Beyond Binary

LAS VEGAS--Microsoft CEO Steve Ballmer arrived at the Consumer Electronics Show with his usual optimism, but he also brings a clear sense of reality: The tech industry is in for some rough times.

"The fact of the matter is, this is not a downturn, this is a bit of a reset. Those are quite different and we're trying to really suss through what we think that means for us," Ballmer said in an interview here with CNET News Thursday, a day after delivering the keynote address at the conference.

Ballmer talked about what the "reset" will mean for Microsoft, as well as lessons learned from Vista and Microsoft's move to put Office on the Web. When it comes to what worries him most, most days it's still Google, although he concedes he has had to spend more time recently on economic issues and making sure Microsoft makes the adjustments it needs to. He wouldn't go into detail on what (and who) Microsoft plans to cut, but it is clear that some changes are coming.

The following is an edited version of that interview:

CNET News: Obviously, Microsoft didn't necessarily get everything it might have hoped for in terms of the critical response for Vista. What are you guys planning to do differently with Windows 7?

Ballmer: Well, I think we made some choices in Vista to improve security at the kind of expense, if you will, of compatibility. With Windows 7, we're able to build compatibly off of Vista and really sort of just tune, if you will, the user interface, the performance, and at the end of the day, it'll be what the users think of the product that we're building, and we'll start getting beta feedback this week.

Q: How hard are you pushing the team to get Windows 7 out this year?

Ballmer: I'm not pushing the team hard, the team is pushing itself. They set some goals and objectives and of course we'll ship the product when it's--as I said last night--both right and ready and when we know when that is, we'll share that.

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LAS VEGAS - Bill Veghte may not be as well known as his boss at Microsoft, Steve Ballmer. But as the head of the company's Windows business, Veghte is one of the key executives to the future of the company.

At the Consumer Electronics Show here Wednesday, Veghte sat with CNET News senior writer Ina Fried for a wide-ranging interview, touching on everything from the planned release of Windows 7 to future of Microsoft's gee-whiz touch technology. The following is a condensed and edited version of that interview:

Q: It's fair to say that you guys would like to have Windows 7 out in time for the holidays?
Veghte: We will ship it when the quality is right, and earlier is always better, but not at the cost of (ecosystem support), and not at the cost of quality.

In the past, one of the tools that Microsoft and other companies used to help manage that transition is some sort of technology guarantee: if you buy Vista after this point, you'll get 7 for free. My understanding is that you guys are planning something similar with 7?
Veghte: Certainly we want to make sure that Windows customers have an easy transition to Windows 7, and over the years we've provided a variety of offerings to customers...guarantee is one of them. And while we have nothing to announce today, we're certainly evaluating the options to make sure that we can help and support our customers in that transition.

One of the things with Windows 7, some of the cool features, particularly multitouch, require the hardware makers to build hardware that has the necessary things to take advantage of that. What is Microsoft doing to make sure that it's more than just a couple showcase machines that have touch?
Veghte: One of the things that we've worked very hard on in this release is engaging with the hardware vendors, taking their feedback, highlighting those opportunities, and then in the high quality releases doing deep engineering cooperation across the organization. Michael Dell, for example, went on record saying Dell worked with Microsoft for many, many years many releases of Windows, and this is one of the best, deepest cooperations that we've ever had...The beta is a big milestone, because we sort of unveil a lot of the capabilities that were not there in the developer release.

Do you have a goal in terms of how many people you want to try out this beta?
Veghte: Traditionally several million people is a good number. Several million means you can take all the feedback. It's important that as people are thinking about whether they download the beta, they actually use it (and share) that information with us. But if we have a couple million active beta testers, then we're going to be in great shape. This release is all about listening to customers, and we certainly have features and capabilities that you're familiar with, and now in the beta, a couple million people banging on it over the next couple of months.

