Ballmer opens the window on digital future

Shortly before Microsoft chairman and chief software architect, Bill Gates, gave the opening keynote address at the 2006 International Consumer Electronics Show (CES) in Las Vegas, IDG's Marc Ferranti sat down with company chief executive officer, Steve Ballmer, to explore how the software giant's new emphasis on Internet services, particularly via Windows Live, plays in the consumer market.

I thought we'd take this opportunity to give a global update about what Microsoft is doing in the digital lifestyle realm. The Gates-Ozzie (Microsoft CTO, Ray Ozzie) memo that leaked out in November, on Web 2.0 services and Live, was widely examined in regard to the business realm but not so much on the entertainment and consumer side.

Ballmer: On the consumer or digital lifestyle front, I think we are in the early phase of the most significant inflection point in many years. It's an inflection point where really early adopters have lived the full digital lifestyle but we haven't gotten to mass market.

In the next 12-24 months we'll go from being early adopter to literally an explosion. It's a little bit like 1995, when the PC went from being early adopter to mainstream, with Windows 95 as a catalyst. I happen to think Vista is an important part of the catalyst, to go from early adopter to mainstream digital lifestyle. An important part of that of course is the PC but also the gaming system, the TV system and the phone. The unifying factor almost across all of these experiences frankly is the service infrastructure. I think a lot of what we're trying to do with Live is support this transition of the world to what we call a mainstream digital lifestyle.

Is it almost wishful thinking on your part to think that the digital lifestyle explosion has not happened already? - look at iTunes and Google ...

Ballmer: No, no, many things have certainly taken off, don't get me wrong, the Internet isn't just taking off today, but digital music is still in its infancy. People like to talk about iTunes, but more people don't have digital music as a fundamental mode of operation than do today. That's why we have had a surge in early adoption [but] in some cases we haven't - take HD [high definition], we're still under 10 per cent penetration in the US.

How important for Microsoft's growth is the consumer arena - can you quantify it?

Ballmer: It's very hard to attribute revenue to segments. When we sell a Windows machine I can't tell you whether it's being used for consumer purposes or [other] purposes. Probably a pretty fair guess is that something like 30-40 per cent of our business is consumer, very small business-related, and maybe 60 per cent of our business is business-related.

How do you see that changing over time?

Ballmer: Probably in the next year or two we will see pretty good escalation on the business side because of the work we're doing with Office 12 and some of our servers. At the same time, with Xbox and IPTV and what we are doing with Live and MSN, I expect to see a rapid acceleration on the consumer side.

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The Windows Media Center edition is positioned as the hub for the digital home but Xbox also has enough processing power and connectivity. Do you see a convergence between the two devices?

Ballmer: In a lot of homes Xbox will have an important role, and in a lot of homes Media Center will have an important role and in a lot of homes both will. They are very different business models so it's hard to say they will converge. Does that mean that the PC will continue to run a new, and different, and broader set of games? And new and different content, the kind of stuff we featured in our online spotlight with Media Center. At the same time Xbox is going to continue to pick up additional capabilities that people will think of as PC-like. I see them as complementary. There are certain kinds of things you do from a two-foot interface that you just aren't going to do from a three-metre user interface.

To go back to the Web 2.0 discussion: what are you doing to sell the developer community on the idea that you are embracing Web 2.0, and overcome a perception I think some people in the developer community have that Microsoft is a bit inflexible when it comes to tools that can be used to develop on your platform.

Ballmer: I think people think we have the best tools for developing Web style applications in the world. And certainly with the stuff we brought to market with our Visual Studio release this year, people just say that our visual Web development tool has taken further steps forward in a pretty dramatic way.

What people are saying to us is, "What is the full complement of service capabilities that you'll make available to us as developers up on the Web? How does that let you integrate with important applications offerings that you have, Microsoft? How does it let us do our own service offerings?" People are really saying to us, not how flexible, but how quickly are you going to let us add in and what's that gonna look like.

At CES you are unveiling the first phones that can make Internet-based calls using your Internet-based chat software. You have a pretty hearty competitor in Java, in Linux. How are you confronting that competition?

Ballmer: Firstly, there are two classes of mobile phones; there is the stuff we are announcing here with Uniden and Philips, which are not cellular phones, they are cordless phones that work in the home and connect in VOIP style with our Live Messenger software. And there's really no Java/Linux competition [there]. The second area is mobile phones that work on a cellular network. The competitors today are number one, dumb phones - these basically don't run anything; they don't run Linux, they don't run Java.

And then I'd say there's a few contenders above that. Some people will do Linux phones with the Java APIs; there's the Nokia stack, there's the Microsoft stack, and somebody might say there'll be a Palm stack - and there's the BREW stack, that's important. I think we are gonna do really quite well, but we are still in the middle of a dogfight.