Steve Ballmer Speech Transcript – Paine Webber Growth and Technology Conference

Remarks by Steve Ballmer

Paine Webber Growth and Technology Conference

June 8, 1999, New York

STEVE BALLMER:It’s my great pleasure to have a chance to be with you today.There’s a lot of technical terms I would say in your business, but I’m glad I think right now that I don’t really understand what the word
means to an investor.It might be depressing to me to — I won’t go on.

What I’d like to do today is give you a little bit of a sense of — and this will sound funny — but where we’ve come from and where we think not only our company, but our industry can go and needs to go.And since the future, I think, in some sense has dramatically evolved from the past, it’s important to take a little perspective, and I think that will also help you better understand and put in context some of the kinds of things that we’re involved in.

In 1975, Bill Gates and Paul Allen started Microsoft, and they talked about a vision, an aspiration, of a computer on every desk and in every home.And I guess you could have a lot of different reactions to this.I know I did.When I started at Microsoft in 1980, my first reaction, when I joined, was maybe the thing was kind of silly, or over-reaching for a 22-year old and 24-year old guys who were running the business.It was either silly or it was over-reaching, and it certainly wasn’t meaningful, after all.What decision would you ever make on the basis of this being sort of the mission of what you’re up to?

In fact, what I think we’ve all found at Microsoft and in our industry, amongst our partners, is that this has been really a clarion call.It’s really put the focus on a very important place, on really driving the acceptance and demand and delivering on the whole potential value in the personal computer.

Now, in 1999, this year there will be over 100 million personal computers sold around the world– 100 million.I happened to be watching CNN the other morning, and I understand this year there will also be 100 million bicycles sold around the world, just to give you a sense of context.There are a lot more computers sold around the world than there are automobiles.It’s a huge, huge, huge, business, a very important business.And yet we still don’t have a computer on every desk and in every home.In the US, perhaps 55 percent of households have a PC; 85 percent of white-collar workers in large companies have PCs.And the numbers decline fairly dramatically from there for blue-collar workers and smaller sized businesses.And those numbers are dramatically smaller even in western Europe, let alone the rest of the world.

So this aspiration of a computer on every desk in every home certainly hasn’t been realized.It has been fueled in large measure by so-called Moore’s Law, the notion that computer processing power doubles every year and a half at the same price, and then you can play around them whether you want to build lower priced computers, or more powerful computers or smaller computers, and the world’s done all of those things.And that’s taking advantage of that flexibility and that power as part of what has driven the world to 100 million personal computers.

Do I think that number is going to decline in the next several years?No.Do I think other things, interesting things, are also going to happen?Yes, I do.I think the PC is going to continue to remain a vibrant and important device.I think PC volumes will continue to grow, although I never predicted they would grow at the rate they have, therefore I am loath to predict that they will grow at similar rates in the future.That growth rate will slow down.I think it will particularly slow down in the next 12 months, because of the Year 2000 slowdown that we anticipate and are seeing, at least in part right now.But it is certainly the case from our perspective, and I’ll try to explain why, that the PC will continue to have a very important role.

I sometimes think it’s almost patently absurd the way people predict the end of the PC era, whether it’s Business Week or IBM.It’s kind of funny to cite that one.IBM is re-dedicating itself to a business where it lost a billion dollars, because it’s the end of the PC era.Doesn’t compute.I don’t think anybody believes we’re at the end of the PC era.

I get a chance to think about this and wonder about this and speculate about this.You read about it enough in the paper, you might almost believe it.I happened to be on a trip in London two weeks ago, and I had a 7:00 a.m. interview for BBC Radio in a radio studio that was no bigger than this little podium that we’re sitting on.And in this little room that I get crammed into, it’s hot, got these big old radio looking consoles that I have no clue what they do, sitting there were two personal computers.And it’s just a radio interviewer, it’s not some tech guy who starts playing with the personal computers, firing up, getting them to do what they need to do for this interview.And it reminds you of the general-purpose nature of the personal computer.That it is never going to be a dedicated device.That it is not going to be some whopping super server back someplace else.That it is not going to be a special little device that only knows how to send e-mail.That is is a general purpose computer, and with all of the strengths and all of the weaknesses of general purpose computers, that device isn’t going to get replaced, and we’re going to continue to see new applications and new demands.And so I certainly see a healthy, important, ongoing role for the PC.

