Newsmaker: Ballmer: Xbox 'can take Sony'

TORONTO--Although much has been made of the challenges Microsoft faces in readying the next version of Windows, CEO Steve Ballmer said that "big bets" like Longhorn are not a reason for concern.

Rather, Ballmer said the time the alarm bells should go off is when Microsoft starts saying such technological leaps are not worth the risk.

"I think the day we say that to you, you ought to worry," Ballmer told thousands of partners gathered for the Worldwide Partner Conference here.

In an interview with CNET News.com after his speech on Tuesday, Ballmer addressed the benefits and consequences of such bets, the effect that security issues have had on the company's image, and various other topics.

Q: The maturing Microsoft has been a recurring theme recently. That was a lot of the reaction, for example, to the recent memo you sent to employees. One person wrote last week that, "Having vanquished IBM, Microsoft now faces the risk of becoming IBM." I'm curious, A: what you make of that and B: others might look at IBM and say that's a success story for a company that has been many things in its history and has simply found a new way.
A: Let me say a couple of things. First of all, we haven't vanquished IBM. They still have a $12 (billion) to $13 billion software business. Every dollar they derive is still a dollar over time that is available to us, pretty much. I think we've done a good job where we compete, and we still have a great opportunity in front of us relative to IBM and the competition there.

When people say IBM, IBM's core franchise was a software-based franchise. The mainframe was kind of about hardware, but it was also about mainframe operating systems. They have not been able to regenerate their software franchise. They have been able to do some things which are interesting in terms of regenerating their business with services. They don't have an overwhelming presence in any software category off the mainframe. WebSphere doesn't have an overwhelming presence, (same for) DB2, Tivoli, Notes.

When I say are we going to become IBM, the question is are we a company that can keep innovating and regenerating itself in the software business. I think we've done a pretty good job. Imperfect, but pretty darn good. People say, "Yeah, but there's people that have been first with some things that maybe you should have been first with." People point to iTunes, or they'll point to some of the Google search stuff. I'll say, "Yeah, there's still good competitors out there." But the fact we have some good competitors doesn't mean we don't have the ability to generate new opportunities for ourselves, to compete, to win.

I know what people mean when they say, "They've become like IBM." I won't let that happen. With my every fabric I want to make sure that we keep a culture that allows us to continue to be passionate and innovative and, in a certain way, a little weird, a little unique. I think that's very important. People don't want to go work for a big sedentary, blah, blah, blah.

I am betting we can take Sony in the next generation.

I think the work that Bill (Gates) and I have been doing, really together, is to make sure we are investing in new areas. Look at what we have done with Xbox. We may still be losing money, but we have gone from nowhere to a significant player with a whole different approach. We've generated something brand new. I bet we can take Sony next generation. I am betting we can take Sony in the next generation.

Since you mention Xbox, there was a recent poll of top most admired brands and Microsoft wasn't in the top 10 this time. How important is that in terms of the overall consumer business?
Brand is important. Brand is always important in the consumer business, and I think we have an excellent brand. The last several years we've done very well. We did very well this year. What causes people to go up a point or down a point? I think frankly until we whip this security thing, it doesn't surprise me that we might have dropped a little bit.

We're still quite highly rated, but we've got to do better. We are working to do better. I think if we can really get XP SP2 (Service Pack 2) out everywhere it needs to be in the consumer market. I think that will help a lot. (Microsoft announced Monday that SP2 will ship in August, about a month later than expected.)

Several profit warnings came out last week. Everyone's immediate reaction was, "Oh, enterprise software isn't growing." Where do you see the areas in enterprise software that will grow?
For us--I don't know about the industry--but for us management is going to grow, security is going to grow, the server platform itself ought to grow, collaboration, business intelligence. I can look at almost anything and tell you I see absolute growth possibilities.

The server market is going to continue to grow. Things that were done on Unix systems and on mainframes are going to continue to move down market. That's going to cause market expansion and we're going to grow. That's going to happen.

I think the business model (shift) around enterprise software has happened.

