billion, or so, people on the planet. A lot of people have more than one device. A lot of people have more than one device, work, home, this form factor, that form factor.

And yet the degree to which those things will start sharing more technology is actually quite striking. It turns out you get about the same power and performance, generally, not performance, you get about the same amount of memory storage in your phone as you do in most PCs that shipped a couple or three years ago. So, these things will share more and more together.

And everybody is going to have their own favorite way to interact. We were talking at lunch, the gentleman sitting next to me likes a keyboard. Some people don’t like keyboards. Some people like big screens. Some people like things that are very small. Some people actually don’t want to talk to their computer, it turns out. My wife would just as soon talk to her computer. And the range of technologies which will make these things more available, more affordable, more plentiful I think is just amazing.

We’re driving this at our own company through kind of three lenses, the phone, where we launched our Windows Phone product line now about two-and-a-half, three months ago. We’ve started to build traction around that. We had a little bit of a reboot on earlier generations. It’s hard to get the formula right. And in our business, you’ve got to keep on your feet, and keep pushing.

There’s the mid-size screen device, which I don’t know that if you go out four or five years, nobody will be able to tell the difference between a PC and a slate. I mean, really, you won’t. The user interfaces will have blurred to some degree. They’ll all be devices that have screens that are something like nine to 13 inches across, and we’ll think about interacting with them in an intimate fashion. We’re hard at work on kind of the next generation of that, and boy don’t we know we’ve got some competitive challenges there to show how well a PC can work if all you want to do is touch it. It may not look very much by the time we’re done like exactly today’s PCs. But at the same time, the kind of incredible functionality that people have come to expect out of the PC that makes them productive, et cetera, and needs to move forward.

And then there’s the TV. The TV is one that often gets neglected, and yet if you actually think about the absolute number of hours you spend in front of things, society as a whole loves that TV. I know we love our phones, and we love our PCs. But the amount of time TVs are turned on, at least in this country, is quite high. And yet the level of technology that’s really changed that environment is quite low. We came at that first through the lens of a videogame console. What’s a videogame console? It’s a processor and memory that gets attached to a TV set. That’s kind of how I think about it. It’s a processor.

Then we said, OK, how do we take this, because all we have is sort of men 15 to 35 shooting things. That’s kind of the videogame console stereotype. And we said we’ve got to open this up. We’ve got to open this up to new kinds of experiences. We’ve got to open it up to TV. We’ve got to open it up to people who find videogame controllers even more kludgy than the remote control that people have a hard time using for their TV. And we said OK, what’s the concept for that? Answer, we ought to let you speak to your TV, wave to your TV, control your TV in a different form. And enable a new kind of technology.

So this last year we brought to market a peripheral for Xbox. We call it the Kinect sensor, and it’s got cameras and microphones, and you can speak, you can wave. If you want to play a beach volleyball game, you jump, it recognizes you when you’re jumping and you’re hitting, and you’re physically, you are the controller. It’s your body, your voice. We shipped those in November. We just announced that we’re over 10 million sold, in what amounts to about two-and-a-half months.

So, you see the advent of these new technologies coming along. All of these areas are ripe for rapid innovation. There will be new releases, new things coming about every year. I thought maybe I’d show you just a short little video of something the will ship this year for Xbox and Kinect in the TV environment, that we call Avatar Kinect.

What’s an avatar? An avatar is a little virtual representation of you. Today these things happen to be mostly cartoony. They will be less cartoony and more photo-realistic. And you’d say why do we need that stuff. Why don’t you just show me? It turns out, particularly, we’ve got an exercise game coming out. It turns out, if you want to go to exercise class first thing in the morning in front of your TV, your avatar looks better than you do first thing in the morning. And your avatar is going to look more better.

And some of you may not want your kids actually showing their real selves. You want to be able to show a representation of themselves. There are a lot of good reasons why these avatars can be pretty interesting and exciting.

If you’re in one place and you’ve got a friend who is, I don’t know, up in Chicago and you want to get together. If we want to put you in the same virtual room, it’s a lot more convenient to do it with your avatar. So, we’re moving along, playing with some of these concepts. Everybody who plays video games has an avatar today. So, the question is, how do we make all of these concepts a little bit more interesting and powerful for the average person — not the average 15 to 35 year old who wants to shoot something. Let me show you a little bit of a video of that.

