Ballmer: Current Woes Won’t Halt Tech, Microsoft

Microsoft CEO Steve Ballmer
Microsoft CEO Steve Ballmer
Photo: Lou Dematteis

SANTA CLARA, Calif. – Microsoft’s normally exuberant CEO didn’t disappoint a packed hall of over 500 attendees at an event here Thursday night. Steve Ballmer was largely upbeat about Microsoft’s products and cheerfully responded to questions about product deficiencies and competitive threats as “challenges.”

But he did start things off with one clear note of caution.

“The IT economy, our industry, is not immune to what goes on in the global economy,” he warned. “And yet as I talk to people in the industry, technology and telecom, people still see a certain buoyancy in the market.”

Ballmer speculated tech may be relatively better off than other sectors because it’s a global industry and some parts of the world are doing better than others, while the consumer side of tech is faring better than the business side. He added that, for now, there may simply be confusion about what exactly to be worried about.

“No one is really sure about the credit crisis or how it’s going to be improved by the bail out,” he said.

“At least for now, the people I talk to in the business are, I wouldn’t say ‘optimistic,’ but they’re feeling better than if you watched CNBC all day,” he added, referring to the financial news cable channel.

Ballmer, interviewed by software venture capitalist Ann Winblad, covered a wide range of topics related to the state of the software industry and also took questions from the audience, during the event organized by the Churchill Club.

While Winblad asked a series of nuanced questions about Microsoft’s (NASDAQ: MSFT) direction in the software industry, one of the first questions from the audience was very direct and critical. A man identifying himself as a longtime Windows user asked why mighty Microsoft couldn’t make Windows more reliable.

Ballmer took it in stride, insisting Microsoft’s analysis of user complaints shows every version of Windows has been better than the earlier one. With Vista, he conceded some of Microsoft’s development decisions led to early compatibility problems as part of a trade-off to provide better security.

He said Microsoft’s goal is “a world of no reboots and user happiness.”

Winblad asked about Microsoft’s strategy for competing with Google and Ballmer readily conceded the software giant has a lot of work to do to catch the search leader — noting Microsoft’s share of that market is only about 9 percent in the United States.

She noted that Ballmer, about two years ago, had predicted that it would take five years for Microsoft to be a credible competitor to Google (NASDAQ: GOOG) in search. She asked if that plan was still on track and whether Ballmer had acquiring Yahoo in mind when he made the five-year forecast.

“I suspect it was at least in my head,” he said.

But he also said winning in search, or any market, isn’t about using “brute force,” but redefining the experience for users and the business model.

“To go up from 9 percent in any market is going to take a while,” Ballmer said. “We’ve improved the core relevance of our search results in an amazing fashion. Vroom! The market leader has the brand; we need to try and fundamentally reinvent the search business.”

One attendee, Bill Reichert, managing director of Garage Technology Ventures, said the competition between Google and Microsoft has been great for the industry.

“Microsoft’s been caught with its pants down a number of times, including not catching on to the Internet right away and being late to search,” Reichert told InternetNews.com. “Venture capitalists like that because it creates opportunities for new companies.”

Next page: From virtualization to smartphones to Apple

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Ballmer also outlined his thoughts on Microsoft’s push into another hot area of technology — virtualization.

While discussing competition with market leader VMware and others in the field, Ballmer said the technology has been very expensive to date and that Microsoft sees an opportunity to “democratize” it with lower pricing.

“We’ve had a great reception,” he said, noting the recent release of Microsoft’s Hyper-V hypervisor.

“If you want virtualization on 80 percent of servers, you better not charge three times the cost of the servers,” he said to laughs from the crowd. “In many ways, VMware has taken a perfectly good approach, but it’s not going to lead to a high percentage of servers. The guy who’s the market leader should recognize that, and you’ve seen VMware try to respond.”

Ballmer said less than 5 percent of servers use virtualization, though a much higher percentage could benefit from it. In addition to price, he said virtualization’s acceptance is being held back because it requires different management than the rest of the datacenter.

Victory over Apple, RIM in smartphones?

Ballmer also described another industry in which he believed some of the high-flying players weren’t maximizing their opportunities.

In the world of smartphones, Ballmer said BlackBerry maker Research in Motion and Apple, with its iPhone, could make lots of money, but he claimed their business models limit their potential growth.

“It’s easier when the software is more coupled with the hardware like with the BlackBerry and iPhone,” he said. “Google plays the game more like we do and Nokia went from … proprietary to open source.”

Ballmer said the next five to ten years will see potentially be a billion smartphone devices in the market. In that environment, “software will trump the guys who are more proprietary,” because mobile operating systems like Windows Mobile and Google’s new Android will be able to run on more devices.

“We have, ironically, the most mature platform and over 65 vendors building devices” based on Windows Mobile software, Ballmer said.

Asked about Apple’s (NASDAQ: AAPL) growing popularity and if it was a threat in the enterprise, Ballmer said it shouldn’t be if Microsoft and its many partners, like Dell, HP and others, do their job right.

“If that happens,” he said, “it’s hard to see a reason Apple can gain any kind of footprint in the enterprise.”

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