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This transcript has not been checked against videotape and cannot, for that reason, be guaranteed as to accuracy of speakers and spelling of names. (JES, JS, TW)
CHARLIE ROSE Transcript #2940
CHARLIE ROSE, Host: Welcome to the broadcast.
From Hong Kong, the CEO of Microsoft, Steve Ballmer.
CHARLIE ROSE: I'm pleased to have on this stage with me -- this morning in Hong Kong -- Steve Ballmer. He is, as you know, a long-time Microsoft employee, and he is now the CEO. Bill Gates, the founder of Microsoft, is now the chief software architect. I'm pleased to have Steve Ballmer here because we want to look at technology and where it is going, how Microsoft and Steve Ballmer see the future, especially relevant here in Asia, which offers one of the great growth markets for technology companies. So pleases join me in welcoming Steve Ballmer.
We all know that we're in the midst of an economic slowdown. It has different impacts in different parts of the world. Tell me how you see this and how long you think it's going to last and what the implications are for technology companies.
STEVE BALLMER, CEO, Microsoft: Well, I won't pretend to be a macro-economist. I'm not. My personal view is that there will be parts of the technology business that'll stay hit as long as the U.S. economy because, really, the weakness we see is primarily in the U.S. Business stays pretty strong in Europe, and actually, business continues to be very strong here in Asia.
My personal opinion is things could be down for a little bit-- for a little while on capital spending, but certainly, from the technology perspective, if we do exciting products, we'll stimulate a new round of expansion.
CHARLIE ROSE: Which brings me to one of the most interesting questions about your company, as a technology company and a company that has ridden to immense riches with an operating system for personal computers, now involved in lots of other services. We'll talk about MSN and some new products. Where are you, and how do you see the future? And what's Microsoft going to do to adjust to the current economic conditions, the change in the nature of the Internet, and the sort of second generation, as we look at it?
STEVE BALLMER: Well, our view of the future, our optimism about what technology can do to transform the world, is as great today as it was a year ago, even if the economic condition is somewhat different. We're in a fortunate place. Our business had held up relatively a little bit better than some others. We continue to invest. We continue to grow our R&D spending. And whether it's the PC itself, which is an exciting, vibrant platform, whether it's the way people at work use computers, the way businesses use them or just the growing need for other devices -- smart telephones, smart TV sets -- we see incredible things that we can do, at least, to help transform the world. So we're continuing to invest.
CHARLIE ROSE: What incredible things?
STEVE BALLMER: Things like [unintelligible] Let me just give one example. At this conference, we gave all of the attendees a little pocket PC, and I--
CHARLIE ROSE: I was wondering where they came from! Now we know! [laughter]
STEVE BALLMER: You should have guessed! I was going to give our people a hard time. We didn't put a wireless network card in it for everybody. But you know, if you think about this meeting in a few years-- we're working on something we call the tablet PC. It's a PC, but it can work without a keyboard. You can write on it. We'd be in a room like this. You'd carry it. There'd be a wireless network. We'd be a virtual community. You want to send instant-- an instant message to somebody across the room, you can. If I have a picture I want to draw for you, I draw it on my tablet and it gets broadcast and everybody can look at it on their own tablets-- take notes, annotations, be connected to the Internet. I look out in the crowd, I see a couple people using pocket PC today. I don't see anybody in the kind of rich interaction that I anticipate maybe just a year and a half from now.
CHARLIE ROSE: But what's the-- the tablet and some of the pocket PCs are things that are products that Microsoft is involved in, but what's the big idea that Microsoft believes is the key to the future?
STEVE BALLMER: OK, the big-- every few years in the computer business, there's a revolution of sorts or a major change or upheaval. The revolution for the next five years will be around better integrating people with people, people with businesses and businesses with one another.
Today when I visit the Internet, I visit eight different Web sites. I have eight different passwords. I can't bring all that information together myself. I have to go look at it in whatever way Microsoft or somebody else intended me to look at it. I don't have a very personal and rich experience.
If I want to very flexibly have a video conference, that's not an easy thing today. If two businesses want to exchange supply information, as with one of our good customers here in Hong Kong, Global Sources, that helps buyers outside Asia find suppliers inside Asia, hooking up those computer systems is a mess. And there's a technology called XML that got born in the Internet day that will really be at the core of unleashing a whole new round of benefit.
CHARLIE ROSE: Tying them all together.
STEVE BALLMER: Exactly Right.
CHARLIE ROSE: Tying all of the systems together.
STEVE BALLMER: Exactly right.
CHARLIE ROSE: Here is what your chief software architect said. Quote-- from Bill Gates. "We're betting the company on XML and what it can do for businesses and consumers. Our net vision for Web services is as important to Microsoft as was our vision for the PC. It affects every corner of the company."
