Steve Ballmer: Rotary Club of Seattle

Remarks by Steve Ballmer, Chief Executive Officer
Seattle, Wash.
June 29, 2011

STEVE BALLMER: (In progress)  we, Microsoft; we, the Puget Sound, is home to essentially now the second biggest base of information technology companies in the world. If we do our jobs right, we’re going to be at the forefront of inventing and creating so much technology that will not only change the world itself, but be embedded in and part of changing so many other industries as well.

Certainly — just a small digression — if you think about the world of biotechnology, and pharmaceuticals, if you think about the world of energy and the environment, the ability to use information technologies in new ways to simulate, for example, the real world in the virtual world, and speed up the rate of scientific exploration and discovery is transforming those businesses, those industries, in amazing ways, let alone the specific products and technologies that we all think about and recognize as the products of the information technology industry itself.

As we sit here in the year 2011 and say, OK, what’s hot, what’s really coming next, what’s going to be the transforming things, I probably would point out three things to think about, and they are certainly things at Microsoft upon which we are betting very deeply. No. 1, your computer will learn to recognize you even more than it does today. It will see you. It will recognize your gestures, your voice, your fingers, that’s kind of the innovation of the last couple of years. Ooh, I can touch it now. But when I say it that way it sounds smaller than how profound it has been. And so the notion that the computer can recognize me and my actions and go do something about that is quite, quite remarkable.

We introduced a product before Christmas called Kinect. It’s a sensor. I would call it a camera, except it has microphones in it, too. It is a sensor that you put on top of your television set when you own an Xbox, and literally it tracks and understands every movement you make. And you see us bringing bowling games, and tennis games, and dancing games. My computer recognizes me in new and interesting ways. And we’re still early down the journey of transforming the ways that people will interact with systems based upon the fact that your computer recognizes you.

The second big thing that I think is very exciting for the next few years is my computer will actually learn to understand me, recognizing me and understanding me is quite different. Here I am, I can recognize every word, but I can’t make any sense out of what he really wants to do. My test of this is pretty simple. If I say to my administrative assistant, “get me ready for the trip down to Rotary,” she’s brilliant. She knows what to do precisely. She knows  well, what does she do? She goes to my schedule, she gets all the notes, she prints them out – doesn’t have to, I bring them on my phone these days, they’re on slides, but she does that. She goes around the Internet, all digital activities, she gets the bio for Sten, so that I’m prepared for that part of the meeting, and be able to greet and understand. She gets a list of past speakers. It’s very predictable.

We do the same thing every meeting. And yet, if I go to my computer and say, “get me ready for my trip to the Rotary,” the first thing I would have to say is, where would I do that? Well, I don’t know, don’t have the application yet for that. My computer doesn’t know me well enough, it doesn’t remember me, and it doesn’t understand what I mean semantically when I say “get me ready for my trip to Rotary.”

And we’re starting to see glimpses of this. It’s why people fall in love with search engines. It’s why our company is investing so much in our Bing product, because the first place where you can type in, in your own language, and the computer is going to do its best  it may get it right, it may get it wrong, but it’s going to do its best to do what you want to do — is the search engine. And yet, I think, having your computer not only recognize you, but understand you over time transforms the way we’ll think about using information technology.

The third thing that’s happening is, in effect, the ability to have these systems really connect you to the people and the information that’s most important to you, not just to recognize you, but be able to access your friends, your colleagues, your co-workers, the information that you need to go buy a new house, or make a decision in business, that’s a big phenomenon. And certainly while I was here 15 years ago and we were talking about the Internet, today we talk about the cloud. And the cloud is essentially a buzz word that refers to using the Internet to connect you even more seamlessly to the people and information that’s important to you.

Behind all that, there’s also a set of transformations that are going on under the covers technologically making it easier and cheaper for people to write new computer programs, to deploy those, to have a small entrepreneur developer here in Seattle publish work that can be accessed and used around the world. But those things are kind of in the back end, if you will, of the boiler room. And yet those phenomena, in the large, will be the source of so many new companies, new products, new technologies from companies like ours, startups, competitors, and the like that it will be a really exciting time over the next five-ten years.

That’s really quite a stunning statement. I don’t know if we have any historians in the room. But, if you asked how many industries were at the cutting edge of innovation for over 70-80 years, even the auto industry. The auto industry got started in the 1880s, something like that. And it, no pun intended, ran out of innovative gas some time in about the ’60s, and I say this as a kid who grew up in Detroit, and now it’s regaining its innovative muscle.