Collaboration and business intelligence--taking enterprise data and making it accessible to people--that will certainly grow and it will grow for us. Security, some of the things we do in security will be built into our products, some will be value-added offerings on top--but for us it's all kind of upside from where we are today if we get any revenue at all.

In reading your memo, you talked about significant innovation in Office. It wasn't clear if that was Office 12--coming before Longhorn and not being tied to it.
The key decision we did make is that Office would also support pre-Longhorn systems so we weren't completely tied to a Longhorn schedule. It's less tied than our initial thinking. Our next release of Office should exploit and light up on Longhorn but absolutely it will be available to run on pre-Longhorn releases of Windows.

Is it reasonable to think that it also might predate Longhorn in release?
It could or it might not. I'm not going to make any specific comment about Longhorn's schedule.

In terms of the way people consume enterprise software--sales and maintenance versus a subscription model--how do you see customers wanting to consume it? I don't know if that's tied to the hosting question or not.
I think the business model (shift) around enterprise software has happened. Not all. Some of our customers still like to buy packages and we sell them packages. A lot of our customers, an increasing percentage of customers over the last three, four or five years--have chosen to buy our enterprise agreements. They are not a subscription because you own the stuff when you are done. They are not like classic maintenance, exactly, but that's become increasingly popular with our large account customers.

I think we'll continue to see that ramp, but we've already seen the big acceleration. Business model changes that we would have seen I think we have largely seen. We've moved from where most of our revenue was one shot, then another shot, to where most of our enterprise revenue is recurring revenue at this stage.

In terms of hosting, I think there is still a change that will happen in the way software is engineered. Software will be engineered increasingly, where there is not only the value that's kind of in the CDs, if you pardon the expression, but there's value in terms of ongoing connection between the provider of the software and the user.

In the consumer market, we have Windows Update to point to that looks like that. Windows Update was designed with the consumer in mind, and now we are adapting it to enterprise. I think that kind of a model, let's say continuous value add, I think that will become more significant over time.

Probably the part of the business that is furthest ahead on this today is the way the AV (antivirus) guys do it. AV is really more of a service than anything else today. It's not hosted exactly. It's sort of hosted. Things get streamed off the central server.

With the legal picture getting settled, does it feel like there is, if not fewer restraints, at least a clearer landscape?
The legal matters are as they are. From a bandwidth of communication standpoint, there was a period a few years ago particularly when legal issues were taking up a larger percentage of our available time to talk with people than I would have liked. I think we've had some hard work, and still do, hard, important work on security. Those aren't behind us, but I feel we have our hands around them. What that allows us to do is spend more of our dialogue with our partners this year talking about not security, like I did in the past, or concerns about where we would wind up being because of legal issues in the future, but really focusing squarely on that which they care the most about, which is building their business by winning in the marketplace.  

More Newsmakers

XBox could benefit Sony

Just to pick up on the article's headline: Microsoft entered the games console race to protect its so-called Windows monopoly - ironically the true legacy of the XBox may be to help Sony establish a monopoly of its own, by weakening Nintendo, leaving Sony as the only console maker of note after Microsoft withdraws from the race.

To understand Microsoft's motivation, and why they are wasting so much money on the XBox, one has to place oneself in the shoes of a Science Fiction writer, and consider how the future may pan out...

A safe bet is that whatever the shape of things to come, the internet will probably be at the centre of it. In the home of the future Dad will be logged into his company intranet, putting the finishing touches to the a presentation he has to deliver to the board tomorrow; Mom is writing an email to Aunt Dotty in Australia; the twins are playing Duke Nukem 23 on-line against a dozen other players; while the eldest child has just started to word process her History assignment homework.

That's five computers, in one household!

You can see the problem with this brave new world - either we fill our homes with PC's, or the entire family has to queue up to take turns. But hold on ... most families don't require bleeding edge technology ... Mom's email could easily be handled by a Windows 95/98 level machine, the video game could be handled by a games console plugged into a TV, and even the History homework does not require a state-of-the-art word processor. Only Dad really needs a 'true PC'.

