Remarks by Steve Ballmer, CEO, Microsoft Corporation
Microsoft Government Leaders Forum-Americas 2004
May 17, 2004
MAGGIE WILDEROTTER: So welcome back. I hope you had some good sessions during the breakouts. I’ve heard some really great feedback from a number of the people that I’ve talked to.
I wanted to take the time to introduce to you our closing keynote today, which I’m sure you will all find very interesting. Our Chief Executive Officer, Steve Ballmer, is here to talk with you about the business of government, how we interact with government.
And I just want to make mention that Steve is very, very supportive of a lot of the transformational changes that you’ve heard us talk about over the last several hours. We have been very focused in the public sector in our partnership with government and education and that has a lot to do with Steve’s leadership and his focus in making sure that from a business perspective we do the right thing right in those engagements.
So without further ado, our Chief Executive Officer, Steve Ballmer. (Applause.)
STEVE BALLMER: Well, let me say thanks very much to all of you, not only for the time with me this afternoon but the time throughout this entire conference and particularly thanks to the many of you who are fabulous Microsoft customers. We’re very, very appreciative of that.
I want to take maybe 25 or 30 minutes and try to be very high level in terms of how we think about the nature and opportunities for important and positive interaction between our company and the governments that you all represent. I will say I always feel funny giving a keynote at my level at the end of the first day. Somehow it seems like you should fly at 50,000 feet before you zoom down, but they’ve decided I’m better at the end of the day, I guess, than the beginning. And hopefully in this context, there’s a little bit of perspective that is valuable in terms of helping you understand not only how we think about ourselves but how we think about our interactions, and that hopefully is information that helps us appear more predictable or helps you to steer us to do a better job on all of your behalf.
I want to start with a description of the way we see our mission, as an industry, frankly, as much as our mission as a company. We talk about enabling people and businesses throughout the world to realize their full potential. Mission statements are very funny things. Many organizations have them, and I know certainly when I was a younger man I was quite skeptical about most mission statements. This company had a mission statement though for many years that was very important in terms of riveting the attention, I think, of a lot of people, and that was this notion of a computer on every desk and in every home. And that mission is unfulfilled. But as we really stopped and took a look at the much broader mission of our industry three, four, five years ago, we said. ‘What is it really that our company, our products, our partners, our industry delivers?’ We don’t really deliver end benefits; what we really do is provide tools that enhance the productivity, the creativity, the efficacy of the human mind individually, or humans as they come together collaboratively to accomplish certain goals. And that really is what information technology is uniquely about.
There aren’t many industries that I think can pretend to have this kind of mission. IT, maybe government, certainly education: enable people and businesses throughout the world to realize their full potential.
And I think it is important that we have this kind of aspiration, because when we sit down to have the conversations that we do have with government, both as an individual company and as a member of an industry, I think this is part of the sense of possibility that all of you hold for our industry. Our industry does have a unique role in terms of what it can mean in terms of literacy, economic development, the digital divide, the way economies grow and prosper and get effective, and I think it’s all grounded in a mutual and shared perspective that information technology is, in fact, a grand enabler that lets society move forward.
And we very much, yes, we want to run a good business and all of that sort of thing, but the people who come to work at Microsoft every day are much more, what shall I say, invigorated by this view of the world than by any view of the world that is strictly measured in revenue and profits and the like. Our people want to make an impact, and we think this is the kind of impact that we can really help achieve.
There are a couple of core pillars that I think underpin our approach to this mission. And said simply, we know, we believe we need to invest heavily in integrated innovation, enabling new things to be done by people in simpler and simpler ways; and number two, we need to be constantly vigilant that we’re hearing, we’re listening to and we’re responding to the needs of individual customers and customer segments. And I think both of these points are probably interesting and relevant in general but specifically from the perspective of somebody sitting in the public sector.
