Remarks by Steve Ballmer
CEO, Microsoft Corporation
American Enterprise Institute/Brookings Institution Joint Center for Regulatory Studies
November 12, 2002
BOB HAHN: Good morning, ladies and gentlemen, and thank you for coming today. My name is Bob Hahn. I direct the AEI/Brookings Joint Center, and on behalf of Strobe Talbot, Chris Demuth, Bob Litan, who you’ll hear from shortly, my co-conspirator, I’d like to welcome you here for this special event. I promised that I would keep my remarks short, in part because our speaker is known for his energized remarks, and I wanted to give him ample time to speak today. Also, we wanted to allow ample time for you to ask questions.
Before I turn things over to Bob Litan to introduce our speaker, I wanted to thank Aaron Layburn, Ron Nessen, and Audrey Anapita, for putting in an extra effort today to make this event a success. I also wanted to leave you with two words, in the spirit of The Graduate: blue card. If you open up the packets that you collected on your way in, you’ll see a blue card, and if you fill out that card, you can be added to our e-mail service, and if you don’t, well, I won’t go there. But for those of you who do, you can get the inside scoop on a number of important regulatory issues and antitrust issues that the Joint Center addresses, including our events, as well as some of our books.
For example, we have an upcoming event to deconstruct U.S. v. Microsoft, that will occur in early December. Next week, we’ll be hearing from one of the brightest individuals in the world, who will deliver the Joint Center distinguished lecture. That’s Judge Posner. In addition, we have several books in press, one on antitrust over the last decade, in which Microsoft will play a small role; a second on government policy toward open source software.
Of course, if you don’t suffer from problems with insomnia, but rather have trouble staying awake, Joint Center books can still help, and we have a barn burner coming out by none other than Bob Litan and three of his close friends, entitled Follow the Money: Corporate Disclosure after Enron. Bob tells me that he’s expecting to retire based on the royalties that he’s going to get from the free downloads of the book. So all you need to do is fill out the card and the good life is yours.
So without any further ado, I’d like to ask Bob to introduce our featured speaker. Thank you.
BOB LITAN: Thank you very much, Bob.
On his behalf and on my behalf as well, the Joint Center is pleased to be able to bring to you this historic event today. It’s historic because, as Bob has indicated, we’ve put out a lot of material about the Microsoft case on our web site over the last several years, but we have not had the good fortune to have a spokesman from a senior position at Microsoft to come and speak to us, and today we hit a home run in Steve Ballmer, the CEO of the company.
Now, some of you, before I well, actually, before I give the introduction, some of you who know me may feel that it’s somewhat odd that I’m doing the introduction. In an earlier life, I helped prosecute Microsoft. I also helped settle the first consent decree with the company, and then I left the government and participated in the case as a private citizen during the remedy phase, urging at various points that the company be broken up, a position I am sure that Steve Ballmer vigorously disagrees with, and as it turns out, he doesn’t have to worry about, because the settlement is done and the court has since approved the settlement.
But I want to just say personally that, throughout this experience, I’ve had cordial relations with all the people at Microsoft, and in particular Jack Krumholz in the office; I had cordial relations with Bill Newcombe, the former general counsel. All of our dealings were professional, they were all on an intellectual plane, they were never personal, and I’ve always felt a personal sense of gratitude for that. As a result, I think we’re appreciative that Microsoft has chosen to come here today, here at Brookings, together with AEI, and present its views about the future of its company.
Steve Ballmer joined Microsoft in 1980, and was the first business manager hired by Bill Gates. Since then, his passion and his leadership have become hallmarks of his tenure at the company. During 20 years, Ballmer has headed several Microsoft divisions, including operations, operating systems development, and sales and support. In July 1998, he was promoted to president, a role that gave him day-to-day responsibility for running the company. He was named CEO in January 2000, assuming full management responsibility for the company, and he is in the process of leading the most comprehensive reinvention of Microsoft in the past 25 years.
Now, the Microsoft materials that they gave me describe Steve, and I think accurately so, because just a few minutes ago we had the occasion of meeting each other for the first time, and I joked to him, it was in a non-deposition setting. But the materials described Steve variously as ebullient, focused, funny, passionate, sincere, hard-charging and I’ve certainly read that in many articles — and dynamic and I’ve read that, as well; and I think we’ll probably see all of those qualities on display in a moment. So today, Steve is here to describe his vision of Microsoft going forward after the settlement, and Steve, we are pleased that you have chosen AEI/Brookings to be the forum for this event.
Ladies and gentlemen, I give you Steve Ballmer.
STEVE BALLMER: Well, good morning, everybody.
I want to start by thanking the American Enterprise Institute and the Brookings Institution for hosting me here today, to Bob Litan for that nice introduction, and to Bob Hahn for all his support and analysis over the years. If I sound a little groggy today, I apologize in advance. I had a very, very important dinner last night in Washington State, and had to red-eye in. My middle son turned eight yesterday, and that was a high-priority event, as was being here, and so grogginess may be one part of the outcome.
