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For six years, the Internet Nexus served as my technology blog, but I've since started blogging at the SuperSite Blog instead. If you're looking for the blog, please head there. --Paul

Friday, September 23, 2005

Microsoft executives discuss Apple competition

On Tuesday, September 13, 2005, Microsoft announced to its employees and that it was reorganizing the company into a simpler organization in which executives much further down the chain would have direct decision-making capabilities, allowing the company to move more quickly in this ever-changing market and compete better with companies such as Google and Apple. The reorg was announced publicly a week later, with Microsoft also announcing that group vice president Jim Allchin would retire once Windows Vista ships in late 2006. Succeeding Allchin is Kevin Johnson, who will oversee the new Platform Products & Services division. Jeff Raikes, the head honcho of the unit previously responsible for Microsoft Office, was named president of the Microsoft Business Division. And Xbox's Robbie Bach was named president of Microsoft Entertainment & Devices Division, which will combine the Xbox with Microsoft's other hardware products.

To explain this change to employees, Microsoft hosted an internal event with CEO Steve Ballmer, chairman Bill Gates, Johnson, Allchin, Raikes, and Bach. Most of the discussion and Q & A that happened that day is largely irrelevant to Nexus readers, but the company did take one impromptu question about competition with Apple Computer that I thought you'd enjoy. Here's a transcript of that portion of the session, and some photos taken from a video of the event.

Q: Everyone wants to talk today about Google as a competitor, but Apple is resurgent as well and is doing some interesting new things, and moving over to the Intel platform. I'm curious about your perspective on Apple as a competitor, and also our Macintosh Business Unit is squirreled away in our games division, and, uh...

[Laughter from both the executive panel and the audience]

Q: ... And I'm interested in that as an architecture. So what's your perspective on Apple as a competitor and on our Macintosh business?

Steve Ballmer: [looking sideways down the panel and laughing]: Who wants to go first?

[Hearty laughter as everyone on the panel basically points at each other, offering choices other than themselves.]

Steve Ballmer: We'll let Jim talk about Apple in general as a competitor, and then we'll go from there.

Jim Allchin: Well, there's many different factors [with] Apple. And they are doing some amazing, innovations. I have to tell you that I did [get] the iPod nano the first day it came out and it only worked one day. [Pauses for emphasis]

[Stilted laughter from audience]

Jim Allchin: True story. I think they have a moisture problem. In terms of what we're trying to do in Windows Vista, we're trying to go at a new level that they haven't been at. Fundamentally, they have a different philosophy than what we do. We're a platforms company. We believe in helping other people and building the ecosystem. [Shakes head.] That's not their strategy. And just coming back from the PDC, where there were, give or take, 5000 people there, there's no question there's a huge ecosystem for the Windows system and for all our products, for all the back end servers ... in fact [looks down panel], this is a great opportunity for [Microsoft] Office at this PDC, where we showed the extensibility opportunities there. So we're fundamentally a different ... a different focused [sp] organization, from our products, compared to Apple. I think there are synergies that we haven't taken advantage of within the company, and that's an opportunity for several of the groups that are up here for us to go after. [Looks at Robbie Bach and points]. And I think you should say some things ...

Robbie Bach: Yeah, let me talk about two things. First of all, just to address the music thing straight off, since that's something we're getting focused on ... Jim's right. A lot of it is about ecosystem. Apple takes a very Apple-specific approach. They don't license their Fairplay technology; they have an Apple ecosystem. They're not helping build things for the music companies; they're not helping build things for retailers. They're doing things that are only good for Apple. And so, one of the things we have to figure out is how to take advantage of the fact that we do create a great ecosystem, and at the same time, deliver the same kind of end-to-end experience that Apple is able to deliver by being so vertically integrated. And so a part of the thing we are now working on is to think--to Steve's point about how you pace out technology. Think out where we want to be five years from now in that space, in music and, say, portable entertainment. And then come back and say, OK, think about what do we need to do in 2008, 2007, 2006, and build a plan that works across the groups in the company to make that happen in a crisp, clear way. You're not going to ... There isn't a silver bullet you're going to fire in three months that suddenly is going to make the iPod business a bad business for Apple. But there is an approach we can take on the longer term that I think will bring out the strengths of our ecosystem and will bring partners to bear in a way that will make us significantly more successful and, in particular, will prevent Apple from leveraging their iPod success in a platform success, which is what we really don't want to have happen.

Steve Ballmer: Yeah, and obviously one of the keys for us in music and video is to make sure we have an integrated and strong portable device ... [shrugs] business. And that's part of the reason we're putting together the group that we did under Robbie.

In the session wrap-up a few minutes later, Bill Gates decides to add some final words. He stretches back over the top of his chair while delivering this bit, which I found to be odd. His comments are not directed at Apple per se, but given the comments from Ballmer that he is following up on, it's clear at Gates is addressing competitors such as Apple and Google here.

Bill Gates: I always get a kick out of the periods [of time] where people underestimate us.

[Laughter and then applause]

Bill Gates: I'd definitely say this is one of those periods, partly because they [the people who are underestimating Microsoft] haven't seen the [upcoming product] pipeline, partly because other companies are in what I call the Honeymoon period, where their me-too products are considered, you know, more innovative [throws hands up]. You know, that's OK, we're going to have lots of people [competitors?] who are viewed as being perfect, and we just simply have to come up with something that's better. Also, maybe, I'm jaded. You know, the tough PR, that was 1999, 2000, I mean, that article, hey, that was nothing.

[Laughter]

Bill Gates: I've got thick skin, so I, you know ... It will be interesting to see what they write over these next 18 months as they see what comes out of the work we've been doing.

Steve Ballmer. Yeah, just to throw in one thing on that ... [When] we shipped Windows 95, we were on top of the world, PR-wise. Two months later, the press was writing [that] we were completely dead. Netscape and the Internet had wiped us out. 8 months later, 9 months later, a year later, I don't know, maybe it was two years later, we had a lawsuit because we were so successful on the Internet. [Nods his head.] Stop and think about it. This next twelve months is going to be fantastic.

[ Posted at 2:27 PM | Permalink ]