(Video segment.)

This little camera sees you. You smile. It makes your virtual representative smile on your behalf. We’re working on things like Finger, and finger recognition, and what does it all mean? And you can say, OK, if I hadn’t told you we’d sold 10 million of these things before you’d say, I’m not sure, because this is something that tends to come still from younger age groups, but what we found is as soon as you let the body, you be the controller, it turns out what’s gone from a male and younger demographic is a female demographic. We have an older demographic, a demographic that maybe doesn’t want to get out of the house, or can’t get out of the house, but wants to interact, wants to exercise, and wants to participate in life. And the more realistic we can make that, the more exciting I think things are.

Second big area of innovation is the innovation that is happening in the applications that we use. In our personal lives we think, OK, I get what that means. We’ve got Twitter. We’ve got Facebook. There are a number of things coming along. The way we share pictures, or post videos, all very different. Yet, the amount of innovation that will happen in this world where computing is universally available, in the kinds of applications that we use, the way they let us connect to the people and information that are most important in our lives, continues to be amazing. Let me just start with the search engine, as a primitive tool of today. We all love search engines. Our Bing search engine, we’ve come from nothing. We’re like the little engine that could in this competitive battle. We keep gaining market share, going up the hill. I think I can. I know I can, striving forward. Yet, we also know this is an area ripe for innovation. Fifty percent of the time today you type into a search engine, you hit the back button. We take that as a reject, bad answer if you’re hitting the back button every time on the search box.

It turns out most of the time when people want to search for something they don’t really want to search at all. They want to do something. They want to know something. The other day I wanted to actually  we talked about this actually at lunch. I wanted to just see a little plot that showed GDP, based upon how far you are from the equator. It seemed like a logical question, because you think about wealth tends to accumulate at about the Los Angeles-to-San Francisco distance from the equator, north and south side. And is that because that’s where people live, is that because good weather is conducive to productivity, gosh only knows. But, I was just interested. That is a lot of time in a search engine, it turns out, to really do that work. Yet, I could  the computer knew everything there, and should have been able to give me an answer.

You could say, OK, this is some Steve Ballmer weirdness, trivia, blah, blah, blah. But, think about yourself booking a trip. If you know exactly where you want to go and when, great, there are good tools for you. If you say, hey look, what I really want to do is plan a trip to Paris, and I kind of want to know where my friends have been, and I kind of want to know where they stayed. And I kind of want to know this, and I kind of want to know that. There’s no tool that really helps you. It’s just a bunch of repeated searches. It can be automated.

Take something like flowers. When you type the word flowers into a search engine, 98 percent of the time you want to buy some, it turns out. And yet we make you go through a bunch of blue links, and then do this and do that, and do the other thing.

We can automate so much more in terms of connecting people with information. We’re working with Facebook. It turns out a lot of what you want to know about information is shaped by the people that you know. Did my friends visit this site? What are they searching for? What have they found most popular? There are a lot of privacy issues that have to be properly worked through and the like. But, how do we use this notion of real global infrastructure with all the world’s data, with knowledge about me, and knowledge about all the world’s people to build a whole new class of applications. That’s pretty exciting not only, frankly, in our personal lives, but in our professional lives.

How does my company work with our four biggest trading partners? How do we share information smoothly between us? We’re working on a  I’ll pick on oil. It seems to me that everybody in the oil business works with everybody else some place. I put my well down here and the next well is right over, or we went together and we bid on something. And I know everybody competes, but then these alliances, they form and they change, and they shift. How do we put together a simple place to just collaborate together with the equipment suppliers, with the other oil companies we’re working with, with the national governments who regulate us and license us, et cetera. How do I just put that together and put all the relevant information together quickly and easily.

This changes our current world, because the Internet is becoming a different kind of an infrastructure. It’s not just a place to have a website, it’s now a place where all the world’s data, and all the world’s people can be appropriately available and support a whole new generation of applications.

Last, but not least, for the people who care about the backend of technology, the backend of technology, the thing that’s in those datacenters, or back there in the telco, or a hoster that your business uses, that will be revolutionized over the next four or five years. The speed with which we can write applications, and get them deployed, the cost of running applications. I got asked at lunch today about what are we doing with datacenters, do we put them where. I talked about the examination we looked at, about putting our new datacenters in Siberia.

