Business Today

'We will beat Google in all markets'

Sunny Sen and Josey Puliyenthuruthel         Print Edition: June 24, 2012

The early aughts saw Microsoft Corp losing its shine. It seemed unlikely to spring into popular consciousness as a cool company in the post-Google era. Or even as a company that would shape consumer or enterprise technology. Apple, Google and Facebook were more likely to be on such lists.

That has changed in recent quarters as the Seattle, US-based company got its mojo back through a series of products and new releases - the Bing search engine, the Metro user interface common to its products, the Xbox gaming console, the Kinect motion control sensor, the cloud-hosted Office 365, and the new Windows 8 operating system. Slowly but surely, Microsoft is back. And much of the credit for this transition rests with Steve Ballmer, the man who has led Microsoft out of the shadow of company founder Bill Gates.

In an interview with Sunny Sen and Josey Puliyenthuruthel, Ballmer recounts the journey, why the $70-billion Microsoft is looking stronger than ever before, and how he intends to tackle Google. Edited excerpts:

Q. Why don't you put Microsoft in perspective for our reader… the journey of the past 10 to 15 years? There were new guys on the block who zoomed past you in different spaces but in the world of computing?
A. When the company was born the vision was very simple. Bill Gates and his partner, Paul Allen, wanted a computer on every desk and from that founding vision came the notion of doing software first, because software was the magic to bring all these things alive.

Then, how we make these things accessible drove us to Windows and our Office products which really came into maturity I would say in the early 90s and burst onto the scene in 1995 when we launched Windows 95. It was the Windows 95 PC which was the first device to put a smart device into every man's hand.

Round about late 90s, early 2000 we had our set of anti-trust issues in the US and some other countries. I would say that was a big focal point; it did not stop us but it took a lot of our attention then.

Today, we continue to drive computers to every desk and every home. We are not there yet, but we are on many more desks and in many more homes. There is an installed base of 1.4 billion PCs in the world. New PC sales this year will reach 350 million, which makes PCs far more popular than any other smart device with the exception of the smart phone. Along that journey we also drove PCs and PC-type machines into the data centre.

There will be eight million servers sold this year, the bulk of which will have Windows on them. We set living rooms… we embarked on the Xbox journey along the way there.

And at the same time there are other things, like a computer in every pocket. That truly is what the smartphone is for all intents and purposes. Tablets are still very early.

So the journey of the last 10 years had three big elements. Number 1, we still have a lot of runway in what we say the initial missions - computer on every desk and every home, computer then in every data centre and computer in all living rooms. And in all three of them we are the leader and yet the battle is unfulfilled. That is one story. The second is to do more things, and there are some guys who did some good work and got upfront. Phone and search are the two that get highlighted the most - Apple and Google.

On the other hand, the thing I am - one of the things I'm very proud of is that we are a company that is prepared to be bold, prepared to drive in new areas.  I like to invent all new categories and all new things.  Even if we didn't invent a category, we're not going to shy away from building capability and seeing if we can't innovate if the area looks like it's got a lot of promise.  

We also resolved all of our legal matters over the course of the last 10 years.  That might be the third theme.  We resolved our legal matters, and we made a transition really from being led by our, if you will, our charismatic founder.  We made some important transitions in the company as a company, putting our anti-trust issues behind us, maturing in that sense as a company, learning to live with a part-time Bill Gates as opposed to a full-time Bill Gates.  

Q. What are the critical milestones going forward?
A. Everything is product and innovation, product and acceptance. There will be a few technology themes that will be our guide posts -cloud, machine learning and big data. There will continue to be innovation in form factors with Windows at our core and there will be a push in new applications. What is the future of note-taking, what is the future of meetings, what is the future of socialisation, what is the future of entertainment, what does the future of information analysis look like? We really need to push down these areas if we want to have a future for ourselves. The milestones will be presenting the products in an innovative way both for the enterprise and the consumer. And when we fulfil that mission we will look for the market share and financial success that go along with that.

Ballmer: We are re-imagining Skype, Bing, Office and everything else around Windows 8
Ballmer: We are re-imagining Skype, Bing, Office and everything else around Windows 8
Q. Windows 8, Office 365, the Metro UI, Windows Phone… are all examples of clear successes. Was it just a matter of time before you applied yourself and got your act together or was there more to it that you got these successes going?
A. I think that popular opinion as always presented by the media, perhaps, is always sort of wrong. It is always extra stated; it can be understated or way over stated. But rarely is it as good as it is painted or as bad as it is painted out to be. [Smiles]

We have been doing good innovation, it is not that we did not have a great Windows Phone product a year ago, but people are taking notice now that they see the commonality of the user interface across phone, PC etc. People pay attention to everything when your flagship product is being renewed. This is a critical year. We are renewing Windows and Windows is our flagship product. We are renewing and reimagining everything around that. We are reimagining form factors and chipsets, with a new programming model and the integrated view of the cloud. We are reimagining Skype, Bing, Office and everything else we do around Windows 8. When your flagship model goes through that kind of re-imagination, it's sort of like everything else gets looked at again:  "Wow, gosh, didn't know they were doing that!  Ooh, interesting."  

