CRN Interview: Steve Ballmer, Microsoft

Microsoft CEO Steve Ballmer met with several editors last week to discuss the company's new product and channel plans.

CRN: It's been more than a year since you told us about Microsoft executives being judged and compensated on partner and customer satisfaction. How do you judge the progress of that?

BALLMER: We've got people very focused [laughs]. There have been some improvements and some things that aren't necessarily improved, but man, do we have people focused. The big evolution in the last 12 months is that we've now figured out how we're going to systematically take customer and partner satisfaction,both of them,into the major part of the pay plan for our top 600 people. We figured out 80 percent of it.

We've announced it to our people, they understand how it's going to work, and there's nothing quite like telling people what you want them to focus on to get them to take it seriously. We want lots of happy partners and customers working with those products

CRN: Can you talk about specific changes?

BALLMER: It depends on the part of the company you're talking about. In the development group, we've got something called the Quality Customer Experience Project,about five to six pillars of things we're re-engineering for [a] better experience for partners and customers. Things like: How do we think about documentation? How do we improve processes through [our] support organization to get faster time to resolution on problems? How do we get more instrumented feedback on products to help us improve quality and really hear what people are saying?

On the customer-facing side, the tool we've built is the complaint management system, which is starting to really fire for us. %85 And we're extending [that] out to some of our partners [over the next 12 months].

CRN: How important is the new partner program for Microsoft?

BALLMER: We need and, more importantly, our customers need a trained and motivated partner community to ensure they get the best value out of IT and MS products.

CRN: The perceived perception is that Linux costs less than Windows. How do you combat that with partners?

BALLMER: The truth will set you free. If you take a look at objective data,well, people can say, 'Well, you paid for some of that,' but research organizations still do objective work no matter who funds them,and if you look at the [total cost of ownership] work that has been done on whether Linux on the client, server, [or] the mainframe and [look at] the comparison, our guys would be happy to show you systematically the studies that have been done, proof positive on [the] TCO point. %85 Our license price is not as low as their license price. We have to communicate well to get our message out [on lower TCO]. %85

You can say, at the end of the day, the price on a Windows server is $500. It doesn't take much,one major hiccup,to justify [the] $500 price.

We are not perfect. On the other hand, I think we're better than the other guy. On the security side there is this, in my view, this unrealistic dream, that, 'Oh, if we just weren't using the most popular thing in the world, we'd be more secure.' But if you look at data from the security experts on the number of vulnerabilities reported, there have been more vulnerabilities reported on Linux than on Windows in the last 12 months. %85 That doesn't mean we're acceptable. We need to improve, but I don't think there's another port in the storm that looks a lot better to our customers.

CRN: Are you reallocating money toward that end?

BALLMER: Yes, and you'll see the consequences of that soon. We want to be definitive, but there are a number of things we know we need to do in support of our products. %85 Maybe some service-pack-type release, significant type service-pack-type releases in the Windows product family.

CRN: Are you considering an acquisition in this space?

BALLMER: Not per se. We've done some acquisitions. We bought Pelican, we bought geCad in the security area. We've got some close partnerships and spend a lot of time with Symantec, Network Associates, etc. %85 I probably met with [Symantec CEO] John Thompson three to four times in the last 18 months; [I've seen] George Samenuk from Network Associates four times I guess in last 18 months. Those partnerships are challenging because we also need to build more protection into Windows itself, but at the same time we need all the innovation in the industry working with us.

CRN: Where can ISVs play with Microsoft since it is in so many application areas?

BALLMER: There's always room for people who are doing innovative work, even if we are expanding our footprint. The thing that makes people uncomfortable is changes in footprint. It doesn't actually take anyone out of the business, but is uncomfortable. The analogy I like to point to is us and Citrix [Systems]. We continue to add fundamental value to our products, they continue to innovate around that. Even though you can say there are things they used to do that our products now do, there is a relationship there. It is true we have engineers who want to do things better than Citrix, but from a business standpoint, we're happy to see Citrix succeed and our products grow. ... The same will be true in the security area [and] in the [Microsoft] Business Solutions area. We continue to grow our capabilities. As long as we're communicating enough with partners and partners are willing to accept that change is inevitable, then there is a basis for us all to go forward.

The key is to have a road map where we continue to innovate and our partners can continue to innovate on top of it, around it, instead of it, whatever their choice is.

CRN: IBM Software says it's a better ISV partner than Microsoft because it is not in applications.

BALLMER: That's kind of patently hogwash. ... It's a nice thing for them to say--I'd probably say the same thing in their shoes. ... The truth is, I was reading some market research--it wouldn't show that, not in small and medium businesses. When you start in the largest medium businesses and small enterprises, there are some ISVs who work with IBM and form a strong partnership. But WebSphere, they don't have any products. It's not like in large accounts where they have IGS. It's just a product story. What product has any traction? Notes? No traction. WebSphere in SMB? Hello? I'm looking for it, I haven't found it yet. No traction. DB2? Come on. It's a SQL [Server] and Oracle world in the SMB space. [That] doesn't mean IBM can't come on, but despite the rhetoric in the SMB space--when you get to large and mediums I give them some credit--but [in] the rest of that market they don't show up, not even in the research data. Sun shows up as much as them, and everyone knows Sun doesn't show up much in those markets.

CRN: IGS has a mandate to sell IBM products obviously in software arena?

