Q&A: Steve Ballmer, CEO, Microsoft Corp.

Steve Ballmer no doubt wants to see a lot of resellers move Windows 7 into their customer base, but that doesn’t mean he wants anyone to feel pressured.

When the Microsoft Corp. (NASDAQ: MSFT) CEO came to Toronto to launch the company’s latest operating system, as well as new versions of its server and e-mail software on Wednesday, he was asked by an audience member when they would be “forced” to move to Windows 7.

“Forced? You’re not going to feel forced (to upgrade to Win7),” he told a crowd of about 650 IT professionals and partners, “You’re going to feel more and more … um … excited.”

Following his keynote address, Ballmer met with a small group of Canadian journalists where he went beyond the launch of Windows 7 and Windows Server R2 to discuss some other areas of interest to the channel.

Computer Dealer News: Has popularity of the netbooks surprised you?

Steve Ballmer: I think you’ll have certain percentage of the world that will say, “Hey, I will take the compromises in capabilities and performance that the netbook implies in order to get the right price.” The thing I think is a little silly right now is that some people think if you get long battery life and lightweight you also have to be under-powered. I think there will be a lot of nice notebooks that will not be under-powered, that will have long battery life and are lightweight. If you ask people, “What does ‘netbook’ mean?” you’re going to get a bunch of different answers. For some people it’s going to mean an Atom processor. For some people it’s going to mean cheap. For some people it’s going to mean a small screen. You’ll get a variety of different answers. We’re going to have a diversity of solutions. For the lowest-cost machines, we need to have an operating system at the right price. Windows 7 Starter Edition is that operating system.

CDN: Do you still plan to buy more startups in order to create more innovations?

S.B.: We’ll continue to buy companies. We’ll buy 10 to 20 companies in the next year. They’ll almost all be small enough that you won’t pay any attention to them when we buy them, probably, and they’ll be important to us for technology and innovations of a varied sort.

We bought a company three weeks ago, I think, called Interactive Supercomputing in Boston for US$50M – actually, I’m not supposed to say (laughs) – but for tens of millions of dollars! It got no pickup. Unless you’re spending over a billion or you’re buying a public company it’s just not that interesting. And yet most of what we’ll buy will be someplace between US$30 million and US$400-US$500M. Google buys a lot of stuff, too. Apple doesn’t buy much; Apple has a narrower footprint and that happens to be the way they choose to operate.

CDN: How is Microsoft trying to grow its position in the online advertising space?

S.B.: We have three different participations in the advertising business. No. 1, we are a first-party publisher who has advertising inventory on its sites – MSN, Windows Live and as an aspirant in the search business. No. 2, we’re trying to provide a set of tools and technologies for advertisers who want to buy the Web – and I think advertisers want to know “How do we target people on the Net?” as opposed to one or two of three different properties.

And then No. 4, we build a bunch of tools, Windows, Windows Server, SharePoint, et cetera, for people who want to build Web sites, including digital marketing-based types of experiences. So we participate in all three, in all three ways.

The truth is, there are three lucrative models and one that’s kind of open for how to use advertising to make money – there are plenty of ways to use advertising to reach customers. Search works really well for Google, and hopefully search will work for somebody other than Google in the search-based advertising business. There are a few big Web sites – not that many, but there are a few big Web sites that are able to make a good business. MSN falls into that category. Yahoo falls into that category, Facebook falls into that category. Bloggers have a cost structure that matches their revenue structure. That’s very small Web sites.

There is an intermediate ground where advertising not working that well, and that’s where you see some of the pressure, in which traditional media moves online and the business is contracting and not moving enough fast enough to support add funding. I think a lot was made over the last several years that overstated how big, how many things are really going to be ad-funded on the Internet. I mean, Gmail is not ad-funded. Google just loses money on it. YouTube is not ad-funded. Google loses money on it. That doesn’t mean they’re not worth doing – I’m not criticizing, I’m just saying it’s tough to build a big advertising business on the Internet.

CDN:There’s a lot of speculation about Apple building a tablet. Will Microsoft do the same?

S.B.: What does a tablet mean? I guess it means a computer where you’re mostly interacting with it via touch. It could be a pen, it could be your finger, but it’s primarily via touch. There still are two kinds – the kind you have a keyboard attached to, and the kind that really doesn’t have a keyboard most of the time. Partners build both of those. We call the ones where you basically have to have a big docking station slates – they’re thinner, lighter. “Convertables” would be a name we apply to the other one. I think they’re both interesting categories. Neither one took off quite the way we had thought when we first introduced them. Some of that’s hardware. Some of that’s software. With Windows 7 you’re going to see a new round of innovation by our hardware partners, both in convertables and in slates and we’ll see interesting things come to the fore.

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