So what the home of the future needs is one powerful PC in the 'den' (as Bill Gates often refers to it) for the real power-hungry applications, and numerous smaller devices which are cheap, space efficient, and good enough to run basic applications. Sound familiar? The games console is cheap, it plugs right into the omnipresent domestic television set, and it has enough processing power to run applications from circa five to ten years ago.

Swap your current TV set for a modern high resolution one, throw in a wireless keyboard and mouse - and ta-dar, the Ford Model T of computing! It ain't pretty, but it's cheap, easy to run, and gets you from A to B.

Problem is... IT DOESN'T RUN WINDOWS!!!

Ken Auletta's book "World War 3.0" (as quoted in Microsoft's anti-trust appeal) mentions an episode in which Microsoft suggested to Sony that the Playstation 2 come equipped with Windows. Sony turned them down, preferring to stick with Linux. Shortly after this Microsoft announced their plans to create the XBox - which ran, yup you guessed it, Windows!

The clock is ticking. If the games console is to truly become the internet/computing portal for the masses, will it happen this generation, or the next one? And when (if!) it does happen, will it be on Sony's watch, or will Microsoft be able to take command of the market before the revolution may happen? It is this uncertainty which is at the heart of Microsoft's XBox strategy.

However, MS become convinced that this brave new world, as outlined above, is not the way forward, then they will drop the XBox like a stone. To Microsoft the XBox is a cunning piece of corporate hedge betting to protect their core Windows monopoly from invasion via the back door. And just like all their other hedged bets, they will drop the technology as soon as they realise it isn't a threat.

But if they DO drop out, what will be the aftermath of their little venture into games console hardware? Nintendo will be severely weakened - it could even go under or withdraw altogether (what with the PSP set to challenge their only remaining strong market - the handheld!) leaving Sony the only superpower in the console market.

A brand new monopoly created as a result of Microsoft's attempt to protect their own! Just what the world needs. (Not!)

XBox could benefit Sony

Just to pick up on the article's headline: Microsoft entered the games console race to protect its so-called Windows monopoly - ironically the true legacy of the XBox may be to help Sony establish a monopoly of its own, by weakening Nintendo, leaving Sony as the only console maker of note after Microsoft withdraws from the race.

To understand Microsoft's motivation, and why they are wasting so much money on the XBox, one has to place oneself in the shoes of a Science Fiction writer, and consider how the future may pan out...

A safe bet is that whatever the shape of things to come, the internet will probably be at the centre of it. In the home of the future Dad will be logged into his company intranet, putting the finishing touches to the a presentation he has to deliver to the board tomorrow; Mom is writing an email to Aunt Dotty in Australia; the twins are playing Duke Nukem 23 on-line against a dozen other players; while the eldest child has just started to word process her History assignment homework.

That's five computers, in one household!

You can see the problem with this brave new world - either we fill our homes with PC's, or the entire family has to queue up to take turns. But hold on ... most families don't require bleeding edge technology ... Mom's email could easily be handled by a Windows 95/98 level machine, the video game could be handled by a games console plugged into a TV, and even the History homework does not require a state-of-the-art word processor. Only Dad really needs a 'true PC'.

So what the home of the future needs is one powerful PC in the 'den' (as Bill Gates often refers to it) for the real power-hungry applications, and numerous smaller devices which are cheap, space efficient, and good enough to run basic applications. Sound familiar? The games console is cheap, it plugs right into the omnipresent domestic television set, and it has enough processing power to run applications from circa five to ten years ago.

Swap your current TV set for a modern high resolution one, throw in a wireless keyboard and mouse - and ta-dar, the Ford Model T of computing! It ain't pretty, but it's cheap, easy to run, and gets you from A to B.

Problem is... IT DOESN'T RUN WINDOWS!!!

Ken Auletta's book "World War 3.0" (as quoted in Microsoft's anti-trust appeal) mentions an episode in which Microsoft suggested to Sony that the Playstation 2 come equipped with Windows. Sony turned them down, preferring to stick with Linux. Shortly after this Microsoft announced their plans to create the XBox - which ran, yup you guessed it, Windows!

