CRN Interview: Steve Ballmer, Microsoft CEO

Microsoft CEO Steve Ballmer spoke to thousands of ISVs, solution providers and other partners Tuesday at the company's Worldwide Partner Conference in Toronto. He then sat down with CRN Editor Heather Clancy and Industry Editor Barbara Darrow to talk about the company's challenges and opportunities going forward.

CRN: We'd like to start with some market segmentation you talked about and ask you to relate it to licensing policies, how you might have to change licensing to better serve different segments if you will. Why are you smiling?

Ballmer: [Laughs] I'm a reformed man. I don't change licensing policies. I avoid licensing policy changes like the plague at this stage.

Even positive change implies churn and customers don't like churn. Even positive change, unless it's dramatic enough, you probably shouldn't make because the overhead is so high for our partners and everybody. In a sense that's what I'm learning, we should save all of our change management energy for things that make a huge difference. Bunches of tiny changes can sometimes be distracting to the overall mission of satisfying the customer.

I don't really see any licensing changes frankly. I do think--nothing to announce, nothing concrete--that the success we've had with Small Business Server which was strong and really jumped dramatically with the new version makes us ask the question even more forcefully, is there a concept like Small Business Server for the next size company up. SBS, you have one server, maybe two on the outside

Some customers have a little more IT staff are happy to segment focus more over a group of servers and the product line sort of jumps from SBS level of complexity on up to BizTalk plus SharePoint Portal plus SQL [Server]. Maybe there's too much complexity vs. what we might get doing something like a concept like SBS for customers who want a little bit more flexibility than SBS can provide but aren't prepared to deal with as much freedom as our entire product line provides.

We sent about 30 people out, they wallowed--as we call it--with about 100 mid-market customers, [their] IT staffs, [asking] what do you do? How many of you are there? What's the specialization? What servers do you have today? What are they used for? We built a profile of what that looks like and then the question is over time, are there things we should do to engineer a product line for that class of customer just like SBS was engineered for customer who wants a server but as simple server environment as you can get.

CRN: Does this remain a horizontal vs. vertical discussion?

Ballmer: Horizontal.

CRN: So you said in your Q&A, you don't envision vertical solutions from Microsoft.

Ballmer: Not in the enterprise. That was an enterprise question. [We will] sometimes will do an enabler like the accelerator we did for BizTalk that's not a solution.

CRN: How do you look at enablers, as a way accelerate other solutions?

Ballmer. To accelerate adoption. BizTalk has a rich connective framework and one of the assets we need to have over time is a lot of connectors to a lot of different kinds of data. They're a little like device drivers. They're not solutions, they're enablers. Some of them may have some vertical orientation like HIPAA.

CRN: Some people say the line between those accelerators and solutions is getting kind of thin.

Ballmer: Oh, I don't think so. Nobody confuses what we've got with applications.

CRN: When I talk to large integrators, the LARs and even smaller solution providers, they say they've been telling you do simplify licensing, we've been hearing about a proposed "SuperCAL" one license for almost everything. Is what you're talking about related to that?

Ballmer: Not really. There are people who would say, can't you just have a one-price-fits all without me having to track software? There may be such an opportunity, but we don't know a way to conceptualize that in a way that doesn't look underpriced for everybody or overpriced for everybody, at least not without custom negotiations. There are customers in the enterprise space that we've done custom negotiations with that I won't say are exactly like that but they're more of an all-in-one big-time deal but they almost always require custom negotiations.

The need is expressed but there's not some idea we're actively pursuing.

CRN: One of the calls to action here is around [Windows} XP SP 2...

Ballmer: Versus R2 versus Server 2003 SP 1? They're all sexy names [laughs]. They are names that are customer driven. Customers said 'If you really don't think we need to revalidate our apps, don't change the name. We've tested 2003, don't tell me this thing is 2004.' There's a reason why we picked R2. It's got new functionality so it's not a Service Pack but it is 2003 at its core. If you call it 2004, customers said 'I have to think about it differently than if you call it 2003 Release 2.

It is technically what it is, that's why XP SP 2 is a very big and important release because it addressees issue but customers want to understand [that] it's XP. We'll see how it works. This is a naming strategy more driven by customers than creative marketing thinking. Customers are saying if this is not big churn present it in a way that it looks like less churn.

CRN: That's a perfect lead in, I hear from a partner that XP SP 2 is breaking applications, that apps have to be tested.

Ballmer: It breaks some apps, there's no doubt. It depends on which release he looked at. We made a change so it breaks less apps

There [are] issues, but people want security. What we have is really quite good. There is one feature that we have turned on for the OS and all applications by default that use some of the new hardware protection stuff in Intel and AMD chips. And when you turn it on, the OS tested with it fine but there were some applications that were incompatible if you have this running. So we've now put it under user control to turn it on for applications or turn it off for applications...this hardware protection capability. Then we can advise customers it's in their control to take risks. It's nice to use this hardware trapping to avoid some of these buffer overflows and other problems

CRN: And is it the responsibility of app developers to figure out with Intel how to make it work?

Ballmer: They don't need to go to Intel, we can tell them how to clean up their app relative to the hardware protection facility but we decided if we keep the OS up and running, customers can just try it, flip the switch, see if their apps work.

Guys who use memory in a certain way will be affected...but it's not something customers would understand. It's not a matter of software for this vertical will be affected--it depends on how the code was crafted. The flexibility is a good compromise. There's always a set of compromises between security and compatibility and we thought that was a probably a good way to go.

And the OS is all clean and I think all our apps are fine, certainly Office [is fine.]

CRN: Do you remember Microsoft's old Nitro store? Is the new Windows Marketplace son of Nitro?

