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Ballmer discusses life after Vista

There's still a lot Microsoft wants to do with Windows, and it has its work cut out with Zune, CEO says.

NEW YORK--The holiday season hasn't gone exactly as Microsoft had hoped.

The much-anticipated Zune, Microsoft's portable music player entry, has received mixed reviews, and demand has been tepid. Sure, Vista made its debut, finally, last week--but only for business customers. The Windows XP successor, more than five years in the making, didn't make it into consumers' hands for the all-important holiday sales season. Ditto for Office 2007, the flagship of the company's second most-profitable product line.

CEO Steve Ballmer says he isn't worried. Like Chairman Bill Gates, he says Zune will, over time, gain ground on Apple Computer's iPod. On Thursday, Microsoft rolled out Vista and Office 2007 to business customers, signaling the start of serious testing within big companies. Consumers will be able to get their hands on Vista and Office 2007 on January 30, the company said.

Less heralded, but almost as important to Microsoft's bottom line, are the more than 30 other new enterprise software products that debuted on Thursday--everything from a new version of Exchange Server to security software and data-mining tools. These and other products will boost Windows ability to work with technologies like voice over IP, business instant messaging and video.

Ballmer sat down with CNET here to discuss life after Vista, battling the iPod, and the rising importance of mobile devices.

Q: Are you relieved that Vista has shipped?
Ballmer: Excited!

Now that Vista work is more or less wrapped up--or will be soon--have resources been freed up within Microsoft (to work on things like Longhorn Server)?
Ballmer: Well, we're going to do a next version of Windows, and so one of the questions is whether we're going to have the same number of people, fewer people, (or) whether we need more people. We're going to have a very large team continuing to work on Windows innovation. Some people will undoubtedly do new things. Some senior people, some head count, will flow to some other areas.

There's a lot of things we want to do, need to do, can do in Windows. The prevailing kind of press point of view is, "Is there more?" I can just start with what we need to do for hardware enablement, and I think it's not hard to agree that there's plenty of additional important innovation to do.

We do tend to focus on the big features, like WinFS (file system) and other things that were talked about in 2004. Are those still in development?
Ballmer: Sure. We talked about things like the (Windows) Presentation Foundation shift, as an example. I think at our financial analyst meeting I talked about four big pillars: (There's) one that's about desktop and personal productivity, one is about the enterprise, one that's about entertainment devices, and one that's about online.

It's not hard to agree that there's plenty of additional important innovation to do.

If you look over the last three years and see what's going on, the personal productivity one has been approximately flat in size, in terms of engineers. If you look at the number of people we have working on enterprise stuff, it's gone up. If you look at the number of people we've had involved in online, it's gone up. And if you look at the number of people we've had in entertainment devices, it's gone up some--probably less than most people would guess, because when Xbox was done it freed up resources that went to work on Zune, for example. So, this one has been more flattish in size, and the others have been increasing more.

Looking at the business market, one thing that seems very different today is that consumers shape a lot of the technology we use at work--consumers use a technology at home, and then they want it at work. To me, that seems to be truer now than it was when Windows XP was launched five years ago.
Ballmer: When Windows and the PC and office productivity software got established, it was end user-in, not IT-out. There's no doubt about that. And so our basic mind frame--my basic mind frame--is that most adoption happens first with the end user.

I mean end user-facing innovation. Virtualization is not going to be adopted first in the end-user market. New firewall technologies might be first in the enterprise. But things that are really about the user, happen first with the user.

Because of Y2K, because people were moving to try to do more centralized management, a little bit of that has ebbed slightly. But in general, if we want somebody to use our technology, the best thing to do is to get the CEO and the business leaders themselves personally excited about it. That's a very powerful phenomenon.

There are some things where, frankly, if IT doesn't get in the middle, things are better on the Internet than they are inside. We've got great enterprise search, but IT has got to want to do it. If IT doesn't want to do it, you have a bit of a problem, because you really don't want to put your company's information out in the open Internet. So enabling those technologies and having them be popular in the rest of the world does help corporate adoption.

With that in mind, do you feel that marketing products to consumers is more important now that it might have been in the past?
Ballmer: No, not more important. We grew up with end users: the end user is very important, the end user stays very important. (Microsoft's) history is that we're all about end users and, people say, we don't get IT. That's our history through about 1995, 1996, 1997. It's only the last five or six years that people actually say we get the enterprise, that we get IT. We have to have good muscle with the developer, with IT, with the business and with the end user. If any of those muscles gets weak, we've got problems.

Our flagship consumer products are the ones that have had the gaps in releases. Windows, IE?I mean, those are all our top consumer products. Office didn't have quite as big a gap.

You talked a little bit about a consumer launch of Vista on January 30. I know you're not going to tell me where it's going to launch. But can you give us an idea of the scope, compared with the business launch?
Ballmer: They are two separate activities. I think it's 200 to 350, 400 seminars we're doing right now, for business people and IT people, and traveling road shows all around the globe. Seminars are a fairly effective way to market to business customers. We're doing those now.

