Early in October, CIO magazine interviewed Microsoft CEO Steve Ballmer in London in front of about 700 IT professionals and managers. This is the transcript, also available on web video .

CIO: I’m just going to run through these questions now because we have literally just 20 minutes. I’m going to fire them off – is that OK for you?

Steve Ballmer: Great

CIO: Great. First one, [a delegate from] Imperial College London asks a question which I guess is about disruptive technologies and Microsoft’s place. He says: ‘Given the massive investment that corporate institutions have made in hardware and Microsoft licences, what are the key factors you believe are now going to be driving us to cloud computing and why should we entrust Microsoft with this cloud provision compared to other companies such as’ – can anyone guess this company? – ‘Google?’

SB: Well, let me take it in a variety of ways. Well, first of all, anytime there’s a major disruption, you want to make sure you take advantage of it. If you’re a company like ours , I think the book The Innovator’s Dilemma says you can’t , as a company that’s established, miss the next major revolution, so we’re embracing ‘software + services’, cloud computing as hard as anybody. By the time we’ve finished our Professional Developers Conference this month I think you’d have to say there’s nobody out there with as wide a range of cloud computing services as Microsoft including, dare I say it, Google which in fact has a great search product but at the end of the day doesn’t have much for enterprise email, productivity, collaboration... They’re trying, coming into the game, but not really there yet. On the other occasion, even though we’re driving disruption, our job has got to be to also give you clean and straightforward path forward. So you’re going to want the PCs that you own. You’re going to want to be able to apply the licences that you already own and I think we have, and our prices reflect, an ability to get to the disruptive part easily from the place you are now financially.

CIO: I guess the $64,000 question from a lot of people’s point of view is: is there going to be an Office for the web, something that really competes head-on with Google Docs, Google Apps...

SB: Well, those are not very popular products so I hope we’re not competing head-on with those. I hope we are actually going to compete head on with Microsoft Office. If you take a look at it, Google Docs & Spreadsheets have relatively low usage and it has not grown over the last six months or so. There’s a reason. I think what people want is something as rich a Microsoft Office, something that you can click and run if you’re not at your own desk, something that is compatible document-wise with Microsoft Office, and something that offers the joint-editing capabilities that is nice in Google Docs & Spreadsheets. And will Microsoft Office offer that? Yes, stand by for details in the next month.

CIO: So, in the back end of Microsoft R&D, are there people beavering away at versions of Word, PowerPoint, Excel etcetera that are purely web-based or is always going to be this hybrid?

SB: What does it mean to be purely web-based? Do we want them to be only as powerful as runs in a browser? No, we want software that’s more powerful than runs in a browser. Does that mean we will not have some stuff that does run in a browser? No, we think you actually want to have the full power of Word and Excel and PowerPoint, and you want to be able to get that simply but if you just happen to be in an internet cafe or kiosk and want to do some light editing, perhaps we need to have a way to support you in that as well, inside the browser. And for today that’s going to have to be all the detail I share otherwise we’ve no drum-roll announcements coming up here in a month

CIO: OK, fantastic, let me ask you one about virtualisation. [A delegate] in the audience today has asked how good you think Microsoft Hyper-V is compared to market leader VMware. I think I can guess your answer on that part of it, but how is Microsoft going to face the challenge? It’s an unusual position you’re going into there. They’re the 800-pound gorilla and you’re the, I don’t want to call you the chimpanzee, but you’re the smaller company...

