Ballmer in Boston: Microsoft CEO on New England Startups, Competing with Apple, and the “New Normal” of IT

10/16/09Follow @wroush

Microsoft is adjusting to a “new normal” with levels of demand for information technology that may be permanently lower than in the past—but it will still vie aggressively with competitors such as Apple for the dollars of consumers and enterprises, CEO Steve Ballmer told an audience in Boston today.

In a rare visit to New England, the famously competitive Microsoft exec met with a group of local technology-community leaders assembled by the Massachusetts Technology Leadership Council at Microsoft’s own New England Research and Development (NERD) Center this morning, then headed downtown to give a luncheon speech to the Boston College Chief Executives’ Club of Boston.

Ballmer said he was optimistic about the prospects for economic recovery, but he said the country, and especially the computer and software industry, have reached a plateau in which IT expenditures by both consumers and enterprises are likely to stay 15 to 25 percent lower than they were before the recession began. “We see stability at this stage and the chance for real growth, but it’s a tough climate,” Ballmer said.

He noted that much of the U.S. economy’s growth prior to the recession was built on debt, and as that debt is gradually unwound, “we are going to have to generate more productivity and innovation in order to drive more job growth.”

Fortunately, Ballmer said, there’s still plenty of room for innovation. Holding up the paper on which his speech was printed, Ballmer exclaimed, “this is Gutenberg-generation technology! Our industry has a long way to go.” Within five to 10 years, he said, computing devices will be as flat and as flexible as paper, and all aspects of business and entertainment will grow more connected and interactive.

Ballmer also predicted that software will gradually take over more and more of the mundane aspects of information gathering. “When I say to my secretary, ‘Get me ready for my trip to Boston,’ she has to go to the same calendar, look at an agenda, go to all the websites of the customers I’m visiting, download data about them, go to the CRM software…why can’t I have a computer do that? It’s not rocket science—it is within the realm of the possible.”

Microsoft will invest $9.5 billion this year on research and development to tackle problems like this one, Ballmer said. And about 700 of the company’s R&D personnel work in New England, he noted, counting both NERD and Microsoft’s offices in Beverly, MA.

“For Bill [Gates] and I particularly, going to Harvard in the 1970s, I’ll tell you, the world of computing was route 128 and DEC,” Ballmer said. “There is still a lot of talent in this area, because of Boston College and Harvard and MIT and all the other universities, and there is also a fine culture of startups.” He added that his meeting with MassTLC focused on “what’s driving innovation and productivity that can make a difference not only in all of our businesses but also, I’m hoping, be a major propellant of the world’s economy.”

One questioner asked Ballmer why, in his opinion, the center of gravity in the information technology industry had moved away from Route 128, and whether he sees any signs that it might move back. “I think there’s a bit of chance and good fortune in a lot of this,” he answered. “There is still a lot of talent here, and a load of people graduating every year. The startup culture is more alive on the West Coast than in the East, and [so is] the infrastructure for entrepreneurs—or if that is not the case today, it probably was at some point.” Ballmer also pointed to a difference in the concentration of large technology firms that “prime the pump” in Silicon Valley.”HP, Intel, Oracle are there—these are big companies whose people might leave and do startups,” he said. The only equivalent company in the Boston area, he said, is EMC.

Ballmer was also asked whether it makes Microsoft stronger to have Apple as a competitor. “Yeah, we love having Apple as a competitor,” he said, not without a note of irony. “They are a competitor that we have done very well with, in some parts of what we do, and a competitor that has been real tough in others. But about 96 percent of the world’s computers are PCs, and 4 percent are Macs. Thanks to their advertising, everybody knows the difference—but I like 96 and they like 4, I guess.”

In the mobile phone world, where Microsoft is preparing to roll out Windows Mobile 7, the latest version of its smartphone operating system, Apple has “blazed a trail” with the iPhone, Ballmer acknowledged, but “we are going to give them some good competition.”

In a moment of humor, one audience member asked who Ballmer would pick to personify Apple, if he were directing his own Apple vs. PC commercials. “There’s no percentage in my answering that,” he said, but continued, “Statistically, 96 percent of the people you are talking to do own a PC. Do you really want to make those people feel bad because they chose a PC? They are not wrong, they are right. I would probably communicate that.”

Asked whether Microsoft has plans to hire more workers in New England, Ballmer said “in the new normal, the level of expense increase that we go through at Microsoft will be somewhat reduced…Certainly this is one of the places we will grow. We are looking at some companies here, and both by internal growth and acquisition you will see some growth, but on an employee base of 95,000, in the new normal you can expect to see [growth] in the small thousands of jobs created per year, as opposed to tens of thousands.”

Ballmer took a question from one audience member about his personal strategy for infusing innovation into the Microsoft culture. He said that it’s mainly a matter of communicating broad directions to the company’s top managers, and letting them do the rest. “You give them a cone in which to do innovative work, so they know where the runway is, but they have a lot of leeway,” he said. “You give them enough direction to be purposeful but not so much that people feel like you are trying to tell them what to build.”

Ballmer said the new Windows 7 operating system, which Microsoft is launching this month, emerged in this way. “We got a good team in place and I told them to study the issues with the current technology and take advantage of what’s available and possible, and build an OS, and comply with our consent decree.” (That last bit “is not meant to be funny in any way,” Ballmer said. Operating systems today, he said, are “essentially a regulated business.”)

If Microsoft has a challenge with innovation, Ballmer said, it’s that there is too much of it. “We used to have a fair where we shared best practices, and we stopped it because Microsoft people only like to create best practices; nobody likes to re-use anybody else’s. So we have the opposite problem compared to what you might see in other places.”

One questioner asked Ballmer why the company has chosen 2009 as the year to start opening Microsoft retail stores. With the demise of Circuit City, Ballmer noted that the two leading store-based retailers of consumer electronics are Best Buy and Apple. “It’s important for us to be part of the process of really connecting with the customer and showing them what you can do with the amazing things in a Windows phone or a PC,” he said. The company will open a few stores at a time and study their performance rather than opening a huge chain of locations right away, Ballmer said. At Microsoft, “we do something, learn, and then do it again and again and again and again and again,” Ballmer said. “Hopefully over time that leads to success.”

Wade Roush is Xconomy's chief correspondent and editor of Xconomy San Francisco. You can subscribe to his Google Group or e-mail him at wroush@xconomy.com. Follow @wroush

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