As important as the PC was to Microsoft. Everybody in this room knows what the PC meant to Microsoft. Bill Gates saw it down in-- either when he was an undergraduate at Harvard that first year he spent there or in New Mexico, and said ``This is going to change the world.'' And it is, in fact, what he used to lure you from Stanford without a degree to come to Microsoft. Right?
CHARLIE ROSE: And you're saying this is going to be as important as the PC?
STEVE BALLMER: As important as the PC. I've lived through-- the time I've known Bill, we-- he saw the PC revolution. It made a difference. We saw the so-called graphical user interface revolution. I mean, it's hard to remember back to the days when people looked at little characters on screens and we made people know about things called "C greater than." But that was true.
The Internet was a revolution, and not everybody recognized the Internet as a revolution when it first came on.
CHARLIE ROSE: Including Microsoft.
STEVE BALLMER: That's what may people say. [laughter]
CHARLIE ROSE: Yes! Well, as I remember, there was a--
STEVE BALLMER: Today a lot of people think we-- we sort of understood it too well, but--
CHARLIE ROSE: Well, yeah, that's true. [crosstalk] We may get to that.
STEVE BALLMER: We may, after all! And this-- this industry phenomenon--
CHARLIE ROSE: Yeah.
STEVE BALLMER: Whether we participate, lead, follow, this industry phenomenon--
CHARLIE ROSE: Now, does anybody here believe that that's the mindset at Microsoft, ``whether we participate, lead or follow''? [laughter]
STEVE BALLMER: I was trying to make a point.
CHARLIE ROSE: That's not the Steve Ballmer that I know!
STEVE BALLMER: Well, I have a particular point of view, but the thing people have to know is every one of these things--
CHARLIE ROSE: Yeah.
STEVE BALLMER: --are going to be significant, almost no matter who the players are-- the PC, graphics, Internet and now XML. Those are the same order of magnitude in terms of the impact that they have on the way people access and use information.
CHARLIE ROSE: Having said that, I mean, how long is this going to take? XML is here, and you're talking about-- literally, you're talking about being able to rent Internet services, right?
STEVE BALLMER: That'll be part of it.
CHARLIE ROSE: Is this a big revenue generator for Microsoft that's equivalent to what Windows has been for you, with the market share you had in Windows? Can you dominate this?
STEVE BALLMER: I want to back up just a little bit because I think the key-- the key point is how long will XML take. It's not going to-- I mean, there's exciting, innovative work happening in a lot of companies on XML every day.
CHARLIE ROSE: Right.
STEVE BALLMER: But before users get the full benefit, it's three, it's four, it's five-- there'll be a little benefit this year, a little bit more, a little bit more. It's a five or six-year thing. It's not a one or two-year thing.
A small part of the phenomenon is the one you highlight, people experiencing software instead of buying it--
STEVE BALLMER: --having the software take care of itself, update itself, back itself up, all of those good things. And certainly, we're going to transform our software to be more of a service--
CHARLIE ROSE: A kind of open system.
STEVE BALLMER: Kind of a service that takes care of itself. Today we give you a CD and say, "See you, Mr. Customer." And the software can take care of itself in every-- in every dimension, and we'll make sure that happens.
CHARLIE ROSE: But will it transform Microsoft? I mean, this-- if you guys are betting a company on this gamble-- and maybe that was hyperbole from your chief software architect. Was it?
CHARLIE ROSE: All right, so-- [laughter] You would never suggest that--
STEVE BALLMER: Not on this [unintelligible]
CHARLIE ROSE: --of the chief software architect! So suppose you-- are you going to change this company? Does one of the three or four biggest, largest companies in the world, with a brand name that's known in every continent in the world--
STEVE BALLMER: Every few years, we have to do something that's a major change. That's the nature of our business. The transformation that happens, the ways in which competitors can take advantage of new technologies-- yeah, we have to reorient the company in this-- rebuild the company in this significant way.
CHARLIE ROSE: So 10 years from now, you'll primarily be involved in Web services.
STEVE BALLMER: Absolutely right.
CHARLIE ROSE: [unintelligible]
STEVE BALLMER: Ten years from now? Absolutely right.
CHARLIE ROSE: So what happens to the PC? And what happens to this thing that's been generating all this revenue for you with this extraordinary margin?
STEVE BALLMER: Well, the PC is certainly at the center of this information revolution. People talk about other devices, and we're very excited about phones and TVs. But the PC is the-- it's the king of the devices, if you will.
It's the most powerful, most capable device. It'll be at the center of what happens. And in a sense, you can think of even Windows itself, even the PC operating system itself becoming a service that takes care of itself. There's no reason why the operating system that's built into the machine can't update itself, help back itself up, prepare itself, store things on behalf of the user in the most convenient place in the world. Windows needs to evolve to do those things.
CHARLIE ROSE: Did you guys at Microsoft, in Reading-- Redmond-- did you have to sort of get together and say, "Where do we go from here, because this company, unless it changes, is not going to be one of the top three or four companies in the world?"
