Ballmer talks .Net; McNealy scoffs

The Microsoft CEO says the company's software-as-service strategy will not generate significant profits for several years--a position that drew criticism from archrival Sun.

3 min read
CARLSBAD, Calif.--Microsoft CEO Steve Ballmer said Monday the company's software-as-service strategy will not generate significant profits for several years--a position that drew a hailstorm of criticism from the company's chief rival.

Ballmer, who delivered the keynote speech at The Industry Standard's annual Internet Summit here, said the company's .Net program has about 3,500 corporate customers and may grow to as many as 7,000 clients in the next few years. However, Ballmer said, the effort isn't likely to immediately excite financial analysts or others on Wall Street.

Microsoft's .Net is a software-as-a-service strategy, which includes an ambitious services plan called HailStorm.

Microsoft is unveiling .Net in pieces and is retooling its Windows operating system and desktop applications for HailStorm, its initiative for delivering content and services to virtually any type of device, from PCs to handhelds to cell phones.

Ballmer reiterated the company's plans to turn .Net into an additional revenue stream. The Microsoft of today is built on one-time sales of computer software, but the company in the future wants to move into the more lucrative services market, turning its products--through .Net--into rentable services for business transactions and consumer commerce.

Some components of HailStorm have already stoked controversy, even though the service isn't expected to launch until next year. Privacy groups have criticized Microsoft's Passport authentication service, which will be a major component of HailStorm. Passport is a single sign-in service that gives consumers a key for multiple Web sites. Microsoft in April revised the "terms of use" policy for its Passport service after criticism that the agreement gave the software behemoth excessive control of customers' communications.

Ballmer, who requested that journalists not quote him directly, also said the company was working hard to ensure the privacy of Passport. He was vague when asked about specific controls on Passport access, simply insisting that it would be more of a convenience than risk for customers.

But Ballmer's peppy speech earned him a barrage of criticism from archrival Scott McNealy, CEO of Sun Microsystems and another featured speaker at the Internet Summit.

An outspoken Microsoft basher, McNealy insisted his Redmond, Wash.-based rival will cash in on the .Net strategy--and soon.

"I know he didn't graduate from business school but I thought Ballmer did figure out how to make money," McNealy said. Although it may allow users to compile and store personal data through Passport for free initially, McNealy said, it will eventually begin charging and generating a hefty profit for its service.

"With Microsoft the first hit is always free--remember that all your life," he said to laughter. "They're going to all these different Web sites and having them become .Net Web sites. They say they're not going to make any money. For now they'll not charge you for access to your Passport environment. Maybe soon they'll charge you $50. That's $50 that they're charging from you for info that they stole from you."

To be sure, McNealy has a long tradition of knocking his larger nemesis. Sun develops a version of the Unix operating system and the iPlanet e-commerce software that competes directly with Microsoft's server software. And Sun has been trying for years to use its Java software to undermine Windows' dominance.

McNealy also questioned Microsoft's ability to provide a secure, private Passport environment for its customers' personal information. Although Microsoft says that privacy is one of the company's central concerns with Passport, critics question whether the company can create a foolproof wall that hackers cannot penetrate to steal financial or medical data.

In a characteristic ribbing, McNealy poked fun at the HailStorm moniker. He said the Windows technology is so vulnerable to attack that people are risking the theft or destruction of their personal data by using Passport.

"Ever been in a hailstorm?" he asked the audience. "I have. I'm from the Midwest. It's billions of balls of ice coming at you from every inch and there's nowhere to hide--and it destroys everything in its path."

"It's a really wonderful thing," McNealy said in a sarcastic critique of Passport, which drew chuckles and snorts from the crowd.