September 2009
[Part No. Next] Ballmer on his visit to VCs in CA.
Mr. ARRINGTON: Last year you generated about $20 billion in pre tax profits.
Mr. BALLMER: That’s right.
Mr. ARRINGTON: It takes a lot to move a needle with Microsoft where you find new businesses in areas you want to expand. What are the new business opportunities that excite you?
Mr. BALLMER: I want to start with my excitement about our existing opportunities.
Mr. ARRINGTON: OK.
Mr. BALLMER: I really do because, if you’re going to – if you want to move the needle for us, there’s two things we have to do. Most of what we’re going to move the needle in the next five years relative to 20 billion is going to come from things that we’re already in. Most of where we’re going to move the needle maybe five to 10 years from now is going to come from things that are new, that we have to go invest in from scratch. And the only other wild card you can weigh on top that, which we just don’t do much, is large acquisition. So, we have nothing to announce, there’s nothing we’re thinking about, so I’ll put the third bucket aside. But you would be hard pressed to name a start-up company that generated an interesting amount of profit in five years relative to 20 billion. Even the most successful. Google in its first five years, Facebook in its five years. So, there are things we have to be investing for kind of the five to 10 timeframe. But if you look at where things are going to happen and they’re interesting relative to 20 billion you’d mentioned, it’s not at our existing businesses. It’s going to come on innovation and growth in the PC market having the number of PCs that are sold continue to grow. That’s important. We can drive that. It’s going to come from innovation in the tools and technologies both at home and at work to help people communicate, collaborate, to be productive. It’s going to come from phones. It’s going to come from the intelligence that powers TVs. That could happen. It probably doesn’t explode unless we can manage to make the device that does that, the PC, that’s the way to get short-term explosion. We’re focused in on that. Search, we have real opportunity in search in the next five years. Biggest opportunity that we never talked about is enterprise infrastructure. Most of that goes to the database and mainframe vendors today who are in the business. We’ve got four billion revenues and yet we’re a small share player. Servers, there are going to be more new applications written in the next five years than any five-year period of time. I don’t list the cloud because the cloud has kind of overlaid all of those opportunities. We have opportunities by offering cloud infrastructure to enhance the margins we make in our server business, in our communications and collaboration and productivity business, and that’s where things like exchange online, SharePoint online, Windows Azure, they’re not really new value propositions, but they are new potential margin streams and dislocators to technology shifters and some of the existing kind of customer propositions that we invest in. So, I take a look and, I’d like to say we’ve got seven big opportunities and everyone of those seven opportunities is going to have to do its fair share to move the needle over the next five years on the 20 billion. We have some other things that in aggregate may not themselves be a large percentage of the 20. But those have to perform, and we’ve got to be investing in some things that can explode in years 5 to 10. I hope I answered your question.
Mr. ARRINGTON: Oh, yeah, you did. Things sure have changed since your initial mission statement – the computer in every home, every desk running Microsoft software. You’ve moved way beyond that.
Mr. BALLMER: Yes.
Mr. ARRINGTON: Your R&D budget is $10 billion a year, roughly.
Mr. BALLMER: Nine and a half.
Mr. ARRINGTON: $9.5 billion…What do you spend that on?
Mr. BALLMER: Well, if you look at the R&D budget itself, let me break it into four pieces: pure research, that was misreported I think in Business Week recently. But our pure research budget is about $250 to 300 million or something like that. We have what I call an incubations budget – incubations and explorations. These are things we’re not sure turn into products and don’t yet fit in any one of the existing business groups necessarily. Mostly managed by guys like Craig Mundie and Ray Ozzie. That’s another several hundreds of million dollars. We have new businesses, put health for example, we have a fairly significant investment in health IT. There’s some stuff going into robotics, energy. That would be another few hundred million. And then the bulk of our key money is going into our five big business groups that are investing in the kinds of stuff that we talked about. Just take search, order of magnitude, we have 5,000 people working in R&D and search order of magnitude. Five thousand people, you pay a person fully burdened let’s say 200,000 plus. That’s kind of what the tech industry looks like and you get a billion dollars to spend. But we got five of those things, and so – or bigger than a billion. Not many of them are too much smaller than a billion. You put them all together and then add to the first billion and a half I described and then say get the 9.5 billion bucks. So, the bulk, eight of the 9.5 is invested in the core businesses including the incubations that are going on inside the businesses.
Mr. ARRINGTON: Ok.
Mr. BALLMER: And you know, the biggest investment area for us is in communications collaboration and productivity. That would be the single biggest investment area for us.