The clock is ticking. If the games console is to truly become the internet/computing portal for the masses, will it happen this generation, or the next one? And when (if!) it does happen, will it be on Sony's watch, or will Microsoft be able to take command of the market before the revolution may happen? It is this uncertainty which is at the heart of Microsoft's XBox strategy.

However, MS become convinced that this brave new world, as outlined above, is not the way forward, then they will drop the XBox like a stone. To Microsoft the XBox is a cunning piece of corporate hedge betting to protect their core Windows monopoly from invasion via the back door. And just like all their other hedged bets, they will drop the technology as soon as they realise it isn't a threat.

But if they DO drop out, what will be the aftermath of their little venture into games console hardware? Nintendo will be severely weakened - it could even go under or withdraw altogether (what with the PSP set to challenge their only remaining strong market - the handheld!) leaving Sony the only superpower in the console market.

A brand new monopoly created as a result of Microsoft's attempt to protect their own! Just what the world needs. (Not!)

IBM's core franchise was a software-based franchise

I like how Steve Ballmer forgot to mention how the European business software market is dominated by IBM and Linux. Not to mention the findings of the various European court systems have ruled against Microsoft. Anyone can paint a pretty picture. However, the truth is known by looking at the numbers and the facts. Don't get me wrong, Microsoft is not "evil" as most will attest. They just believe that they are above the law because they are Microsoft.

IBM's core franchise was a software-based franchise

I like how Steve Ballmer forgot to mention how the European business software market is dominated by IBM and Linux. Not to mention the findings of the various European court systems have ruled against Microsoft. Anyone can paint a pretty picture. However, the truth is known by looking at the numbers and the facts. Don't get me wrong, Microsoft is not "evil" as most will attest. They just believe that they are above the law because they are Microsoft.

longhorn

Did anybody else find it telling that Balmer wouldn't talk about
longhorn's schedule? There's no way that thing is coming in
2006 and if it does, it's not going to be half of what they've
promised.

longhorn

Did anybody else find it telling that Balmer wouldn't talk about
longhorn's schedule? There's no way that thing is coming in
2006 and if it does, it's not going to be half of what they've
promised.

[David Arbogast]

Sure I do

Microsoft is first and foremost a software company. If a majority of other console makers licensed Microsoft technology for their console, Microsoft would quit producing their own hardware. Study Microsoft's history with hardware. The only develop it to demonstrate their technology and seed the market. Then they return to their core business. XBox is Microsoft's way of supporting their core business. If other companies were doing that, they wouldn't have to.

[David Arbogast]

Sure I do

Microsoft is first and foremost a software company. If a majority of other console makers licensed Microsoft technology for their console, Microsoft would quit producing their own hardware. Study Microsoft's history with hardware. The only develop it to demonstrate their technology and seed the market. Then they return to their core business. XBox is Microsoft's way of supporting their core business. If other companies were doing that, they wouldn't have to.

[mgarfein]

Sony's strategy

I think MS is on the losing end with the XBOX.
Sony is creating a consumer electronics platform for the Cell chip. We're talking TVs, stereos, set top boxes, PS3...etc..., all being able to interact with each other and increase overall power and funtionality. Also, Toshiba will be there with Sony from the start offering more consumer choice. So, why would I buy a stand alone only XBOX when I can buy a PS3 that can also act as a component into a powerful multifunctional entertainment system?

[mgarfein]

Sony's strategy

I think MS is on the losing end with the XBOX.
Sony is creating a consumer electronics platform for the Cell chip. We're talking TVs, stereos, set top boxes, PS3...etc..., all being able to interact with each other and increase overall power and funtionality. Also, Toshiba will be there with Sony from the start offering more consumer choice. So, why would I buy a stand alone only XBOX when I can buy a PS3 that can also act as a component into a powerful multifunctional entertainment system?

[cjohn17]

Balmer's in denial...

What dufus.

[cjohn17]

Balmer's in denial...

What dufus.

