20 Questions With Microsoft's Ballmer

Ballmer Sounds Off On Apple, Surface And Partners

Since taking the helm of Microsoft 12 years ago, Microsoft CEO Steve Ballmer has been forced to navigate seismic shifts from the dot.com bust to the worldwide economic meltdown. After addressing some 16,000 partners at the company's Worldwide Partners Conference on July 9, Ballmer spoke with CRN about Microsoft's Surface Tablet, Apple and the future ahead for Microsoft and its partners. Here are edited excerpts from the interview.

What is your response to those partners that want to sell Surface?

Look, let's just say this is new for us. We have announced that initial distribution would be off Microsoft.com as well as through Microsoft physical stores. So is there an opportunity? Is there some big distribution? Not initially. Look we just got to get [it] out the door.

But, if a partner says "Hey look, I want to sell some of these things; I want to put them in a solution." They can order some off Microsoft.com and sell them. There is nothing that gets in the way of that. But, we have not set up what I would call industrial distribution as sort of a first element. We may get there. But, if a partner wants to order some and put them in as a solution [for] a customer, we'll be excited to see that happen.

Why did you make the decision not to give partners access to the product?

We didn't make that decision. We didn't.

We made a decision to get into the market in a way where we know we'll have a perfect experience to get started, and then we can always do more -- go broader.

We had no idea what kind of a reaction we were going to get to the product, to the concept of us doing Surface. None of that. So we took our first step. It doesn't mean we can't take other steps.

We get to decide. Right now we are focused on executing well this first phase, which is to ship the Surface RT along with Windows 8 in October. We said it would be about 90 days later before we would have the Surface [for Windows] 8 [Pro], and those will just be in limited distribution to start.

It really feels like you guys have taken off the gloves. Talk about that.

I think it is Windows 8 that really is the catalyst for sort of stepping out. Look, we needed to reimagine Windows ... in order to take the next steps with our customers and take the next steps in competition. Whether it is new silicon support, new form factor, new UI, embracive touch and stylus, all of that stuff had to come with the new version of the operating system.

So, of course you see, what should I say, stepped up competitive energy and vigor and the like. Surface is a part of that because we wanted to have the device that was designed for Windows 8 and only Windows 8, and a design that really would make it absolutely clear that you could have a device without compromise that was both a tablet and a PC. And, we think we have done that.

But we also think ... there will be a number of OEMs who have great devices along that road. So with Windows 8, yeah, I think you could say it is a new era. Gloves are off. Let's go, baby! Bring it!

Can any of the OEMs really match what Microsoft is going to bring to the table since you guys have the secret software sauce?

Look, we have been very good about supporting our OEMs. Very good. There is nothing that we can build that our OEMs can't build with their own energy, innovation and the like. There will be 375 million PCs sold [this year]. I think it is probably fair to say that we are not going to sell a super high percentage of the 375 [million].

So, it is not us alone. It is us and our partners; it remains us and our OEM partners, not just our solution provider partners. But, it is us and our OEM partners.

Surface will be a very important thing. And I am really excited about it. But, we are also going to see great work from HP and Dell and Samsung and a bunch of other guys.

Don't you think this will push the OEMs to do more innovative products?

I don't think it is going to hurt in terms of stretching innovation. It is the time. Windows 8 is a unique opportunity not just for us, but for everybody who builds applications, for everybody who builds computers.

Windows 8 is a unique opportunity. And if Surface galvanizes people around the opportunity to do hardware innovation, [so be it].

Because in a sense, we had ceded -- our ecosystem had ceded -- some of the boundary between hardware and software innovation to the other guys, the guys I don't like.

What are you going to do to assure that hardware OEMs have a level playing field?

No. 1, do we license them everything [in Windows] that we use in our own Surface? And, the answer to that question is: Yes. No. 2: they will say, "'Hey look, essentially do you charge yourself some kind of a royalty so that we're on equal footing from a price perspective?" The answer is: We handle things so that things are appropriate in that dimension. And then the third question they ask is when they give us their confidential information do we protect that from our Surface team? And, the answer is of course we'll do that.

If you own the software and hardware, what does that mean for Apple?

I think we are trying to make absolutely clear we are not going to leave any space uncovered to Apple. We are not. No space uncovered that is Apple's.

We have our advantages in productivity. We have our advantages in terms of enterprise management and manageability. We have got our advantages in terms of when you plug into server infrastructure in the enterprise. But, we are not going to let any piece of this. Not the consumer cloud. Not hardware software innovation. We are not leaving any of that to Apple by itself. Not going to happen. Not on our watch.

Now we're bringing our partners with us, our hardware vendor partners. But, you know we are not going to leave any space.

We do feel empowered to innovate everywhere and bring our partners with us. We are just not going to leave any ... stone unturned, so to speak, as we pursue that.

How about the ability for Microsoft to do its own iPhone-like competitor?

Right now we are working real hard on the Surface. That's the focus. That's our core.

Look, we'll see what happens. We have good partners with Nokia, HTC in the phone space. I love what we got going on with the Surface. We are going to focus on Surface and our other Windows 8 tablet partners and see if we can go make something happen.

Business-wise, how does Surface change the balance sheet and how you look at Microsoft as a company?

It depends on how many we wind up selling versus how much our partners [sell], if our partners get galvanized.

We’ll have a decent-size business. There is no question in Surface. Whether we have a decent-size business or better than that will depend on kind of how galvanized our partners really get around the Windows 8 opportunity.

What factors led to the decision to build Surface?

As we brought Windows 8 to market, we made a decision that we just were not going to leave any seam exposed to Apple in terms of an innovation boundary. We were going to think about things holistically. We were going to make sure that this particular form factor -- that was all the best of a PC and all of the best of a tablet -- got all of the best innovation we could bring and not leave that exposed to potential vagaries that may come out of our ecosystem while it is getting galvanized. And, we made that decision and moved forward down that path.

