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Ballmer's bullish outlook

Microsoft's CEO likes what he sees on the horizon, as his company fits its message to changing times in the IT industry.

For more than 20 years, Steve Ballmer has been Microsoft's chief salesman, promoting his company's products with a mixture of over-the-top enthusiasm, street-fighter brashness and market savvy.

He hasn't mellowed. During the course of a 30-minute sit-down with editors from CNET at the TechEd conference in Orlando, Fla., Ballmer was his vintage self, variously pounding on the table or bellowing answers to drive home sundry points with, ahem, extra emphasis. What has changed is how Microsoft's CEO and his sales troops deliver the message.

Instead of offering up a constant stream of speeds-and-feeds, product features and ship dates, Microsoft's brass now prefers to discuss how IT pros can save money or how they can use technology to make employees more productive.

You guys like to write articles about how budgets are down...blah, blah, blah. Somebody's got to stand up and say, the future's so bright you gotta wear shades!

That's a key shift. Microsoft's customers update their software less frequently than they did a few years ago. Meanwhile, they tend to be more concerned about controlling expenses and making better use of existing infrastructure.

Q. This morning, you talked about IT as a good profession and talked about industry enthusiasm returning to IT. Why do you feel you need to do that? Do you feel you need to rally the troops?
Ballmer: You guys like to write articles about how budgets are down, and is going on, and blah, blah, blah. Somebody's got to stand up and say, the future's so bright you gotta wear shades! I'm being a bit casual about it, but there are plenty of places where you can read about how IT is at the end of its rope, budgets are being cut--and there's plenty you can read about outsourcing. The truth of the matter is that if you are in IT in the U.S. right now, that's a very good choice to make. I think we all know that fewer students are choosing to major in computer science...Well, who should be the No. 1 evangelists that these are good career choices? People in the business today.

If people in the field today don't feel good about their career choices, it's not a good thing for us, it's not a good thing for the industry, and in my opinion, it's not a good thing for future graduates. So you could say it sounds funny for me to be up there being a cheerleader...but it gives me the chance to say we have a lot of innovation coming.

Has IT spending picked up in recent months?
Ballmer: I think the industry has picked up amazingly. I'm a realist. Spending is (going to grow slowly), not (quickly)...It's like any other investment--it's got costs and it's got benefits and the two have to justify each other. We went through a period where almost nothing really needed to be justified. And then we went through a period where, in my opinion, people were under-investing in new projects. And now we are back on a sane curve, where good investment with a good cost profile and a good return gets funded, and things that are silly don't get funded. What more can you ask for? You know, I don't think blanket optimism amongst the businesspeople and the user community is in the best interest of our industry either.

We're coming up on the 10th anniversary of Windows 95's launch. You said that event generated the most excitement of any Microsoft product launch. Can you recapture some of that excitement with Longhorn?
Ballmer: I think Longhorn is going to be the biggest release we have done since Windows 95. It's going to be a big thing, but I don't think we should have expectations that we will have people lined up at midnight to buy a copy, necessarily, despite the fact that Longhorn is a huge deal. I think it's bigger than anything else we've ever done--except Win95.

In a sense, technically, it's much bigger than Windows 95. But with Windows 95, you kind of had an alignment of the sun, the moon and the stars, right? There was no Internet to speak of yet. All of the action was still on the client. Win95 was a merger of MS-DOS and Windows, which in itself was a big event. There was something in it for hardware makers, there was something in it for software makers. There was kind of an alignment of events that made the launch much bigger than the product itself--things outside of Microsoft's control, things that we were the beneficiaries of. I'm not sure all of the stars will align for Longhorn, but it's a huge release and it will drive the consumer market.

So what is the buzz in the industry now? Is there something that Longhorn can ride?
Ballmer: I think it's still around the Internet and intelligence at the edge of the Internet. We'll certainly ride that--and search and visualization and finding things. Digital entertainment, finding things you are interested in, and processing at the edge of the Internet. Longhorn is squarely in the middle of those trends.

What about for business buyers? What's your elevator pitch to those customers? Why should they buy Longhorn?
Ballmer: The dynamic is that the end user gets excited about it because they use it at home. And all business decision makers and IT people are end users. It's very rare when you find these organizations that don't have the latest releases. But all of their senior people would be without those releases at home.

It's sort of like a flywheel that you have to set in motion. You have to get the end users excited. The end users are excited by the new shell, the new visualization capabilities, the new organization and searching capabilities--those should excite end users. The new user interface--kind of sexy, kind of cool. The media enhancements should excite end users.

There are plenty of places where you can read about how IT is at the end of its rope.

