D5: Microsoft CEO Steve Ballmer on the hot seat

For the opening session at the D conference this morning, Microsoft CEO Steve Ballmer said that his company was a lot more nimble today than when it had 30 people. He was responding to a question from conference co-host Walt Mossberg how the company deals with huge scale of the company, with 78,000 employees. "The people we had then weren't as good, weren't pushing that hard." Mossberg asked about Microsoft co-founder Paul Allen. Ballmer came back, "Paul and Bill were good...the rest weren't, and they are gone."

Those early Microsoft employees won't be happy to hear that thirty years after the fact, and it's hard to think of Microsoft as highly nimble and adaptive organization. As one Microsoft executive put it, the company is more like a cruise ship and you need to call the engine room to get something done and hope you get a response. Ballmer pointed to bottom-up innovations from Microsoft, such as Popfly and Silverlight.

Regarding Vista, Ballmer said Microsoft learned from key mistakes on the project, which took over five years. "We tried to do too much incubation of new technology and it was dependent on itself, which increased the complexity of the project," he said.

Ballmer added,"We have a lot of innovation to do on Windows," and Mossberg, a Mac fan, agreed.

Ballmer said today Microsoft is trying to stake out two new positions--advertising and modern consumer electronics--which are key to long term growth. With his often used statement, he said Microsoft will keep "coming and coming and coming," and develop new "muscles," as it did in the enterprise space.Mossberg quipped that Microsoft has a monopoly on brown consumer electronics devices (the Zune). Ballmer responded that it's the color all dirt bike riders want.

The interview was interrupted for a demo of Microsoft's new Surface Computing device, which productizes what has long been a research project. Several retail outlets, hotels

and casinos plan to deploy the product.

Mossberg asked why Microsoft built the Surface Computing product itself. Ballmer said that an expensive PC with five cameras in it that requires lots of market development was not attractive to partners. "We will bring it to market with a different business model and possibly sign up partners in the future when it becomes more consumer [focused]," he said.

Mossberg asked why Microsoft keeps losing share to Google in search. "We had to get in the market, get experience and get going....no question, the market leader has momentum. Rebranding someone else's product isn't the way to go. We see lots of opportunity to innovate in the user experience and user interface, which has been stagnant. We are in the game now after a couple of years and have got a lot of work to do....We would have hoped to be a little higher than where we are today, but that doesn't diminish our determination to invest, succeed and break forward in the category."

Ballmer was evasive about what user interface enhancements to search Microsoft has planned. "We have interesting things, things to catch up to get ahead, a lot of things on our plate, and when have interesting stuff will make it available."