Microsoft's Ballmer defends practices, products

On the defensive, but clearly enjoying himself, Ballmer spoke passionately on a range of topics tossed at him by Gartner analysts, who came back repeatedly to Microsoft's licensing policies and practices, which analysts said that some customers find restrictive. They also challenged Ballmer regarding Microsoft's focus -- consumer or corporate? -- in a back-and-forth exchange that was the most spirited of the four keynote interviews here this week.

Microsoft is committed to using open standards and protocols in its products, but when it comes to sharing proprietary intellectual property the company is, and will be, restrictive in its licensing terms, Ballmer said. The company isn't in business to give away its intellectual property.

He further defended price increases, specifically for Office work productivity software that Gartner analyst Tom Austin said costs 300 per cent more now than five years ago, arguing that Microsoft has enhanced the product and that is why customers keep buying it. He also questioned the percentage increase, saying, "the notion that there's been a 300 per cent increase is not reflected in our financial results."

When Austin replied that he isn't privy to all of Microsoft's financial books, but that the issue is that software prices are up and continue to rise, Ballmer replied, "if the products have value, people will buy them. If they don't have value, people won't."

As for the company's .Net initiative, Ballmer said that it will develop over the next few years, but its chief focus is to provide developers with tools that will help them more quickly create Internet-based software applications. The intent is to offer middleware that runs on both clients and servers, and to also provide services aimed at speeding application development, he said, acknowledging that Microsoft has "erred on the side of being over-liberal" in using the .Net tag in various announcements that have gone beyond Internet applications.

The .Net approach has further blurred the line between Microsoft's consumer and corporate products and strategies. But, for instance, the Office offering in the .Net line will continue to be aimed a business, not home, users, Ballmer said.

Gartner analysts touched on the company's consumer efforts in a number of questions focused on MSN, the Microsoft Network offering Internet access as well as the MSN Web portal that doesn't require a subscription, and on the new Xbox game console.

"We want a lot of subscribers and we want a lot of people to use MSN as a portal who don't have subscriptions," Ballmer said, adding that the company now has some 85 million global users of its free e-mail service, Hotmail.

"We're going to keep at it and keep at it and keep at it," he said of the consumer push.

As for Xbox and whether entering that market is "out of whack" with Microsoft's focus because the product combines hardware and software, Ballmer said that some thought was given to separating hardware from software but doing so would mean that the company had to charge twice that of top competitors just for the box. In that market, hardware is subsidised with the profit made from applications and peripherals sold to the captive gaming audience.

Ballmer was then asked about hardware and profits and joked, "You used 'hardware' and 'profit' in the same sentence. 'Subsidise' is a code word for 'lose money on every unit.' ...I don't want to get sucked into losing money on every box. It's not in my genetic pool."

Undoubtedly, Ballmer would also have preferred to not be sucked into legal wrangling with the US federal government. No interview with a top Microsoft executive would be complete these days without covering the government's antitrust case against Microsoft. The US Department of Justice (DOJ) and 19 US state attorneys general successfully sued the software maker in federal court, alleging that Microsoft engages in anti-competitive business practices aimed at squelching competition. The government further argued, and a federal judge has agreed, that the company used its operating system monopoly to make illegal inroads into other markets.

US District Court Judge Thomas Penfield Jackson has ordered that the company be split into two companies -- one focused on operating systems and the one focused on other software applications. He also has ordered behavioral remedies. The breakup and the remedies are on hold pending appeal.

Ballmer insisted that the case has not altered the company much, save for how top officials word e-mail exchanges. Internal e-mail was at the heart of the DOJ case against Microsoft. Executives now are much more conscious of "tone, what words you use in e-mail. I think that's probably okay, in general, by the way," he said, adding that internal e-mail might be phrased more harshly at times and "softening that is probably not a bad thing in most regards."

Microsoft won't be split into two, Ballmer predicted, saying that the "final outcome" most certainly will not strictly follow Judge Jackson's order.

"It is certainly the case that something will change in this appellate process," he said.

Overall, the case hasn't had much daily effect at the company. "It's not fun," Ballmer said, and occasionally the case has created a "hiccup" during particular times in the proceedings, "but I don't really think it has sapped the energy from most folks."

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