SB: [Laughs, makes chimp noise] Well, let me first talk about Hyper-V. I think most of the reviews -- let me not comment about my own opinion -- are fairly blown away at how mature and high-performance Hyper-V is. There are still some things that I think we would be willing to admit that the VMware solution does that we don’t do and, frankly, there’s a couple of things we do that the VMware hypervisor doesn’t yet do, and I encourage you to read the reviews, be objective etcetera. Our solution is much less expensive than the VMware solution. Our solution is much better integrated with the rest of the development tools in the environment. Our solution is heterogeneous: we let you work with and manage ESX, VMware virtual machines and they [VMware] may be, I agree, the 800-pound gorilla, but we’ve fought a lot of 800-pound gorillas. We battled with IBM. We battled with Lotus when they were the 800-pound gorillas, so, you know, I’m not going to handicap us out of the race despite the fact that I think you’re probably right, we do look like the chimpanzees in this one. But I actually think we have a lower-cost, higher value in many ways, solution and we certainly have the best solution if you’re going to have a mixed environment. With less than five per cent of the world’s servers virtualised you can use VMware for five or six per cent, you can use us for 70 or 80 per cent. We’ll be happy to provide you with the management tools and you’ll save a lot of money and have a great, great life. [Claps] That was a little too sales-y, I agree.

CIO: If that doesn’t work you could always buy them.

SB: Er, I think there’d probably be some regulators who would have an opinion on that.

CIO: You’ve met most of them.

SB: Oh, you’re a tough act.

CIO: Let me ask you another one from the audience. Somebody says: you talk about technical flexibility -- I guess this relates to cloud computing -- what about licensing flexibility. That’s a good question, isn’t it? How are you going to figure out the Ts and Cs, as it’s a totally different model?

SB: Well, we’re taking the easiest path at first. We’re saying, look, if you have a licence you can bring your own licence and we’ll provide the service, and if you don’t have a licence we can offer you the service and the licence integrated together. So we’re trying to make it as transparent from where you are as possible.

CIO: A delegate asks a question. He says: ‘Where next for Windows? After Vista is this the end of the line?’ I guess he means the sort of ‘Big Bang’-type releases. Will the future releases be phased in and is there anything else we really need in an operating system that we don’t already have?

SB: Yes, there’s a ton you need that you don’t already have. No, I actually mean it. It will be kind of obvious. Just take the fundamental thing: Intel has run into the limit of physics in chip design. They can still double the number of transistors on a chip every 18 months but they can’t use those additional transistors to make the chips run faster because there’s no material, science, physics way of cooling down processors that run faster than the current processors. So instead of giving us faster processors, Intel is going to give us more processors -- so-called many-core --. And in some senses the operating system, the developer tools, if they’re going to take advantage of the hardware, just that one change mandates and necessitates ongoing operating systems innovation. I actually think that over time Windows is going to have two flavours of innovation. There will be major releases every couple of years, three years, and with our Windows Live software -- which is today primarily consumer-focused but you’ll see it become much more horizontal and consumer and business-focused -- we also get the chance to do service-based updates to the Windows platform much more frequently -- every six months, a year, something like that. So we’ll have a cadence of things that are close to the hardware, perhaps revising every couple or three years, and things that are closer to the applications being able to rev every year or so.

CIO: What about the next release, Windows 7, right...

SB: Correct.

CIO: ... the one we’re currently talking about. Anything else you can add about what’s already been out there? I know you’ve given little hints and pieces out there...

SB: I think I’m probably best to say it’s not a ‘let’s break everything’ release, it’s a ‘let’s take everything we’ve done in Vista to the next level’. Let’s improve on the UI innovations, let’s move forward, and I think it’s probably fair to say at some time in the not too distant future we hope to have a form available where people can get a view of it, even though it will be a while before we ship.

CIO: Anything you feel that you did with Vista that you think ‘We’re not going to make that mistake again’?

SB: Yeah... the biggest, I won’t call it a mistake because I don’t know... but the biggest trade-off we made was to sacrifice compatibility for better security and I’m not sure if you’d say the average user values the security improvements as much as they were frustrated about some of the setbacks in terms of compatibility. In the long run, I think we’re probably glad we made the change. In the short run, boy, we’ve taken a lot of hits.

CIO: OK, here’s a question my Mam won’t understand. Is Dynamic IT Microsoft’s version of SOA? First of all, do you feel that SOA message is out there in the market and people can talk about it in a pretty sensible way at board level, and is Dynamic IT your attempt at doing SOA?