STEVE BALLMER: We had--
CHARLIE ROSE: How'd you go about that transition?
STEVE BALLMER: I would say it starts almost two years ago. We brought together our senior leadership team, about six or seven of us. And every week, three or four hours, we sat around and talked about the fundamental transformations that are going on. And it took us a while, frankly, to -- what should I say? -- bake it as the-- as the XML and dot-net revolution. And then we had to really ask what does it really mean, what is it doesn't mean. We spent more time in that kind of weekly strategy brainstorming. Early in the year 2000, I remember every week we were just in there meeting, meeting, meeting, meeting. And eventually, we got it to a point where we thought we had it baked.
CHARLIE ROSE: Now, is this Bill's baby, so to speak, or is this a whole-- much more of a collective decision?
STEVE BALLMER: Certainly, you know, Bill's an incredible person, and a lot of this is exactly his baby. On the other hand, because this is so pervasive throughout our company and throughout our industry and because this is so-- so important across the company, it really has the input and work of a lot of our top leadership.
CHARLIE ROSE: Here is what else you're doing, according to what I read, is that you're focusing on the server business. Can you dominate that business, or what happens to poor Larry Ellison over at Oracle? And what happens to poor Scott McNealy over at Sun Microsystems? Are you going after them and their business?
STEVE BALLMER: Sure. Absolutely. We see a distinct change to add value.
STEVE BALLMER: Applications today for businesses are too hard to build.
CHARLIE ROSE: Right.
STEVE BALLMER: They're too expensive. [unintelligible] high prices you get on proprietary systems like Sun sells to people.
STEVE BALLMER: The software is very expensive, and it's not very flexible. And it's very hard to make it touch real end users, to let them unlock the data.
CHARLIE ROSE: Right.
STEVE BALLMER: And that's why we've gone from essentially nothing in the business to over $3 billion in revenue in just the last five years.
CHARLIE ROSE: Just $3 billion in revenue.
STEVE BALLMER: Yeah. So far, just $3 billion.
CHARLIE ROSE: And what's the growth potential for that?
STEVE BALLMER: I think, actually-- in the next five years?
CHARLIE ROSE: Yeah.
STEVE BALLMER: Probably the number-one revenue growth potential for us--
CHARLIE ROSE: Highest percentage.
STEVE BALLMER: Certainly, the highest percentage, but just absolute dollar growth. Huge potential.
CHARLIE ROSE: In terms of percentage of a contribution to a revenue picture, say five years from now?
STEVE BALLMER: You're talking about something that's 12 percent of the business today that I think could easily be 20 percent of our business within several years.
CHARLIE ROSE: When you look at Microsoft and all that you went through in terms of the anti-trust suit that you've talked about, and I'm sure more than you've ever wanted to, did it have an impact on the company? Did you feel like-- that people were dancing on your grave?
STEVE BALLMER: It's hard to know where people were thinking. The number one thing I think I learned not from the trial, but from I learned from our experience over the last several years, is that we need to do a better job really redoubling our efforts with our industry partners. Sure, we're going to compete with some guys like Sun and Oracle and others. There's no doubt about that. But there are plenty of opportunities with a lot of companies, and a lot of companies have been our good partners, but they don't feel as tied into us as we need them to feel. Even with our competitors, we can reach out more. Around the XML revolution, we're partnering and working very well, for example, with IBM. But we need to really redouble our efforts to reach out to the venture capitalists, to the start-ups, to the small companies.
CHARLIE ROSE: To say what to them?
STEVE BALLMER: Really prove to them that investing in applications, in solutions around our platform, is good for them business-wise and technically, and that they can count on us to stand behind them and help them succeed.
CHARLIE ROSE: Are you acknowledging that there's more of an open attitude about, you know, potential partners and some sense that Microsoft today, 2001 version, as it grows, as it learns, as everybody does, has a more what kind of attitude about the way it does business?
STEVE BALLMER: We're doing more to reach out, solicit and engage-- partner, if you will. I mean, literally, I'm down in Silicon Valley now at least once a month. That wasn't true a year ago. And every time I go down, I meet with a couple start-ups, a couple smaller companies, a couple very large companies, a VC or two, because I know that community needs to feel like we're their partners.
CHARLIE ROSE: Yeah, what's the Ballmer speech when you go down there?
STEVE BALLMER: I talk to people about the XML revolution--
CHARLIE ROSE: Right.
STEVE BALLMER: --and dot-net. I talk to them about our desire not to just help them get up to speed technically but to support them in marketing. I talk to them about what we are doing and what we're not doing. I want to make sure people understand we're not trying to tread on everybody's toes. We need literally hundreds and thousands of partners around the world.
CHARLIE ROSE: Do you have any sense, as you conduct your business, you know, that people are looking over their shoulder or looking over your shoulder at you, that there is, you know--
STEVE BALLMER: I think that's an inevitable consequence of being a larger company and a company that has a leadership position and a leadership responsibility in the industry. And I can live with that.