Ballmer on his visit to VCs in CA.
Mr. ARRINGTON: You’ve got Windows 7 launching when? What’s the date?
Mr. BALLMER: 10/22.
Mr. ARRINGTON: 10/22. A decade ago the DOJ said that the browser and the operating system cannot be merged together. You probably know I’m talking about there. How do you feel about that with today’s world where Google is moving forward with Chrome OS and Chome Browser being merged?
Mr. BALLMER: I have no clue. I mean, how do I say this correctly? I don’t know what Google is doing. I’ll say that it is certainly clear that in the year 2009, the notion of operating systems being independent of internet access and internet ability to render important things in the internet is kind of not a sensible concept. And in every legal dispute we’ve been in, eventually, people agree with that. You know, we had to agree with some rules around that with the DOJ as part of the consent decree. We’re trying to agree on a new set of rules around that with the European commission, but I think we’re well past the point where people really question that it needs to happen. The question is for somebody who’s got our market share, on what terms does it happen? You know, Google is talking about building an operating system with the name of its browser. Nobody should be confused. The browser they think of is the operating system and the question is you know sort of like Marc Andreesen in the late ’90s is back at work at Google. If you remember, he said something like, Windows will just be a poorly debugged set of device drivers running Netscape.
Mr. ARRINGTON: Yeah, he did say that. Yes.
Mr. BALLMER: Now, that’s kind of basically the attitude expressed in Chrome Browser, Chrome OS. Windows is just, you know, sort of a bag of bits that manages the hardware under the Chrome operating system and oops, we can even do our own device drivers for the Chrome operating system. Of course, the Chrome operating system isn’t available, hasn’t shipped.
Mr. ARRINGTON: Right.
Mr. BALLMER: It’s incompatible with the one operating system they have shipped. To me, still, I don’t understand why they needed another one. They must have gotten the first one wrong. They must – they’ve got the first one. I mean, I really don’t know. They must think they got the Android wrong and somehow. Otherwise, in the OS business, it’s generally advisable to get it right and stay right as opposed to have many of them. We have one and a half operating systems, Windows and Windows Mobile. Windows Mobile is kind of a half because it’s not entirely the same as Windows. And everyday, I say I’d love to get those two things to share more. So I don’t know why Google before they have one successful one, decided they needed a second one. You know, I was expecting this Fall, or if not this Fall, next Winter, to really see a rash of essentially things that look like PCs running Android.
Mr. ARRINGTON: Yeah.
Mr. BALLMER: I think that’s a little tougher for them now because they basically tell the hardware community Android is dead, Chrome is the thing or maybe Chrome isn’t the thing. Maybe it is Android. The cacophony there is probably helpful to us in the grand scheme of things and I don’t know why they would have chosen to do it, at least the way you read the press. It probably has a lot to do with internal squabbles, but I just don’t know.
Mr. ARRINGTON: When you think of Windows 7 and explore competitive positioning versus Snow Leopard which just came out and has had some problems, and also, Chrome OS, how do you think about that?
Mr. BALLMER: I don’t know how you position against something that just doesn’t exist.
Mr. ARRINGTON: That’s fair.
Mr. BALLMER: Really, I don’t. So, when you do it, can I do Android or do Linux?
Mr. ARRINGTON: You can do either.
Mr. BALLMER: I think, well, because I sort of understand if you look at the competitive vectors – here’s Windows and Windows is a very successful product. How do you attack Windows? Well, you attack with the high end, and hardware. That’s an attack. That’s – I won’t call it the Snow Leopard attack. I’ll call it the Mac attack of which Snow Leopard is a piece. You could attack from the side. That’s the Chrome – Firefox attack. You can attack from cheap, from below. You’re not from the side. You’re one on one, but that’s kind of a Linux, Android, presumably Chrome OS, who knows, attack vector. You can attack through phones that grow up. You know, mama don’t let your phones grow up to be PCs or something. I don’t know. But that’s another attack vector. So, you could say how do I feel about all these attack vectors? Strong, I feel very strong here.
Mr. ARRINGTON: Yeah.
Mr. BALLMER: I mean, we’re gaining share. Apple is expensive. And in tough economic environment, people get it. Their model is, by definition, expensive. And we’ve actually held or maybe even gained just a tiny bit of share relative to the Mac in the last 12 months. And it’s not really Snow Leopard. It’s really Windows PCs versus Mac. That’s the trade-off. We’ve done extremely well versus Linux-powered machines with the Androids or Linux and we’ve done that primarily by having a better solution and being willing to do the right thing from our pricing perspective. And Windows 7 will only make this, I think, more competitive here.