The fact is we will continue to see Moore’s Law in effect for the next 20 years also.Our technology people have been through this with Intel.There’s no reason that we expect we’ll see anything but Moore’s Law type improvements in performance over the next several years, 20 years, in fact.And people say,
“Oh, what do we need all that power for and all that capability?”
You ain’t seen nothing yet.There are just so many more applications, cheaper, smaller, more portable, and more high-end.And the microprocessor technology will evolve to fit those.

With all of that said, I do think the vision for the next 25 years, if you will, for our company, our partners, our industry, has to be broader than a computer on every desk and in every home.I don’t think that vision really does enough to make a statement about the important things over the next 20 years.I mean, I could see it in Microsoft today.Many of our people are not working on things that relate to computers on desks and in homes.What does SQL Server have to do particularly with that vision?What does MSN have to do with that vision?And I think we’ve got to recognize the reality in a number of ways, and some ways that are important to strategy, and I’ll emphasize that.

But the PC has been a tool of empowerment fundamentally.And whatever we do in the future is going to focus in on that notion of empowerment, empowerment for individuals and consumers.So we talk now about giving people and consumers the ability and the power to do what they want, where they want.Do you want to roam, you want to be mobile, you want to be in the family room, you want to be in the living room.If you’re an IT director, you want to have the computation central.You want to have the computation on the desktop, you can do it, when they want, 7 days a week, 24 hours a day, on any device, excepting that there will be devices that are not PCs, which are dumb terminals, which are TV attached appliances, which are small hand-held devices that you put in your pocket and connect up on wireless networks, on any device connected to the Internet, or I guess I could have said Intranet in some cases, acknowledging the central importance of not only people working individually, but people working in groups.

You might say ‘so what’ to this too.It has a little bit of that same flavor of a computer on every desk and in every home, but there are a lot of things that this implies.It implies for us the flexibility in the architectural approach we take to new devices.It implies flexibility in the tools we give IT managers for spreading work from servers to clients.You know, in the old world if you didn’t have a big, full, fully-loaded computer with a bunch of software copied down on the hard disk, you had people at Microsoft start to get a little bit nervous, somehow counter-genetic.Well, that’s not the case.We have to allow flexibility.But with full confidence that the thing we think about as the PC today, the thing that runs Windows software, at least coming from a Microsoft perspective, there’s still a ton of value to add.

This happens to be the week when we launched our Office 2000 product, and in some senses that product and that support of the knowledge worker, which is what Microsoft Office has always been about, it’s sort of the proof positive.You know, when you get guys like Scott McNealy and Larry Ellison and Lou Gerstner talking about the end of the PC era, they’re really talking about people filling our forms in SAP R/3 or just sending simple pieces of e-mail.It fails to really encompass the kind of communication and analysis and presentation that knowledge workers do.Fully 60 percent of the personal computers that are sold around the world are used by knowledge workers. They’re not just used for manufacturing or order entry or blah, blah, blah, blah, blah.They’re used by people like the people in this room, to send e-mail, to take notes, to do presentations, to do financial analysis, and that is best done today with an intelligent device.Maybe with some of the intelligence, more split client and server, but we can’t take tools away from knowledge workers. There are just so many more things knowledge workers want to do.

So the PC has a role, the new devices have a role, and there’s sort of a broader mission at least that our company will absolutely pursue over the course of the next 25 years.

