Ballmer says Microsoft is different

In a speech ostensibly devoted to SQL Server 2005, Visual Studio 2005 and BizTalk Server, Ballmer staked out what he saw as the key business differences separating his company from other software makers--including the growing cohort that makes up the open-source community.

Microsoft's chief executive officer later sat down with CNET News.com to explain that while Oracle and SAP might enjoy a more cordial relationship with the Fortune 500, Microsoft's ambition was to become the "grand consolidator of everything else."

The Express line of products takes you lower down the food chain to compete with open source and so on. What about the other end of the spectrum? I've heard a statistic that Microsoft accounts for less than 1.5 percent of total IT expenditures in large enterprises. Obviously, you want to grow that percentage.
Ballmer: Well, the question is, how do we get higher price points? We'll have some people in those "mission critical" applications choosing our enterprise editions. As people move into more mission-critical applications they will naturally choose some of our higher-priced items. We are the high-volume, low-priced guys in every space in which we play--with some small exceptions around open source, if you will.

Part of our pitch to enterprises is that we will help them save money. In terms of the trustworthiness of the platform, we have plenty of references and we have plenty of scale that should put to bed a lot of the legacy issues related to this stuff being enterprise-ready. We've had those issues for years. At some point, clearly those are legacy issues.

We have Express (stripped-down) versions of SQL Server and Visual Studio. Will we someday have Express versions of Windows and Office and other products?
Ballmer: We essentially have an Express version of Windows with Starter Edition. That's a product we don't have a lot of traction with in the markets in which we offer it.

But it's not offered in the U.S.?
Ballmer: It's not offered in the U.S. Windows is so low-cost, you have to ask yourself if there's really room for an Express-type version below that. And it's so fundamental to the definition of the machine and the basic experience people have, I wouldn't expect anything of that ilk.

In the case of Office, we have attacked that market with our Student and Teacher Edition. We will continue with Office 12; there will be news, over time, about where we are going with Student and Teacher Edition. But essentially, that edition targets the same market segment that we have been targeting with the Express Editions. But the people who buy most of those machines are parents, who might have more of a budget than a student does.

So on the Office side, there might be more news coming about a lower-cost edition with Office 12?
Ballmer: Yeah, I'm not trying to actually imply that there is. Today's not the day to talk about it. The Office team is always working to enhance their value proposition to all segments.

You mentioned Oracle this morning, and at least one of its co-presidents sees the company as a great industry consolidator in the coming years. Microsoft could also clearly play that role. Why haven't you? Any plans to pick up the pace of acquisitions?
Ballmer: Well, look, there are two segments here: the biggest enterprises and everything else. We are going to be the grand consolidator of everything else. That's what we're doing with Dynamics (Microsoft's business applications line), that's what we're doing with the small business accounting product that we've launched. We will be the grand consolidator of everything else.

In large enterprises, there were sort of two basic choices: partner with SAP or compete with SAP by acquiring PeopleSoft and J.D. Edwards, blah, blah, blah, blah, blah...We decided we had so much to do and so many ideas and our plate was pretty full with consolidating everything else, that it made a lot of sense to partner. SAP and Oracle will battle it out.

Last month, you said Microsoft needs, for every line of business, to have things that "pop every six to nine months, things that pop every couple of years, things that pop longer than that." What can you do with things like Windows and SQL Server, that take so long to develop, to get that six-to-nine month pop?
Ballmer: They don't. Aspects take long to develop. We made the decision that the next version of SQL would be the version to get the .Net runtime. It took a long time to pop. And because we made that decision, it also took longer for .Net 2.0 to pop, because those things had to pop together. We needed to do that work.

The thing we would do differently in that position is to say, "Look, that may take three or four years, let's not hold the next release for that innovation." There are plenty of innovations that could have been put into the market earlier that would have been interesting and exciting. That's why I talk about the three cycle times. We're going to have things that take longer; we'll have regular releases; and we'll have service packs or service oriented value-adds that people will see every nine months or so.

Back with Windows 95's launch, the stars sort of aligned so that Win 95's debut more or less coincided with the Internet boom. Today, Web-based computing--blogs, IM, Web e-mail, search--that's the new phenomenon. Windows Live and MSN get you in the game. But how do those services pull through sales of Vista? What's the connection between Vista and Windows Live? Is there more that we haven't yet seen?
Ballmer: Windows Live is designed to work on all Windows systems. It may or may not pull through Vista. We will certainly do things in Windows Live that take advantage of Vista. But it's like the next version of Office--it will run on versions of Windows other than Vista, too.