The first computers came out in the late ’40s, and yet we’re sitting here looking at opportunities to do interesting, and new, and creative things that are unabated, essentially, for 70 years. It is incredibly remarkable.

At Microsoft we believe in that opportunity. We’ve investing in those opportunities. We’re building the products that we hope are the difference makers. We’ve been very fortunate. We’ve made bets. We’ve built products. We’ve made the difference. There’s a reason why we’ll do almost $70 billion in revenue this year, and we’ll make over 20-whatever $26-27 billion in profits. There are reasons — we made the right bets, and we’re making the bets for the future.

We’re betting on the future of these devices that understand you and recognize you, the next generation of Windows PCs, and Windows slates, the next generation of phones, Windows Phones, the next generation of technology in your living room with Xbox and Kinect. We are relentless and irrepressible in our push into search, because we think that’s such an important technology and there’s so much chance, in the ways that I talked about, to innovate. So, while we may lose a few billion this year on our investment in Bing, we are irrepressibly committed to that bet. And the business that we have in serving businesses, and enterprises around the world, has been an engine of growth and innovation for us for sure

We’re reaching out even more strongly on the consumer side. We’re in the process of getting regulatory approval for the acquisition of Skype. Skype is an interesting company. Right after we signed the deal I went and visited the big Skype locations. It turns out the two biggest Skype locations  well, the biggest Skype location is actually in Estonia, a place that I now know is Seattle, but colder, basically. It has a really strong base of wonderful engineering talent, and was just a great place to visit. And I’m really excited about what that team, and what that technology can mean for Microsoft and consumers we serve.

We’re doing what we think we need to do. We’re investing in the R&D that we need to put into it. As our home, we need to see the same kind of investment coming here in the Puget Sound. We have about 40,000 employees in the Puget Sound. It is not only my home, it’s in every sense a home to Microsoft.

And for this region to continue to support the kind of growth that it might see from the information technology sector — and I’m serious, after the Silicon Valley, it’s hard to cite any place in the world with as vibrant a tech community as the Puget Sound — we’re going to have to make some key investments.

Transportation, we need new transportation infrastructure. I happen to live very close to 520, and I’m very pleased to see 520 now starting its transformation, even when my children came home one morning and said, “dad, dad, the bridge where we take our dog every morning is now gone, how can they do that?” I just smiled and said, because it’s the right thing to do.

So, I’m pleased to see things progressing on the transportation side. We need investment in education and it’s going to take everybody stepping up. It takes the state, it takes private donors. It’s going to take students. Everybody is going to have to step up, both for K through 12 and for Higher Ed. We recently committed another $25 million gift for scholarships, at the university here in Seattle. I think that’s super-important, but we’re going to need to see a lot of businesses, not just Microsoft and Boeing, step up to help continue to support higher education. We’re all going to have to do our part to support and do what it takes to improve the K through 12 education in the state.

As a corporate citizen, this too is our home. We are largely driven in our charitable donations by the interest of our employees. 2010 was the biggest year ever for Microsoft in terms of our matching of our employees’ donations — $96 million came from the company and its employees through match. And of that, $50 million went to organizations here in the State of Washington. It will require a lot of work, again to support the social services, and the rest  particularly of the safety net infrastructure that’s going to keep the Puget Sound a great place to build the kind of business that we’re building, and we know many, many others are interested in doing.

I speak very optimistically about the future, and I think that’s exactly the right mindset to have. But I also want to underscore that, in essence, it takes kind of two things, optimism and it’s going to take persistence. It’s going to take optimism and persistence for us to do all we can do, hope to do, and need to do to be a leading company. And it’s going to take optimism and persistence for all of us to drive what needs to happen in terms of ongoing investment here in the State of Washington, and in the Puget Sound for this to be the kind of great region it has been for all of us to live, to work, to build businesses, et cetera.

I am delighted for the opportunity to be here. I thank you very much for your time, and Sten is going to moderate the Q&A session. Thank you very much. (Applause.)

STEN CRISSEY: (Off mike direction for Q&A)

QUESTION: Thank you for being here, Steve.

Recently, I read somewhere someone said that it’s time for Microsoft to change its CEO, Steve Ballmer needs to go. (Laughter.) So, what’s your reaction to that? (Laughter.)