So I call this next era of computing not the post-PC era, but we refer to it as the PC-plus era. PC plus the Internet, PC plus TV connected devices, PC plus handheld devices.When I think about what our home is going to look like in five years, in five years will we have a PC?I suspect we’re going to have four PCs in our household in five years, one for each of my three sons, one for my wife. I carry a laptop. I don’t bother to have an extra machine at home.So we’ll have four PCs, I’m pretty sure.Plus we’ll have three intelligent appliances attached to our television set.And I think those will be a combination of set-top box and video game player.I might be able to keep one of those out of the bedroom, but I think we’re going to have three of them, one on every one of the TVs in the house.And undoubtedly we may have a couple of these, one for me, one for my wife, in the house.We’ll have some intelligent telephones in the house.The stereo — you’re not supposed to call it the stereo, I guess, in 1999, but what I call the stereo will have intelligence in it and will plug into the home network, so there will be other smaller devices.

Who will control all the action?Either none of the devices will or one of the PCs will, because it’s the general purpose, programmable device that will kind of control the environment in the household.We may even have a screen or two, which are just dumb display devices to the Internet.But I know we’ll have a range of devices and there won’t be fewer PCs in our house than there are today. There will be more, but there will also be more, other intelligent devices.

I also know that more of what we do will live on the Internet, in addition to in our house.Today you think about all your information being on your PC, and increasingly more and more of our information, all of our information, will also live in the Internet.I’ll have a way of backing up my PC to the Internet, letting my e-mail be stored in the Internet, storing my family photo album, with appropriate security, in the Internet.

So there will be a balance of things going on, not all centralized, not all decentralized, and the same analogies hold very well in business.And that means we need to let people do things, what they want and where they want on any of these PC plus era devices.

I talked about the PC’s role.The PC is a general-purpose device.That is its strength and in a way that’s its weakness.The PC is so flexible it can be anything, and sometimes because it can be anything, it gets screwed up.It’s our job to keep that device simple to use, simple to configure and so all the little gotchas that people run into today with PCs slowly — or hopefully quickly just disappear.We talked about making these things
“just work.”
That’s got to be the mission for both the consumer PC and for the business workstation, to just work.

But in the home, as I said, the PC will have a central role for entertainment, for coordination of the digital home, for productivity applications that involve the Internet and also run standalone.

In the office, certainly the PC will be the core of what knowledge workers use.And I talked a little bit about Office 2000.So I think the PC keeps a central role.

And some of the technologies we’ll be involved in will also take off on other non-PC devices.Personal Companions, whether you talk about palm-sized PCs or potentially computers going to automobiles, devices like this are not PCs.You want them to have very good affinity with the PC.You want to be able when you leave your office to essentially take part of your office with you.You want to be able to take notes.You want to be able to, when somebody asks you a question, easily in a wireless way, access the answer.But this is not a PC.It’s got to work differently than PCs work in some very obvious ways, most notably the size of the screen.

And so we have put a big investment and effort into these palm-sized wireless type devices.We’ve got about 30 percent market share.This is the newest device that we’re just bringing out in conjunction with Casio and Compaq and some other partners.It’s a color device.It’s super neat, I think, if people haven’t had a chance to look at it.This is the Casio PS.But you start to get a world in which it becomes second nature to take your desktop with you, to have access to your office.And I think there is some real value we can add in that equation, versus what you’d see from even very good competitors like Palm and others.

In the TV space, about two years ago we bought a company called WebTV.And WebTV really has two aspects to what it does.The first thing that it does today, and the thing people associate with it, is it runs a service with a box that you connect to your television set, that lets you look at the Internet on your TV.And that’s interesting.We’ve got about 850,000 subscribers in the United States.But in some senses, the more interesting part of WebTV is the underlying technology platform, which we will license to a variety of people who provide video services: cable TV companies as in our deal with AT & T, satellite companies as in our deal with Echostar.But the future of TV viewing will evolve.

