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Ballmer: Where Microsoft is going

CEO Steve Ballmer explains what's on his mind after delivering the latest annual mission statement to his troops. High on the agenda: how to combat the challenge presented by open source.

In his latest thinking about where he wants his company to go, Microsoft Chief Executive Steve Ballmer has produced a document that is partly a sweeping business analysis and partly a call to arms.

In many respects, it was the mark of a vintage sales pro, urging his troops to concentrate their energies on the challenge presented by the open-source software movement. But against the backdrop of what Ballmer described as still uncertain IT demand, this was more than the usual rah-rah pitch.

With Linux no longer inhabiting the computing fringes, Ballmer finds himself forced to more vigorously pitch to customers the advantages of Windows and Microsoft's other software. It was a departure from the tenor of his annual memo to the troops last year, when he focused on everything but Linux and open source.

This time around Ballmer directly tackled the open-source software challenge, acknowledging that so-called free alternatives to Windows are getting a close look from Unix customers keen on moving their operations to lower-cost Intel-based systems.

"In this environment of lean IT budgets and concerns about Microsoft's attention to customers, noncommercial software such as Linux and OpenOffice is seen as interesting, 'good enough' or 'free' alternatives," he wrote.

All this is taking place at a point where Ballmer also finds himself in the anomalous position of being a long-term bull but a short-term worrywart. Although he remains optimistic about Microsoft's growth prospects, Ballmer says a soft economy and lingering hesitation about making new IT investments means the software company is forcing a rethink of business as usual. He spoke with CNET News.com about the memo and the changes facing Microsoft.

Q: Are there scenarios where you might imagine that Microsoft might adopt the open-source model for any of its products?
That's a fairly complex question. We are a commercial software company. We believe in the commercial software model. We believe in the innovation it delivers; we believe in the simplicity that it delivers; we believe in the kind of application space that it can establish; we believe in the opportunity it creates for third-party software developers. We believe in all of those things. So we are a commercial software company. But on the other hand, there will be times and places where we will want to share our source code with others as you have seen us doing increasingly with a variety of partners, governments, etc. There may be times even when we have technologies that we think would be in our interests and the best interests of others to let third-party communities and the Internet extend. On the other hand, we are a commercial software company.

We will compete fairly and responsibly, but at the same time we will try to extend the advantages we have with our products.
In the memo you wrote that "for some products, it makes sense to publish regular builds of new products online, for community feedback." Is it fair to interpret that as a borrowing of some open-source-like concepts?
We will learn good ideas from wherever they come. And if that (publishing of software for community feedback) sounds a little more like the way noncommercial software community works, if we see good ideas there that we think we can adapt and still deliver the kind of value to our customers that we believe commercial software companies should deliver, then we will use good ideas.

It sounds at least that Microsoft is borrowing the feedback loop idea that has been popularized by open source. Is that correct?
I don't know where you guys see that. We want all feedback loops. I think there are feedback loops that have worked in other environments; and fine, we will be happy to learn from those. I actually think the most important feedback loops are the ones highlighted in the memo that we have pioneered, like our Dr. Watson feedback loop, where we get incredible information on the kinds of problems and issues our customers are having with our software. That's allowing us to improve our software in some very important ways. That's really an innovation that started right here at Microsoft.

Comparing this year's memo versus last year's, you spend a lot of time this year discussing Linux and open source. That really wasn't mentioned in last year's memo. Have Linux and open source become more of an issue in the past year?
We certainly have an eye on everything our customers find interesting. You can't focus on your customers unless you are interested in everything the other 10 people are not. So that's been part of the way we have been focused for the last three or four years anyway. Last year we had a lot we wanted to say to our employees about the mission of the company and how we would pursue that mission, in terms of people and core ways the company could operate. And I think that wound up taking all of the bandwidth we had in last year's memo.

This year the executive team wanted to focus on the strategies and describe the opportunities to do innovative work that customers would benefit from. At the same time we're acknowledging--whether it be the economy or the pressures of competition--the challenges we have in our business and are letting our friends know that we will innovate and rise to the challenges of competition. We will compete fairly and responsibly. But at the same time, we will try to extend the advantages we have with our products. We know we need to work hard to extend our products for customers, and we know we need to work hard on some areas that need improvement.

Has Microsoft changed its views or messages about Linux or open source as a result of the SCO deal?
I wouldn't say so. We have always been a company that believes that when we deliver a product, we have to deliver the appropriate intellectual property rights, whether we develop the product ourselves or we license the intellectual property patents from third parties. In the SCO deal, it was our understanding that the intellectual property rights that they had were important, and we wanted to pass that license on to users of our products.

In the memo, you said the company needs to change old habits. What specifically is the issue?

I think there are feedback loops that have worked in other environments; and fine, we will be happy to learn from those.
Things that we were doing two years ago--which may have helped us achieve success two years ago--many of those things are the same. But many of those things need to be different today. And I wanted to make sure that people's minds were open. When you say, "Look, we have to bring through high-quality innovation and that the next major milestone will be Longhorn," we have to avoid old habits...like having a release every year just to have a release every year. We have to think differently in terms of customer responsiveness. Think differently so as not to throw out the baby with the bathwater, but be open to some of the things I say in the memo, to change from things that I might call internal Microsoft conventional wisdoms.

You say that Longhorn is a "bet the company" product. You also said that of .Net, and Microsoft has had some difficulty, at least in marketing, with .Net. How do you focus on a new "bet the company" strategy while continuing to work out the kinks on the previous strategy?
I think that's part of the world we live in. We're always working on something new. We're responding, we're taking feedback for improvement and working on the next wave of innovation. I have to say we got many, many, many more things right with .Net than wrong with .Net. Our customers think we got the technology right. The customers that we worked with are finding amazing productivity benefits and scale and application performance benefits of moving to .Net. I think that's all incredibly, incredibly good. I will admit we probably could have handled the branding and naming, blah, blah, blah, better than we did. But if you are going to miss something, better to miss that than to miss out on things that are more important to customers.

You say in the memo that Microsoft "needs an offer of managed desktop services that we can make to enterprises--with our partners--that is different from classic outsourcing. We will assign key talent to this challenge." Is that along the lines of a utility, or on-demand, computing offering? Or is this the evolution of .Net My Services?
Neither of those, perhaps. What you ought to think about is the on-demand--I'm not trying to be rude; I just have a hard time parsing through that. .Net My Services was an idea that made some sense at that period in time. What companies (now) want is the ability to run their desktop infrastructure in a much more push-button fashion. The servers might be on their side of the firewall, or on someone else's side. You think about it not like, "how do we replace bodies with outsourced bodies?" You think about how do we stop the products and services approach and make those much more push-button. That is, our customers may operate them, or our partners, or we operate them. And you do that in a way that lets large enterprises have their uniqueness--it's rules, policy and security--which makes it different from the classic on-demand approach. At the same time, it's not like the classic outsourcing that people are doing today.