What Steve Ballmer sees outside his Windows

Microsoft's chief executive talks about the software giant's determination to move beyond the operating system and rule the world of web services, instant messaging and gaming

When Microsoft's chief executive, Steve Ballmer, bowled into a small room in London earlier this month to meet up with a select group of journalists, he seemed to fill it to bursting point – all on his own. Having been with the company since 1980, Ballmer has always been gregarious. As executive vice-president of sales and service, he used to engage in Japanese-style motivation tactics, organising all the employees to dance and shout in cheer-leading sessions on the company lawn.

Having taken over from Bill Gates as chief executive officer in January 2000, he's now chanting new slogans, to do with web services, games consoles and the burgeoning market for instant messaging (IM). Forget text messaging on your mobile – IM is where the market is headed. Consumers have already latched on to this technology, which enables you to tell when your friends are online and chat to them in text format, in real time. Microsoft's MSN Messenger technology is vying with AOL's Instant Messenger service for market dominance, and the company has made headway. Nevertheless, AOL also owns ICQ, another IM product that has its own loyal user base.

Microsoft recently launched Windows Messenger, a piece of software that folds text chat in with videoconferencing and internet telephony. Ballmer's idea extends IM beyond simple text chat and makes it part of a larger set of applications.

"Instant messaging focuses in on me talking to you," he says. "But what if one site wants to notify me that my credit card's been used? There's no reason that can't flow through the same mechanism, appropriately organised. I want to be notified there. And I want to be able to talk text, voice and video. I want it to be peer-to-peer."

Ballmer says that peer-to-peer systems are something Microsoft is heavily involved in. The company wants to create systems where devices can recognise and talk directly to each other in real time. This could give rise to new applications, where, for example, your smart phone or handheld could tell you when your friend has finished a phone conversation and is ready to receive a call, or could notify you that a colleague had arrived at her desk and was reading her e-mail. "At our developers' conference this fall, we will go through the peer-to-peer strategy," he vows.

This ties in with something Ballmer discussed at the Association for Computing Machinery One conference in San Jose, California, in March. The conference, organised by the ACM, was designed to highlight emerging technologies that would help to shape the future of computing in the next few years.

Ballmer, in true sales mode, took the audience through a technology called the Notification Platform. The software, still very much in the research phase, monitored the end-user's activities to the extent of watching them through a video camera to determine whether they were at their desk, and if so whether they were looking busy or not. The notification platform would check incoming communications from applications such as e-mail and MSN Messenger and prioritise them based on criteria such as who they had come from, what the title of the message was, when it was sent and so on. It would then decide whether the communication was important enough to deliver it to the recipient user now or later, based on their current status.

As he battles with AOL in the instant messaging space, Ballmer is highly critical of his rival's activities elsewhere. Backtracking on a comment he had made a few days before about regretting Microsoft's decision to launch MSNBC, its internet content service, he nevertheless dismisses internet content as a peripheral business for the company. Ballmer's happy with MSNBC, "but if someone's asking me if that means that you're going to immerse yourself more deeply in the content space, the answer is no," he says, arguing that AOL has created challenges for itself by aligning so heavily with the content market.

"You can pretend that it's about content, but the core of AOL is shoving advertising in the faces of people who came to read e-mail and chat. If they don't continue to be the best place on earth to send e-mail and chat, then I don't understand how they will continue to shove the ads."

Ballmer says that he sees an opportunity to pull the rug out from under AOL in the online services market. He's doing it by trying to integrate the desktop (notably through Windows XP and Office XP) with a collection of Microsoft and third party-based services online, created under the .Net banner. Already in Office XP, the company is offering links to Web services that enable you to save your files on to an internet server, for example. Its Hailstorm system will offer integrated services such as scheduling and online address books.

The question is, are people understanding .Net and willing to accept its benefits? Microsoft has a history of layering one vague marketing strategy on top of another in its attempt to dominate the internet market; first there was ActiveX, then COM, then there was DNA. While more tangible than some of its predecessors, .Net is still difficult for many to grasp.

"People nod, and say they get it, and then they don't get it," Ballmer says of the technology underlying .Net. "We're not explaining it well enough, and people like to see things demonstrated," he says. "You look at our smart tags in Office XP, and people start to get it."

"People do get the benefit," he says. This statement belies Microsoft's recent strong-arm licensing tactics with regards to Office XP, in which it reportedly forced existing customers to upgrade from previous versions of Office within a certain time frame in return for discounts, or upgrade later and pay the full asking price. Clearly, the success of Office XP is vital to Microsoft's success, but forcing customers to adopt it immediately rather than wait for it to settle into the market is not the behaviour of a company that is confident of a positive market reaction.

Office isn't the only product that the company is eager for users to accept, though. The X-Box console, due to ship in November, is Microsoft's latest salvo in the battle for the prime real estate next to your TV.

"If you want to be in the living room next to the TV, there's going to be one box. It will tune your TV, record your shows, manage your music and let you play games," Ballmer says. "You're only going to have one processor, one memory, one hard disk and one DVD drive."

Microsoft's biggest competitor in this area is Sony, which is using its PlayStation 2 games console as a foothold in the home, expanding its functions into other areas. The company wants it to be an intelligent hub for the home, integrating with and controlling other consumer products such as stereos and TVs through a home network. The problem for Microsoft is that Sony's product is already out there, and that the company also has a strong brand image in the consumer electronics market.

"There's no kid who walks into Dixons who says: 'I want PlayStation because my Mom and Dad have a Sony Walkman'," counters Ballmer. "I'm not saying it's bad to have the Sony brand," he continues, but adds that branding isn't that important. "Just as it's not as important to have a Microsoft brand."

Of course, as Ballmer himself later admits, it won't be children who will be buying this stuff. Rather it will be their older siblings who are out of school, or their parents. Ballmer's argument that these people don't care about branding either begins to sound weak, especially when one hears him negating the importance of the Microsoft brand – after all, using the Windows brand for market dominance has been a key tenet of the company's strategy.

But then, Ballmer has a way of rewriting history. When asked if he considers the marketing emphasis to be switching away from the operating system into middleware – the software "glue" that integrates systems, of which the XML technology underlying .Net is a prime example – he dismisses the notion. "I'm not sure we ever would have drawn the distinction," he says, classifying the operating system and the middleware as the same thing. This isn't what Bill Gates would have said in January 1995, when he virtually dismissed the importance of the internet.

"The operating system will extend itself with new capabilities. That is the core right to innovate that we are defending – the ability to add new capabilities to the products," says Ballmer, continuing his OS-as-middleware push. Moves such as integrating Windows Messenger with Windows XP are a clear example of this extension, yet it is over the integration issue that Microsoft was found to be in violation of anti-trust laws in its legal battle with the US Department of Justice.

Will the Windows footprint ever stop growing? "It won't," says Ballmer. In a sense, then, Microsoft is both the Darth Vader and the Obi-Wan Kenobi of the software world. On the one hand, it has been accused of building a vast, dark empire. On the other, if it comes out of the anti-trust case relatively unscathed, then, as Kenobi said; "If you strike me down, I shall become more powerful than you can possibly imagine."