And these devices today really aren’t about getting Internet on your TV.The long-term view is about mixing together and changing the TV experience.You’ll have TV through these devices.You’ll be able to communicate with friends while watching TV.You know, you’ll be watching a ballgame and you’ll want to just instant message one of your friends, and whether they’re on a wireless device or their PC or they’re attached to their TV, they’ll just pop,
“Ah, what a great second home run Ken Griffey had last night,”
and you just want to pop it right there, right in the middle of the game, because you see Griffey’s home run.

We’ll change the TV viewing experience in the sense of content.Last year at the Fiesta Bowl, Disney did the thing where you looked at content on your PC, and on your TV separately, but they had related content, and so the site, not NT-based, but the site kind of broke down under its own weight.But you will get enhanced content this year with these WebTV technologies that allow you to mix the TV content with the advanced HTML content.And we’re certainly talking to a number of content providers about that.

You get new TV features.These boxes will let you leave, go get a sandwich, and your TV will just record what happened while you were out of the room and you’ll watch the rest of whatever you’re watching in sort of tape delay, you could say, except it will just use the hard disk in the box to record the show and keep you current, albeit five minutes behind.

The advertising models will change the ways in which advertisers will want to work just as the way content providers will want to work will change, but even more dramatically.Your satellite provider, your cable TV provider will know a lot about you, and the ability to create very targeted direct marketing advertising is enormous.And we need to provide a platform that supports the rich set of scenarios that I’m describing to here; in addition, just to advance video gaming and entertainment support.

So we’re pretty excited about this device, and while it may share some technologies with the PC, it’s clearly not Windows and it’s clearly not a PC.

A third example of change in hardware devices is our focus in on very high-end servers.When we reorganized the company three or four months ago, we created a new group, dedicated to doing high availability, high reliability, let’s call them super servers, with the appropriate kind of clustering and symmetric multi-processing support, to attack the bigger and bigger and bigger applications.There is no application being done today on mainframes or Unix machines that we think is outside the purview of target for Windows 2000 running on PC Server technology.

I have the pleasure to spend most of the rest of the day visiting a number of different firms, in addition to Paine Webber and the Wall Street area, and I’m just going to get my bell rung meeting after meeting after meeting about the things that the IT departments want to see in terms of more availability, more reliability.

And we’ve got a dedicated team at Microsoft, heads down, focused in on the opportunities, because if you want to let people have things where they want and when they want, you’ve got to support models of server-based storage, server-based computing and very high availability.We have a very good team in this area.We’ve made already a lot of progress.If you look at a number of the brokerage systems that people have deployed, the retail systems would be built on our stuff, more and more trading systems are starting to be built around Windows NT.70 percent today of all SAP R/3 installations go in on top of Windows NT, but we want to keep pushing up, higher and higher and higher in the food chain to the bigger and bigger back-end applications.

Along with this change in devices will also come a change in software.Today people talk about the world as if it is two independent worlds– PC software and Internet software.And I think we’ve shown with Internet Explorer, at least to any user who uses PCs, if not to the US government, we’ve shown that these things need to, can be, and are now stitched together into a seamless experience.

What we did with Microsoft Office 2000, I think, was kick off a third generation of Office applications.If generation one was DOS-based– Lotus1-2-3 and Word Perfect, and generation two was Windows-based– Microsoft Office 4, the third generation is, let’s call it Web-ized Office 2000 in the way it fully integrates the ability to share information in an Intranet and builds on the bottoms-up empowerment of the Office knowledge worker set of tools, to give tools to what groups of people share information.But in the user interface sense, it will be harder and harder for people to distinguish what’s a PC document and what’s an Internet document.Those things are growing together in the right way, and a way that I think is very important.

This next generation of software will see that across the board, not only on desktop productivity software, but we’ll see that in electronic commerce, in communication, and a wide variety of other things, where the world will get the best of both traditional models, or both models, the PC model of software, which has rich presentation, rich interaction, and the Internet which has a simple navigation model and a very comfortable and familiar user interface model.

