Ballmer on the Web
In an interview on Businessweek, Steve Ballmer, CEO of MS, talks about the web, business models, XBOX, and Zune. It's a very thoughtful look at part of the tech landscape through Ballmer's eyes. He is uncertain whether YouTube was worth $1.65 billion. He is very frank about the ability of Google to better monetize ad deals like MySpace (and presumably YouTube) due to having a larger pool of advertisers to draw on. These points are not surprising, but what i did find interesting was his take on where the value MS may provide to the web would come from:
[BW] - These are hits-based phenomena. Don't you and others have to monetize very rapidly before people shift onto something else? [Ballmer] - If they are hits-based, which is the implication I've made here, and you pay a lot of money, you're going to have to move in, milk, and get out. Or, it may turn out that the money is in the infrastructure for these things. What is Google to MySpace? It's the advertising infrastructure. In some of these things, you'll have to decide, if you're the big guys: Do I want to play at the application level or do I merely want to play at the commerce and other platform level in a way that strengthens the rest of my assets and allows me to make money?They've certainly been pursuing the infrastructure play for a while. Live Search is powering Lycos and A9. Virtual Earth has made great penetration into the real estate websites. I think that we can expect more ad and other internet infrastructure company purchases.
The other interesting part of the interview was seeing his response to the question "Who are Microsoft's top competitors?". He answered with his thoughts on business models and whether or not Microsoft could compete with a certain business model.
[Ballmer] - [Take open source.] Open source is not a new technology area. It was a new business model. In the last three or four years, we have competed very well by extending our value. Open source never goes away as a business model or competitor. We have learned how to compete with open source, and we will compete with it for the rest of time. But competing with open source will have to be something that's burned bright on the foreheads of our senior people.The second big competitive force is advertising as a business model. Typically, people just want to reduce that to Google, and if you want to do that, you can. But it's do we embrace advertising fully enough as a business model? Because at the end of the day, anybody who comes at you with a cheaper-to-the-customer proposition, you got to worry about. And advertising looks cheaper to a consumer than something you pay for.
In the case of open source, we couldn't adopt the business model. We adopted a competitive approach that so far has worked very well. In the advertising case, we can embrace that model. We don't have to sit here and say it's that bad.
A third model I could sit here and write down on this list is that there are cases where software gets monetized through hardware. That's what an iPod is. iPod is a software thing. You just happen to collect the money on the hardware. You could say in China and India, it's unclear whether classic software will get paid for as much as advertising, hardware, subscriptions, etc.
Later in the interview, Ballmer confirms that they are competing in #3 with the Zune.
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Allison Randal [10.12.06 01:17 PM]
On the valuation of YouTube, it sounded to me like the reporter was trying to goad him into saying YouTube was overvalued, and Ballmer caught on and refused to take the bait. First he makes what sounds like a clear statement that it was overvalued:
Then later he backpedals:
And closes the topic with one of the most discouraging statements I've ever heard from anyone at Microsoft, ringing with uncertainty and a lack of enthusiasm:
But, if you boil his comments on the valuation of YouTube down to bare semantic content, he didn't actually say anything, so that part of the interview wasn't very interesting to me. What was interesting was when he talked about the significance of the YouTube purchase.
He's missing a fundamental point about the nature of the site. He comments later in the article that Microsoft has always competed well with enterprise software companies. Here he's trying to understand YouTube as an enterprise software company. But really, the "threat" isn't Google, it's billions of individuals around the world who want to create and share. Microsoft and the media companies are competing against human nature, against their own customers, which is a terrible position to be in. Google, on the other hand, has made a business out of figuring out what people want to do anyway, and how to make money off enabling them to do it.
Maybe Google could start filtering some percentage of the ad revenue down to the YouTube users posting content. That would be an innovative business model. If you only pass along revenue to posters who go through some process to verify that they own the content they post, you have a built-in encouragement for the true creators.
On the positive side, I was impressed that Ballmer clearly identified 4 of Microsoft's greatest weaknesses: open source, advertising as a business model, new media, and the pairing of hardware and software. He talks about the topics as if Microsoft has each firmly handled, but it's far more likely that Microsoft will be repositioning itself around these 4 key issues for decades into the future.
The most encouraging quote in the entire interview was this one:
Microsoft is trying new ideas, trusting new people, adapting, learning. This is what will carry them to a successful future.