July 6, 2004 5:00 PM PDT

Ballmer: Microsoft needs better sales pitch

Microsoft needs to do a better job of convincing customers that the latest versions of its products are worth having, CEO Steve Ballmer said in a companywide e-mail on Tuesday.

In addition, Ballmer called for $1 billion in cost cutting and tighter controls on the company's expenses.

Ballmer said that one way to make Microsoft products more useful is to offer more tailored versions of its main products. The company has already expanded the number of versions of Office and is also working to offer more specialized versions of Windows Server, such as a forthcoming version for high-end computing.

"We must also work to change a number of customer perceptions, including the views that older versions of Office and Windows are good enough, and that Microsoft is not sufficiently focused on security," Ballmer wrote in a wide-ranging memo to employees, a missive that has become something of an annual tradition as Microsoft starts its new fiscal year.

In the memo, Ballmer also addressed employee morale, competition with Linux and the long road to Longhorn, the next version of Windows that's now due in 2006.

"We have a lot of hard work yet to do on Longhorn to deliver the right capability," Ballmer wrote in the e-mail, noting that the company has pushed back Longhorn and moved forward other products "so we can take the time to get it right."

"Longhorn is a significant step forward, and between now and then we have Tablet, digital media, security innovations in Windows XP SP2, and new Office capabilities to amaze customers," Ballmer wrote.

"We have a lot of hard work yet to do on Longhorn to deliver the right capability."
--Steve Ballmer, CEO, Microsoft
It is not clear whether Ballmer meant that an entirely new version of Office would come before Longhorn, though there is a reference later in the memo to Office 12--the next version of the productivity suite. Microsoft has previously said that a new version of Office that would take advantage of the new operating system was planned for the same time frame as Longhorn. A company representative declined to elaborate on Ballmer's remarks.

The opportunity in the PC market remains strong, Ballmer said, adding that he believes the number of PC users worldwide will reach 1 billion by 2010, up from 600 million, led by growth in emerging markets.

While touting the fact that the company has settled many of its legal issues, Ballmer also called on workers to fight hard in the marketplace.

"We must continue to compete as relentlessly as ever, while also reflecting our industry leadership responsibilities," Ballmer wrote. He said the latest server operating system is capable of taking on the open-source operating system Linux for any task.

"With Windows Server 2003, we can compete for every commercial workload running on Linux or Unix today--even mainframes and high-performance computing--at lower cost, more efficiently and more reliably," he wrote.

Looking for a little more love
Ballmer also pointed to the company's "Get the Facts" campaign, which uses third-party studies to show Windows cost-competitiveness, as a model for the rest of the company.

"We are effectively using independent studies by Forrester Research, the Yankee Group, IDC, Giga, Bearing Point and many others to change perceptions of the advantages of Windows over Linux when it comes to Total Cost of Ownership, functionality and productivity advantages, support and security," Ballmer wrote. "We need to do work like this in every business to get customers to recognize our work and appreciate it fully."

Microsoft's CEO also used the message to address morale issues that had come up, in part, as a result of the company's decision to cut certain benefits, including the discount offered to employees when they purchase Microsoft stock.

"We considered and rejected more substantial changes, based on employee input," Ballmer wrote, adding that the company's cost per employee will still rise 6 percent this year, spurred by skyrocketing health-care costs. Microsoft plans to cut $1 billion in expenses in the current fiscal year, which began last week.

Ballmer did promise that employees would get raises "consistent with inflation" and that as many as a fifth of employees will get promotions this year.

"Some employees have asked why we can?t use some of our $56 billion in cash to avoid making the benefits changes," Ballmer wrote. "Using the cash reduces profits, which reduces the stock price. The cash is shareholders? money, so we need to either invest in new opportunities or return it to them."

The company has promised to outline a plan for that cash at or before a meeting with financial analysts at the end of this month.

Finally, Ballmer hinted at some other internal efforts, including ways to get more productivity from its sales force and a better method for predicting its revenue. He wrote that the company has had to add structure as it has grown, but added that it is trying to avoid becoming a bureaucracy. That said, he wrote that the company must work to limit the reorganizations that have become common in recent years.

"We need to reduce churn (e.g., org. structure, people and strategy changes) and its impact on productivity, accountability and execution, and do a better job of executing well when change is necessary," he wrote.

4 comments

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Clue to Steve: No one gives a crap
2000, XP, 2003 are all perfectly fine office suites. The only reason people upgraded in the past is because Office sucked [BEEP].
Posted by Jonathan (832 comments )
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nc1v@hotmail.com says:
Steve does not live in the real world Like politicans don't either they have too much money to think like real people. I write a lot of letters and many books with office 97, why do I need anything else. Come on tell me why I need another $300 program that does what I am already doing. You can't without sounding like a politician, answer a question without giving an answer but it sounds like you have answered it. So although I can get Office 2000 at a reduced price now, I am not going to go there.As with any software, it has to be much better then its predocessor to be any good but to sell it has to be reasonable priced. Look how great an Apple computer is, but it is price twice or three times the price of a PC. Who is going to spend $1500 for a desktop computer and $2500 for a laptop an Apple nut not me. So Mr. Balmer come down to the real world to solve the problems the problems of the "People".You have to remember when you didn't have it. Thank You
Posted by Richie7 (7 comments )
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It occurs to me
Mr. Ballmers memo seems to underline the very thing that slows MS progress. They have become a large machine that is having a hard time controlling what it wants to do. I am not a linux zealot and I think MS has done a good job in the past to standardize and make a PC productive to the general public. However, windows (all flavors) is getting harder to use because of all the security holes. IE is impossible to use at this point because it is susceptable to being hijacked in various ways. If I were Mr. Ballmer I would focus everything that MS has to getting a new operating system out the door that addresses the numerous security issues. I run an ISP and had to finally use a Linux based server solution because of the security issues inherent in windows IIS. I think windows is a much more user freindly and productive platform for most people but security problems will kill this advantage eventually.
In regard to office: I like office and use office but it has so much stuff in it that I will never use. whats wrong with offering a good low cost version of office?
Posted by (1 comment )
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MS new products
I'm very happy with win 95 at home and as far as I'm concerned, Microsoft can go jump in a deep lake!
Posted by stang01 (1 comment )
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