Here’s an example.This is a screen shot of an application built in Office 2000.Some of you will say that looks a lot like a web page, particularly if you look in the upper right-hand corner and you notice the icon for Internet Explorer.I know this is a document that was created all in Microsoft Office 2000.It’s been saved as HTML, but it’s got Office discussions in it.It’s got Office collaboration in it.It’s got an Excel component embedded in it to allow you to view and pivot financial information on the right-hand side.On the left-hand side it’s got an Excel component in it that’s bound to a SQL Server back end that will reflect changes in data in a database right there in the Office document.

Now, Office documents traditionally have been things which were static on paper and which you printed.That’s been, I think, the way most people would use Microsoft Office.The world will evolve to a world where people read more information on-line, where it is more dynamic, and where you want this kind of join between the passive page display of the Internet and HTML, and the rich interaction and authoring capabilities and analysis capabilities of a product like Microsoft Office.

So there’s a real evolution going on in the very definition of how this next generation software works.The next generation of software won’t just look different, the next generation of software products under this vision that I described will be very different.Nobody will have a software product in ten years.Everybody will have software products that also are services, and it will be hard to know whether to call anything a product or a service.Because our industry, well, is one of the industries in which you can not only buy our product electronically, but you can deliver our product electronically, you have a chance to change the fundamental characteristics.

What does Windows look like in ten years?Is it a set of bits that comes on a machine, or is a set of bits that may come partly on a machine, along with a service to keep those bits up to date that make sure that your machine’s okay, that does backups, it does help monitoring?What does Windows look like in ten years?It looks more like the latter, because that’s just the nature of the expectations that customers will have in this new era.There won’t be pure services and there may not be pure packages, and there won’t be pure packages.Everything will stitch together, and you’ll think of software as partly products and partly service, and whether that’s search or billing or customer service or scheduling or electronic mail, all of these categories of software, every category of software will have to evolve.

People have started to talk about this notion of ASP- Application Service Providers.An ISP is someone who provides Internet service.An ASP is someone who provides applications hosted on the Internet.I think that model will be important for the next several years, that the model long-term is something that’s a richer end-to-end experienced.

I give you an example that just happens to come out of our Office 2000 launch, because it’s on my mind, and we’ve been surprised by how excited people are by one of the new capabilities.When we announced Office 2000 on Monday, we announced relationships with two ISPs, Verio and Concentric, and they announced that they would host new Office 2000 documents in the Internet.Now, what does that mean?It means I can create a document that includes discussions to which people could subscribe on a corporate Intranet and say, send me all changes to the document.Those documents, which you would think maybe about being Intranet-based, can now be hosted out in the Internet.And they’re not just documents.They’re really almost applications, because of the subscription features, because of the discussion features, et cetera.

Who would ever use that?Imagine a business and its law firm trying to do business with another business and its law firm.You’ve got four parties.They all need to see a common draft of the document.You all want to be engaged in a common discussion of the document.And if you try to do that today through e-mail, nobody’s ever got the current document, because you get, you know, end by end parings of things moving around.Now there’s just a server.And it’s not Office you’re buying. It’s a service, though, that requires Office, but has a server side component that ISPs can deliver.And it starts to take you in this direction of software of the server, services in the Internet, client-side components that play into it, and a rich environment that lets customers do more than they otherwise could.

In this new world of software as a service, there will be interesting new partnerships created between software companies and telecommunications companies.You’ve seen us be involved in a wide range of things which may have been totally understandable to you or not, I don’t know, but they’re all part of this theme.When we invest in AT & T, we are investing to cement a partnership to pursue the future of video services and taking the technologies which we’re pioneering in our WebTV group, and that platform and those scenarios I described and saying,

How do we work with this partner?

Because the customer is not going to see it as a product or a service, they’re going to see it as an integrated whole.The same thing in the kind of relationship we’ve put together with Nextel.

And, no, we don’t need to invest in everybody we work with, but we’re trying to get a few partners with whom we can do showcase work, leading edge work.And in some of those cases it is helpful for us to commit some capital to the partner in order to have the kind of strong partnership and show our commitment to the work that our partners need to do in that area.And that’s why you’ve seen us make some of the investments that we’ve had.