What is the consumer pitch for Windows 7?
Veghte: You know, I get really excited about Windows 7 for a couple of different reasons. One is that it takes a set of everyday tasks that I do all the time, and it makes them faster and simpler. The second reason that I get excited about Windows 7 is there's a set of things that I expect my computer to do the way I want it to do, whether it be around reliability or security or battery life or performance or (controlling) messages popping up. And in Windows 7 on each one of those dimensions there's a set of improvements that we hope to deliver.

The next piece is in every release of Windows you have the opportunity to enable a set of scenarios or capabilities that are not (well-served now)...Like by providing touch support in Windows, whether you're a (third-party developer) or a hardware developer, you'll think about, "Do I touch-enable my notebook or do I touch-enable my application?" That's going to enable a whole set of new capabilities and interaction models for people.

Since we're at the Consumer Electronics Show here, the number of -- the amount of music, photos and video that is increasingly in my household, my PC, my wife's PC, you know, it's all over the place, and I just want one library one library of all of the Veghte photos or all the Veghte music. I don't really care about the physical location. And in Windows 7 we've taken that, through the combination of the new explorer, the PlayTo capabilities, the library construct, and made it much easier for people to manage, store, share their digital content.

The popular sentiment, or what I've heard most often from people who have played with 7, is this is Vista done right. What's your reaction to that?
Veghte: The next release is always (going to be better) and that's called innovation. And so we've got to satisfy a set of customers in Windows Vista now, we've got people announcing exciting new license numbers in terms of the continued growth of Windows Vista, but the investments in the innovation that we did in Windows Vista architecturally are enabling a set of capabilities that we couldn't do.

Many businesses have not jumped to Vista. What's the business message going to be around 7?
Veghte: When I think about the conversations with business customers, they want not only things that we do for end users, but they want great manageability and security. And clearly two years after the delivery of Windows Vista, we've demonstrated a higher degree of manageability and security.

Is it disappointing that it hasn't translated better?
Veghte: No, but in some fashion -- that's why I look at it and say, from a marketing perspective we did make that statement. We said Windows Vista is the most secure desktop OS release we've ever done. By virtue of the release of Windows Vista, we were going to have lots and lots of people going after it. And under that, Windows Vista has stood up very, very strongly... When I think about the conversation with CIOs or with businesses, in this era, this modern desktop era, you want security, you want manageability at a different level than you want it in 1999. And as such, Windows Vista meets that bar and Windows 7 builds on it...And we have to protect the investments that customers are making today in Windows Vista.

Have you changed your marketing approach because of the economy?
Veghte: Can I broaden the question a little bit? When you think about the economic situation, what does that mean to the Windows?

Sure.
Veghte: Windows PCs have always represented a great value relative to other companies in the marketplace, both in terms of the whole range of price points and all the capabilities that you get out of the box.

Given the economic situation, as shareholders would expect us to tighten our belt, but with the things that are most important, and customers would expect us to do that while continuing to innovate. And this is why even in this touch economic situation it's exciting to be able to look at the product pipeline we've got with Internet Explorer 8, Windows 7 and Windows Live...and the next generation of Windows Live, and look at all of the advances that we're offering to customers. A Windows PC is an unbelievable entertainment investment.

It's reasonable to think though that you guys might be spending less on ads and other marketing.
Veghte: The expectation is that the dollars we spend on advertising today will go further than it did (before). But the Windows business is pretty core to Microsoft, it's core to the Microsoft brand, so we will continue to invest in support of Windows.

Do you think the same holds true when we look at things like headcount?
Veghte: Windows is core to the success of the company. I'm certainly looking at how we can be more efficient, and given the mission in our advertising spending that we just talked about, efficient in where we apply our headcount and efficient, but not at the risk of jeopardizing the opportunity that we have, and the opportunity in these economic conditions.

Do you think Microsoft will have do more than you have in the past in terms of reacting to the economy?
Veghte: I think certainly Bill's philosophy and Steve's philosophy has been to take a long term view. The long term view is (stick with) the investments we make in R&D, and then patiently and steadily and tenaciously deliver on that opportunity.