Q. Do you feel that Microsoft could have done all this earlier - say, a year ago?
A. Four years back! Everything we do I wish we did earlier. I am glad we did what we did. Sometimes you make trade-offs. You say there are things which we can do really fast but that may not be the right thing. In our industry there is a real fine line between being fast and being insufficient and a little slower and sufficient. Being fast is not always the right answer, being right is always the right answer. So we always have a set of trade-offs that we make. I always know that there are things that with 20/20 hindsight we could have done better, and at the same time the best thing is to be self-critical and do things better than what you have done in the past.

Steve Ballmer

Q. Do you feel that Microsoft lost sight of its consumers somewhere in there?
A. I certainly know things that I would do differently. We started in a consumer business. The problem is that no enterprise thought we were credible enough until 2005. We were a consumer company and it was hard to win enterprise credibility.

There are some things I would do different, I'm just being honest.  I wouldn't do Windows Vista again.  I wouldn't do it for our enterprise customers, though, or for our consumer customers.  I don't think it has much to do with either one, I just wouldn't do it again.  I am smarter and we wouldn't make the mistakes that I think led us to do Vista, which was many years after Windows XP, and didn't wind up representing much of an advance to most people, enterprise customers or consumer customers.  

So, I would say we had some lessons we learned, but I don't think it's because we said we ignore the consumer.  

I think there are some things worth mentioning on this.  Number one, every area you're in you have to be excellent in from an engineering perspective, and you've got to make sure that you ship regularly.  Consumer or enterprise both must have these properties.  The consumer market probably emphasises regularity of new things more, but the truth is you need them on both sides.  

Number two, a lot of what the consumer thinks about is the hardware.  And I don't know that we need to make hardware per se, but thinking about the innovation boundary between hardware and software, and not allowing that to be a boundary that holds us back - you know, in a sense what you could say is if you don't do both, you might not think about the full power of innovation across the hardware/software seam.  Some might say that the thing Apple capitalized on is innovating in both.  

I think it's appropriate to be a software company in many areas.  On the other hand, I'll never allow the seam between hardware and software to be the thing that holds us back from doing the best work in the market.  

And I think those two things, which are a little different, they're both a little different from consumer versus enterprise.  The truth of the matter is most enterprises buy devices the consumers want them to buy anyway.  At the end of the day, it's always been that way.   That's why Microsoft exists.  It wasn't because IT wanted PCs, it's because the consumers wanted PCs, and they brought them into work, and the rest, as they say, is history, and history repeats itself.  

Q. One thing that you have been driving in Microsoft is a seamless interface between various devices…and the other thing is a full blown experience over public and private cloud. When did you actually realize that these are two things you need to act on as fast as possible?
A. The cloud… probably [thinks] probably seven years ago, with the Azure project. We started sort of outsourcing the email and the IT infrastructure for Energizer, the battery company. We did not call it outsourcing, but we wanted to learn how to run a service on behalf of our customers. We did it for Energizer and a couple of other companies and we built our concept of how we would do enterprise cloud, public and private.

The Metro UI also kicked off probably eight or nine years ago with the Zune. It was probably the first small form factor device. We kicked off the UI thinking and by the end of Zune we bought that to PC, Windows phones.  The phones and the PC teams all worked together to evolve that UI, our Xbox team. But the seeds of what we are doing in 2012 must have been planted seven years ago.

Q. What are you planting today that we'll see maybe five years down the road?
A. To be named later!  [Laughter.]

Steve Ballmer

Q. You briefly talked about natural computing and machine learning. What do you have in your portfolio, and how do you see that playing out in the near term?
A. One has to do - does my computer hear me, see me, feel me. That's what we are actually doing with Xbox, Bing. You can literally say I want to see a list of all the entertainment being processed in the studio and 'boom' and it will go search and find everything - games, TV shows, videos, whatever it is. I won't say we are there but we are going down the road.

The Kinect recognises you, your actions. It sees your arms and your legs, but does not see your fingers and your facial expressions. But we are headed down that path. But the machine part that implies you primarily see that in Bing. Bing actually says "I am going to do my best. Whatever you say to me to do I do my best to figure it out and answer." That's why people want search engines. You might get garbage back, but it at least makes an attempt.

We [at Microsoft] have come from nowhere to having a product today which I can tell you in a blind-test beats Google in the US. We will beat Google in all markets. It's about how deep you index. It's not really a language question, it's a question of how deep do you index, what percentage of the Internet do we actually see in a country.  And we see more of the Internet in the US right now just because until we get to scale it seems silly to sort of spread the infrastructure all around the world.  

But we've gone from nowhere basically six, seven years ago to having a product that in a blind test would beat Google today.  We have also innovated on top of that and said, "look if you really want to take action, we are not only going to tell you what the web thinks, we are going to tell you how to think intelligently and we are also going to tell you what your friends are going to think about the things you want to do". In the Bing search experience that we literally rolled out two weeks ago, we have innovated the experience and got to the core of what I would call some of the core machine learning and Big Data expertise.