STEVE BALLMER: You tell me if I lack energy or conviction or we’re not driving all the things that we need to drive. (Applause.)

STEN CRISSEY: (Inaudible, recognizing next question).

QUESTION: I have a question on Windows 8. It’s come out to great reviews so far. I’m curious how important is it to the Microsoft organization, what are your (inaudible) and goals for it? And just if you can give us a sense of the size and the scope of the investment there.

STEVE BALLMER: The answer to your last question first, no, I’m not going to give you any sense of the size and scale of investment.

How important is it? We basically increasingly only are working on things which are actually very important. I would say the day and age of sort of idle, kind of smaller things is a little bit behind us. There were sort of more small probes; we’re putting bigger, more energy behind fewer things than we have historically.

I can’t say that about Windows in general. Windows is — you know, if you cut me open and saw what was inside, Windows, it’s just sort of Windows, Windows, Windows. Our company was born on the back of Windows. Windows underpins a huge percentage of all of our success, all of our profitability, all of the important things that we do. So, how important is it? Very would be a very fair answer.

And as we have more details about the next generation of Windows PCs, you guys should be sort of tracking them and watching for them in the newspapers.

STEN CRISSEY: (Off mike).

QUESTION: Mr. Ballmer, what role do you see gaming consoles play in delivering things like television programs, and do you see Microsoft as sort of the network of the future in terms of that?

STEVE BALLMER: I think it will be incredibly — I think there will be technology in the living room and around the television which will transform the way we think about video and video entertainment. It will be more social, it will be more interactive. I think that we may call it a console today, but a console, has a very kind of specific imagery in people’s minds. It’s the thing that the, you know, 18 year old uses to play certain kinds of games. But I think that technology, certainly what we’ve seen as we’ve watched Xbox with Kinect, we’ve broadened out the demographic of the people who will use those devices, we’ve broadened out the content and the experience.

The first generation of Xbox was primarily about games that were about shooting. Xbox today is for boys and for girls and for men and for women, it’s for — if you look at just the total number of hours spent, watching video is emerging as as big an area as playing as playing hard-core games, as they’re known. So, I do see that footprint broadening out quite dramatically.

I got a little bit of a sense just even in my own life. My wife has typically told me that the Xbox is supposed to live in our basement where the boys and I are welcome to use it — except on school nights where none of us are welcome to use it. (Laughter.) That’s been policy in the Ballmer family, you’re not allowed to have one at our vacation home on Whidbey Island. That’s been policy, policy, policy, policy.

We shipped the new Xbox with Kinect last year. My wife kind of very sheepishly approached me right before Thanksgiving, said her family was coming up, and it would sure be nice to have an Xbox with Kinect so that grandma and grandpa and nieces and nephews would all be happy to play our new dancing games.

So, I use that as my own personal sort of story of how the transformation is happening in consoles to be a general purpose platform for entertainment around the TV.

STEN CRISSEY: (Off mike).

QUESTION: Mr. Ballmer, thanks so much for bringing up your family. I actually had the pleasure of meeting your wife and kids. (Inaudible). You have an astoundingly wonderful and dare I say normal family. And I’m really interested to know, you’re one of the most powerful CEOs in the world, and you’ve raised some wonderful kids, and I would love to hear a little bit about how you’ve been able to create that balance with the pressures of the position that you’re particularly in as the head of Microsoft, and then be able to (inaudible) and how have you been able to instill in your kids a real work ethic that I’ve seen in them personally and really admire? Thank you.

STEVE BALLMER: Well, you’re kind. (Laughter.) I’m probably like every parent. I love my children dearly. It sounds like you’re seeing all their best sides. (Laughter.) I’m still working on some of those things, particularly with the two who still live at home. (Laughter.)

I’d love to tell you I was working on that with my college freshman, but I think that’s out of my pay grade, as they say.

I think everybody has the same challenges as parents. You want to work hard at your job, you want to be a good role model in what you’re doing, you want to be there and available for the kids, and the question of how you put that all in a pot and mix it up I think is a challenge to most people in the room either have faced or will have the opportunity to face as they have children.

And I don’t think there’s any solution other than being relatively disciplined about how you manage your time. That does help people who are busy. I keep a spreadsheet with my time budget on it, my travel budget on it. I never travel more than my budget allows. My budget is sort of enough to do my job, but not as much as people want, and it’s probably just over the edge of where my family would like to see my time. I’m fortunate in the way the Microsoft calendar works out; we don’t have a lot of travel during the winter months. Since I have a basketball-oriented family, I’m able to make games pretty well. And thank goodness football games are on the weekends, so I make football games pretty well. And like all parents in the room, you just work on it every day. (Applause.)