CHARLIE ROSE: What are the other implications of largeness?
STEVE BALLMER: I think one of the key implications is the need to really prioritize and focus yourself and have your people and your leadership team understand what you are and what you aren't. And it's easy to get too diffuse, too defocused. And we put a lot of energy, as a management team, trying to say, ``Here's what we are. Here's what we believe in. Here are the businesses that we're pursuing. Please don't get confused.''
CHARLIE ROSE: You have in your career at Microsoft -- you joined as a very young man -- had control, ran various divisions, certainly including sales and the marketing of the product, which was essential. How is being CEO different for you, other than the responsibility now is yours?
STEVE BALLMER: I think that is the biggest-- the biggest change. Feeling a complete responsibility for the business, even if I share it with our senior leadership team, I share it with Bill Gates, it certainly weighs on you in a different regard, even though Bill and I have essentially been kind of partners in the business for--
CHARLIE ROSE: Best friends too.
STEVE BALLMER: Best friends, partners in the business for 21 years. When Bill asked me to be CEO, there was something he was trying to transition out of and, therefore, something he was trying to get me to transition into. And I've certainly felt that transition.
CHARLIE ROSE: Any bumps in that? I mean, any things that you didn't expect becoming CEO because he was there and he was such a visible head of the company?
STEVE BALLMER: No, I don't think so really. I mean, I guess I was surprised at how much more responsibility I felt for our team, our company. I'm not Bill. I can't try to run the company the way Bill ran the company. We tried to really build a top team of about 10 people or so who work together very closely. We can't have a system where essentially the business lives all in Bill's head anymore.
CHARLIE ROSE: Is that where it was? It was living in his head?
STEVE BALLMER: Well, you would be amazed. You would be-- Bill's a man of incredible capability. And for a simple business, it actually is great if one or two people can keep it completely in their head.
CHARLIE ROSE: It is said about Microsoft that, in fact, one of the reasons you got sort of in trouble was that you never understood or never appreciated or it wasn't part of your mind set that you had become as big as you were; that you still saw it as a dog-eat-dog, tough, competitive, we're tested every day. Right?
STEVE BALLMER: I still see it that way.
CHARLIE ROSE: Do you really?
STEVE BALLMER: Sure.
CHARLIE ROSE: I mean--
STEVE BALLMER: I mean there is an aspect of leadership and responsibility that I think we appreciate today that maybe we didn't appreciate three years ago. But any notion that this is not a very competitive business where any day because of technology change, because of the clever actions of others the businesses we built can go away, that's wrong minded.
CHARLIE ROSE: What's the likelihood of you-- XML and the success of that and your dot.net and Hailstorm and all these things that have come together here. That's a safe bet. A safe bet.
STEVE BALLMER: It's a safe bet. We're betting on the right thing. And the more I get out and our people get out and talk to customers about what we're trying to do with XML and the revolution it's going to imply, the more enthusiastic I get.
Literally, the breakfast meeting I had this morning with a smaller company here in Hong Kong, it just-- it just was another reminder that we're exactly on target and just exciting things to do.
CHARLIE ROSE: Do you have to say to them we're no longer-- you think of us as soft-- a PC software company that makes Windows, but we're in fact now an Internet company. We're becoming an Internet company. We're becoming a different company.
STEVE BALLMER: I'm not sure about the word "Internet company." I don't know--
CHARLIE ROSE: What that means.
STEVE BALLMER: --post-bubble whether anybody exactly wants that label or not.
CHARLIE ROSE: It's not going to become Microsoft.com, is it?
STEVE BALLMER: No, it's not. What we need to do is tell people not only can we help the end users with their-- with the tools that help them be more productive, we could help you as a business with the tools and services and technologies that help you as a business.
CHARLIE ROSE: MSN has been a problem for you, yet where is it going? Because as I understand it -- and help me understand this -- that worldwide, globally, you've got more people coming to MSN than even come to Yahoo! or AOL.
STEVE BALLMER: That's right. MSN had been a problem for us. MSN today is in very good shape.
CHARLIE ROSE: It's a healthy portal.
STEVE BALLMER: It's the number one most visited spot on the Internet, day in and day out, across the world. Number one in a wide variety of countries around the world. Still a lot of work to do. A lot of opportunity to enhance the services, to enhance our profitability, et cetera. But it's a very different position than we were in, say, two or three years ago.
CHARLIE ROSE: And I don't know how many years ago it was, but Microsoft made an investment in Comcast, I remember -- maybe, what? Five years ago? Six years ago?
STEVE BALLMER: Yeah, OK.
CHARLIE ROSE: All of a sudden, cable stocks went up. You know have an investment-- you also have an investment in AT&T. I don't know how many other cable companies.
Paul Allen has a huge investment, a charter, in cable. Tell me how you see the cable business as, one, offering broadband access to the Internet, but generally as a business.
