Steve Ballmer: Its my pleasure to have a chance to be here today. A PC Forum 21 years ago was probably one of the major events in my life. Im not sure Esther even knows this story. During my first PC Forum, back when it was called, as Esther was reminding me, the Microprocessor Forum, I was trying to decide whether I should drop out of business school and join a small PC software startup. It certainly wasnt fashionable at the time. Its quite fashionable now, I gather from our recruiting efforts. It was the experience I had 21 years ago at the conference that convinced me to come to Microsoft and start my career. Ever since, its been a wild, exciting ride.

I was debating what to call this talk. I went back and forth and finally wound up just using the name PC Forum 2000. Then, when I showed the slides for the talk earlier to a couple friends here in the audience, the last slide, entitled,
“Will Microsoft Matter?”
, struck me as something that might work. Its a question of deep interest to me, and one that gets discussed quite a bit among many people in the industry. In some senses, Ill be talking today about what the future looks like from our perspective, and how we see ourselves staying a very relevant player. I want to start with a set of, what we like to call, dreams — things that we all have yet to achieve. Not just Microsoft, not the Internet, but literally all of the companies that come together to make up the information industry. How do you realize those dreams? How do you show vision to, for instance, the people who work for you? As a company that employs over 35,000 people, we need to have a way of expressing that excitement. What is it were all striving for? Its difficult to say when you always have to break it down into the technology, the standards, the opportunities, and this startup and that product. Looking at the bigger picture, what are the key things were really trying to do for customers?

I Have a Dream

We see the answer to this question in a few different areas. For instance, the digital lifestyle. In the future, entertainment and the way people socialize will change. This topic gets a lot of discussion. Take, for example, memories. How many of us really think we have what we need to capture our personal and family memories in a rich and interesting way? Theres a great start with some software and services that the Internet provides today, but were certainly not there. Or, entertainment. How will we be entertained in the future? We certainly have started out in some great directions but, as you could see from our enthusiasm last week when we introduced our next generation video game console, we think theres a lot more opportunity to push forward and change experiences. Or, the home. One of our key guys has two homes — one in Prague and one in Seattle. He and his wife are trying to remodel both of them in the home-of-the-future style. Hes spending all kinds of time trying to get all the devices to talk and share their information. This is one of our A, No. 1, first-class, top-shelf guys, and he finds it technically infeasible. [Laughter]

It tells you a lot about the state of the situation and a lot about the investment that needs to be made. Then theres the digital office. I think were still far away from that ideal business environment that people want. Do the tools available today really help people save meeting time? Do they really help people collaborate in groups? Do we really have paperless offices? These are unrealized dreams. Everybody is talking about business-to-business e-commerce, yet I dont think were even 5 percent of the way toward capturing that potential, because most of the hard problems have yet to be attacked. Its great that people are putting together marketplaces, but the kinds of software tools and standards based around XML needed to really let these things flourish are in their infancy.

We certainly think about something we call the “dream PC.” Our passion for this is probably something that separates us a little bit. The PC has continued to be at the center of most innovations. Yes, the PC could evolve into just a dumb terminal attached to the Internet, but when people are trying out new things, the PC offers tremendous flexibility, power and control. Its also part of our dream to continue evolving this amazing device to keep it very relevant in the Internet world. Last, but certainly not least, there is the dream of customer control. The Internet today, I would argue, is 100 percent backwards from what it will be 10 years from now. Today, the Internet is largely in the control of Web site producers, not the users. There is some level of personalization, blah, blah, blah …. [Laughter]

In my world, I dont want this bank, or some insurance company, telling me how theyre going to control everything. I want my finances, my information, my preferences assembled the way I want them, and I dont want this information on every Web site I want my privacy profile put together and controlled by me. Over the next five, 10 years, the world will change in more dramatic ways than most people anticipate. There will be a tremendous amount of energy plunging in to take advantage of the potential of the Internet, wireless devices, TVs and PCs. People shouldnt lose sight of the fact that there are also unanticipated changes yet to come. Im an old style, 21-year veteran of this event. Knowing the history, I liken this period to the early days of the PC with DOS. We still have simple tools that solve simple problems. Theres a lot of hard work that everyone in the industry still needs to do — not just business model work, not just content accumulation work, but real research and product development work so that all of us can have an opportunity to take advantage of improving the overall Internet experience.

Realizing the Dream

So, were thinking about things like the user interface. An example of this is the deal we announced with RealNames, which brings Internet keywords fully into the browsing experience. But this is only the beginning. If you think about what the user interface to the Internet will look like several years from now, about the kinds of efforts going on at ICANN, or the things that will happen to allow the browser to display richer information, such as natural language, real-time and off-line storage, you realize that things are going to change dramatically.