SB: No and no. At the board level I don’t think most people on boards have a clue what an SOA is and Dynamic IT is in a sense both more and less what people talk about with SOA. When we talk about Dynamic IT we’re really talking about fundamental improvements in the way you manage IT to drive out cost and drive up agility, and we’re also talking about fundamental advances then in the way you build programs to be more agile and to be more managed. I think SOA does talk to the issue of how you build programs to be more agile and it’s got whole lot more that it talks about in that context. So I’d say Dynamic IT embraces SOA but is a broader concept.

CIO: Let me ask you one more about cloud computing. There are a lot of different views on what the cloud is going to look like. Will it be a datacentre that you have and you own it yourself, will it belong to Amazon or some other organisation, or maybe you could even franchise it, work with rivals, peers or some kinds of colleagues and operate a datacentre in that way. What do you think it will look like and what slice of the pie will these [different approaches] be?

SB: Before we’re done, I think the answer is ‘yes’. No, honestly, all those models need to flourish. I mean it would be nuts for me to say we’re going to run all the world’s datacentres. I don’t think that’s practical, but what we need to do is build the service that we start running and we have a model for how it can also be implemented and hosted by corporations for themselves, by other partners. The service must be a service so if it’s not in our datacentre, if it’s somebody else’s, you still want it updated in real time, dynamically; you don’t want it to be like today’s outsourced model where the outsourcer winds up locked in and has to embrace the past more than the future. So we need to design a service for services if you will, and that’s the way we’re attacking the challenge. Now version one you’ll think about it as running in a Microsoft datacentre, sort of like the Amazon model if you will, and yet we know and we’ve talked already with corporations and partners about going beyond it. That’s why the symmetry between the server and the cloud is important. If we bring back the cloud features into the server platform, it’s also possible for any corporation then to go instance its own smaller services.

CIO: So it’s going to be a Microsoft datacentre that we’ll be talking to?

SB: On V1 that will be the only alternative, that’s right.

CIO: And you’re going to build here [in the UK] as well?

SB: In V1 our datacentre will be the only alternative. Where we build datacentres [is] up in the air by V2 or V3. Whether it’s our own datacentre or somebody else’s we know we have to have datacentres in many, many countries around the globe. Certainly in this big country we know we need datacentres, whether we run it or a partner runs it.

CIO: OK, good, now we’ve got a high profile audience out there but they’ve asked a couple of silly questions and we’ve only got a couple of minutes left so we might as well ask them. Somebody has asked: ‘Why has Microsoft developed Zune?’ It might be a very serious question by the way, I’m not too sure, but why has Microsoft developed Zune?

SB: At the end of the day, one of the big trends is that all content is going digital and if we don’t have the software and services that are useful, helpful and valuable for the consumption of music and video, we’re not really a player. Now we built the Zune hardware with the Zune software. What you’ll see more and more over time is that the Zune software will also be ported, and be more important not just with the hardware but on the PC, on Windows Mobile devices etcetera.

CIO: It’s a tricky one because Apple is out there and they have a pretty good product but also they have this kind of cult following where people are going to buy it because it’s Apple. That must be pretty frustrating to compete against. Well, they may have a cult following in the music business. We have about 97 per cent of the PC users using our stuff. Ninety-seven per cent may not constitute a cult but I wouldn’t trade for a cult.
[Audience laughter and applause]

CIO: Not many Mac users in the audience I take it. And somebody else has asked a very important question: ‘Have you any plans to appear in adverts with Jerry Seinfeld?’ I thought he’d died by the way...

SB: No, Jerry’s alive and well, hanging out with other people almost as famous as he is. Which means no, no advertisements with me.

CIO: OK, let me ask you one final one. You’re famous the world over with your friends Google and their YouTube platform for that thing where you got up and said ‘developers!’ ... what is it about 14 times ... and the dancing thing. Any chance of a quick run-through for IT managers here in the UK?

SB: [Gets up on front of stage] IT pros! IT pros! IT pros!. And I say, I love IT pros!. No, no chance today. (To audience) When’s he going to get to the silly questions?

CIO: To be fair to you Steve, even Steve Jobs wouldn’t do that, that so well done anyway. Thanks very much ... Steve Ballmer.

SB: Thank you all, appreciate it.

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