Mr. ARRINGTON: And part of what we’re talking about here is Netbooks, of course.
Mr. BALLMER: Yeah, well, Netbooks are just the first battleground. There’s no question that there was a Linux PC battleground and then it became “the MID” and if you remember that mobile internet device. That’s what they call Netbooks before Netbooks, is in the new battleground. We’ve done a very good job and I think we’ll continue the job. Phones, I think the jury is out. Nobody has yet tried to take the phone and turn it into a PC or take a PC and turn it into a phone. But this is where we have to be. We’re going to have it and we’ve got to have our phone act together. I like our 6.5 release. I like our plans for the future. But you know, we’re certainly in a period now where competition has got a lot more commotion.
Mr. ARRINGTON: As you said the market there is just getting started.
Mr. BALLMER: It’s still awfully nascent. People don’t think about it that way because phones aren’t nascent. Smart phones are more nascent. And then this attack is perhaps the most, I don’t mean this in a negative sense, but it’s the most insidious because some people don’t even know that it’s really an attack. Those are operating systems. They all run their own proprietary rich-client code and we’re competing against them. The most successful by far is Firefox. Chrome is a rounding error to date. Safari is a rounding error to date. But Firefox is not. The fact that there’s a lot of competitors probably is to our advantage. Yeah, we’re right now about 74 percent overall with the browser market, roughly speaking. But we’re having to compete like heck with IE 8, with great new features. The other guys are getting more and more unanticipated competitive attack factors, the thing that Google announced yesterday where they replaced IE but they don’t tell you. I mean that’s how I would say it. For all intents and purposes of what they’re doing IE is not there. It’s their operating system. Instead of now masked as browser, it’s masked as a plug in basically to IE. So, you know, we’re going to have to compete like heck and you know, see where things go. The one thing that’s unclear is what’s the economic play for anybody else competing with us at the browser level. Is this all about kind of controlling the search box or is it about something else? Even Firefox – all the economics from Firefox come from that box.
Mr. ARRINGTON: The search box.
Mr. BALLMER: The Google search box, yes.
Mr. ARRINGTON: You have, I think Silverlight has — 35 percent of computers have Silverlight on them.
Mr. BALLMER: Yeah. That’s right.
Mr. ARRINGTON: Is Silverlight essentially competing with Windows? I mean, the way you described some of this here, it’s like they’re competing with each other.
Mr. BALLMER: No, it depends on what the strategy is. IE only runs from Windows. Anybody who uses IE uses Windows. So does it compete with Windows? No it helps Windows. On the other hand, when we tell people the right applications which are not unique to Windows that doesn’t particularly help Windows. And so we’ll continue to see and do things that are standard-based because that’s important. And you continue to see us encourage developers to do things that run uniquely on the Windows platform. You know, with the new Silverlight, you can build Silverlight applications that are flash-like in the sense that they run across platform. But you can also do things which are even nicer which really narrow down and run only on Windows. And given that Windows is a billion units, you can afford to make optimizations as long as they bring value and do your applications that are Windows unique.
WatchNumbers.
WatchZOMG!
WatchThat’s slow. Real slow.
pkarage:
“If voting could really change things it would be illegal.” (via @poetic_justice)
WatchIt’s melting. Fast.
WatchA car faster than a bullet.
Watchpilnick:
Candice and I went to see Randall Munroe talk as part of his mini tour for the release of xkcd book 0. The event was at Y Combinator who shares space with Anybots so there were several robots around. Here Candice is playing rock/paper/scissors with one.
Finally, a usefull app from the Engineering Dpt.... →
[UNBELIEVABLE] Japanese Bodybuilding Competition... →
Yes, I agree with you.
“The American consumer is so deeply in debt, this is not going to come back,...”
– Oracle CEO Larry Ellison on a packed ballroom at a Churchill Club event in San Jose.
(He also said that he will decide if he will leave as CEO in 5 years from now. That’s 2015. I think that he is full of (*&$**&@#^%&*&#. But interesting.)
Write a guest post for TechCrunch Europe this...
[REJECTED]
Where is the Silicon Valley of Europe?
By all accounts Europe is not the place to start a web startup. VC funds don’t get how web startups work, mainly because they don’t get why there doesn’t need to be a serious “how-are-you-going-to-make-money” plan from day one. The consumer market is too fragmented because the language “berlin wall” is still there. The laws in place, specifically...
I AM THAT GUY!
I am irked by the fully-detailed...
Europe becomes world's wealthiest region →