But whether there’s an investment or not, there will be a much closer relationship between the telecommunications equipment company, the telecommunications service company, the software companies and the computer hardware companies over the next several years.You see that in a variety of ways already today.You see companies like Nortel and Lucent using PC hardware and Windows NT in their next generation voice messaging and PBX systems.You see it in the kinds of relationships that we’ve put together, that AOL is putting together.Everybody recognizes that these will be more integrated industries in the future.And it’s not just idle talk now about convergence. There really is work, both technology work and business deals being put in place that make convergence happen.

As we articulate to our people, to our partners this new vision, this new kind of set of eyes through which to see the next several years, we decided we needed to reorient our people around the vision in two probably important ways.Number one, we needed to make sure people understood it; and number two, we had to make sure that people took the broadest possible view of what they’re doing.

I had the pleasure of hearing Jack Welch from General Electric speak over the last several months, and he made a comment.He said,

We never have high market share in any business that we’re in, because the day you have high market share is the day you’re just looking too narrowly at what you’re doing, and you have to look at what you’re doing very broadly. Because that’s the future of any business is taking a broad enough view of what customers want to do, not defining yourself narrowly by the products you have today.”

So we decided to focus our R & D teams and our marketing teams around customers.That’s not to say products go away, but the guy now who runs Office doesn’t think of himself in charge of Microsoft Office anymore, because he might think that means he’s in charge of the spreadsheet and the word processor and a database.What we really told that group is you’re in charge of thinking through the needs of the knowledge worker. They have Office and they have Exchange, but take a broad view of what does the knowledge worker need, form a complete view of that, and take care of all of the issues those customers have.

To the guy who runs SQL Server, we said,

You’re not in charge of databases anymore.You’re part of a team that’s responsible end-to-end for thinking through what developers need to build this next generation of applications in the scenarios we described.

To our business and enterprise team, the guys who own Windows 2000,

You’re not in charge of Windows 2000 anymore.You’re in charge of really figuring out what the needs are for high availability, for higher reliability, for great deployability and manageability, what it takes to get the IT community to be able to really work with these products.

So in some senses, we’re trying to stretch the field of vision of each one of the technology owners in our company.Of course, they continue to own a set of products, but they’re tasked to take an even broader view of customer needs, so that those things don’t only come together in Bill Gates’ head, in my head, or simply no place at all.

So we completed a reorganization and I know it’s going to take us a while to really make it work, because what we’re really trying to do is get people to take a broader view of the customers they’re trying to serve, and the technologies they have in place to serve them.

One group I want to talk about in just a little bit of extra depth is what we call our Consumer and Commerce Group, and this group is probably most affected– everybody’s affected by the new vision.This business simply doesn’t exist without the new vision.People in this group made me realize the computer on every desk in every home was almost disenfranchising to some people at Microsoft.They said,

That’s not what we’re working on.What’s the story here?

Our Consumer and Commerce Group focuses in on e-commerce and next generation consumer services over the Internet.Why put those things together?Because it’s often unclear who’s going to pay for something on the Internet.Will the consumer pay, or will it be somebody who’s doing e-commerce that pays on behalf of the consumer?So we put those two areas together and put two senior Microsoft people, Jon DeVaan and Brad Chase in charge of running this business.

The anchor citizens of this business are MSN and all of the properties that come under it, and WebTV and its related technologies.

We have a focus on communications software in the Internet, on Internet access where we have over two and a half million subscribers for our PC Internet access service, in addition to the 850,000 WebTV subscribers.

We see great opportunity in small business.Small business is still much less penetrated by technology than large business.And Internet-based service will transform small business, I think, even more and more quickly than it transforms larger business.

And we believe not only in providing tools for people to do e-commerce, but we believe in a notion of what we call marketplaces, creating places where buyers and sellers and vendors and other interested parties come together.