Obviously a lot of the marketing that you guys rolled out as part of the new ad campaign is pretty deliberately trying to say this is what Windows is, and really this is what Windows is vis-à-vis Apple. Where do you see the competitive landscape having shifted from where it was say a few months ago?
Veghte: In the fall we did two things: One is we were clear on what Windows represents... to be clear on what Windows stood for, and give people, Windows customers the opportunity to be proud of who and what (they stand for) in rolling out the tag line, saying "I am a PC." Now, you can decide whether that's competitive context or not. I choose to sort of think about it as we need communicate what Windows stands for, and we need to give our customers the opportunity to celebrate who and what they've chosen.

Microsoft's history with Windows is taking things, concepts, technologies, and making them accessible to the average user. And your competitor, Apple, you know, typically gets a lot of credit for innovating. Are there things that Microsoft is doing in the desktop OS that you believe you aren't getting credit for?
Veghte: I think the important thing for us is making sure that we're serving our customers well. You look at how we've listened and the things that we've picked up on and delivered in Windows 7 or Windows Live Wave 3 or Internet Explorer 8, it's I think a set of everyday tasks, that's huge innovation. I think it's huge innovation when you realize that on average over a third of the time people have four or more windows open. If I can dramatically simplify that, that's innovation...And so when I look sort of against the backdrop of history and sort of the current economic landscape, I think we've got -- we have a tremendous value proposition to bring to market.

LAS VEGAS--It's not clear whether Microsoft is just trying to be overly cautious, but top Windows executive Bill Veghte said the company is telling PC makers that Windows 7 might or might not be ready in time for this year's holiday season.

"I'm telling them that it could go either way," Veghte told CNET News in an interview Wednesday. "We will ship it when the quality is right, and earlier is always better, but not at the cost of ecosystem support and not at the cost of quality.

Veghte also said that the economy is factoring into his marketing plans for Windows, which is in the middle of an advertising push initially estimated at several hundred million dollars over several years.

"Given the economic situation, as shareholders would expect us to tighten our belt, but with the things that are most important, and customers would expect us to do that while continuing to innovate," he said. "The expectation is that the dollar we spend on advertising today will go further than it did in July...and the Windows business is pretty core to Microsoft, it's core to the Microsoft brand, so we will continue to invest in support of Windows."

Asked whether he thought the same applied to the unit's staffing level, he said Windows is core to the success of the company," but added that he's "certainly looking at how we can be more efficient, and given the mission in our advertising spending that we just talked about, efficient in where we apply our headcount and efficient, but not at the risk of jeopardizing the opportunity that we have."

LAS VEGAS--As he takes the stage Wednesday, Steve Ballmer has a mighty big task ahead of him.

Not only is he taking over Consumer Electronics Show keynote duties from Bill Gates, he is also aiming to convince the tech world that Microsoft is serious about defending its turf on the PC as well as making headway on the Web, television and phone. Oh yeah, and then there's that whole economy-melting-down thing.

Ballmer hasn't arrived in Sin City empty handed, however. In perhaps the biggest announcement of the night, he will announce Microsoft is ready with a beta version of Windows 7 and he will show off some of its key consumer features.

Microsoft will also announce new deals for Windows Live that will see Microsoft's search engine become the default on PCs from Dell as well as touting a deal with Verizon Wireless that leaked earlier in the day. The company is also counting on two Halo game releases this year to help keep the Xbox 360 going in the right direction.

But Microsoft faces considerable competition in each of the areas Ballmer is discussing. On the PC front, a resurgent Apple has increased its share. In search, Google continues to dominate. In the phone market, Apple's iPhone has grabbed much of the spotlight, not to mention significant market share. Google also has joined the fray, while longtime competitors such as Research in Motion and Palm are trying to maintain their slices of the pie as well.

And then, of course, there's the substantial financial headwind. Ballmer is expected to express his usual optimism--despite the global financial outlook--and discuss the company's commitment to research and development in both good times and bad. That said, Microsoft is clearly not immune from the problems that led Intel Wednesday to announce that fourth-quarter revenues were down 23 percent from the same quarter a year ago.