Our company will spend this year almost $7 billion on R & D. That’s a massive amount of money. I think only Pfizer in the pharmaceutical industry on a global basis will spend more than we will this year in R & D. And there is a scale and there are certain kinds of innovations that frankly can only be done at scale. We believe in entrepreneurial R & D investment. We believe in startup companies. But there are some kinds of projects and systems integration that are best done with the kind of integrated scale that we have, and we think that brings a unique value and perspective to our industry.
If you think about it, not everybody would attempt to do a startup airplane company. When you say that, people say it sounds ridiculous because it’s so expensive, so costly, so complex, and there are some tasks that larger enterprises are set up to do.
We still want to be small and entrepreneurial also in many ways, but we think we’re uniquely set up to add value in all of the countries around the world by virtue of this particular class of innovation that we believe in and we invest in so passionately.
Some people say to me isn’t the best part of the, what shall I say, the best part of your industry’s life behind you? They say haven’t we come to the end of the technology era? This was particularly popular a year or two years ago, Harvard Business Review article, “Does IT Matter”, Financial Times, New York Times, many people speculating.
I have to say I find these things quite silly, really, at the end of the day. I believe that the best part of our industry’s life is very much in front of us. In fact, I’d be so bold as to say that the next ten years will bring more innovation and positive change and impact in information technology than the last ten years. And I say that and people can stop, OK, well, whatever that meant. But if you think about ten years ago, most of us didn’t have PCs. Ten years ago, most of us had never heard of the Internet, still. Ten years ago, most of us didn’t have cell phones. So to say we’re going to have more change in the next ten than the last ten is a profound statement.
Now, of course, people want to say, ‘Well, then tell me what’s the world look like exactly 2014.’ I could tell you the technologies I think make a difference. We as a company, were pretty right about that ten years ago. But the way specifics have unfolded are always hard to see 100 percent.
So I stand by the basic prediction: ten years from now we will be talking to our computer. Ten years from now what we think of as a computer will be a much broader class of device than we have today. Ten years from now, it will be indistinguishable what is a videoconference, a phone call, a TV broadcast; these things will be able to be indistinguishable. If you’re practicing medicine in a rural part of the United States or Brazil or some other very large country, you’ll have access to the best resources in the world, all electronically, as if they were virtually there and with you.
So, the world that we can aspire to based upon the incredible hardware, telecommunications and software innovation that we’ll see I think is quite amazing, and that’s why we’re betting broadly in this kind of innovation.
The second aspect of this is responsiveness. Our industry has been able to grow up for many years with a focus always on what’s going to be possible tomorrow. And I still think that’s a significant part of what we do. Most of our customers actually want us to try new things, things that they never anticipated being able to do. But the thing that’s changed in the last three years is there’s much, much more pressure and focus on also responding to the things short-term that are problematic for our customers. Security is a classic example. Security is not a problem to be dealt with lightly while we’re off investing in new scenarios for tomorrow. Security is the top priority, in fact, and I’ll talk about this in a little bit, for our company, not because at the end of the day if everything is secure people will say, ‘Thank you, what a wonderful thing, I can do things I didn’t dream.’ What people will say is, ‘I can do the things I was dreaming about and still sleep well at night.’ And that’s an important kind of work, too and we see more and more of these issues.
And many of these issues are, I won’t say unique to public sector, but we certainly see coming from governments around the world there are issues, appropriate issues, interesting issues. Some policy issues. Some technology issues. Some education issues. Some economic development issues that really come from government in a fairly unique way.
And we made a commitment, really — Maggie probably does the history better than I do on this — but about a year and a half, two years ago, we really said to ourselves we have to scale up our ability to listen to and respond to our government and public sector customers so that we can really be on these key agendas in the right way.
I think of that agenda coming to us from the public sector, from government in four different areas. One, how can government improve its own effectiveness, its own ability to do its work through the use of technology, including reengineering and using the Internet where appropriate to change its relationships with the citizen? That’s number one.