Q. So is it only a question of scale?
A. It is about scale and applications. Today we apply the Bing technology to Bing.com and we apply it to the Xbox, because in the Xbox we have started to do a level of machine learning. How do we weave that through an additional set of applications from Microsoft and play overtime from other third parties who want the applications to learn about the user and take appropriate action?

Q. What will it take to do that?
A. Time, more innovation.  I mean, it takes both of those two things.  It takes time because there's an invention process.  The other thing you have to invent is a way to do this where the infrastructure costs to support it for the world doesn't kill you.  

We already have 500,000 or so servers in our Bing - our Bing infrastructure is actually smaller than that.  Our Bing infrastructure is about 350,000 servers.  Google's is probably already one-seven, one-eight, maybe bigger than that.  And the thing you say, look - and that's only really powering one application:  Google.com, Bing.com. 

So, if you want to power all these other applications, how do you architect [it] so that you don't get what I would call linear increase in server infrastructure for the number of applications supported.  And there's innovation at the infrastructure level and at the application level that has to happen.

Q. Any more finite answers than just saying time? A year, a couple of years?
A. I'm not going to - I'm not going to - you'll continue to see these techniques show up in our products sort of continuously.  It's not like there's one big bang moment, we had it - you know, we didn't have it, we have it.  You see it more in Xbox now than you did before, you can see it more in what we've done with voice recognition and Bing, and the Phone.  You'll see it in some of our Office applications over the course of the next period of time, et cetera.

Q. On the mobile side, how concerned are you that your partner who is pushing your platform is not in the best of shape?
A. We have a number of partners… Nokia, HTC, Samsung, Huawei, ZTE...

Q. The most visible one...
A. The most visible is Nokia no question. Nokia is a company that has made a serious bet, driving it hard. They are having some good results with the Lumia line. Now, they also have some challenges in their Nokia Siemens Network business, they have some challenges in their S40, the Symbian product lines… but we are off to a good start with them.

We love Nokia and love what they are doing, but our commitment to our shareholders is to have success with the Windows Phone, and Nokia is a part of that, but Nokia is not all of that. They are only a part of our overall path to market and a path to our overall great success in the phone business.

When Nokia came on board one of the premises that was important to us and to them was that this was about a third eco-system and not a third manufacturer. And the key for them would be that they were one of a set of guys who would strive for growth on the Windows Phone. And we are also pursuing that quite nicely with our other partners.

Steve Ballmer

Q. Tell us how India fits into your global set of things?
A. In a way you can say that there are four different dimensions of India - India as a market. India is a market of decent size today and it is going to get bigger and bigger as the population is huge. It is getting more affluent and more people are moving up the economic pyramid. About 12 million PCs are sold today, which could be 80 million with time. It is a market which has some intellectual property challenges but it's on and we are committed to it.

Number 2: India is a source of outsourcing for our customers. When we go to the market to sell to our customers [we often partner] with companies based in India where the work is going to get done in India. That's fundamental to our success - our partnerships with TCS, Infosys, Wipro and many other Indian systems integrators.

Number 3: India is a source of talent. If you look at our talent pool, about 20 per cent of them or their parents are born in India.

And then last but not the least, the work we as a company do in India for the rest of the globe. And we do a set of things for our customers directly from India, whether it is R&D or support or consulting service delivery. We have 6,000 people in India and only 900 are in sales and marketing functions, everybody else is working on something which has to do with our global business.

Q. It is kind of early to ask you this question, but what do you want the Ballmer legacy to be at Microsoft?
A. I'm not a legacy thinking guy…. [Pauses for a few seconds] I have three boys at home. Microsoft is not exactly one of my children, but is as close as you get to a child without it being a biological child. What I want from it is what exactly I want from my kids - prosper and grow and succeed and reach new levels which I could never imagine whether I am there or not. When I am gone I want Microsoft to have more success, to be in more areas, to be better and be doing more exciting things, more financial success. And I want to leave it like you leave your kids in a position where they are able to go forth without you.

Q. In your last quarter your revenues grew, but profits remained flat. Are you sacrificing margins for revenues?
A. In a quarter you really have to look at the quarter. But here are the following major factors worth consideration.  Number 1, revenue is growing and number 2, the mix of revenue is shifting. We do more hardware than we used to because of the Xbox, which has got a different margin structure.

We do more cloud than we used to which has got a different margin structure, so our absolute margins won't be the same because of success or failure, but because of the shifting mix of what we sell.

Number three, in quarterly comparison you have funny matters to look at like tax and treasury. But if you have to look at the operating health of the company you have to look at the pre-tax of the company.

Q. Is Windows 8 a paradigm change in the way Microsoft is thinking?
A. Everything has changed. We are not only going to run on notebooks and desktops, but on wallboards. We are going to run on tablets. We are going to run on devices which we are not sure whether it is a tablet or a note book. We not only have our current application but a beautiful new design for consumptive application, which I think is very important.

The store for developers becomes for the first time an opportunity. With our store economics it makes sense not just for the 99 cent application and free application, it can make sense for people who make applications for hundreds of dollars, which is a different model from the competition. We not only run with a touch, but also with a real keyboard and a mouse.

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