STEVE BALLMER: Well, thanks. I am excited to have a chance to be here with you today. I get to travel a lot, and speak, but there’s nothing quite as fun for me as getting in front of a group of university students. I know we have a lot of people here today from Moscow State — some people from some other universities — but to all of you from Moscow State, thank you very much. (Applause.)

I’m going to take the opportunity today to talk to a little bit about where we see the future of information technology. The very fact that you’re here tells me that you’ve got a little bit of excitement for software, for technology, for different ways to change the world, and I’m going to try hopefully just to give you a few ideas that maybe you’ll use to start your own company, drive your own innovation, build your own product, or even come to work at Microsoft and help us to do some of those things.

The computer industry is really unbelievable — unbelievable. I’m not a big history of science student, but I think if you look through all of the history of technological development, go back thousands of years, I don’t think there’s been an industry that’s been as good at creativity and innovation for as long as a period of time as the computer industry.

For 60 years, since the computer was first invented in the late ’40s or early ’50s, for 60 years, vroom, innovation after innovation after innovation. And yet, I can talk to you today as you sit here as students and think about going out into the workforce, and the opportunities for you to innovate are as exciting as they’ve ever been ever before.

We talk about a thing now in the tech business that we call the cloud — the cloud, the cloud, the cloud, the cloud, the cloud. The truth is you can ask five different people in the technology industry what is the cloud, you’re going to get five different answers. If you go ask five different people on the streets of Microsoft what is the cloud, most of them will look to the sky. (Laughter.)

And so, in a sense, the key isn’t, does the consumer understand the cloud, or even do we all agree on what the cloud is. I’m going to use it as a way to refer to five big things that are happening to transform the technology business. I see these things as separate but all really related.

And the cloud really has to do with a whole new model of the ways in which we interact and build information technology products and solutions. It has to do with the way mobile devices, the PC, the TV, the world of the Internet, the world of the enterprise and datacenter computing, how they all kind of come together, and not only do they improve each other, but they generate a lot of new opportunities for innovation.

The first thing that I’ll stress in both a technology sense and to you individually is the transition to the cloud will create new opportunities.

I’ve been coming to Russia for probably 22 years on business. Twenty-two years ago, I would get asked questions like, “Hey, Russia is a country full of great software development talent; how do I build my product in Moscow and literally deliver it around the world?” And I used to try really hard to answer the question.

In a world of the cloud, the opportunity to be a creator and an innovator in any part of the world, and through the cloud to have your innovative idea reach customers around the world, has never been better. The cloud creates new opportunities.

The cloud will also, by the way, create a new set of responsibilities. How do we handle privacy and security in the world of the cloud? Those are technological challenges against which we also get to innovate.

So, No. 1, the cloud is a source of opportunity, but what is the cloud? And I’m actually going to start way on the right-hand side. The cloud is an opportunity to create a next generation of smart devices.

If you think about even the smartphone or where we’ll go with Windows PCs or what we’re going to show you here in a few minutes with the Xbox, the world wants a new generation of smart devices, devices that are based on principles of natural user interface: touch me, speak to me, gesture to me, understand me and learn about me. We want phones; we want TVs; we want PCs; we want all kinds of smart technologies that behave much more naturally.

We need to redesign our devices for that world. We need to enable new user interface. We need to use the fact that the cloud is always back there to understand user behavior and user patterns, and remember important things that let us do a better job of being more natural in the way we interact with the user.

So, the cloud is as much as anything about a next generation of smart devices with much more natural user interface.

The cloud is about re-engineering the basic infrastructure that we use to write programs. Even if you’re an Internet developer today, and you use a hoster, you build an application, and in the way you build an application you think a lot about how many servers am I going to run on, how are they configured, how does the network have to be configured, et cetera, et cetera.

What we’re trying to do, and what we have learned in the world of the Internet that is so important, is how do we redo the whole development infrastructure on the back-end, in the datacenter, on the Internet, in the cloud, in the server, so that instead of thinking about machines and their configuration, a developer really writes a piece of software, and as soon as it’s written, it could be deployed anywhere in the world — it can be updated. The developer doesn’t have to know about how many machines it’s running on. It can provision additional capacity. It can failover; it can be redundant. We need to improve the agility of software developers to be creative and innovative by separating the IT work that goes on in the datacenter from the work that goes on in the development community.

We learned this frankly the hard way as we built our Bing search service. Bing is literally hundreds of thousands of servers. We can’t have people saying, “Oh, I have to configure a new server; oh, I’ve got to manage a sever; oh, what if we’re going to take some workload and move it to a new datacenter, I’ve got to reconfigure the network.” We had to build an infrastructure that was self-managing and self-provisioning and that developers could do things against instantaneously.

With our Windows Azure and SQL Azure work, we’re trying to give all of you as innovators the same kind of capacity and the same kind of agility, separating you from the IT back-end and the development front-end.

Number three, there’s going to be a new class of applications or new classes of applications that get created on the cloud that know all about both the data in the world and the people of the world.