Windows, some of the user interface, we could be more dynamic with.

But then we will hit with a set of new technologies in Office that people can try on the Internet--try and buy. We have advertising campaigns?both for Vista and Office. So a lot of things coming will happen in that time frame, when somebody can actually go get and work with the product.

Will there be any connection between Windows Live and Vista highlighted in the consumer launch?
Ballmer: It's possible. Will we tell some of that story at the consumer launch? Maybe.

There are many Web services, such as word processing, available today from Google and many others. So, looking down the road at the next version of client Windows: How do you reconcile that monolithic way that Windows has been developed--with one big release every so many years---with the pace of some of these services that are coming out from competitors?
Ballmer: It's Windows and Windows Live. The brand, I mean--they're not tied in a commercial sense, but the brand and the experience should tie together. You should expect to see the kind of (development and release) cycles that we have on Windows Live be appropriate for that, and the kind of (development and release) cycles that we have for the thing that basically runs the core hardware--Windows--be appropriate for that.

Windows, some of the user interface, we could be more dynamic with. But when it comes down to the rock-solid stuff that runs the hardware, manages the memory, runs the programs, it's not clear to me that people want that dribbled out...and have new releases all the time.

In some senses, we get pushed to do not-too-frequent releases on that front. In terms of the end-user functionality and some of the developer choices, we could push to do things more often. You'll see us do more frequent releases in terms of runtimes in Visual Studio. You'll see us do more frequent releases in terms of what we've got in Windows Live.

But at the same time, I don't want anybody to be confused: big innovation on the Internet doesn't happen in six months either. Until recently, Google hadn't changed their search engine, nor would they change the number of documents that they indexed, for years. There's a reason why they do that: that's the core thing that they can't afford to screw with. Because (if) you make a small change, you could actually hurt relevancy in ways that you don't intend, not just help relevancy.

So when people get dependent on something, it's likely to change just a little less frequently.

So, let me ask this question a different way then: Does Windows Live give more flexibility in how you roll out functionality, wherever it may be?
Ballmer: Brand Windows Live has a broader footprint of capability and options. Now we have Windows, we've got Windows Update, we've got Windows Live that can all deliver the fundamental experience that people will want on a PC.

Let's talk about Windows Mobile. You have said that you could foresee mobile licenses, or shipments, outpacing desktop licenses at some point. Could you talk a little bit more about that?
Ballmer: Let's say the PC market is roughly 200 million units these days, and let's say the PC market goes great guns over the next several years and grows 14 percent or 15 percent a year. Those are big numbers. You go great guns, China booms. You get maybe over 400 million in a few years. The cell phone market is already a billion units a year, and the truth of the matter is that what I'll call "smart devices," as a percentage, the total is rising dramatically.

When it comes to smart devices, there really aren't that many players. Basically, you have Nokia/Symbian, you've got us. Actually, I'll be so bold as to say that the two of us stand out in that area. Then you have some guys who are more niche players--Palm is more of a niche player, (Research In Motion's) BlackBerry is more of a niche player, those Linux devices from Motorola, particularly in China, (mean it) is more of a niche player.

You have some things intermediate between dumb and smart devices--kind of the J2ME-type phones--but when you talk about real smart devices, there's really two guys who I think are broad frontline players and have most of the share. It often surprises people when we tell them how much we outsell BlackBerry. BlackBerry, because they are more popular in the United States, people assume that they're quite popular. The truth of the matter is we actually outsell BlackBerry many factors to one, that's worldwide, yeah, absolutely.

What happens when Apple produces a smart phone, which they probably will at some point? How does that change the equation?
Ballmer: Well, their business model will look a lot more like the business model of the Trio and BlackBerry, than it does (that of) us and Nokia. Nokia is sort of having their cake and eating it, too, a little bit, with Symbian. Hey, in no business that we're in, can we expect that other people aren't going to enter and bring some creative ideas. We will see what Apple does.

The thing that is going to drive Apple, you know, people talk about the iPod halo. At some point, do you hope for a Zune halo effect that would help with Vista?
Ballmer: Well, sure. I can't say there is, yet. Eventually, there needs to be, will be. But we've got to get out and establish Zune. We think we have a great initial proposition, and we're happy with the initial response. But we don't fool ourselves. There's a guy who's got a lot of share, and we're coming later in the day. Things boomed on the back of the iPod, so we have our work cut out.

Are you happy with the response to Zune so far?
Ballmer: So far, so good. But we're (in the) early stages.

Speaking of servers. Is Longhorn Server on track for 2007?
Ballmer: No new news on that. It brings a wave of innovation with it, too. Primarily, in a sense you could say the wave of innovation a year ago with Visual Studio and SQL Server was primarily aimed at the developer. The wave of innovation with Vista and Office is aimed at the end user and the business. The wave of innovation with Longhorn Server and some of the things that come with that are really aimed at IT and the data center, more than anything.