We had an original design point that there would be a new version of Office and a new version of Windows--Vista--that would be co-dependent. We chose to change that decision at the time we did the Vista reset and decided to separate WinFS and a few other things. So although Windows Live will have some things that light up on Vista and may help pull it through, Vista is going to pull itself through.

Is there more that we haven't heard about yet that ties Vista to Windows Live?
Ballmer: Because Live is a service, there will be things that you will hear about all the time. That's sort of the nature of a service-based offering. So there will be things we do in Live that take advantage of Avalon, for instance.

So the Live concept will also apply to Windows Server?
Ballmer: You mean a Live service for Windows Server? Yeah, I think you could imagine that such a thing might exist. It's reasonable to say, look, we have a Windows Live and an Office Live and an Xbox live, what else gets Live and what does it look like? There's a lot of work to be done there.

Clearly, if you just look at what we have done already with identity and Active Directory federation with Passport, you start to get a Live element, if you will, of Windows Server. Perhaps the most important thing we do is to allow developers to federate their own applications running on their own servers with the rest of our cloud-based (on the network) services.

Client and Information Worker segments still deliver more than half of Microsoft's revenue and an enormous chunk of overall profit. Which of your other segments--Microsoft Business Solutions? MSN?--do you see being the fastest to help balance that picture?
Ballmer: It's not the way I think about it. I think about investing in things that will grow. From a percent basis, what's our fastest-growing business? The answer: Mobile and embedded. On a percent basis. It's a small absolute number, but it's growing fast.

We have two things we get paid to do: We get paid to make sure we are investing in the right areas and that we execute well on those investments. If you look today, we are investing broadly. With Xbox 360, we have a very big segment and a business model that will allow us, over the life cycle, to really make some interesting profit. The TV stuff is a rapidly growing business. The sheer scale of Windows and Information Worker insure that they will be our biggest businesses for a number of years to come.

If you ask what will be the next very big business, I'd say probably tapped in there are the Live services and MSN, and then the Xbox and TV businesses. I mean, to be big numbers.

Thinking about the Windows Live announcement, there were some pretty harsh comments from analysts and from other sources around the Web. By contrast, Apple Computer usually gets this overwhelmingly positive response to almost anything it does--ditto for Google. Does that make you angry at times? How can you fix that?
Ballmer: There's sort of the good news and the bad news. The good news is, the expectations are higher for us--frankly, I think--than for anyone else. These people think a lot of us, and it's hard to always meet those demands. And we're the big guy. We were the little guy for a while, we had a 10-year run where we were the darling.

Apple, because they kind of went though the valley of the shadow of death and have emerged, they are the darling again, even though they have been around for a while. And Google is still in that early phase. I know we're doing good work. As long as we are doing good work and innovative work and exciting work, the customers are going to look at that, and they are not going to start and end with the analyst reports. They'll start and end with the actual products we deliver.

A year or so back, you said it's important for the industry to produce a $100 computer, a low-cost computer. We've heard a lot about this recently from Nick Negroponte at MIT and from companies like Advanced Micro Devices. What's Microsoft doing to make a cheap PC a reality?
Ballmer: The first thing you have to say is, what is it that we care about making cheap? Is it the PC or the PC experience? That's important. You can get a PC today for $300. What's broadband connectivity cost you per year? $400. So the broadband connectivity is actually the bigger expense. Even if you go to emerging markets, broadband connectivity is going to cost you $150 to $200 a year.

You have to think through the value proposition of hardware, software and service. There's a need to work on the hardware, there's a need to work on the software, there's a need to work on the connectivity, and there's a need to work on the business model. All of those need work and we are actively involved. You see us doing things like Starter Edition and some other tests. But the challenge for all of us--and we all want computing to spread more broadly--I think you have to think through the combined proposition. If a family in an emerging country gets a cheap PC, they may not be able to afford to connect to the Internet.

You said this morning that you really want to go after the low end of the hosting market. We haven't heard much about that in the past. What's the appeal, and who are the competitors?
Ballmer: It's a lot of servers. There are a lot of servers in the low-end hosting market. If you look at two big chunks of all of the Linux servers that go in, it's low-end hosting, and it's scientific and technical computing.

In both of those areas, we have a set of technologies and initiatives. We're going after a couple of competitive strongholds with innovation and good thinking. A big market and a big opportunity for us.