Today, what I really want to talk about is the future. I want to talk about the excitement and changes in the technology industry, and how Microsoft is moving to embrace those changes; how, as a company, we’re trying to forge a new kind of relationship with customers, with our partners, with our industry, and with government. The thing I’d like to ask you to think about before I really get started today is what the world will be like, from a technology perspective, 10 years from now. What role will information technology industry play? If you had asked even me that question 10 years ago, I don’t think I would have predicted the progress. I really don’t. Think about it.
There’s over half a billion personal computers in use around the world today, all connected, and all able to share information in amazing ways. There’s over a billion wireless devices, where you can walk anywhere in the world, except my driveway maybe, and share a phone conversation with anybody. Telecommunications is really becoming fully integrated with the Web, and data services and PCs and phones are really coming together. Entertainment is going digital at an incredibly fast page. And the Internet is really becoming ubiquitous. Ten years ago, I’m not sure we would have predicted all that; and yet, I sit here today, and I’m as optimistic for the next 10 years as the last 10. In fact, I think we’ll do even more in our industry in the next 10 years than we did in the last.
A new technology industry is really emerging to rise to those opportunities, and just as the industrial age has had its false starts, the technology industry, in some sense, is recovering from the excesses of the past few years, and is taking its place as one of the most important industries in the world economy, I don’t know, perhaps second only, really, to agriculture in terms of importance in job creation and economic development.
I think we’re going to see more and more, not less innovation. I think we’ll see long-term growth in the technology industry, built on the kind of perpetual acceleration of technological advance. Our industry will only move forward. There’s no going backward. On the one hand, larger companies like Microsoft and others have a key role to play, making the large investments that are needed for important, large-scale innovations.
At the same time, we will continue to see new companies start up and emerge as greenhouses for smaller-scale innovations. Those companies may be here in America, but they may also be in Israel, in India, in China, as a good idea in this technology industry really knows no borders. We’ll help build the infrastructure that enables software developers to create amazing technologies that will continue to change the way we live, the way we work, and perhaps even most importantly, the way we learn.
As a company looking forward, we see enormous potential, both in the next generation of products and in the spread of these digital technologies around the globe. In many developed countries, there are actually now more PCs per household than there are automobiles, and it continues to be a rapidly growing number. Also in developed nations, the multitude of connected devices will really help us achieve this promise of truly personal computing.
Today’s trends will bring forward tomorrow’s innovations. PC technology is moving from the desktop to the living room, to the hand, to the car. Bill Gates even tells me we’ll all have computer technologies in our refrigerators by the end of the decade. I remain a little skeptical on that one.
Businesses are demanding new levels of coordinated data and information.
Moore’s Law continues to operate, giving us more and more hardware power that will enable new scenarios speech recognition, voice recognition.
Technologies will get faster. With that speed will come more flexibility, more integration, and simpler operation, better user interface, new form factors, XML, data standards, processor and bandwidth advances. They’re all coming together.
At Microsoft, we will spend $5 billion this year on R & D, and that’s an increase of about 15 percent, even in this climate. That budget is one of the largest innovation budgets of any company in the world. And our R & D budget is that high for really one simple reason. Despite the fact there’s been two decades of unbelievable growth in this business, we continue to believe that we’re still really just at the start, or barely in the middle of what’s possible with technology, and we think we’re on the verge of the next quantum step forward.
While innovation and excellence remain at our core, though, our company is also working to grow in other ways, working to become a more responsible leader for our industry, and a company better able to manage in the future.
I joined Microsoft, what feels now way back, in 1980. I called my parents, I’ll never forget it, to tell them I was dropping out of the Stanford Business School to go join my friend bill Gates in this little company he had started that did software for personal computers. My father, who had never gone to college and didn’t think it was a very good idea that I was dropping out, said to me, “What’s software?” My mother actually asked the more interesting question. She said, “Why would a person ever need a computer?” Today, those questions seem unfathomable, but my parents were bright folk. Those were sensible questions at the time.
When I joined Microsoft, we had 30 employees. Bill Gates and I never in our wildest imagination would have ever believed we would grow to over 50,000 people, operating in over 70 countries. And I certainly never dreamed that I would be CEO of a company as large and complex as this enterprise; but as many of you know, I assumed the role of CEO at Microsoft two-and-a-half years ago.
The goal then was clear. I needed to assume responsibility for our overall management and business strategy so that we could let Bill Gates really focus his time on working with our product development and research teams, creating the long-term technical vision for the future not only of our company, but in part our industry.