So, who made the final call on Surface and when?

I know there is a desire to paint things dramatically. But of course there are many decisions. There is the decision to start. There are decisions to proceed. There are decisions to make commitments to hardware partners, to suppliers. There is the decision to make an announcement. There are various people involved.

Obviously, starting was a big thing. Starting was a big thing. But, the Windows team -- the Surface team -- we had got kind of "A" people involved. It has been a small team, relatively, that has been involved. Obviously, we ran the program with a lot of privacy and secrecy in order to really have a chance to do it right, so not a lot of people involved, really. The Surface guys themselves. Steven Sinofsky [pictured at left]. The Windows team basically was mostly in the dark with just a couple of exceptions. Me. The board obviously knew what we were doing.

How does the Surface feel?

For guys with good keyboard technology, it was sort of a fun thing for those guys to do because we have been working on keyboard technology, you know, for 10 plus years. Keyboards and mice.

You could say what we have done with the Touch cover and the Type cover is just kind of the ultimate keyboard technology.

Talk about the Virtual Desktop Interfacelicensing that is going to affect Apple iPad.

We are in a battle. I don't particularly want to get into the pricing distinctions. Our partners will figure that out, and they will find the best value for the customer. I think that between the hardware we provide, the software solutions we provide and the way things work together, let alone whatever people see in terms of advantages and value, we have got a pretty compelling story for people with the consumerization of IT, whether it is with the Surface or with some of the other form factors like the Lenovo Yoga and some of the new Samsung devices, the new Asus device that people are bringing to market.

But this ability to use licensing as a weapon against Apple, is that going to help you?

I think we will put things together in a more comfortable package than the competition because it is where our bread is buttered. Obviously, if you don't own a Microsoft device but if you want to buy a Windows license for it, we are always glad to sell you one. And, we do have customers who will buy Windows licenses effectively, whether it is through VDI or people who just install Windows on a Mac.

There are people who want Windows. And, I think there are going to be more people who want new Windows. So, we'll see where it goes.

What you are doing with financial incentives for Windows 8?

I think what we give our partners with Windows 8 -- and you saw that here at the partner conference -- is their ability to help their customers do things that they couldn't do before. Whether the margin is X percent or Y percent, the real opportunity is to sell X or 2X or 3X or 5X, the ability to galvanize the customer base on new scenarios, new opportunities and really drive overall volume. Yeah, margin will come with it. But, I think it is pretty powerful.

Stan Shih, the Acer founder, called the Surface almost a publicity stunt. He was hoping you guys would pull back. What is your response to that?

Well, it is not a publicity stunt, when we have got a lot of work to do to finish Surface 8 and Surface RT. We are working ahead.

But, it is not a publicity stunt. I mean it is a real piece of hardware that real blood, sweat and tears [went into] and engineering excellence and innovation and creativity and capital. We are in. We are also in with our partners. But we are in!

What percent of your partners have the right business model?

The change on the device side makes a difference. But, the change on the cloud side makes a bigger difference. If you look at the mix of people whose business is deployment and services, infrastructure services, hosting, there will be a shift. In general, I think if you go out 10 years, the channel will be more focused in on app development and business application value and a little less focused in on infrastructure than it is today, and deployment. I think that shift will happen. I am not trying to tell anybody it has to happen yesterday. It will happen at its pace.

But, I do think that partner conference -- what year are we in, 2012? -- 2022, that partner conference, will have a different kind of a makeup. And, it may happen before that. And, that can be sometimes disquieting to people, uncomfortable. But, that is an inevitable shift.

What do you want your legacy to be when you move on?

Look, I am not a legacy guy, and I am not a fiscal year guy. I’m neither one of those. But, I am a guy who understands timing and big moments. This is an epic time. Look, I can honestly say: The founding of Microsoft, the launch of the PC, Windows 95 and Windows 8 are the four big moments in Microsoft history. I can say that.

And, if you asked me to pick, I can honestly tell you a reasonable case could be made for all of them. The founding was really the dawn of software as a business. The PC really kicked off the mainstreaming of information technology. Windows 95 is really what brought computing to the masses. And, Windows 8 is really what takes us into the whole new world of mobile solutions and the cloud.

What partners want is the ability to sell technology from Microsoft and white label it. Talk about that.

In a world of devices and services, I think we took a big step forward with the partners today with Office 365 Open. Big step forward.

What it lets them do, actually, is say, okay, we know how to offer an integrated package of our value without us really doing the management, the deployment and everything else. It really, I think, will be a trigger point for letting the channel, the partners really embrace 365. And, you are pointing out some other places where our partners would like to see us open things up. If we came from a world of software, we are moving now to a world in which software gets embedded in hardware and in cloud services, and we are going to continue to be the company that is most channel friendly, if you will, in embracing that.

What does it say about the channel that your top partner advocate on the senior management team, COO Kevin Turner, is a 20-year Walmart guy?

Let me say something. With Surface, we said we are not going to leave any ground open, no seam that Apple fills that we don't fill. Some of the things we have had to do in the cloud, we started out by saying let's get it right ourselves and then bring our partners into it, as opposed to we could have designed Surface a different way. We could have just said, "Hey," to our OEM hardware partners, "Here, just take some technology, and we'll see what you get." We could do the same thing on the cloud. We think we have got to get it right for the customer and involve the partner. We are doing that with the hardware. We are doing that with the cloud. We love our partners. They don't have to worry about any lack of advocacy from Kevin and from me. Not at all. We are all in. We are all in, as the world gets to be a world of devices and services powered by software. We are all in with the channel.

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