Microsoft's Ballmer: Why Microsoft doesn't want to be IBM (or Apple) and more

Microsoft's outgoing CEO Steve Ballmer talks about the CEO succession process, balancing hardware and software and why Microsoft won't 'just' be an IBM.
Written by Mary Jo Foley, Senior Contributing Editor

Microsoft's CEO Steve Ballmer is retiring within the next year. In honor of that, as my parting gift, all I got was a lousy t-shirt. Just kidding: I actually got a 15-minute phone interview with Ballmer after an unexplained 20-year dry spell of no access to Steve B.

Here's Part 1 of my conversation with Ballmer (and lead Microsoft board member John Thompson) This is Part 2, in rough transcript form, edited for length:

Q: What are you guys looking for in a successor?

Thompson: Well, we've had a process underway for quite some time to think through what the attributes of the successor would need to be. We've worked with an outside firm, Heidrick and Struggles, to help us define that. But I don't think we're ready to declare that externally at this point in time. We are well down the path in the search, and hopefully in some reasonable amount of time we'll have a new leader.

Q: So this has been ongoing for a year? Longer?

Ballmer: Our board has been diligent over probably at least the last 10 years about succession planning and talking about what would a candidate look like. We've had discussions about how things that would be different because I'm sort of a virtual founder. There are things that work with me that wouldn't work with a new CEO, and how would we deal with them.

I'd say three or four years ago, I agreed to a project with the board where I would meet a bunch of people outside Microsoft who we should have on our radar screen as, you know, potential interesting people outside of Microsoft who might become CEO, and I've reported back to the board on those interactions.

Q: I have to ask at least one product question. I've saved up so many over the past 20 years. So... are you looking at devices and hardware as a loss leader for services, going forward?

Ballmer: Well, certainly we shouldn't look at hardware as a source of write-off, so let's not use the last order as a proxy for performance.

I think the right way to think about this is -- or the way we think about it is kind of an integrated business model. There's the device, the operating system, the back-end consumer services, and the extensibility of those -- of that offering into enterprise services. And across that entire range, from hardware to, quote, operating system, because in the PC world we participate through our operating system royalty as opposed to through the direct hardware economics like we participate with Xbox. You know, when we bought Skype we were quite clear that a lot of the economic value from Skype would be from Skype and Lync connection and the ability to move people between the consumer and enterprise world and monetize in the enterprise.

So I don't think you could draw a line and say we think about the economics as A or B. And certainly the guys we compete with all have different models. Apple is trying to make a lot of money on the device. Amazon is trying to make it all on the back-end. So is Google. Rather than say the model is FOO or BAR, the model is to deliver these incredible, high value experiences that will span hardware innovation, operating system, consumer experiences and enterprise experiences, and then properly monetize them, because we are a company -- unlike some of the guys in this industry, we do make a lot of money, and we want to continue to deliver a lot of good results for our shareholders. And that's not an easy way, it's nice to be able to just bucketize things, but I think that's the smart, competitive, proper way to think about it.

Q: I'm curious why you guys are so taken with being a player in consumer. Why not 'just' be IBM? You're already so successful in enterprise, why not just focus there?

Ballmer: I would say -- and I'm going to actually even let John (Thompson) echo, because this is one where I think the board and I are on the same page together, but it takes some thinking to get there.

The key isn't are you in consumer or are you in enterprise. If you're going to be in e-mail, you're going to be in e-mail. You can't say, okay, I only want to be in enterprise e-mail. If you're in real time communications, what, you only want to let enterprise people talk to enterprise people but never talk to consumers? These experiences span.

Similarly, if you're in devices -- and we are in devices. With Windows, the Windows operating system means we are in device definition. And nobody has ever managed to figure out how to build a device for a user that was just enterprise or just consumer. These core experiences do span, 'consumer and enterprise.' These core devices span consumer and enterprise.

So I know there's a lot of press, blah, blah, blah about this, but the truth of the matter is I don't even know how you could opt, what it would mean to just opt to be all enterprise, unless you want to look like Oracle and not participate in certain high value activities, or you want to choose to look like Apple and not participate in certain enterprise activities. But that's not where we grew up. We grew up with a horizontal experience called Windows and Office that's equally applicable to people in their personal lives and their professional lives.

Thompson: I think it's quite obvious that the consumerization of IT is going on around the world, and if this company is to remain relevant, it's got to have a meaningful position across the spectrum of the user base and the industry. And so to suggest that you can just be successful in the enterprise space and not have an impact on the business or the industry because of what's going on in the consumer segment I think is a little narrow in the definition of what the company can be.

If you look at history, history would suggest that the fact that some other big companies in this industry didn't focus on the consumer segment has made them increasingly less relevant in shaping the agenda for this industry. And I don't think that's an important attribute that we want to pursue at Microsoft. We want to be relevant forever, and that's about having a broad based portfolio with the right balance between the consumer and the enterprise segment.

Q: One more question on timing. Does your announcement today tell us anything about what to expect, earning-wise, for Q1 FY 2014 for Microsoft. Is it going to be nothing to write home about, as some have been whispering in my ear?

Ballmer: A) we don't comment on a quarter. We would never comment on a quarter. No chance we'll comment on a quarter. So I can't answer your question.

Does anything about this timing, however, have anything to do about anything short term, the answer is absolutely no.

The timing here is all (the fact that) these things come in waves. We have kicked off, the leadership team and I have kicked off a new wave. And in looking at that and saying to myself, can I last deep enough into this -- can I last isn't the right way to say it -- do my personal plans sort of fit with me lasting far enough that I'm not leaving in now mid-wave, kickoff's fine but not leaving mid-wave, the timing is all about that. I mean, summer is the kind of time we would do -- this would happen anyway, because summer is when we write our personnel reviews, summer is when we sort of do our long term contemplation. So that's all been consistent, if you will. So there's nothing short term about the selection of timing, and I just refuse to even say anything that relates to your actual question.

Q: No problem. I had to ask it. Last licks and all that!

Thompson: You should know from your history with this company that Steve and Bill have always, always had a very, very long term view.

Q: I do know that. Thanks for finally giving me an interview, Steve.

Readers: In the crazy chance I get Ballmer one more time before he is gone, what would you suggest I ask. Chime in below in the comments.

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