Then, the IT guys are the gatekeepers. Are they going to get excited or do they see a problem? Just look at what we have done for security and manageability. Those things are potentially exciting. Business decision makers want application compatibility. There's got to be something there for everybody. That's what sort of cranks the flywheel.

But getting that flywheel cranking means you're relying on that consumer pull-through, right?
Ballmer: If you look at Windows XP or any major Windows phenomenon, the first major step is to get all consumer PCs to come with that version of Windows, and I don't think Longhorn will be any different.

Has Microsoft changed the way it sells its software? Do you spend less time discussing features?
Ballmer: We're certainly not about talking about products and their features. In our case, you need to be able to say, here's the higher- level framework, and if you want to drill down into security or trustworthy computing or infrastructure, we can do that. That's what I did today, and no other company can do what I did today: stand up in front of 11,000 IT pros and say we have the integrated products that let you do the cool stuff you can do. Somebody has to do that, and as the highest-ranking guy at the show, I draw that lot. But I'm happy to talk to you about Active Directory or any other product. And you have to do that in a sales situation. We have to compete at all levels.

I understand that you met with Matthew Szulik (Red Hat's CEO) recently...
Ballmer: So I read on CNET...I certainly wouldn't comment.

What would change, assuming this (Apple-Intel switch) happens?What changes in the competitive dynamic between Microsoft and Apple?

Maybe you can't tell us whether or not you met with him. But if you did, does that indicate any change in thinking toward Red Hat and Linux from Microsoft's point of view?
Ballmer: I have no comment whatsoever at all about any possible conversation with Matthew Szulik or anyone at Red Hat. If you'd like my general point of view, I'd be happy to give you that: We come to work every day and we compete with products, we don't compete with movements. Some of the products we compete with are open-source products. Every day, we're pushing ourselves to innovate in ways that deliver better capabilities. We try to compete on total cost of ownership, despite the fact that they, quote, don't have any price of acquisition. Every day we are competing, competing, competing, competing, competing.

With that said, there is a level of interest at some of our customers and that puts some pressures on us to figure out the competitive side and the cooperative side. We haven't done much on that side, although we have done some work on interoperation and we will continue to do that. It's silly to not engage in dialogues to pursue co-opetition as well as competition. Competing with open source is different but more similar to competing with established commercial competitors than we thought three years ago.

This is the first competitor we've ever had where our cost of acquisition is higher than their cost of acquisition. Usually, we're able to come in and say we're cheaper and better. Oracle? Cheaper and better. WebSphere? Cheaper and better. Here we have to say "lower total cost of ownership--and better."

Speaking of new areas of competition, people are interesting in what's happening with Microsoft Business Solutions. Given that Microsoft and SAP at one time explored a merger, does Microsoft's growth strategy for MBS depend on future acquisitions?
Ballmer: No, I wouldn't say it depends on acquisitions at all, not at this stage. That's not to say we won't do acquisitions--I wouldn't rule it out. But I think with the base we have with Navision and Great Plains, I think we have what we need to drive strong organic growth. We have had to work hard to get things integrated, but we are poised for the kind of growth that we planned on when we did the acquisitions.

There were rumors that Microsoft explored a deal with Siebel Systems. Any interest in the company at this point?
Ballmer: It's not an issue in which we're engaged.

You made a comment this morning poking fun at a Microsoft product name. Do you think Microsoft is good at marketing?
Ballmer: Sometimes. Sometimes we're very good. Sometimes I get tired of hearing, oh, they're only good at marketing. The product was Windows Mobile Security and Messaging add-on pack, or something. Bleeeeeehhhh...Couldn't we have figured out a way to name that more simply?

Apple said today that it is going to use Intel's processors. What do you think the implications are for Microsoft, particularly on the desktop?
Ballmer: I'll answer the question with a question, and that's probably all I'll do today. And that is what would change assuming this happens? What changes in the competitive dynamic between Microsoft and Apple? Will there be more device drivers because of this? No, Apple has their device model, we have ours. Will there be more hardware manufacturers that build Apple machines--other than Apple? That's a whole business model change. No reason to believe so. Frankly, if people wanted to do that, they could have been buying parts from IBM.

What changes? There's more applications available for Windows than there are Apple. All a chip change could do is probably slow that down because maybe there'd be a big disruption with your ISV community. I don't know--we haven't gone through a chip change in our world.

There's more training, knowledge, management on how to implement networks. What changes? What changes? I don't know. You ask yourself the question and you can ask the question in the changes in the competitive dynamic. Today there's probably an order of magnitude, probably 50 copies of Windows sold for every copy of Mac, maybe a little more than that, maybe a little less than that. Ask yourself is there something fundamental that changes with this shift? And I'll leave that to you to answer.