STEVE BALLMER: Well, at this stage I'd say we have investments in a range of telecommunications companies -- cable, phone companies. We're an investor in a number of phone companies around the world. Start-up phone companies. Established phone companies. And I'm not-- I'm not sure that, you know, we're looking to necessarily expand the portfolio. But the key for the next wave of advance in our business is to make sure that there is broadband Internet access to the home. And so we have tried to make investments in cable and telecom. We're working with Sky Global Networks, a news corporation, on some satellite projects on Direct TV and BSkyB and others.
STEVE BALLMER: And we're enthusiastic about putting in some capital to stimulate that important adoption.
CHARLIE ROSE: I don't know how to ask this question, but here's what I want. Give me your sense of your view of-- we've already talked about XML and also about Dot.Net and that and how the future turns these-- all these different things together. Give me your sense of view that you have of what's going to make a difference in the future and what's the future of wireless, and what's the future of broadband? And where is it growing and where is it that you think there may be mis-assumptions out there about those technologies?
STEVE BALLMER: Well, I think that despite all the good work, real broadband and a broadband experience is for most people, at least, at home, further out in the future than we all had anticipated.
CHARLIE ROSE: Do you mean more than five years?
STEVE BALLMER: For most people in the world, yeah. Even affluent people in the world, probably five years-plus.
CHARLIE ROSE: Because we don't know that there's an appetite for it? Or because it's a learned experience?
STEVE BALLMER: No, there's an appetite, but the level of capital investment required to make these things happen, people are now really-- in a sense, that's what part of this whole bubble popping has been about. People are coming to the grips with the fact that just because something is exciting doesn't mean it's easy to finance, it's easy to make a profit from, it's easy to raise the capital for. And raising capital for these projects has become tougher.
CHARLIE ROSE: Especially telecoms.
STEVE BALLMER: Well, telecom, cable -- both. I mean, the build-outs of these broadband networks or these wireless networks -- how quickly will 3-G get built out? And then what will the real band width be when we get there? There are a lot of open questions.
CHARLIE ROSE: Explain 3-G.
STEVE BALLMER: 3-G is the next generation broadband wireless technology that the cell phone companies, wireless operators around the world have been bidding to buy the spectrum to broadcast at that higher band width out to either mobile phones or, frankly, to PC's.
CHARLIE ROSE: You guys are sitting on lots of cash. I mean, you've got $20-plus billion worth of cash. Do you regret not making, notwithstanding what happened in Washington, do you regret not making more acquisitions, taking advantage of your market cap when you had the opportunity?
STEVE BALLMER: Well, I think we come to work every day with an opportunity. We have cash and we have a reasonable market cap. In some sense, we probably have a better market cap relative to others today than we did a year ago.
CHARLIE ROSE: About up 30 or 40 percent this year?
STEVE BALLMER: Yeah. I don't know precisely, don't track it quite that much. But--
CHARLIE ROSE: You don't look at your own net worth every day?
STEVE BALLMER: No, I can't say I do that, to be honest about that.
CHARLIE ROSE: Well--
STEVE BALLMER: As long as I have enough money for lunch, I'm OK.
CHARLIE ROSE: You're OK for all of us here. We can--
STEVE BALLMER: Thank you.
CHARLIE ROSE: Mr. Ballmer, lunch is on him.
STEVE BALLMER: No, just the pocket PC's. No, the key thing there is there still is opportunity. And where we see the right opportunities, we move in and do appropriate acquisition.
We have made some large investments, like AT&T, like the investment we're pursuing in Direct TV. We've made some acquisitions. In the last two years we've bought both Visio and Great Plains. Each of those was a billion-dollar acquisition.
So we're moving, but we move-- we're not trying to be crazy.
CHARLIE ROSE: But is it simply-- is it-- is the motivation a good investment or simply hedging your bets and giving access to whatever the new technologies are out there so that you are up to speed on whatever direction takes off?
STEVE BALLMER: We've got seven business priorities. We invest behind those seven business priorities. It's not willy-nilly. It's not helter skelter. It's got to be something that has to do with one of our core businesses. And if it is, we'll take a look at investment.
CHARLIE ROSE: Microwave is-- I mean, wireless is the next big thing in your judgment?
STEVE BALLMER: Wireless is a next big thing.
CHARLIE ROSE: Give me the three others, four others, other than we just talked about one.
STEVE BALLMER: OK. The whole XML revolution dwarfs everything else. I do think that wireless is important and I think it's important in ways people don't anticipate. It's not just my phone, you know. We'll work on projects with partners to put little hubs into hotels and other public buildings. So you'll be able to get high-speed Internet access, wireless, simply on infrastructure that's been installed in a hotel like this. You won't have to plug in, connect. Every room in a building like this will have that kind of high-speed access.
That is certainly a big phenomenon. That's called local wireless, as opposed to wide area wireless, which is what most people think about.
