Microsoft CEO Steve Ballmer: Chrome And Safari Are Rounding Errors

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Daily Crunch: Fontanesi Edition

This is the third installment of our exclusive interview last week with Microsoft CEO Steve Ballmer. In the first article we showed an overview and video footage of the main subject areas we covered: Big Opportunities, Operating Systems/Browsers, Mobile, Search and Developers.

In the second post we did a deeper dive on his thoughts on big business opportunities for Microsoft in the next 5 – 10 years.

Here we focus on his thoughts on the competitive landscape around operating systems and browsers. And Ballmer has lots to say on the subject. Particularly because Microsoft has fresh browser and OS products in the pipe: IE8 launched earlier this year and Windows 7 launches on October 22.

We jumped right into the conversation by bringing up the 2001 consent decree with the Department of Justice and various other governmental bodies that, among other things, prohibited Microsoft from bundling Windows and IE for competitive purposes.

But the landscape has changed a lot in the last eight years. And Microsoft’s competitors are doing exactly what Microsoft is prohibited from doing – bundling an operating system and a browser. Heck, Google didn’t even change the brands. Chrome is both a browser and a desktop operating system.

Ballmer says the notion of an operating system being distinguished from the browser is no longer sensible:

I’ll say that it is certainly clear that in the year 2009, the notion of operating systems being independent of internet access and internet ability to render important things in the internet is kind of not a sensible concept. And in every legal dispute we’ve been in, eventually, people agree with that. You know, we had to agree with some rules around that with the DOJ as part of the consent decree. We’re trying to agree on a new set of rules around that with the European commission, but I think we’re well past the point where people really question that it needs to happen. The question is for somebody who’s got our market share, on what terms does it happen?

He elaborates, arguing that there isn’t really any distinction between the browser and the operating system – both are operating systems. Except for the hardware drivers, of course. And oh boy do we agree. Says Ballmer:

You know, Google is talking about building an operating system with the name of its browser. Nobody should be confused. The browser they think of is the operating system and the question is you know sort of like Marc Andreesen in the late ’90s is back at work at Google. If you remember, he said something like, Windows will just be a poorly debugged set of device drivers running Netscape…Now, that’s kind of basically the attitude expressed in Chrome Browser, Chrome OS. Windows is just, you know, sort of a bag of bits that manages the hardware under the Chrome operating system and oops, we can even do our own device drivers for the Chrome operating system. Of course, the Chrome operating system isn’t available, hasn’t shipped.

When it comes to browsers, Ballmer calls Chrome and Safari rounding errors. And he certainly noticed Google’s attempts to turn IE into Chrome via a plugin:

The most successful by far is Firefox. Chrome is a rounding error to date. Safari is a rounding error to date. But Firefox is not. The fact that there’s a lot of competitors probably is to our advantage. Yeah, we’re right now about 74 percent overall with the browser market, roughly speaking. But we’re having to compete like heck with IE 8, with great new features. The other guys are getting more and more unanticipated competitive attack factors, the thing that Google announced yesterday where they replaced IE but they don’t tell you. I mean that’s how I would say it. For all intents and purposes of what they’re doing IE is not there. It’s their operating system. Instead of now masked as browser, it’s masked as a plug in basically to IE. So, you know, we’re going to have to compete like heck and you know, see where things go. The one thing that’s unclear is what’s the economic play for anybody else competing with us at the browser level. Is this all about kind of controlling the search box or is it about something else?

Clearly fired up, Ballmer also wonders at Google’s attempts to build two operating systems (Android and Chrome). It’s confusing, he says, and doesn’t help with interoperability. Microsoft has Windows for the desktop and Windows Mobile, and he says that he thinks about ways for Windows and Windows Mobile to “share more” every day. Google must have gotten Android wrong, he says, to have started to focus on Chrome. “In the OS business, it’s generally advisable to get it right and stay right.” He elaborates:

It’s incompatible with the one operating system they have shipped. To me, still, I don’t understand why they needed another one. They must have gotten the first one wrong. They must – they’ve got the first one. I mean, I really don’t know. They must think they got the Android wrong somehow. Otherwise, in the OS business, it’s generally advisable to get it right and stay right as opposed to have many of them. We have one and a half operating systems, Windows and Windows Mobile. Windows Mobile is kind of a half because it’s not entirely the same as Windows. And everyday, I say I’d love to get those two things to share more.

So I don’t know why Google before they have one successful one, decided they needed a second one. You know, I was expecting this Fall, or if not this Fall, next Winter, to really see a rash of essentially things that look like PCs running Android.

I think that’s a little tougher for them now because they basically tell the hardware community Android is dead, Chrome is the thing or maybe Chrome isn’t the thing. Maybe it is Android. The cacophony there is probably helpful to us in the grand scheme of things and I don’t know why they would have chosen to do it, at least the way you read the press. It probably has a lot to do with internal squabbles, but I just don’t know.