The second issue I want to talk about, or I will talk about, relates to policy issues. These technologies are important now for security of national infrastructure, these technologies are important in a privacy sense, these technologies are important in a broad new set of ways: standards, archiving of government documents, support of many, many more languages than our industry initially grew up with in various parts of the world. I’ll pick a place outside the Americas, but we did an announcement last year with the government in Norway of our support of Saami. It’s a language spoken in Lapland by about 40,000 people. Now, we could say that’s a small group, but very important to those people.
And so there’s a range of cultural and policy and privacy issues that have to be on our agenda and we have to be able to be responsive because we know they’re on your agenda.
Education: It is increasingly clear that in many parts of the world, it will be impossible for citizens to really function and participate either in an economic sense, an industrial sense of a personal sense in society unless that population is computer literate. And so the issues of education are a third area I want to talk about.
And then last but not least is economic development. Every country, region, state, city I visit almost has some aspiration to be a high-tech exporter. I think that doesn’t work mathematically, not everybody will be. But I think everybody is right to ask how does my geography, how does my state, how does my country benefit economically from the boom and continued job creation that we’ll see in high-tech?
So as we learn to be more and more responsive to our government customers, those are probably the four different fronts, and they’re all quite different. Some are issues that we will engage in with you as an individual company, but policy issues, education issues, economic development issues, we need to engage with our industry partners, because you need to understand and support our industry broadly, not any one company, not us or other companies, you need to set a broad policy framework that really works.
When we use the word e-government, now we’re really talking about how you use technology to improve your own internal operations. And this is probably not so much a policy issue; you will decide how much you want to invest in information technology and then every vendor, Microsoft, our competitors, our partners, we’ll all come and tell you how we can let you do the most with the least amount of resources. And we certainly believe it in our case: How can you do better, higher quality, more service by the use of information technology? How do you improve productivity and efficiency through the use of information technology? How do you take out cost? How do you get additional flexibility? How do you make sure you have the right interoperability? No government will own systems that come from one vendor. You will have products from Microsoft and IBM and Oracle and Sun, and you’re going to need to have those systems communicate with one another in order to provide the right service to the citizens in your country or geography.
And we’re really trying to think and work across this broad gamut of issues as we come see you and talk about the work we can do in e-government.
Just to give you an example of the complexity we see. This one comes here in the United States from the Department of Homeland Security. If you think about what it is like, and I happen to be our executive sponsor, I spend a lot of time with Secretary Ridge here in the United States, their IT staff, the CIO, Mr. Cooper. But how do you get the U.S. military, the Department of Homeland Security, the FBI, businesses that participate in national critical infrastructure, schools — what if there is some kind of attack on homeland security? How do students get found? How do their parents come see them? How do you make sure you don’t make problems worse by having too many people come to the schools or leave the schools in an idle way? How do you make sure that the data which is being collected and processed in state and local governments can come together in some integrated fashion? This is partly you could say an efficiency issue but it’s largely a “can we do it” issue. Can we really know what’s going on and manage this country – or any country – the way the country would want to manage, on behalf of its citizens? And the truth is there’s a lot of hard technical challenges to really do the kinds of things that people want to do to serve their citizens, and only through good use of information technology will that be possible.
Here’s a couple of examples of customers that we’ve worked with on important e-government initiatives. The first one builds directly from this Department of Homeland Security example.
In the state of Alabama here in the United States, we have participated with the state and a set of partners to build something that they call the Law Enforcement Tactical System that unifies over 21 million records that are important in the criminal justice process so that the state of Alabama can do a better job tracking, prosecuting and retaining, if you will, criminals to ensure that it is on top of what’s going on in the law enforcement activity in the state of Alabama; very on point example.
Different example. In this case, coming more on the social side, less on the criminal justice side, there’s a program that we worked on with the province of British Columbia in Canada called the Canadian Workers Comp Program, WorkSafeBC.com. They replaced a very high-cost paper system with a new online 24×7 real-time system for workers compensation claims in the province of British Columbia. They reduced costs from over $2 per paper process to $0.10 essentially per transaction process and have a system now that works far more efficiently and they’re processing about two and a half times as many claims per year.