I spend a lot of my time thinking about what it means to be a great company versus just a good company. I definitely think that Microsoft is a very good company, but I want to make Microsoft a great company that is successful and respected not just today, but really over the next 50 years. That’s why I spend much, maybe even most of my time and energy working on the foundation of the company our people, our values, how we work across different groups not only inside the company, but how we work with the industry and with government. If you get those basic things right people, values, working relationships then I think you’ve really built the foundation for a truly great company.
When we started out, our goal was to put a personal computer on every desk and in every home. Today, we have a new mission — to make great software that really helps people and businesses realize their full potential. In many ways, this new mission is just an extension of the original vision that drove us from the beginning of the company. We see the opportunity for our technology to go from running PCs to connecting people to information they need everywhere in the world, giving people new communications tools, helping people work smarter on the job and learn better not only inside the classroom, but out.
The broader mission is reflected in the way we work internally. Bill and I run a very different organization today than we did five, 10 years ago. We’ve built leadership teams for our business, and we’re constantly investing in our next generation of leaders.
We remain a company unified around a shared technology platform and a shared vision of improving people’s lives, but we also have a great deal of accountability to our customers in each of these leadership teams, and independence to strive to be the best in these new, emerging areas of technology.
Along with the new management structure, we have affirmed a set of basic values that are now part of every one of our employees’ personnel review. It’s a funny thing sometimes for managers. We’ve learned to sit down and have a discussion with an employee about values, but we’ve found it’s incredibly important, not just “What did you accomplish,” “How did you accomplish it, and how will you accomplish it in the future?”
It starts with integrity and honesty. We’re committed to being upfront about what we are doing, who it affects, being open in communicating about every aspect of our business, and certainly sensitive to the new issues of corporate governance, or to the issues of corporate governance that have become increasing important to market confidence.
One of the hallmarks of Microsoft is that we dream big. We think about big advances, big changes. We’re passionate in our belief that technology can positively change the world and improve people’s lives. We don’t always succeed, but if one of our products or one of our attempts falls short, we don’t sugar-coat the problems. We try to take accountability for our actions. We dig in, we make things better and better and better. That continuous improvement is key to the way we work.
We’ve made a commitment to bring the benefits of the digital economy to every community in the world, and to hiring more minorities, more women, and people from around the world into our workforce. We can’t sell to the broad group of people in the world, and serve the broad group of people in the world, if we don’t represent the broadest group of people in the world. And we are renewing our commitment to improve our communications with our partners and with our customers. We’re dedicated to being a responsible leader in our industry.
The settlement with the Department of Justice and the states upheld two weeks ago is a fundamental part of what’s different and new at Microsoft. This is a fair settlement, achieved through professional mediation with the Department of Justice and the state attorneys general. It was given the full scrutiny of a fair and impartial trial, based on a trial on remedies as well.
The settlement contains new obligations, responsibilities, and regulations on our company. We fully accept them and we’re fully committed to complying with them. We’ve already made many of the necessary changes, and we are dedicated, from the top down, to really living those obligations. We’ve taken a number of steps to disclose additional technical details about Windows, and to make the design and contractual changes required by the decree.
Just last week, the company’s board of directors moved to create the required antitrust compliance committee, which will be chaired by Dr. James Cash of the Harvard Business School. The Committee also has two others members Ann Korologos, a former Secretary of Labor who lives here in Washington, and is seated up here in the front, and Ray Gilmartin, the CEO of Merck Company.
As CEO of Microsoft, I can personally assure you that we will commit all the time, all the energy, and all the resources to follow through on our responsibilities under the decree. We believed that settlement was the fairest and best way to resolve the case, and even as we worked to resolve the case, we tried to keep on, and I think we’ve been successful in keeping on the innovation path.
Despite all this, people oftentimes still ask me, “But what did you learn from all of this?” learned from all this?” It’s a very, very good question. And I think we’ve learned a great deal from our experience in the last few years about our own responsibility in this context, as an industry leader.
There’s no question that when the lawsuit started, most of our industry did not race to support us. We went out and tried to listen, both to our supports and to our critics. We learned that we needed to take a different perspective on being a good industry leader.
Even five years ago, I think we still tended to think of ourselves as kind of a small company that was just getting started. If you think about where we came from, that makes some sense. Today, though, we clearly recognize we are an important industry leader, whose decisions have an impact on other companies, large and small. We have an important leadership role to play, and there are new rules that apply, both legally and in terms of the needs and dictates that come from our industry.
We’re not stopping there, though. We recognize that we need to support industry cooperation in new and creative ways. This is nowhere more evident than the advances resulting from a new technology called XML, or eXtensible Markup Language. Our entire industry has embraced XML as a sort of standard lingua franca standard for how computers talk to one another.
The new rules of the game have companies even like Microsoft and IBM collaborating on enhancing these standards, while at the same time really competing to make innovative, easy-to-use software that implements and helps customers take advantage of these new XML standards.
