I attended an EBG (Electronic Business Group, an influential French e-business Think-Tank) conference on Nov 8 in Paris, at which Steve Ballmer was speaking. It has taken a while to process my notes but here they are at last, sometimes answering my questions about the future of Microsoft, sometimes not. However, undoubtedly, Ballmer has managed to captivate the massive audience in the small theatre room of the Espace Pierre Cardin at the Heart of Paris, France. Ballmer was interviewed by EBG’s founder and Secretary General, Pierre Reboul. Steve Ballmer is also a member of the board of directors of EBG.
There has been a great deal of questions asked about the future of Microsoft lately, with regard to their apparent inability to cope with the mobile market (even by Gates’s own admission). However, it would be wrong to think that Microsoft has lost the War even though it may have lost a few battles. As a matter of fact, the software giant from Redmond, Wash. is still very strong in many areas, including Business Cloud, enterprise collaboration (more than 70% market share with SharePoint, not to mention yammer), home gaming with the very successful Xbox platform, and of course, Microsoft office which is, like it or not, still broadly used, despite a flurry of free more or less open source office suites which are available from the Internet. Yet, Microsoft’s business models are challenged, office is slowly turning into a pay per use model with Office 365 and Windows 8 is just about coming back to life after a much awaited 8.1 facelift a couple weeks ago. So where is Microsoft headed? That is the question. Let us see what Steve Ballmer, the current CEO who is soon to retire, has to say about this, even though he has managed to evade quite a few questions…
Right after the introduction , Steve Ballmer answered a question about the newly released surface 2 tablet. “Surface 2, is the evidence that Microsoft is moving from regular PCs to becoming a device company” Steve Ballmer explained, therefore confirming the impression is that many analysts had had, after the announcement of the purchase of Nokia, or rather as part of Nokia as Mr Ballmer explained a few moments later.
Does that mean that Microsoft is going to stop working with OEMs? “I would say something different” Ballmer said. “We continue to work with OEMs, but we will produce more devices”. Microsoft is definitely choosing a different path from Apple, its model seems to be far more akin to Google’s, even though its business model is a lot different.
Ballmer with EBG’s Reboul on stage in Paris
“Everywhere I go I see paper and pencil there is still room for innovation”
Reboul said that Microsoft’s surface 2 was a good device yet, he wondered, “how do you make this a bestseller?”
“You want a different value proposition” Ballmer explained. “This device is meant to make you more productive; it is better than just watching movies.” Besides, a “continued stream of innovation is required too. Every meeting I go to, we still come across paper and pencil” Ballmer pointe out. We see a lot of opportunity for more innovation”. I couldn’t agree more with that. 10 years ago, I used to take notes using handwriting recognition off my iPAQ mini tablet. Now this is something which is no longer available, and I am still longing to find a good technology which can free me of paper and pencil and let me take notes naturally in a handwritten manner together with intelligent character recognition (ICR). After all, it used to be possible 10 years ago it should be now too!
Back to Windows 8: it was launched with a bad buzz, now a new has version just been released. What do you think?
“As to sales, we have sold over 100 million units in a year : that’s pretty good!” Ballmer said. “Sales have been pretty good, but regarding consumer PCs there has been an impact with low end devices and we are working on this with new devices” he added. Sales have been better that the feedback in essence. “Regarding feedback, it has been more average” Steve Ballmer said. “Some like it, some not. There is a lot of diverging feedback. But what we did with was pretty bold. We’ll continue to move forward. Still, with enterprise customers, windows 7 is still most popular”.
What is the border between mobile and desktop? was Reboul’s next question
“There are no rigid borders” Ballmer said. “Phablets [a cross between tablets and phones] exist. People are moving from one device to another. We even make an 80 inch table you can hang on walls. There are no firm lines between devices.” he said.