All of the world’s people, or at least a large percentage, let me say, of the world’s people are known on the Internet. They communicate; they attach to the Internet. A huge amount of data is available to the Internet. And if you have the patience, you can sit there in a search engine, you can sit there in Yandex or Bing or Google, and you can look, and you can look, and you can look, and you will probably, with enough time, you can find anything you want.

But what we need to do is give software developers, the kind of people studying today at Moscow State University and other places, we need to give you the tools so that in some senses what is known to services like Bing or like Facebook and Twitter about people, that all of that information is available to you so that you can write programs that are smart.

I’ll bet we have at least one or two economic students in the auditorium today. I’m not an economist, but I am the CEO of a company. And about two years ago, I had a big economics problem or question. It seemed to me that the world’s economies were falling apart quickly, and I didn’t know what that might mean for Microsoft. And I wanted to understand what had ever happened in the past when debt became a high percentage of GDP in various countries.

And in my head I envisioned a little spreadsheet, and in this little spreadsheet it had economic growth next to debt as a percentage of GDP in various years and in various countries because I wanted to understand what had happened historically.

And I knew precisely what the spreadsheet looked like. I could sit there, and I could just draw it out for you, right, the whole thing — boom, boom, boom — I knew exactly what I wanted it to look like. So, I did that.

Then I said, “Hmm, how do I fill in this spreadsheet?” I went to my favorite search engine, Bing, and I started doing queries. Because it was Christmas holiday, I didn’t want to disrupt some analyst to fill it in. And Bing was wonderful. It could find all the data, or at least each element.

But I was spending hours doing queries, getting results, cutting, copying, pasting. And I said to myself, why don’t we have this in such a form that as soon as I draw this spreadsheet, it can go out and just grab that information programmatically and bring it back into the spreadsheet. And the answer is the Internet is not a programmable element today. We can’t just talk to it and collect these data.

So, the Internet, the cloud, as we embrace the cloud, we’ll enable new application types in which we can think of all the world’s data and all the world’s people are available.

Some of you will say, hey, I’m already on Facebook, the world’s people are available to me. By the way, I too am available on Facebook — Steve Ballmer. Friend me if you get a minute.

But the truth of the matter is there are plenty of places where you want to interact with people that that’s just not enough infrastructure.

If you want to get together a group of people who care about a certain disease or a group of people who want to communicate privately about a project, we don’t have enough infrastructure to develop all of the next-generation applications, and yet in the cloud we will have tools, again respecting privacy, that let us write programs, new applications that build upon a knowledge of all the world’s people and all of the world’s data.

So, new applications with new client devices, with new back-end infrastructure, creating new opportunities.

We already see some of this happening. I was in Germany about three weeks ago, and I had a chance to meet with some of the people at Siemens. Siemens has already moved to embrace the cloud in the way they build applications to help their people service and fix X-ray and other health-care equipment around the world.

Here in Russia we’ve had the opportunity to work with SKB Contour, a company that does software that helps you do submission of your tax reports online, on a next-generation software as a service or cloud-based application.

So, the move to the cloud, whether it’s in smart devices like Windows Phone and other competitive smartphones, whether it’s the kind of thing that we’ll show you in consoles, the kind of work that we and others are doing in products like our Azure cloud service, which Siemens and others take advantage of, the world is embracing to create the new applications, the new devices and the new infrastructure that enables a whole new decade of interesting innovation.

We want to show you one of those innovations today. This is a product that we’ll have the opportunity to launch next week, formally. These will be available for sale in retail stores on Nov. 10. It’s a new generation of the Xbox with a sensor that has built-in cameras and microphones. Here in Russia, you’ll find them in places like Eldorado, MVideo, MediaMarkt, starting on Nov. 10.

Our formal launch will be on Nov. 3 at Igromir, a game world submission here. But we want to show you a next-generation smart device. The device we’re going to show you today, as I said, will be available next week. And to help me do that, I’d like to invite Andrey Kalugin from Microsoft Russia, who’s going to do a short demonstration for you of Xbox Kinect. To you, Andrey. (Applause.)

ANDREY KALUGIN: (Demonstration in Russian.)

(Applause.)

STEVE BALLMER: He says he’s done. I speak no Russian, but I know he didn’t finish the end of the game. When you get to the end of the game, actually, the Xbox is taking pictures of you jumping, doing all of this stuff. I was interested to see how you two would actually look in that river raft. I think they’re pretty good players, but more importantly they’re good sports about playing in public, so thanks a bunch. (Applause.)

We showed you just an example of a game or two. I’ll give you some other examples of things you’ll see in games that ship. We’ll ship a beach volleyball game. You’re literally jumping, hitting, a Ping-Pong game, all with your hand.

In our own family we sit as a family and watch movies: “Xbox, play.” “Xbox, sports.” “Xbox, adventure.” You speak to the Xbox; you touch the Xbox; the Xbox learns about you; it learns to recognize you and your face and who you are over time.

And this is just version one of the technology. There are some lines you can see, if you come down here, painted on the floor, because we don’t let you get too close or too far, and yet over time the ability to recognize even your facial gestures and to learn about you and your mood and what that might mean is literally outstanding.