FYI

mm First off, Xbox runs and embeded version of Linux, always has. So no windows is not run on the Xbox console, and you can prove it to your self by hacking the Xbox front end.

Second, This argument I see about SCO-Unix. I would Like to throughly inform you that you have no concept of what GPL Licensing means or stands for if you even put steal and code in the same sentence. GPl Licenseing Goverens source code trade, It does not cover copyrights. GPL Prevents the theft of source code. If anyone would have taken the time like SCO recently did, they would know that. Which btw wis why SCO has failed horribly at its lawsuit. Under GPL Licensing I as a developer have to have premission from the original author and I have to post the apporiate copyrights, and authorship in plain view. Stated Pretty plainly that it is the responsiblity of the User who is modifying exsisting codes.

Longhorn, is built on top of the Windows XP core, which includes Unix/Linux components, its is not a full rewrite of any sort.

This Linux could not have taken any SCO source code becuase Linux is developed in Native C unix is not. Linux contains a different tree structure and many, many more differences. The only thing that Might be the same is the concept,

The SCO Law suit was done for greed, and nothing more. Linux has a larger more stable user base then unix.

Windows may have a future, but it's not the big bright star that they make it out to be. Windows has become and inherit security risk across all platforms. That is not to say that the same threats could effect other platforms as they do. It is microsoft closed source, closed mind, and closed door development that allows such large security problems to develop and evolve.

FYI

mm First off, Xbox runs and embeded version of Linux, always has. So no windows is not run on the Xbox console, and you can prove it to your self by hacking the Xbox front end.

Second, This argument I see about SCO-Unix. I would Like to throughly inform you that you have no concept of what GPL Licensing means or stands for if you even put steal and code in the same sentence. GPl Licenseing Goverens source code trade, It does not cover copyrights. GPL Prevents the theft of source code. If anyone would have taken the time like SCO recently did, they would know that. Which btw wis why SCO has failed horribly at its lawsuit. Under GPL Licensing I as a developer have to have premission from the original author and I have to post the apporiate copyrights, and authorship in plain view. Stated Pretty plainly that it is the responsiblity of the User who is modifying exsisting codes.

Longhorn, is built on top of the Windows XP core, which includes Unix/Linux components, its is not a full rewrite of any sort.

This Linux could not have taken any SCO source code becuase Linux is developed in Native C unix is not. Linux contains a different tree structure and many, many more differences. The only thing that Might be the same is the concept,

The SCO Law suit was done for greed, and nothing more. Linux has a larger more stable user base then unix.

Windows may have a future, but it's not the big bright star that they make it out to be. Windows has become and inherit security risk across all platforms. That is not to say that the same threats could effect other platforms as they do. It is microsoft closed source, closed mind, and closed door development that allows such large security problems to develop and evolve.

Oh, SNAP! Ballmer you are no gamer...

Hey Ballmer, whens the last time you:

Played Final Fantasy
Modded a console
Went to GameFAQs.com
Hacked DRM
Impressed EGM
Played Armored Core
Went to NCSX .com
Loaded SNES 9x Emulators
Found an intrest in the Super Hitachi 4 processor
Bought an import game
Went to Lik Sang .com
Played Tekken on a dual shock controller
Played a GBA on the bus
Went to DCEmulation .com
Went to ftp.irradiance.net

etc. etc. etc.

Point: You have no idea what the gaming comunity is all about. I've been inside MS-Redmond's ass for your focus groups, and the MS marketing department is so utterly focused on producing a feminized / politically correct / multicultural cardboard box that anything remotely related to gaming is lost.

I know a 3-4 of your hardware engineers. Morale is low, because the bad design decisions are setting like a flawed slab of concrete.

No backward compatibility. GAMERS BE DAMED, we didn't want you to keep using Windows 98 either. SCHLonghorn anyone?

Oh, SNAP! Ballmer you are no gamer...