BALLMER: They say they don't have such a mandate officially. I don't believe it, but I'll go with your question. I'll just say officially it's 'No, no, no. We're a services [company]. We'll do anything the customer wants.' That's officially. But I'll go with your question. ... That's sort of the world I see. IGS does very little on a percent basis of all the IT of the large companies in the world. They are the biggest by far. But if you ask what percentage of IT work going on in top the 2,000 [or] 3,000 accounts in the world ... [it's a] tiny little fraction. Between the work IT staffs do themselves, the amount they do with other partners, we certainly think there's ... well, I won't say no problem, but we have a great opportunity. We certainly have a better service force than IBM does. They have 175,000 IGS guys, but that makes HP our friends, that makes Accenture our friends, that makes [Cap Gemini Ernst & Young] our friends, that makes the Intellinets of the world our friends and the regional guys friendly to us. There are some deals where scale really matters, where we really have to work hard with our partners to compete--[for instance, in] a huge outsourcing deal or huge app development deal. A few of our partners can scale up and do those--the Accentures and HPs--and that's why we work really hard to form close partnerships with those biggest of the big so to speak.

CRN: There is an affinity among custom system builders [who compete with Dell] for open source. What are you going to do about that in price structure so they offer Windows and not open source?

BALLMER: Let's break what they do into two buckets. The client and server. On the client, we've actually done a lot if you look at our price curve now vs. 10 years ago. [There] used to be a very high difference between what a global OEM would pay and [a] system builder would pay. It's not quite flat but almost. The big thing I used to hear from [system builders is], 'We have to compete with Dell.' We've worked hard at it not just with Windows but with Office. I won't say it's entirely parallel to the ground, but that curve we've dramatically shrunk over last three or four years. We've put a lot more training and education into [the] system builders community and we know we still have work today. But we have pretty darn [good] position on the client with system builders. That doesn't mean they won't put out some machines naked--they always did. And naked now can be naked or with Linux and now count on customers to put Windows on it. ... [This] happens in China all the time--98 percent of all machines that go out with Linux end up with Windows on the client.

On the server, a lot of system builders' work goes to small businesses. We've done two things: been much more aggressive with Windows server, where we almost have a complete flat line in pricing vs. the large OEMs; and No. 2, the new Small Business Server product [has been] architected in such a way to benefit this community the most. ...

Here's the math: [Windows pricing for system builders] I think has come down over last several years by 10 bucks. It's not like we took it down 2 percent a year or something. ... You would see a rise of $10 to $12 [for Windows] for our largest OEMs [in that time]. So that's a $20 shift in the size of that gap. There was a $50 gap and now that gap is down under $30. It's still not zero, and I won't pretend it is, but it's almost a 50 percent shrink in the gap.

On Office, we've done a couple of things. First, we have a fairly aggressive price for system builders. What we've done--again I don't want to give you a wrong number--but what we've done with larger OEMs, they have a pretty good price on subset products, not the full Office. The gap there again is not zero but has come down where it is a comparable size to the Windows gap. Where maybe you would have had a gap four to five years ago of over $100, it's today maybe $50 or $60.

Is there any more near-term action? It's challenging in many regards, and there is economy of scale, of course, in working with volume players. ... But it's something I do watch and am very sensitive to.

CRN: If you were to become a solution provider today, what opportunity would you go after?

BALLMER: If you start today, solution providers have to think reasonably short term--three years. First, to get enough cash flow to be in business and then allocate cash for longer term skills. ... It's kind of obvious if you want to make money today, whatever other badge you want, you should get a security badge. ... I think there are two interesting ones, security because everyone is asking about it. I don't mean a training certificate but security competence. And the other one is collaboration, and I mean not only inside a business but across businesses. [That's] a big area, particularly in SMB space. ... Most of the info you want to share is with customers and partners, so how does a lawyer do good collaboration with clients? ... Think of scenarios. I think collaboration will look good, and not collaboration in [an] old "Notes-y," "Exchange-y" way, and there's a security aspect to that. How does it work collaborating across country? How do you share documents securely? Where's the role of XML integration? Collaboration? How do you have private stuff and public stuff? how do you take things offline?

A lot of emphasis in our dialogue with customers in security is getting our code right, our patching right. But we need more discussion with people about how they shield themselves. If you had a perfect shield, you wouldn't have to worry about vulnerabilities inside the shield. [It's a] combination of getting the core stronger and the shield stronger. We're the industry leader and take responsibility for a lot of that. Think of the money companies spend not only with us but Cisco [Systems], Check Point [Software Technologies]--they spend money with Network Associates, they spend money with Symantec, they spend money with ISS, and somehow collectively we're not getting the job done. It's not just on the inside. If the inside was perfect, no one would have to spend a dime for the shield.

We need to improve the built-in shield and need to improve how the shield works with the software. I bought a new printer, a small example, and to install it I had to disable antivirus software. In the Ballmer household, that gets turned back on correctly. In a lot of other households it gets left disabled. We have to work with the [antivirus] guys to have much more architected approach for how filter software installs in the system. ... A lot of work that needs to be done

CRN: Who are the competitors you think about now compared to last year?

BALLMER: I don't remember who was on last year, but I don't think it's changed any.

CRN: AOL, IBM, Oracle.

BALLMER: There's one competitor I think about most, and it's none of those guys. It's not a company [laughs]. It's not open source--the word 'open source' sounds like a religion. It's software that gets developed and sold for free. Believe me, I like software--It's the fact that it gets developed and sold for free and I have to have long discussion about TCO, that's the No. 1 thing where I know we have to continue to push ourselves.