So, I think it gives you a little bit of an example. We didn’t show you — we can play with other people across the Internet. These two people happen to be together in the raft, but you could jump into the raft with your friend, I don’t know, in St. Petersburg or Novosibirsk or anywhere else you want to across Russia, but it’s really quite remarkable to think about the power of the cloud with the power of a smart, interactive device.

I talk a lot about the cloud and the opportunities in the cloud. I want to talk about those also in the context of Russia.

This is a market that is already quite large from an information-technology perspective. The mobile phone market is more developed perhaps in Russia than in most countries. This year, there will be over 10 million personal computers sold in Russia, and we see the opportunity for that to double and triple.

And certainly for Microsoft, both as a creator of product and a seller of product, the opportunity in talent in Russia, in entrepreneurship and innovation in Russia, as well as Russia as a market to consume these technologies, is quite remarkable.

I had a chance to speak at this RosNano forum today in Moscow, met a lot of very interesting people, both in government and private industry — very interested.

We announced today an investment in building up our presence in Skolkovo, and supporting and technically and commercial startups in Skolkovo, as well as our own R&D efforts.

And certainly as I speak to you today, young students looking to change the world, hopefully through information technology, I see a lot of opportunities available here in Russia for you, as well as the benefits of your work around the world.

So, I’m glad to have had the chance to talk to you for a few minutes. I’ll look forward to the chance to take a few questions. But certainly to all of you I wish you the very best, the very best good luck, and certainly [email protected] — if you’re looking for exciting work, let me know. We’d always be happy to hire good, entrepreneurial, excited, energized young students. Thanks a lot. (Applause.)

MODERATOR: Steve, I’m sure there are a lot of questions in the audience, but there are even more questions coming in from the Internet. So, we selected some of the questions, and the first question is from Edward Kloyisnkov. He asks what is the secret of Microsoft’s success. Is it some strategy or unique approach towards technology and/or people?

STEVE BALLMER: Yes. (Laughter, applause.) Whatever any business tells you, or at least any startup — and I joined Microsoft when we were 30 people, so I would say startup — a startup’s success has a lot to do with picking interesting new technologies, picking the right strategy, hiring the right people with the right energy and the right culture, and having good luck. All four of them are actually pretty important, and at Microsoft I think we’ve had a nice combination, not only when the company was founded but then we picked a second good strategy, which was to bet on natural user interface and Windows. We picked a third good strategy, which was to bet on microprocessors powering servers. We picked another, I think, good strategy here, betting on natural user interface.

So, picking — picking technology and strategy, hard work and great people, and good luck, I think, are the general formula for success throughout our industry.

MODERATOR: The second question is a rather short one. It was asked by Samat Kulymanov, Microsoft student partner at Home State University, and Vychislav Harod in Novosibirsk.

Russia is a country with a lot of technical talent. Are there any plans to open research and development, Microsoft research and development in Russia?

STEVE BALLMER: Yes. (Applause.) Actually, we’ve had small-scale research and development in Russia for a while. As part of our plans to grow here, we’re consolidating our R&D in Russia in Skolkovo, and we are going to add new projects. So, in addition to the work we’ve been doing that is really in business applications, distribution, manufacturing and the like, we’re also opening up an R&D group in Russia to focus in on technical and scientific computing. There’s just too much talent in Russia that understands math and mathematical concepts and modeling the real world through mathematical equations, so we’re going to build up our capability.

I think this is going to be a huge area of growth. If you think about the improvements that we’ve seen, not just in IT but in science, in other industries, pharmaceuticals, geology, energy science, a lot of it depends on modeling the physical world in the virtual world, and that really is about what we call scientific and technical computing, and we’re going to build up an advanced R&D center here in Russia to pursue that.

MODERATOR: The third question is actually from a mathematician, Vasiliy Turosov, Moscow Institute of Physics and Technology.

He says, in 1900 a famous mathematician, David Hilbert, formulated a list of important mathematical problems that determined the direction of mathematics for the 20th century.

What are, in your view, the most important problems of computer science, which will determine the shape of IT in the 21st century?

STEVE BALLMER: Yeah, there’s absolutely no question in my mind about what it is. The ability to let human beings interact naturally and express their intent in their own language, and to have the computer do useful things, is by far the most important proposition. I’m not David Hilbert, but I do know that this is the most important proposition for our industry.

I should be able to draw a picture of what I want, this is my intent. The computer should be able to solve for my intent.

As software developers, today we write very low-level programs. We say to the computer something like, “Take this variable, move it to this point in memory.” Even programmers should be able to express intent at a higher, more semantic level.

We think interacting with these devices. They should understand us and know us and recognize us.

So, bringing up the level of interaction and just being able to say to the computer what you want, it’s not the recognizing of the words that’s the hard part, it’s the recognizing of what you mean. And I think that that’s the No. 1 kind of problem, whether it’s for the developer or for the end user, those are the key problems of the 21st century.

Thank you, all. I appreciate the opportunity. Do we have time for one more or are we out of time?

MODERATOR: No, not really. Yeah, we are out of time.

STEVE BALLMER: I’m cut off.

So, I want to say thanks to everybody, and it’s been a pleasure to be here. Thank you. (Applause.)