CHARLIE ROSE: Interesting. Bill Gates said something very interesting and he didn't mean what I'm getting ready to ask you. But he basically said in a famous speech, and I'm not sure all that he meant, but that those who think that technology is going to make all the difference in the world, and people who may be suffering from AIDS or malaria or some other terrible situation in Africa. Do you think we have too much confidence in technology today? Do we expect more from it than it can deliver? And is it going to take longer for its impact?
STEVE BALLMER: I actually think the answer to that question is no. We may sometimes think, as Bill was describing, that technology can do things it cannot do. But the key in my limited perspective of world economy, the key to advancement is growth and productivity. One of the most important keys to growth and productivity is technology. And I don't think that's misplaced confidence.
CHARLIE ROSE: But there's something that drives an economy, though, you know, in terms of technology.
STEVE BALLMER: The starting point for all economic well-being is a bigger pie to divide up. Now how things get divided up, government, philanthropists. I mean, people get involved in that. But the most important thing on a global basis is having more, if you will, to divide up amongst the people of the world.
CHARLIE ROSE: When you look at Bill Joyce, somebody you know who has written about sort of a doomsday scenario, as you know, one of the things he talks about -- nano-technology. And he talks about robots and all that kind of stuff. Is there anything to be fearful of in terms of technology?
STEVE BALLMER: I don't think so. I mean, I know people worry about dehumanization, job displacement. I mean, there are things you can worry about. But if you take a look at least at the track record of the last 30 or 40 years, there's been more upside than downside in the advance of technology. The world is a smaller place. We communicate with more people around the world. It's been humanizing, not dehumanizing for people to have access to this global network.
My nine-year-old son was playing chess with a boy from Italy the other night online. It wouldn't have happened when I was a kid. I lived in Detroit. We didn't run into kids from Italy in the neighborhood very often. And I just think it's a wonderful thing.
CHARLIE ROSE: And if you did, you didn't play chess with them.
STEVE BALLMER: You're probably right.
CHARLIE ROSE: Bill Gates plays bridge with Warren Buffett, does he not?
STEVE BALLMER: They do.
CHARLIE ROSE: Online?
STEVE BALLMER: They do.
CHARLIE ROSE: These companies today -- Cisco, Amazon, Yahoo! -- have been hit savagely in the market. What's their future in your judgment?
STEVE BALLMER: Well, you brought together three companies that are, just as an example, and that's why I'm going to avoid generalizing. Those are three companies that are in very different businesses, with very different positions.
CHARLIE ROSE: Right. Take Cisco first.
STEVE BALLMER: I believe a company like Cisco builds products which are important to the world. I have no idea what their stock price ought to be, but they build products that are important to the world and can be sold profitably. And that's great.
CHARLIE ROSE: I'm not asking about the stock price. I'm asking about--
STEVE BALLMER: No, but that's how people are getting into these cycles of negative views. The fact of the matter is you can have fine companies who perform very well and if their stock price goes down, then people say are they OK? Are they healthy?
The fact of the matter is Cisco is a company that delivers valuable products. They did two years ago. They did last year. They do now. And they will a year from now. And, you know, are they in trouble? They have to make some corrections. I mean, corrections, thank goodness, we don't have to do -- laying off 20 percent of your workforce, writing off huge amounts of inventory. But they're doing it. They're stepping up to it. They'll survive and Microsoft will continue to buy Cisco routers for our corporate network because they add value, as an example.
CHARLIE ROSE: And I'm asking this as representative of e-retailing, a company like Amazon.
STEVE BALLMER: E-retailing, I think there will be companies that survive as independent companies. It could be Amazon. It could be others. I'm not a student of the economics there.
But I also think that one of the things people miss, there was an assumption a couple of years ago that all of the so-called old economy companies would fail to take advantage of the Internet. That was wrong. The old economy companies are not, you know, unwise companies.
CHARLIE ROSE: In fact, some are now arguing that's where the future of the Internet is, is in fact how these old-- how the future of old economic companies, or the old economy companies, is, in fact, will be determined by how well they use the Internet. And they're making some of the most dramatic applications today. A), because they've got a profitability stream that enables them to do it.
STEVE BALLMER: I agree 100 percent. I think that the great element that was wrong minded was the notion that new guys would totally replace old guys and that old guys couldn't--
CHARLIE ROSE: Why did we believe that? I mean, it now looks easy to say that in hindsight. But there was this notion that technology was going to tear down the pillars -- media, retail.
STEVE BALLMER: I don't know. I'm a guy who thought things were a little overheated a year and a half ago. I opened my mouth. People thought it was a big time error.
CHARLIE ROSE: I remember that.
STEVE BALLMER: Crazy.
CHARLIE ROSE: Because they said if Ballmer doesn't-- it had an impact on the market.
STEVE BALLMER: Yeah, it did for a day and a half, two days. And then things went up another 50 percent.