We’re trying to do a better job of industry outreach and partnership. Our recent work with IBM, Verisign, and Novell, and others, in building and developing an XML standards-based security approach is a model of how I think partnering can work for the benefit of our entire industry.
Last week’s Tablet PC launch was the result of years of partnership with companies like Acer and Toshiba and Hewlett-Packard; and with MSN, we’re partnering with companies like Disney and Verizon, GE and Dell, and many other great companies, to offer a broader set of consumer choices.
Working better with our industry is one change. Working more closely with governments is yet another. We’re working hard to reach out to cooperate with local, national, and global governments. In fact, I think we’re really on the verge of a new era of partnership for our industry with government.
We realize there are issues that need more public/private cooperation. Government realizes that an innovative technology industry is actually the key, or at least one of the keys, to economic growth, and that forms the basis for this new partnership.
For example, last August, we reached an agreement with the FTC on security and privacy issues an agreement under which the federal government sets certain standards but permits us to continue to develop new and better technologies and operating approaches to meet these obligations. What could have been years of wrangling, frankly, became an agreement that I think will help create a more secure computing environment.
Technology brings a host of wonders and conveniences, but it also brings with it new problems and challenges. With PCs now in over 60 percent of households in this country, the challenges have really assumed an important social dimension that is very different from the kinds of issues that our industry confronted when we were younger, when we were still in our infancy.
Our industry can’t solve all these problems alone, and we don’t think governments often cannot solve them alone, either. We need to work together, on a global basis. Let me give some examples, maybe starting with security.
Security is fundamentally an issue about a community of criminals looking to steal people’s identities, break into banks, even terrorize the Internet. Last month we saw a concerted attack on the DNS servers designed to bring down the entire Internet. It failed, thank goodness, but people will try again and again.
Identity theft alone last year cost consumers over $1 billion, and it’s one of the fastest-growing crimes in the world. Too often when we all hear the word “hackers” we think of teenagers trying to do something cute. In fact, with more and more critical business transactions done on the Internet, hacking is a big-time crime. And so we are stepping up our cooperation with law enforcement at all levels, helping to track down and identify thieves, and working with the Office of Cyber Terrorism.
Internally, we’ve adopted trustworthy computing standards that put security, privacy, and reliability really in at the ground floor, at the forefront of everything that we build. We’re sending out security updates to make our products safer from those criminals. But no matter how high we all in our industry build the walls, we also have to work with government on an effective program to deter cyber-crime at its source and make sure that those who commit it are caught and convicted. Working together, industry and government can and will build a secure digital future.
Spam is another emerging issue. To some, it’s just an annoyance, but two out of three e-mail delivered today are spam, and many of spams are scams or worse. So we are now focused on working with local officials at curbing illegal spam to prevent the situation from getting further out of control. Technology will take us just so far, but what’s going on today is really out of control. Working in partnership, we can restore, we think, the integrity of the Internet.
We’re making a lot of progress on helping parents help manage the way their children use the Internet. Our new release of MSN, MSN 8, contains state- of-the-art parental controls that really let parents fine-tune how their children can use the Internet. My son was reminding me last night how well-tuned it was for some things he wanted to do, and that was just play chess with some folks on line. But again, we in the technology industry can’t do it alone. The best parental controls don’t work if parents don’t use them, and we need to work all together on these issues.
We’re working to close the digital divide, giving more than $1 billion dollars in cash and software over the next five years, working with groups like the Boys & Girls Clubs, the United Negro College Fund, and libraries from literally all across the country. In all of those areas, we will need a more coordinated approach between public and private sector. Technology companies can do a great deal, both to create tools that address social issues like privacy and security, and to work together proactively through responsible industry self-regulation, and we need to do that.
But government needs to assess these situations and carefully fill in the gaps, doing what companies cannot do by themselves, while being careful not to discourage innovation in the process; and more than ever, the global character of the Internet requires that governments really work together on an international basis. You can tell I’m pretty excited. I can talk for a long time about challenges and opportunities our industry faces, but I want to leave some time for questions, so let me leave you with a couple summary thoughts.
First, at Microsoft we’re excited about the future of technology. Even in this climate we are excited, and we think you should be, too. We’re investing record sums in the future, because we believe that technology remains the key driver to our future and the future of our economy.
Everything we do supports our new mission of becoming a global technology provider that helps people realize their full potential. We’re focused on what it takes to be a successful and respected company, not just now, but well, well, well into the future. We’ve fully accepted our responsibilities under the settlement, and we’re committed to full compliance. And we’re forging new partnerships with government to deal with the common problems we face.
As a company, as people, I think we’ve changed and grown over the past few years. We really are committed to being a great industry partner, a responsible industry leader, and above all, unceasingly optimistic about the future of technology and the positive things that it can do for the world.