Efficiency, citizen service, quality and satisfaction of the citizenry and doing things that citizens really want to get done and getting them done at the right kind of costs.
So on the e-government side, and our people will talk to you about this a lot, we think our company and our partners can really make a big difference in helping you on this dimension.
Let me sort of fill in a few details of what we’re trying to do to build out our partnership and responsiveness. We formed as a dedicated group inside Microsoft, a team that Maggie runs on a worldwide basis with over a thousand people around the globe whose only job is to understand the needs of government as it relates to IT, the technology needs, the standards needs, the interoperability needs. Interoperability turns out to have huge issues: How do you archive documents? Very important in the government space, how do you help people speak cross-border? It turns out custom’s problems, military problems, there are many issues where you actually want systems from multiple countries to be able to speak well together to get things to work. So we’ve brought together over a thousand people with a technology, a sales focus, a focus on best practice sharing across the world.
We’ve put in and upgraded our staff from a technology perspective as well as a relationship management perspective and we’ve committed significant new money to help support important programs for economic development: for teacher training, for support of technology outside the schools to promote computer literacy, to support NGOs in the geography.
We expect to make these investments on a policy side consistent with a public/private policy framework that you all put in place. We’ll sell you our products that we hope fit very well for your e-government needs, but then we have money set aside to fit in context with the set of things that you want to do for public/private partnership across all companies in our industry.
If I turn now to that second area of policy, in here what we’re really focusing in on is industry issues, industry issues. You will decide what to do about accessibility, security, privacy; you will decide whether you want companies to have a way to invest to support schools in your country or not; intellectual property policy to promote economic development, a variety of different initiatives.
What we’re saying is we want to play. We want to play with our industry. We don’t want any special consideration. But we think we have a special role as the largest player in our industry to help make our industry a really good participant in the kinds of things that you want to do that are really on the boundary line between government and the private sector.
We think it’s very important that we do our work in a very open way. Our business practices, we’re very tough internally to make sure that we are always operating with the highest integrity with government around the world. We have a set of requirements on us that are perhaps broader than some other companies have in terms of legal and antitrust compliance issues.
We think within our industry we can be an important forcing factor on the interoperability and open standards issues. Sometimes people get confused about Open Source versus open standards. No company that hopes to make any profit, and we are one of those, can afford to take its software and simply publish the source code. But it’s also true that no company that wants to sell to government can afford to ignore the fact that you need us to support open standards that allow information and systems to communicate freely. So we embrace that in general, and with specific interest in sets of issues that develop in government.
We have a new policy that we’ve put in place around XML file formats on Office documents, driven by needs that we heard out of some of the European governments, and we know we’ll continue to get more and more push of that ilk.
Last on this list is shared source code and IP licensing. In many parts of the world people are asking the question should we care on this issue, should we have a preference for supporting Open Source software? Should we have a preference for supporting commercial software? And frankly, if I was to give a small bit of advice, if you will, I don’t believe as a matter of policy it’s in the best interest of any government to be anything but neutral on these matters. If you are neutral, the people who work for you in IT can make the best decision on cost and efficacy, productivity on an individual basis. If you have a policy, the policy in and of itself will direct action.
In some parts of the world people said let’s have a policy that only allows government to use Open Source. That is not a policy that would help promote economic development of the software business in the geographies in which it’s adopted. And in a sense, there are very big issues and I think what government wants to do is to create a climate in which all forms of innovation can prosper and in which government can have best access to the technologies that make the most sense at the right cost for government.
So there’s this broad set of policy issues. We want to participate in that dialogue in a very effective way, along with the rest of our industry.
One of the top policy dialogues ongoing right now is this area of security, and there is a lot to do in security. People ask me is it going to get better tomorrow. It will not. There is an installed base of almost 600 million computers around the world. They cannot all be updated overnight. And so our strategy has to not just be to do new products, which in some senses people hope will be perfect; we’ve got to help provide technology that protects the installed base. We’ve got to work with partners to protect the installed base. We’ve got to make it easier to update the installed base. At the same time, we have to be engineering products that are closer to perfect for the future and we can never, any of us in this room, be so nave as to expect that everything will be perfect. These hackers will continue to get smarter.