CHARLIE ROSE: That's right. Another aspect of the future -- a vital aspect certainly to someone like me -- is interactivity. Where are we on that?
STEVE BALLMER: Well, I'm pretty excited about some of the things that we see coming out in the labs and in our new products, not only in terms of entertainment, but voice recognition, video recognition. You can walk up -- we have it working in our lab. You walk up to a PC, a little camera. It will see me and say, "Hi, Steve." It recognizes my face as my face. We actually have it doing mood recognition. "Sad today, Steve?"
I won't say it's super sophisticated yet, but we have it doing a little bit of stock picking.
CHARLIE ROSE: Now why do we need this?
STEVE BALLMER: The same reason you want to be able to talk to the computer. You want to be able to express your intent in the broadest possible way.
Certainly one of the-- we're shipping a new product this month -- Office XP. And it has for the first time, dictation capabilities built in. So if you want to dictate to Word, you can speak and it recognizes what you say. And in English, it probably with the errors it makes, it's faster to just type. But people want-- for some people, that's not the case.
But in China and in Japan, we're also launching the same technology where keyboard input is much harder. I think it will represent a huge improvement in interactivity.
CHARLIE ROSE: I want to get to-- I want to get to Asia as a market in just a moment. But take Windows XP. What are your anticipations of that? What are your expectations of that?
STEVE BALLMER: I think Windows XP is the absolute most important release of Windows we've done in years -- maybe more important than Windows 95. The sun, the moon and the stars all aligned and that was a huge deal. But Windows XP really takes the next step in terms of really getting people into the world of digital media.
CHARLIE ROSE: But that may very well be true in terms of what it can do, but the expectation is, is it going to be that strong? In other words, do you expect that the consumers are going to see that and believe they need that?
STEVE BALLMER: I think the word of mouth on Windows XP from most consumers will be, the thing just works, and I can participate. I can do things I didn't think I could before. And if I can't, Windows XP actually lets my son-in-law, my brother-in-law, my buddies help me, because it's been built to let people help other people remotely over the Internet.
So I just think it's a -- from a consumer perspective, it's a slam-dunk winner, and I think people will understand that.
CHARLIE ROSE: When do you launch this?
STEVE BALLMER: I think I read in The Asian Wall Street Journal that we've announced it would be October 28 of this year.
CHARLIE ROSE: Are you confident about that date?
STEVE BALLMER: Yes. We would -- we waited --
CHARLIE ROSE: [unintelligible]
STEVE BALLMER: --until we had a level of confidence, and at some point, we actually have to make sure --
STEVE BALLMER: --our PC manufacturing partners, the computer resellers around the world, all understand. So we've got our heads down now, we're targeted for a launch at the end of October.
CHARLIE ROSE: Asia. Is this market different? Or is this the most fertile ground for people who are involved in technology?
STEVE BALLMER: It's absolutely the fastest-growing market, the most fertile ground for technology. Japan is the biggest market, obviously, and Japan is still growing very nicely.
CHARLIE ROSE: Is it really?
STEVE BALLMER: Absolutely. Absolutely.
CHARLIE ROSE: So [unintelligible] despite the fact that that economy's been in stagnation for 10 years, the market for technology products has grown at the same pace?
STEVE BALLMER: PCs over the last three years in Japan have probably grown 45, 50 percent, in the last three years in Japan. So the Japanese market is strong --
CHARLIE ROSE: And -- and -- and -- and they're -- that's not replacement, that's new, or is it both?
STEVE BALLMER: People are buying new PCs. Some of them --
CHARLIE ROSE: Yes.
STEVE BALLMER: --may use to replace old --
STEVE BALLMER: --and some of them are new to the installed base. But, I mean, it's the kind of growth rate that is enviable, shall we say.
China's growing faster, and China today is about the third- or fourth-largest PC market in the world. It should easily be number two or three within four or five years. Huge PC market in China.
And the rest of Asia also very strong and growing very well, great actions to protect software, intellectual property going on here in Hong Kong --
CHARLIE ROSE: Like what?
STEVE BALLMER: --in Korea. A new law was enacted here in Hong Kong as of April 1, certainly has put a lot of teeth and force into protecting intellectual property rights. We saw the same thing in Korea.
These are countries that recognize that they want to be leaders in the software revolution. And you actually cannot be a leader as an exporter unless you have a strong domestic market. And intellectual property protection's actually important to the domestic software industry here in Hong Kong, in Korea, and in China.
CHARLIE ROSE: Much of your time is spent on the road as sort of --
STEVE BALLMER: Thirty percent.
CHARLIE ROSE: That makes it -- you know, if you're -- if you're big in China, you want to see Ballmer.
STEVE BALLMER: I come to China --
CHARLIE ROSE: I mean, you want the head guy to come over here and tell us about --
STEVE BALLMER: I come to China at least once, maybe twice a year. That's very important. This trip, I'll meet with a number of key leaders from different regions around China. I was here last September, met with a number of important people in Beijing.
