The company he leads hasfor a controversial new licensing program that raised prices considerably for some customers. A high-profile initiative to deliver Web services is . And the threat from the open-source Linux operating system is than ever.
But Ballmer can claim some success, too. Windows XP, the company's flagship operating system, has sold well. More than 10 million people have downloaded the latest collection of, called Service Pack 1, according to Microsoft. The company's Visual Studio.Net tools have won and wide customer acceptance. And as competitors founder and struggle to make sales, Microsoft sits atop a $40 billion pile of cash.
Ballmer sat down with CNET News.com to discuss the next steps for .Net, the challenge of Linux, and Microsoft's bold entry into the enterprise business application market.
Q: How well is .Net being accepted? A few months ago, Chairman Bill Gates said some parts of .Net, such as .Net My Services, didn't take hold as expected.
The .Net My Services concept is fine. The business side is still being worked on. And we are working on the concepts, too. The truth is, we probably made (.Net) a little harder to understand than we (should) have. But that has not mattered--we have a lot of customers doing projects now, enterprise customers, with .Net. They are using Visual Studio.Net, they are using BizTalk Server to build important line-of-business applications to connect applications inside and outside of a firewall.
How do you define .Net?
What is .Net? Well, the benefit of .Net is XML (Extensible Markup Language); it's all about connection. We take the XML connection and we extend it across both client and server--while other guys are only server-focused. It's about connecting people to people, people to information, businesses to businesses, businesses to information, and so on. That is the benefit.
What is .Net itself? It's a set of code we ship that users, developers and IT people use to help build applications that process XML information.
The truth is, we probably made (.Net) a little harder to understand than we (should) have.
It turns out we shipped some products that didn't have .Net as we know it, the .Net framework in them, and that . Originally, internally we were saying .Net is kind of like XML, and we were using it wherever we were talking about XML products, instead of being more precise. At the end of the day, the IT people and the developers get it quite well.
Where would you like to be with .Net plans in six to twelve months?
A Yankee Group study says 40 percent of corporations surveyed were looking at operating system alternatives such as Linux, in part because of the Microsoft licensing program. What do you say to that, and what do you hear from your own customers?
I've heard frustration with the way we managed the transition to our new licensing (program). Some customers are very happy because they are paying less than they used to, some customers are not very happy because they are going to pay more than they used to. Probably, the most customers are not in either one of those categories. They didn't like it at first; we worked with them, we worked on their special needs. But I think they are OK with where they are.
The term open source--it's a philosophy. People don't look at open source; they look at Linux. That's really all it comes down to. People say 'What about Linux, vs. your stuff?' And people are going to look at whether we double our prices or take them down. If we changed our prices, people are still going to look at alternatives.
Second thing, our product is a more complete product. We have a built-in application server that's well integrated; there is no such comparable notion in the Linux server. We have a directory server built in; there is no such comparable thing in Linux. The Linux client hardly runs any applications, except a bunch of shareware stuff that's not very good.
There has yet to be any innovation, new features or new capabilities out of the Linux platform.
People highlight, 'OK guys--where's the source code?' I think most people don't want their employees using the source code everyday. Really, they don't. That's a distraction from real work. But a lot of people do have a real need to see source code from time to time for debugging and for security purposes. We've have initiated a shared source program. We're learning, if you will, from the Linux world. We're not above getting smarter every day. If you are a large account, for example, you can get access to source code.
If you take a look at the Linux world, there has been some interesting things going on in the use of community in support tools. There are many more communities in the Windows world than in the Linux world. I don't think we have mobilized that community as effectively as the Linux community has. We have some in Visual Studio, and you will see more and more of that.
In the areas where we think they have a real lead...we're not going to be cheaper to acquire. But we have lower total cost, more complete, more innovative, and we are going to share source as broadly as we can, but not as broadly as they do. And we are going to have as or more a community as Linux does. I think if you put all of that together, that's our competitive proposition.
But people are going to look at Linux, whether our stuff costs $5, $50 or $100. People are going to look at it. So we have to work that value proposition every day.
How about the theory that Linux will enter companies through the back door, if you will, because consumers will install it at home, and then want it at work?
Linux is not coming to companies on the desktop, not in any significant way. I don't think that's really happening. On the server, I might agree with you. People are going through the IT department. Where it's coming in is through the IT staff. People will look at it. They read about it in the paper. And the IT guy asks, 'Do you believe what they say, or do you believe the Microsoft guy?' Which is the better value proposition for us?
We're learning, if you will, from the Linux world.
Our end-user license agreements, many customers tell us, are too complicated. If you get a Windows terminal server license agreement today, it's harder to understand than we wish it would be. So we're trying to simplify. But we're only going to simplify if it is a real win for the customer. We're only going to do it if we can make it beautiful from the customer perspective. We've learned.
Part of this value proposition is partly about Linux; if you have Windows 95 or Windows 98, we want to get you onto Office XP and Windows XP. Some people wait to the first service pack, and now we have that. In times where budgets are tight, I think one of the best value propositions that we can put on the table is the desktop migration from Windows 95 and 98 to Windows and Office XP.
There have been reports that Microsoft is considering new licensing for small and medium-sized businesses. Can you explain?
We're looking at it. We don't have all of our licensing options available for small and medium-sized businesses today. Our enterprise agreement is not available for them. That lets customers pay in three chunks. So we are going to do some things to let (small and medium-sized businesses) pay in three chunks.
Are small and medium-sized businesses becoming much more important to Microsoft?
They have always been important. There are some people outside of Microsoft now realizing how important they are. It's the biggest part of the market. The biggest part of the market is not the enterprise or the consumer market. It's small and medium-sized businesses.
What comes next in Web services?
.Net Server. That's where we get the .Net framework integrated with Windows. We need to have .Net extensibility within Office, that's an important step. We need to have .Net extensibility and programmability in the database--that's a pretty important step. We need to have better end-user support for XML data. is just part of that. We need to do that throughout the Office suite. We need to have additional operating system services to help manage XML data. That's farther in the future, the next major client release of Windows, whenever that comes.
As an industry, there is more work to be done on the underlying protocols that move and secure XML transactions between applications. Then there is technology that needs to ship in the operating system and the programming model to support that. Those are the top things that will happen in the next three months to three years.
What about consumer Web services? What happens now that .Net My Services has been changed?
The one thing we learned is that it's not about one big service in the clouds. It's about servers, so that people can create their own services. It's about making sure that the client system can create those services, so my PC can access my services. You should expect that to synch up with the next major Windows release, called Longhorn. I'm sure we will have some service packs in between.