On the PC side, Microsoft is looking to turn the page from Vista to its successor, Windows 7. Microsoft isn't talking about any new features of Windows 7, saying it talked about all of the key features at the Professional Developer Conference last year. Instead, it will attempt to demonstrate what features like improved home networking really mean for the average household.

As for the beta of Windows 7, Microsoft said it will be immediately available for technical beta testers and those in Microsoft's TechNet and MSDN developer programs and will be made publicly available on Friday. The company still isn't officially committing to a final release in time for this year's holiday season, although the company is clearly still aiming for that.

Ballmer will also discuss Windows Live. In addition to the global PC deal with Dell and the five year U.S. deal with Verizon Wireless, Microsoft has expanded its relationship with Facebook to allow users to see within their Windows Live homepage certain of their buddies' Facebook updates. The company is also stripping the beta tag off many of its Web-based and downloadable Windows Live products.

On the phone side, Ballmer is expected to talk about the improved mobile browser Microsoft released at the end of last year, but the company is not talking yet about when to expect a serious upgrade to the Windows Mobile operating system, which has grown rather long in the tooth. Microsoft has made reference to an interim Windows 6.5 release that could serve as a bridge until the more significant overhaul of the operating system--Windows Mobile 7--makes its delayed debut.

On the automotive side, Microsoft is announcing a new version of its Ford Sync entertainment system that uses voice recognition software from its Tellme acquisition.

While that's the main news of the show, check out our live blog to get some live quotes, our commentary, as well as updates on any celebrity guests or funny videos that are often the hallmark of Microsoft's keynotes.

See also: Windows 7 beta: First impressions

LAS VEGAS--One piece of Microsoft's Consumer Electronics Show news is out of the bag. The company has struck a deal that will see its search engine become the default on Verizon Wireless cell phones for the next five years.

Microsoft CEO Steve Ballmer was set to unveil the pact as part of his keynote later Wednesday. However, Verizon CEO Ivan Seidenberg mentioned the deal at a Citigroup conference earlier Wednesday, according to a Reuters report.

The Wall Street Journal reported last year that the two companies were working on some sort of deal. And it's not the first time that Microsoft has partnered to get content onto Verizon phones.

The Verizon deal is just one part of Ballmer's keynote, which is expected to focus heavily on Windows 7.

A beta version of Windows 7 got leaked onto the Internet late last month, raising hopes that an officially sanctioned version would be available soon. A Microsoft developer's blog post earlier in December also appeared to indicate that the beta would come in January.

Microsoft will have a bunch of stuff to show at the Consumer Electronics Show in January, but a rumored ZunePhone won't be one of them, according to sources familiar with the company's plans.

Instead, much of CEO Steve Ballmer's focus will be on talking about Windows 7 from a consumer perspective. Microsoft is pushing to have Windows 7 done in time for the holiday 2009 shopping season, so that means this CES is Ballmer's best stage to tout its benefits.

While the desktop operating system will be front and center, sources say to expect Ballmer to talk about how Windows is moving beyond the PC and into a world of PC, Web, and phone, a refrain we also heard a lot from Ray Ozzie at November's Professional Developers Conference, where the world also got its first good look at Windows 7.

On the phone front, Microsoft may not have a ZunePhone, but it is going ahead with several other strategies--pushing phone makers to develop phones based on Windows Mobile, developing Windows Live services for phones running a variety of operating systems as well as a number of new "premium mobile services" based on its Danger acquisition.

The company has also talked about extending its Zune service beyond the company's own dedicated player and mentioned the phone as a logical place to access the service. We may hear more about timing of this at CES, I'm told. In an October interview with CIO UK, Ballmer mentioned the possibility of accessing the Zune service on Windows Mobile phones.

The Xbox will certainly get its due as well during Ballmer's keynote speech and, as is typically the case, expect Microsoft to announce some new partnerships at the show. A funny video and celebrity guest are usually safe bets as well.

So that's what I've heard, but if tipsters know any more, I'm all ears.