CHARLIE ROSE: So -- yes. I mean, when you say that, I assume heads of state. You know, I mean, Microsoft has such a global role. The heads of state want to figure out what you've got to say, because they think it may be relevant for what they can do for their people.
STEVE BALLMER: In an economy where software is viewed as a source of key growth, like many of the Asian economies --
CHARLIE ROSE: Right.
STEVE BALLMER: --that's absolutely right. We'd see key members of the government.
CHARLIE ROSE: And what do they ask? What is it they want to know?
STEVE BALLMER: Their focus is on, What does it take for our country to be a leading provider of software for the world? Everybody sees the miracle that's happened, essentially, in India.
CHARLIE ROSE: Right.
STEVE BALLMER: And the incredible growth of the Indian software business.
CHARLIE ROSE: Right.
STEVE BALLMER: Whether you're in Singapore or Hong Kong or China, people look at that and say, How do we get that kind of economic vibrance? And that's the fundamental question.
CHARLIE ROSE: And what's the answer?
STEVE BALLMER: Strong intellectual property protection, good education, the right kind of tie-ups with businesses outside of the country for foreign export.
You know, we employ today over 1,000 people in China alone. We're doing support, technical support of our products on a global basis, out of the support center that we have in Shanghai. We're doing key research projects that will affect users around the world.
And so it's -- some part of it is companies like ours making an investment. A lot of it is having a domestic market. And the third aspect is, how do you do export?
CHARLIE ROSE: What does Microsoft do? We know what the Gates Foundation does, and does more than anybody else, and has an enviable track record because of its impact on vaccines and understanding that building, and people at the Gates Foundation have understood, that you can make a difference in terms of vaccines and other ways to use money, a direct cost-benefit right here.
A company like Microsoft, what -- how do you view your responsibility? What's the sense of, if you're as big as you are, if you're as global as you are, your role?
STEVE BALLMER: The key issue we focus in on -- because we have to find issues that really are at the intersection of social issues and business issues --
STEVE BALLMER: --and certainly the issue of what I might broadly refer to as the digital divide, countries that have and countries that have not, people that have and people that have not, we have chosen to focus in on.
And there's two aspects to that. Number one is, how to you educate people broadly in technology and give them access to technology? We're a big giver around that. We have some programs I'll actually be announcing later today that we're doing here in Hong Kong.
But we've been very active in putting school -- computers into schools and software, sometimes in conjunction with the Gates Foundation, often, you know, by ourselves. Job retraining programs, we take a piece of our recoveries of software piracy revenue in Europe and in some other geographies and we turn around and reinvent that into training unemployed workers and computer technologies.
You know, we take a pretty serious -- Boys and Girls Clubs in the United States, we've been very active in pushing computers and software in there, so that people who may not have a computer at home can have access to one and not be left out of this revolution.
We've been pretty active, and we view that as a pretty important part of what we do.
CHARLIE ROSE: Lot of talk about Napster, as you know, that dominated our concern there for a while, until you had the results you did. Peer to peer, how significant do you see that as -- in terms of the future of communication hard line to [unintelligible]? Hard drive to hard drive?
STEVE BALLMER: I think peer to peer is incredibly important. Now, sometimes people confuse peer to peer with improperly pirating people's software --
CHARLIE ROSE: That's not what I mean.
STEVE BALLMER: --as in Napster. But, you know, we'll sit in a room like this a year from now, and we will have a peer-to-peer network. There's no software server --
CHARLIE ROSE: Because the software will be there, or what will make a difference a year from now?
STEVE BALLMER: Yes, the software will be there. My system and your system will find each other through the electronic connection in this room, and I will send you peer-to-peer a message. I won't have to go through a server or go through MSN or AOL or any of those crazy things. I'll just send you a message. And that's the nature of the way the world will evolve.
CHARLIE ROSE: The most -- and I think we probably talked about it in one way or another, but most exciting thing for you now in terms of what the world offers individuals as a benefit of technology.
STEVE BALLMER: I think the most significant thing technology helps with is people's productivity. I'll talk about enjoyment, but that's hard to articulate as a benefit in the same way. Productivity. Productivity buys you time. Time lets you do whatever you choose to do with your time --
STEVE BALLMER: --whether it's relaxation or more and more productive investment in work. But I think the number one benefit has come from making people more productive, more informed, and, in some senses, happier, because they're able to be more effective in what they do.
CHARLIE ROSE: Making life easier for them, in a sense? I mean, if we -- if computers can talk to computers, hard drive to hard drive, if computers can talk to computers without going to Web sites, you know, and through -- and XML, Web sites can talk to each other, then life becomes simpler.
CHARLIE ROSE: Thank you very.
STEVE BALLMER: Thanks very much, Charlie. Thank you all. [crosstalk] Thanks.
CHARLIE ROSE: Thank you for joining us. We're at the Fortune Global Forum in Hong Kong.
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