We made an investment recently in the merged company of WebMD and Healthion.We started out just wanting to get health information for our portal.We wound up seeing an opportunity to have a technology alliance, as well as a distribution deal, to bring doctors and patients and healthcare insurers and healthcare providers and pharmaceutical companies all together.And while we don’t need to own 100 percent of that, we thought it important to provide the technology infrastructure and have MSN serve to be part of the meeting place for those buyers and those sellers.And that’s a strategy we’ve pursued in a number of different areas.

I want to give you just a short demonstration of one thing we’ve done, and I’ll ask Brian Hall, Product Manager at Microsoft, to come join me.We’re going to show you a thing we call DealerPoint.DealerPoint is a technology embedded in our CarPoint system.CarPoint is a car buying service on the Internet.DealerPoint is the technology that’s part of bringing manufacturers and the dealers and the consumers all together in a marketplace, and we think this technology has potential not only in the area of cars, but in a variety of other areas.So I’m going to ask Brian to do a short demonstration.

BRIAN HALL:So what I’m going to be showing is first from the buyer’s perspective, how they go through CarPoint, and they can research a call, actually make a purchasing query and send it off to the dealer.Then we’re going to go through real quickly what the dealer’s experience is with the DealerPoint tool that Steve mentioned.

For many people who go to CarPoint, they’ll start off at our homepage for MSN, whether they’re looking for something specific or looking for something in general, this is a good place to go.

STEVE BALLMER:So that’s our portal.

BRIAN HALL:Yes.This is the homepage for CarPoint.This is where people go in order to find out all the information they need to buy a new car.There’s a new car buying service, used car buying service, prices and reviews on each of the different products.You can have your own information stored on the page and even things like loans organized through CarPoint.

STEVE BALLMER:Roughly 7 percent of all new car buying transactions in the US start at CarPoint.For all of the Internet services, that number is nearer to 20 percent.They don’t necessarily conclude on the Internet, they’re not like books, but the research starts and the process as a whole starts on an Internet car buying service.

BRIAN HALL:And you’ll see an example of how this is actually facilitating the relationship between the buyer and the seller, rather than mediating the whole relationship.

So I’m going to go down and choose the Ford Expedition.This brings us to the detail page for the Ford Expedition.From here I can learn more about a car, I can compare it with other models, I can see reviews on this particular model, or I can go to the photo gallery, which I think is a pretty sexy example of what we can do on CarPoint.Here we have a 360-degree view.It’s kind of a virtual experience of the Ford Expedition.I can navigate around, move up and down.Hopefully I’m not making anyone sick out there with this.(Laughter.)

From this page or from the detail page we provide manufacturers the opportunity to put digital brochures up on the pages, so that they can actually advertise their products to the users directly.

So normally after doing this, I’d research the product some and I’d put in a whole bunch of my own personal information in order to make the purchase.So we’ve kind of skipped over that.

Here you can see that what’s happened is that after I did that, said that I was interested in this car, and of going through the service, it eventually picked two dealerships that were very close to me.It does this based upon my zip code information.

By going through this whole CarPoint experience that I just showed you, the consumer’s able to do this very hassle free from their home, from their office.They can research in a lot of ways that they couldn’t do in the dealer, and they’re able to find these dealers who are close to them.They also know that they’re going to get a good price offer, and that they’re going to get a response within 48 hours.

STEVE BALLMER:We’ve qualified the dealers.If the dealers aren’t doing a good job, they’re thrown out of our program.

BRIAN HALL:So I’m going to send my request to the dealer.Now we’re going to switch over, change positions really and take a look at it from the dealer’s side.

STEVE BALLMER:Here’s where you start getting the mixing then of not only the buyer and the manufacturer, but really a rich set of interactions with the seller.You used to just send the seller pieces of e-mail,

Hey, Charlie, here’s a lead.

The dealership said,

Is that the best there is?Can’t we have a more structured interaction?

And that’s what led us to this DealerPoint concept.