I guarantee you our company will have the most secure software in the world. We may also have the most popular, so it is the most attacked. We’re learning from all those attacks. Some days the only thing I can be happy with on the security front is that we’re getting smarter fast.
But this is a very important issue so we have to build more secure products, better ways of isolating, better resiliency so these systems, even if they are attacked, can be made to continue to operate, faster updating and better security overall.
So a broad range of activities that we’re very invested in, and I know not just on a company basis, but on a government basis, is on the policy agenda: education and awareness, partnership in the industry. But government also needs to be active in this matter: What is the legal framework? Are you going to really find and prosecute hackers who operate within your borders? These are important issues for government to really have a focus on.
The funny thing is most of the security problems that we see are probably the smallest security problems that people have. It’s been described to me that the classic hacker is 15 to 25-years old and is just trying to do something to amuse themselves. The dangerous hacker is the person who actually wants to steal from you, they want to steal identity, they want to take vital information, they want to steal national secrets and they’re not out just to amuse themselves and get public attention for their latest virus.
And so. despite – you know, even if we see a dramatic lessening, as we have recently in these Blaster, Sasser, et cetera types of issues, which can be very, very damaging, it’s still very important that we all keep vigilant on the law enforcement aspects of security.
Another important technology policy boundary is really around spam, and there’s a lot of, what shall I say, interest, I would say that I see amongst government people on the spam issue, because citizens are really angry about spam. In many senses, citizens are angrier about spam than they are about security by our surveys and measures. And I think it’s easy in a sense to understand that. A virus might hit me once every three years; I get hit by potentially many pieces of very offensive e-mail each and every day.
We’re investing very strongly and I’ve got a bunch of technical stuff on this slide that tells you about the kinds of technology investments we’re making. And I think the world is really improving. The problem is there’s still 600 million users out there and most of them don’t have the latest technologies to isolate them from spam.
And so in a sense just like security we have to work the technology side, we’ve got to work the installed base and you have to be prepared to work on the policy and law enforcement side.
This is tricky. I have seen particularly here in the United States some legislation that gets written with all the best of intentions to stop spam that may also stop other valid and legitimate activities that people would engage in.
Our own people reminded me of this the other day. Bill Gates and I have a mailing that we send out, I don’t know, close to a million and probably four mailings a year. In order to get it you have to sign up, you have to say, ‘Yes, I want to receive this mailing.’ So the customers all want to receive it. It turns out now we find that it doesn’t make it through many spam filters. So people sign up for e-mail from Bill Gates and it gets put in the spam filter.
So there are many important things that need to happen, and if we’re not careful the legislation will stop the legitimate activity, as the technology has in this case, in addition to the illegitimate activity.
I want to turn now to the third area — so e-government, policy and now education, which is kind of a boundary between e-government and policy. And this really gets to what is it beyond a standard commercial relationship that most of your governments want to have exist not just between Microsoft and your schools and communities, but our industry and your schools and communities.
We’ve invested in a couple of programs that we call Partners in Learning and our Unlimited Potential Program, both part of our Partners in Potential program. And these are activities essentially that we have enabled Maggie to go do in the context of what you want to do in your government for public/private partnership around computer literacy.
We hope you encourage everybody to play. Oracle, IBM, invite them all in. We think the most important thing is that you have a rich framework in your geography to encourage the investment by private companies in closing the digital divide. In our case, we’ve come up with ways to discount our software for education dramatically, dramatically, dramatically in poor communities, in poor states, in poor regions. In some countries we do it everyplace. This is all inside the school system.
How do you create a framework that encourages people to contribute and participate in non-school based activities for the community at large, people beyond school age? And we’ve created again a set of funding and a way to participate with governments that want to participate.