Ballmer: It sounds a little familiar. Maybe we didn't make this clear. It's not about the store. That's a part, that's nice [and] in the consumer market maybe that's a good deal, retailers are cutting back on inventory space for software products. In a sense, it's harder to get distribution today for a software title than before...that's in consumer...But in business, it's always been very hard for a buyer to find a seller and there's no reason for that. It's a solvable problem for technology.

The problem is most of these things in the past have been chaos. This is a non-Microsoft example but I could beat ourselves up too. I used to study Sun's catalog for Solaris and you'd look up blah-blah-blah and Computer Associates would show up. Well, Computer Associates isn't in the healthcare business but they listed themselves because their management tools are used by healthcare companies. First, the catalogs used to be all paper-based and even when they moved online they were never rich enough in their taxonomy, [there was] never enough user input to say this should be here, this shouldn't. The community can help steer others in the community to solutions that do what they say they're going to do.

You don't want just a free text search thing, there's not enough taxonomy. You should be able to say 'I'm looking for a healthcare solution to help automate how I run an X-ray lab.' It's that amount of detail that's necessary. If you've written a product like that and you're in the Netherlands, you want someone to be able to find you from Kansas City. You could do it word of mouth and sometimes that works but that's not what our partners want. They want something more predictable. They say they want word of mouth among our sales people but I could take all our salespeople and train them in what might be relevant but they'd never sell anything. It'll take a combination of different ways to work without people and technology to put buyer and sellers together. Even to put our sales people with partners. If you're the account manager in Atlanta for Georgia Pacific. You have a lot to do. You might never discover there's a Finnish integrator that also owns an ISV, a division that does vertical software for paper and pulp industry. It's probably something the guy in Atlanta does once every six years. I see it as a way for our sales people to find our partners. People see it roll out and first will see consumer expression and will think it has nothing to do with our business but the technology's all there and extending the range of solutions and data model so that you can build in first more ISVs, then service partners. Service partners won't be the next guy in. [It'll probably go] from consumer to ISVs to service partners etc. It's a long "term commitment from our vantage point.

CRN: There's been a lot of talk about IBM as a competitor. Today you mentioned Novell. Where do you see the low-hanging fruit for migrations and upgrades to the latest Microsoft technology? There's a lot of NT 4 as well as Netware out there.

Ballmer: We've moved half the NT out there I thinkin the last 12 months...I think it's 46 percent. There's a lot to do with Novell. I was in New York for partner roundtable, and they said 'Upstate New York, Novell country", they see a lot of Novell and feel now is show time. If [customers] stay with Novell they'll get dragged down the Linux path. The customers are loose in the socket. [Partners say] 'let's get together and get after it. You guys do your part Microsoft and we'll do our part.' Upstate New York on balance might be less leading edge than other places, maybe less leading edge, maybe some verticals, I see big opportunity.

CRN: What about progress in Office migration?

Ballmer: We're still very early but ahead of where we were with Office XP in terms of percentage machines deployed with Office this many months after launch. We set our goals to be ahead and we're ahead. The truth is the ramp starts slow and then ramps more quickly. [It's] true of Office XP and the one before XP, I guess Office 2000.

CRN: Aren't there still a lot of older versions of Office out there?

Ballmer: Not in business. Not really old. Office 97, but the bulk of what you'd see out there is Office 2000, then XP and 97 is way below.

It's not zero, but Office 97 with probably a two-digit percentage, but first digit would be a one.

CRN: What about your software that's out there but not deployed?

Ballmer: That's natural. The way our enterprise agreements work is you're licensed on day one but you don't deploy on one. It's almost an easier sell: The message to our partners is, there's no marginal cost to the software, let's work to get these people deployed. [There's an] opportunity and challenge to get these people deployed.

We are ahead of where we were with Office XP ten months from launch.

CRN: You tried years ago to make Office a platform for ISVs and it didn't do very well. Is Office now a platform for ISVs?

Ballmer: I think Office is a platform. There are two key things we continue to improve, the extensibility of Office, the similarly of its programmability and extensibility with the rest of the Microsoft product line

The second thing is there's an ISV pre-req. ISVs pre-require Windows. Do they pre-req Windows? Do they exploit it if it's there? Or do they have easy export? The truth of the matter as an ISV, the less you pre-req the better. If they can get away without pre-req'ing an operating system, they would, a database, they would.

You don't have to pre-req Office and most ISVs say they'll have a UI that doesn't pre-req Office. I think that's short sighted. Most of these people have Office, you'd be better off to save yourself the time and energy of building that UI and asking the customer. Mostly what we get today is not that they pre-req [Office] but work with Office. Take Salesforce.com--they work with Outlook but don't pre-req Outlook. I want to drive this harder with ISVs. [It's]something we see more in custom development, people build solutions using Excel, Office, for specific customers. Office as a platform we're trying to expand. How well we'll do with ISVs vs. other developers we'll see.

CRN: Overall security message from Mike Nash, he pointed to 25 other companies coming togetherwith Nework Access Protection [NAP], the question is as you look at security in general, how do you form that industry consensus?

Ballmer: We have to drive an enabling platform is job one. Provide more and more security in our platforms and have our platforms enable third-party innovation and extension whether it's antivirus, firewall or anything else. Number 2, working actively on NAP and the association of ISPs focusing on security, and there's VIA the antivirus alliance, [we're] trying to get companies with common interests to talk about them in a way that's beneficial.

We're forming and joining industry associations. anything we can do to bolster security, the better for us, partners and customers.

CRN: Is there a development framework you're pushing specific to security?

Ballmer: The development framework is really in the new version of Visual Studio. It lets you write more secure code and tools we've been using internally are build into the new Visual Studio to help others [build more secure software.]