Hey Ballmer, whens the last time you:

Played Final Fantasy
Modded a console
Went to GameFAQs.com
Hacked DRM
Impressed EGM
Played Armored Core
Went to NCSX .com
Loaded SNES 9x Emulators
Found an intrest in the Super Hitachi 4 processor
Bought an import game
Went to Lik Sang .com
Played Tekken on a dual shock controller
Played a GBA on the bus
Went to DCEmulation .com
Went to ftp.irradiance.net

etc. etc. etc.

Point: You have no idea what the gaming comunity is all about. I've been inside MS-Redmond's ass for your focus groups, and the MS marketing department is so utterly focused on producing a feminized / politically correct / multicultural cardboard box that anything remotely related to gaming is lost.

I know a 3-4 of your hardware engineers. Morale is low, because the bad design decisions are setting like a flawed slab of concrete.

No backward compatibility. GAMERS BE DAMED, we didn't want you to keep using Windows 98 either. SCHLonghorn anyone?

The story of Microsoft's Downfall

Honestly, Microsoft would never say that Xbox 2 is going to sell
less than the next Playstation. The comment that Xbox 2 is
going to beat Sony is just to keep shareholders happy.
Realistically, there is little chance Microsoft will have the
intuition Sony does on making a quality system and then getting
quality games. Longhorn is the first real effort Microsoft has had
to put toward a new operating system in ages. The downgrade
that was Windows 98 and then the Quasi-Update of Windows XP
have had such poor quality that they have brought around the
Evolving of Microsoft as a company. There is no longer a good
reason to update software for most computer users. The extra
speed is just not needed when compared to the costs involved.
Now the company that used to have guaranteed sales with any
update faces the challenge of proving the value of their
products. This is something totally alien to Bill and Co.
Microsoft's maturity is actually realizing that quality does matter,
and it's finally catching up to them. If Xbox 2 isn't absolutely
mind blowing, Sony WILL win. If Longhorn isn't revolutionary(so
doubtful) upgrading won't happen for a lot of people. With Linux
running servers and Sony controlling the home market (honestly,
the most realistic outlook, not shareholder brown-nosing)
Microsoft is on the way out. Of course there are plenty of points
to argue against this, but is it really possible for a company with
absolute market domination to put out sub-par products and
stay on top? Just my take.

The story of Microsoft's Downfall

Honestly, Microsoft would never say that Xbox 2 is going to sell
less than the next Playstation. The comment that Xbox 2 is
going to beat Sony is just to keep shareholders happy.
Realistically, there is little chance Microsoft will have the
intuition Sony does on making a quality system and then getting
quality games. Longhorn is the first real effort Microsoft has had
to put toward a new operating system in ages. The downgrade
that was Windows 98 and then the Quasi-Update of Windows XP
have had such poor quality that they have brought around the
Evolving of Microsoft as a company. There is no longer a good
reason to update software for most computer users. The extra
speed is just not needed when compared to the costs involved.
Now the company that used to have guaranteed sales with any
update faces the challenge of proving the value of their
products. This is something totally alien to Bill and Co.
Microsoft's maturity is actually realizing that quality does matter,
and it's finally catching up to them. If Xbox 2 isn't absolutely
mind blowing, Sony WILL win. If Longhorn isn't revolutionary(so
doubtful) upgrading won't happen for a lot of people. With Linux
running servers and Sony controlling the home market (honestly,
the most realistic outlook, not shareholder brown-nosing)
Microsoft is on the way out. Of course there are plenty of points
to argue against this, but is it really possible for a company with
absolute market domination to put out sub-par products and
stay on top? Just my take.

[PCCRomeo]

Microsoft Can't Take on ANYONE!!

Microsoft has done nothing but sat on their lazy @$$ since they've became the worlds most popular OS, and now it's came back to bite them in the @$$. Stop boasting Microsoft, I'm already switching to Mac or Linspire anyway, and there is no way you can take on Sony.

[PCCRomeo]

Microsoft Can't Take on ANYONE!!

Microsoft has done nothing but sat on their lazy @$$ since they've became the worlds most popular OS, and now it's came back to bite them in the @$$. Stop boasting Microsoft, I'm already switching to Mac or Linspire anyway, and there is no way you can take on Sony.