Just think about one issue every system has to deal with:How do you integrate information from different applications or Web sites? There will be a new paradigm for Web site integration. I talked a little bit about our dream of user control and user centricity. This is going to blow the socks off the advertising models all of us are building up. When the user is at the center, when the user controls his or her experience, from a business model perspective, we have to think about the Internet in quite a different way. Then theres rapid application development and scaling. Everyone in this room knows that the number one obstacle today is the absence of trained people who can very quickly implement a Web site or an application that will continue to grow with an organization. There are also a lot of privacy policy issues. Im not going to wade into those today, but Ill just say that I believe technology can go a long, long way to help with privacy issues. Content protection or digital rights management issues, these sort of fundamental social rights are those in which technology plays a key role.

As we look at the things we dream about, we also know that Microsoft needs to evolve as a company. We wont abandon our past — there is at least $25 billion of revenue reasons as well as good technological reasons why we shouldnt do that. As I have said, we believe that the PC will be a very important device in the new world, but so will wireless devices. Wireless devices, even I will admit, could well outnumber PCs in the future, but the number of PCs will also be unbelievable. This year alone, 130 million PCs will be sold. The TV is an intelligent device, too. We have a huge investment in that, and have for a number of years. Our efforts with video game consoles is an example of the commitment weve made to investing in the TV as a platform. We see it as a place where you are entertained and communicate, with, for instance, voice-activated instant messaging.

From the time I started at Microsoft back in 1980, our bet was that software would empower PCs. I think the bet we all now need to make is that software and Web services, as we know them today will integrate; they will become one notion. Some people want to call them Web applications, but I see the underlying operating systems evolving to be Web services. This evolution of the software business or, if you come from another perspective, the Web site business, will result in a software-cum-services business or vice versa. Were a company that grew up mostly focused on the dream of the digital office and increased office productivity, but if you look at where we — and all of you — have real potential today, its the consumer market. There is still a big question about how anybody makes significant amounts of money there. Part of the answer to that question will come out of e-commerce applications. The huge investment we made in Windows 2000 should help the PC as a device in this, but a lot of that is just providing the plumbing for a next-generation programming and user experience for e-commerce applications.

Into the Future

So will Microsoft matter? Its my job to say the answer is yes. If the PC hardware architecture matters, which I think it does for servers, for PC clients — heck, weve even bastardized it into a video game console, for Gods sake — then I think we have a chance to matter. If software research and development (R & D) matters, and I think were still pretty good at that, then I think well matter. Were learning very rapidly how to deliver services instead of just applications. Well spend about $4 billion this year in R & D, on the user interface, programming models, application integration, storage, you name it — all next generation services. If integration matters, I think Microsoft has a role. Not only are we able to work on software efforts at a scale that surpasses most other companies, we have been and can continue to be a positive force behind important standards that let Web sites communicate with one another and with clients in richer, more integrated ways. If developers matter, then I think we will matter in the future. You know, it seems that many of the companies being started these days are started by business people. Its still my belief that the software developers who work in most of the dot-com startups also matter a whole heck of a lot. Were really invested in this kind of talent.

Microsoft will only matter in the future if we help create opportunity for everyone. The thing that distresses me most about the PR situation we found ourselves in over the last several years is that people didnt recognize this commitment to broad opportunity. Ours is a company born on specialization, and with that specialization came a need to partner. Back when Bill Gates and Paul Allen started Microsoft, there wasnt a notion that software and hardware could be a separate business. Today, in the new economy, its not clear where the business boundaries lie. Certainly, any major company like Microsoft has to be about opportunity for others, not about a closed world of its own in which it tries to constrain opportunity. For us, one of the key measures of success over the next four or five years will be seeing outcomes of the investments we make in next-generation services and platforms. Will those create opportunities for people? Can we as a company help create opportunity?

I get a charge out of the deal we announced today with RealNames, because I know were helping create opportunity for them, for us and for a wide variety of users. Ill see some other partners here at PC Forum over the course of the day. In some senses, I think our industry is still one in which the major players can measure their success as much by the opportunities they create for themselves as the opportunities they created for others. I believe that if the things on this list matter and we do a good job meeting those needs, our company has a good chance to continue to matter. Im not sure we ever mattered as much as some people thought we did in the old pc world; I think people often overstated that. I personally believe we have a lot to contribute to this new world, and we are certainly very, very focused on affecting that contribution across the broad set of dreams that I articulated at the beginning. With that as a little bit of a context, Id like to turn it back over to Esther for the questions and answers. Thanks. [Applause]