What changes in Microsoft’s business model
What of Microsoft’s legacy licence-based business model? Is Microsoft forced to move to the SaaS model. How will they make money out of this? “The future of software is to be delivered as a service” Ballmer confirmed, “be it for b2bor b2c. Office 365 is already the number one SaaS application in the world” he added. But is Microsoft making as much money from this as it used to? “Services are small in revenue but they are growing rapidly and we are hoping for increased in the numbers of seats? Our revenue stream is still dominated by software licences, but things will change in the future” Steve Ballmer added. “For business customers, the best value is to go for online services” he added. “Also for consumers but some customers like to buy software licences once and for all and be done with it!” as the recent hoo-hah about the all SaaS version of Adobe Creative Cloud demonstrated (sample here). Here I’m not really convinced on how all those revenue numbers will add up, but time will tell.
Nokia : what did you buy exactly?
Another question I had was about what Microsoft had actually bought from Nokia and what they intended to do with it: “Nokia has a lot of pieces” Ballmer said. “We didn’t buy maps, nor base stations for networks, we bought the phone business and the tablet business”. This also means that Microsoft now has two tablets! Surface and Nokia’s. Ballmer dismissed that issue altogether: “eventually, we’ll have two tablets (the deal is not yet approved), this is not a problem” he added. Time will tell again if having two aspiring products is enough to compete with 2 established leaders like Apple and Samsung. Surface 2 seems to be a nice product though, the concept is cool, and I’d really like to have a tablet which lets me work on my blog posts from cradle to grave … that is as long as both the apps and the hardware are up to scratch. I haven’t yet switched back to windows for mobiles but who knows, never say never…
Social strategy for Microsoft
Social is an area in which Microsoft has been either very successful (B2B) or very unsuccessful (B2C, despite the fact that it used to have a leg up in that game with MSN a long time before Facebook). “We are a player in certain parts for social networking” Ballmer confirmed. “We have a very successful offer with Yammer, and Skype, we are part of the social fabric” he added. Ballmer stressed that even Internet giant Google is struggling in that space. “Google has tried a bit but struggles against Facebook” alluding to Google+ even though it is now picking up a lot, mostly through the authorship and communities features, and I would not be surprised if things changed in the long run, in favour of Google. “Yammer has a free model. Once the IT department wants to add control then they go for the pay version” he said. It should be remembered that both Yammer and Skype are acquisitions.
Gaming is one of the very successful spaces for Microsoft: “Xbox is one of the most exciting experiences” Ballmer said. “The emerging model is freemium gaming but there will still be a model for hit games where production costs are huge. Both of those models are promising for the future, but they are for different kinds of games. Casual gaming will focus on freemium” Balllmer said. “The new Kinect sensor is phenomenal. It can even spot a finger moving” Ballmer said. “It will be used for games in which gamers shoots bows and arrows for instance” but there may be future applications for businesses as well. “The future will be the projection of the user IN the game” or even a show he added. Imagine being able to kick a penalty kick in lieu of the player in the field? As more innovative features like these will be added, there will be a new space for costly games, but also “ a lot of the freemium models will start casual and grow serious”, even though “Microsoft’s games are for serious fun” Ballmer added.
Microsoft, innovation and its future (unnamed) CEO
Microsoft is a big company and it will be even bigger after Nokia’s acquisition has been ratified. “Ther are 100,000 employees at Microsoft before Nokia, there will be 130,000 after” Microsoft’s boss said. “There’s room for innovation at Microsoft. At R&D and also from the bottom up. Good Innovation is a good mixture of bottom up and top-down. Good success doesn’t come all from the bottom”. Ballmer joined Microsoft in 1990 and is planning to leave soon. “I love Microsoft” he said “but I have made my decision. I want to have an active life outside of Microsoft. We are pivoting on devices and services, and it’s a good time to make the transition now. When we have a new leader we’ll have a new leader. I don’t know his name and I wouldn’t disclose it.” There has been rumours that Microsoft’s new boss would be Nokia’s Steven Elop but Ballmer didn’t comment on that.
Ballmer’s plan isn’t to retire though: “I wouldn’t retire and fish, I would scare the fish. I want to study, travel, look after the local basketball team, be part of boards of directors… I’ve got many things I’d like to study before I retire” he concluded.