STEN CRISSEY: (Off mike).

QUESTION: Thank you. Hi, Steve. Thanks for being here this afternoon.

Kind of a two-part question. You mentioned earlier on the profound impact of technology in the long-term care industry. I look at that impact being with older adults and individuals with disabilities. Can you talk about what Microsoft is doing with assistive technologies? And the second part, would Microsoft be willing to work with a senior organization here in the Seattle Puget Sound area to work on those?

STEVE BALLMER: I think there’s probably three different things to think about on that issue. No. 1 is what is really available today and how can that help, and I think it is — there are some things that are there, but they’re relatively limited. You know, can you have a better feedback loop between a doctor let’s say or nurse and a person at home? You can, but somebody has got to set it up. I mean, just think about it, you really could have a Skype session between the health care provider and the patient.

And you might say, hey, that sounds nuts, but with a little bit of data and one little monitor, just a little monitor that gives feedback on two or three statistics, heart rate, blood pressure, a few other things, you could probably improve the quality of care, we think, and take costs out. But that’s still relatively I would say under-tapped as an opportunity.

The second level, which I think we will achieve someplace over the next few years, is really when you can think about all those personal robots and personal assistants, particularly to help the elderly, machines that actually could move around and could be programmed to keep track of pill consumption and other things which are quite important in that environment. So, I think that would be probably the second thing I would highlight.

In terms of involvement, we are involved in a number of different places, including in the Puget Sound, primarily because our employees are interested in them, and working with seniors on technology literacy, because it turns out to be a great way to keep seniors connected to the people who are not ambulatory, have trouble moving, getting out and getting around, to keep people who can’t hear connected through a digital discussion, and we’d be delighted to hear ideas on more we can do to follow up with other organizations here in the Puget Sound.

STEN CRISSEY: (Off mike).

QUESTION: Steve, first of all, great first name. (Laughter.) I have a Windows Phone, and I would really love to get Skype on it, but I can’t seem to find it in the Zune store. Can you comment or maybe put a request in? (Laughter.)

STEVE BALLMER: Well, our acquisition of Skype is subject to regulatory approval. So, we have no influence, but I think if you keep your eyes peeled, you will find that they independently — and I mean that, seriously, independently you will see a Skype application on the Windows Phone in the not-too-distant future.

QUESTION: Good afternoon, thank you. You have an amazing passion and determination for the things that you believe in. Can you talk a little bit about NBA basketball in the Seattle area? (Laughter, applause.)

STEVE BALLMER: I think the challenges there are real estate challenges, honestly. I’m not talking about where the location has to be or anything else, but the building that is Key Arena would not be able to have an NBA team in it that could be competitive. The simple economics are if you don’t have a nice enough building, you can’t sell enough of the right kind of tickets at the right kind of prices. If you can’t do that, you can’t pay the players the right amount of money to compete. And if you can’t compete, you can’t fill the seats.

It’s not a question of “doesn’t the building look fine.” It looks fine to me, too. It’s just not as fine as the ones that have been built in Dallas or Oklahoma City or some of these other places.

How do you get there’s very expensive, because the building would be, I don’t know, 300, 400, $500 million to remodel or to build. How do you do that? Well, you know the team is not going to pay for it. It turns out NBA teams don’t really pay rent, very small rent. You just look around, they don’t pay much rent. So, you have to make that money back up either by having the broad real estate development concept or you have to make it up with civic donations, including state, county, city, which didn’t happen here in this area.

So, if somebody can solve the real estate problem, I’m quite sure there — it would be easy to solve the basketball problem. The real estate problem is a great area of innovation and invention and IQ application, for those of you in the real estate business. (Laughter.) And when somebody comes up with a solution, whether the guy — I’ve been involved with the guys, I was involved in it last time, or other people get involved, I’m sure we’ll some day wind up with that problem solved and with a basketball team back here in Seattle.

Certainly as a fan I’d be all in. If you want to get on that problem, I’ll offer to buy the first season ticket. (Laughter, applause.)

STEN CRISSEY: Thank you so much for sharing your time. Before the meeting we were chatting, and, yeah, it’s been 15 years since Steve had spoken to us last, so it’s great to have him back.