Sometimes people think this is Microsoft wanting to, I don’t know, own the minds of the children. Well, sure, we want to be active with the children and if you want to encourage many companies in our industry to be active helping invest in the children we think that’s great, too. If our products are good, that will in the long run take care of itself, but we do understand there’s a need for public/private partnership to really scale up this level of activity.
One of the examples of something we’ve had a chance to participate in that I’m excited about happened through the Ministry of Education in Mexico. The challenge, many old textbooks, the information doesn’t change, they’re very quickly outdated. And they really focused in on digitizing the textbooks and building online links out to online encyclopedias like Microsoft Encarta, could be others as well. This will be rolled out to 44,000 classrooms over the next six months, and we think this should be able to dramatically help keep the currency of information high in these schools and should also importantly help with the literacy, digital literacy of students who go through this. We call this the “Encyclomedia” project that the Ministry of Education in Mexico has been working on.
The fourth and last area I want to touch on is this area of enabling local opportunity, economic development. We have around the world a very large community of partners. In our own case, you could see we’re close to a million — well, not quite that high — 750,000 partners around the world. These are small, medium and large companies doing business in literally every region, every state, every country in the world who are somehow building software, doing systems integration, building personal computers. Many people are shocked to find out how large the IT community is in the geography that they come from. I don’t care if it’s the poorest, most rural part of any country in the world, there’s an active group of people, important players in that local IT community.
We take this very seriously. As a company we made a strategic decision — essentially Bill Gates did when he started the company — that we weren’t going to try to be good at everything. We didn’t know anything about hardware.
It’s sort of a funny story actually. When the first Intel microprocessor came out, Paul Allen, who was a high school friend of Bill Gates and a cofounder of Microsoft, he came to Bill and said, “Bill, Bill, we can go start a computer company now.” And Bill I think was 15 or 16-years old at the time. And Bill looked at him — I don’t know how you get wise at 16-years old – and he said, “Paul, we’re not hardware guys, we’re software guys.”
And it was a decision at that time to focus and then to go build opportunities with people in the hardware business, in the application development business, in the systems integration business and that’s what creates all this opportunity and it is unique. It is unique to what’s gone on with Microsoft and the PC world. It never existed in the mainframe world. The same kind of opportunity never existed in the proprietary UNIX minicomputer market. Because the Open Source software movement is all around products that are free, it means this kind of economic development is not generated through the Open Source approach. So it’s been unique to the PC industry and software really around Windows and literally for every dollar of software we sell there’s seven, eight, nine dollars of additional revenue generated, mostly by local partners.
I’d surprise you with a couple of facts. What percentage of the computers in the United States come from large vendors like Dell and HP and others? Sixty-five percent. Thirty-five percent are smaller names that you don’t necessarily know.
Now let me ask the same question in, say, Mexico or Brazil. It might be only 45 or 50 percent of the market that comes from the big multinational names. The other computers are built locally, assembled locally, small companies, many of them that might only make 500 or 1,000 computers a year.
Who’s the number one developer of applications in most countries? Is it Microsoft? Is it SAP? It’s thousands of small companies that write the applications that actually run the businesses in that country, small, medium and large.
And we believe in that economic engine, not because we are, what shall I say, philanthropists, but our business interests, our customers’ interests and the economic development interest of all of your geographies are all well-aligned on this point. And it’s not a story we tell very well or very frequently but I think it is absolutely essential to framing the relationship that you care about, since I know many of you say how are we going to do even more with high-tech in my geography.
At the end of the day, our proposition to you has to be about more total value. It will come from innovation. It will come from our ability to invest in having trustworthy and responsive partnership with you, and it will come by giving you choice. Choice of applications. Choice of hardware. Choice of systems integrators. Choice in the form of interoperability and support for open standards. And we think that if we do these things very, very well you’ll see a lot of value coming from Microsoft and our partners, and that will continue to make our products and our company very important for you to meet your critical needs for e-government, on the policy side in education and in economic development.
I want to stop there and say again thanks for your time.