BRIAN HALL:This is actually a tool that we provide for the dealer that not only takes CarPoint information, but they didn’t want to have a bunch of different tools for the different ways that they work with their customers, and they thought that this was a particularly good one.So they can import these relationships that they have from other car buying services, plus they can put their walk-in traffic type ones up on here.

So this is where the dealers start out.They have a lot of different information that they can get out about their business.We’ll come back to here in a bit.But I’m going to start out at the prospect manager.This is where the leads go after they receive them.You can see that it says right on top that we have three new leads, and here’s the one that I had sent.

One of the things that’s real important here is the status symbol on the right.Working with our dealers, we found out that if they respond within eight hours to an inquiry, they have a 35 percent change of closing that sale.After it goes beyond 48 hours, perhaps over a weekend, they only have an 8 percent chance.So there is definite value to getting back to them quickly, and we think DealerPoint does a pretty good job of helping them do that.

So I’m going to go down here, click on the actual order.This gives me in one place a view of everything that the customer wants- all of the optional features, the standard features.This is exactly what the person was looking at.I can easily tell whether this is on my floor, whether it’s something I can easily order and I can price it out for them.

As I mentioned, DealerPoint also makes it real easy to communicate with these customers, so right from within this web page, I can go down, select a response for them, and send it off in e-mail.

One of the things that you notice there is I sent them an e-mail not saying this is your price, this is everything that’s going to be our relationship, but the one that I chose was,

I’ll call you.

This is important, because for now many of these dealerships, many of the customers feel more comfortable talking with people directly, and we facilitate that with CarPoint and DealerPoint.So now you can see it’s keeping track of the relationship I have with the customer. I can easily tell how we’re going and we’re down to two new leads.

The other thing that I want to point out real quickly is on the right side here you can see that we have this dealer result section.This is kind of the virtual white board that you would see in many dealerships.In the dealership they’ll take information about how each sales person is doing, put it up on the white board.Here the manager can have it automatically updated, can see it in one place and all the sales people can see, from that same place, how this works.

Some other things that DealerPoint provides and I’m not going to be able to show, is that you are taking your used car inventory, putting it into here, so you can tell right away what used cars you have on the lot, even publish that up to CarPoint, if you’d like, so that you can sell those used cars online.In addition, they can, like I mentioned, take other people’s leads and put them all within this one place.

STEVE BALLMER:Great, thank you.

BRIAN HALL:Thank you, Steve.

STEVE BALLMER:I hope you get a little bit of the sense, and all I’m really trying to do is give you a little bit of the sense of some of the ways in which not only software evolves, but some of the kinds of investments that I think are worth making in bringing buyers and sellers together.I don’t think everything goes


I do think that there is a role for more traditional participants in the business, but we wanted to give you something of a feel for the new kinds of interactions we expect to see.

We’ve had really in some ways very good success in our MSN business, and in some senses we have under-performed where we want to be.If you look at MSN overall, we’re the number one or number two portal site on the Internet.If you look at Hotmail, it’s unbelievable. We’ve got 140 million accounts total, 45 million active accounts on Hotmail.We have a set of small business marketing services we bought called LinkExchange.We reach 60 percent of web users with that service alone.Our Expedia bookings are rapidly rising in the travel area.We’ve got the number one news site, the number one car site, the number one gaming site, and the number two finance site on the Internet.And I just think there’s a lot of potential in this business.How it develops, at what speed, what the revenue is, those are very good questions.And I don’t think anybody goes and changes their model based upon what I’m saying today, but I am saying that we have a very serious investment and a very serious interest, and we know there’s a big opportunity lurking out there, even if it’s not potentially as big as some of the opportunities that we’ve pursued before.

I hope you get something of my sense of enthusiasm for the future.I hope I have given you a little bit of context, to paint sort of an evolved vision of the future from Microsoft, what we think is important, where the world is going to go, and how we’ve kind of restructured our company to pursue some of those alternatives.It’s been a pleasure to have a chance to make these formal remarks, and I’ll look forward to your questions.

Thanks very much.