It turns out there’s a lot of cheap hydropower in the middle of Siberia. We’re trying to build datacenters that don’t require any people, require very low construction, because the software is so good at just kind of managing these things. And, in fact, if a server stops working, you just throw it out. You just shoot it. You take it out of rotation, because the way compute power and costs are coming together, we’re going to be able to think about these things quite a bit differently than we ever have before.

Just stop and think about the number of pictures, photographs, that are on the Internet today. Just think about it for half a second. Somebody has paid to store more, I won’t call them useless, more photographs probably than people wish they had out there. And they’re storing it essentially at what looks to be free. Hardly anybody pays to store a picture, whether they store them on our Live service, or Facebook, or Shutterfly. And how is that possible? How does that work? Nobody paid for it, and yet they seem to get stored. Answer, the technology is getting so much better for building these kinds of applications that the amount of information and computation, and the way we can use it to create new applications is changing. And for the technical people in the room, it means a new model of how to work. For the business people, it means some consideration of what security, and privacy, and availability will look like in the so-called cloud where everything may not be physically inside a datacenter that you set up, and you operate, but where you get amazing benefits of cost and agility as you move forward.

So the opportunities to innovate in our business are great. The level of competition is great. The level of competition is great. We’ve grown from a small company when I joined, $2-1/2 million, to a company that’s about $60 billion in revenue this year. We’ve grown from a company that was profitable, I think we had good margins, we might have made 20 percent on that $2-1/2 million when I joined, to a company that still makes pretty good margins. I think most people say we’ll make some place north of $25 billion of pre-tax profit this year.

And yet, you’ve just got to be on your toes, whether it’s Oracle and VMware, or Apple, and Google, there’s just great guys in our industry. You’ve seen people come and go. Apple is interesting, because they came and then they went. When I got to Microsoft, Apple was bigger than we were. By ’97, Apple was basically bankrupt. And now Apple has turned itself around, obviously, quite nicely. So, in our business, you can come, you can go, you can come and go and come again. You’ve just got to be on your toes at all times. And I’m excited for that opportunity. I’m excited to have a chance to chat with you about it.

We’ve got a lot of people working hard here in Houston to try to make sure that the businesses that you represent are very well-served. One of our guys was telling me a story which I thought was fantastic that happened here locally, so I’ll share it with you. Lady in Kansas, a grandmother actually, finds out that her not-yet-born grandchild has some kind of fetal heart problem and says, what am I going to do about this? Starts searching around, and the only hospital that actually had both good systems to allow her to find them, and actually could demonstrate what their outcomes had been with in utero fetal heart surgery, was the Texas Children’s Hospital. They captured that information, they published it. They had it in a place where this grandmother in Kansas, doing her research on the Internet, using information published by TCH, she was able not only to tell her child, look I found these people, but it looks like they actually get very good outcomes. They did an in utero procedure on this mom here in Houston, and the success story of course is there, the baby is fine, has lived in a way that you just can’t imagine in a generation prior to information technology.

TCH is now getting referrals for these kinds of procedures based upon real outcomes. Very few healthcare institutions can actually prove to you, by the way, they have real outcomes. They don’t have the data and systems to support it. And yet TCH does. And hopefully we get a chance, that’s as dramatic a story as I frankly have ever heard about the use of our technology, but hope we get the chance to work with many of you on important stories for you.

This community is an innovation community. I’ve been coming here for many, many years because Compaq started here. And you could say I kind of grew up on my Microsoft career coming and visiting Houston. And I don’t know, we were talking about it at lunch, I don’t know what it is, maybe it’s the fact that the oil business is an energy business, or engineering-based businesses, but the depth of technology talent and activity here is quite high. And certainly we’re delighted to have had a chance to participate in some activities. I think we have some people here from a school called Yes Prep. Are there kids here from Yes Prep? There are, I guess, some administrators. But the work that they’re doing there using technology in classrooms. I had a chance to talk to Superintendent Greer. There is a lot of good work going on here, and we’re just delighted to have a chance to participate, and I want to thank, again, Walter and the Council. I’ll look forward to taking a few questions, but if we can help with anything, there are Microsoft people through the room. We’ve got a table here that we’re sponsoring. I’m [email protected], hit me in the virtual world.

Thank you all very much. (Applause.)