And he’s not done yet. In a fascinating answer to my question on how Microsoft will compete with Android, Chrome, Safari, Linux and other operating systems, he begins a long discussion of competitive attack vectors on Windows/IE and how competitors are hitting Microsoft from all sides via true operating systems and browsers. He even drew a chart for me, although he wouldn’t let me take it with me. Here’s what he had to say:

Mr. BALLMER: Here’s Windows and Windows is a very successful product. How do you attack Windows? Well, you attack with the high end, and hardware. That’s an attack. That’s – I won’t call it the Snow Leopard attack. I’ll call it the Mac attack of which Snow Leopard is a piece. You could attack from the side. That’s the Chrome – Firefox attack. You can attack from cheap, from below. You’re not from the side. You’re one on one, but that’s kind of a Linux, Android, presumably Chrome OS, who knows, attack vector. You can attack through phones that grow up. You know, mama don’t let your phones grow up to be PCs or something. I don’t know. But that’s another attack vector. So, you could say how do I feel about all these attack vectors? Strong, I feel very strong here.

I mean, we’re gaining share. Apple is expensive. And in tough economic environment, people get it. Their model is, by definition, expensive. And we’ve actually held or maybe even gained just a tiny bit of share relative to the Mac in the last 12 months. And it’s not really Snow Leopard. It’s really Windows PCs versus Mac.

That’s the trade-off. We’ve done extremely well versus Linux-powered machines with the Androids or Linux and we’ve done that primarily by having a better solution and being willing to do the right thing from our pricing perspective. And Windows 7 will only make this, I think, more competitive here.

Mr. ARRINGTON: And part of what we’re talking about here is Netbooks, of course.

Mr. BALLMER: Yes, well, Netbooks are just the first battleground.

There’s no question that there was a Linux PC battleground and then it became “the MID” and if you remember that mobile internet device. That’s what they call Netbooks before Netbooks, is in the new battleground. We’ve done a very good job and I think we’ll continue the job.

Phones, I think the jury is out. Nobody has yet tried to take the phone and turn it into a PC or take a PC and turn it into a phone. But this is where we have to be. We’re going to have it and we’ve got to have our phone act together. I like our 6.5 release. I like our plans for the future. But you know, we’re certainly in a period now where competition has got a lot more commotion.

Mr. ARRINGTON: As you said the market there is just getting started.

Mr. BALLMER: It’s still awfully nascent. People don’t think about it that way because phones aren’t nascent. Smart phones are more nascent. And then this attack is perhaps the most, I don’t mean this in a negative sense, but it’s the most insidious because some people don’t even know that it’s really an attack. Those are operating systems. They all run their own proprietary rich-client code and we’re competing against them. [Editor's note: If you view the full transcript below, it's clear he's talking about competitive browsers in these last few sentences, which he clearly views as operating systems with "proprietary rich-client code."]

There you have it. Ballmer sees a competitive landscape where Microsoft is surrounded by competing operating systems and browsers (which are also operating systems) and hobbled by a consent decree that limits their competitive response. But he doesn’t seem shaken by the threat. At the end of the day, one quote rings true from Ballmer: “In the OS business, it’s generally advisable to get it right and stay right.”

The full transcript of this portion of the interview is below.

Transcript:

Mr. ARRINGTON: You’ve got Windows 7 launching when? What’s the date?

Mr. BALLMER: 10/22.
 
Mr. ARRINGTON: 10/22. A decade ago the DOJ said that the browser and the operating system cannot be merged together. You probably know I’m talking about there. How do you feel about that with today’s world where Google is moving forward with Chrome OS and Chome Browser being merged?
 
Mr. BALLMER: I have no clue. I mean, how do I say this correctly? I don’t know what Google is doing. I’ll say that it is certainly clear that in the year 2009, the notion of operating systems being independent of internet access and internet ability to render important things in the internet is kind of not a sensible concept. And in every legal dispute we’ve been in, eventually, people agree with that. You know, we had to agree with some rules around that with the DOJ as part of the consent decree. We’re trying to agree on a new set of rules around that with the European commission, but I think we’re well past the point where people really question that it needs to happen. The question is for somebody who’s got our market share, on what terms does it happen?

You know, Google is talking about building an operating system with the name of its browser. Nobody should be confused. The browser they think of is the operating system and the question is you know sort of like Marc Andreesen in the late ’90s is back at work at Google. If you remember, he said something like, Windows will just be a poorly debugged set of device drivers running Netscape.
 
Mr. ARRINGTON: Yeah, he did say that. Yes.
 
Mr. BALLMER: Now, that’s kind of basically the attitude expressed in Chrome Browser, Chrome OS. Windows is just, you know, sort of a bag of bits that manages the hardware under the Chrome operating system and oops, we can even do our own device drivers for the Chrome operating system. Of course, the Chrome operating system isn’t available, hasn’t shipped.
 
Mr. ARRINGTON: Right.
 
Mr. BALLMER: It’s incompatible with the one operating system they have shipped. To me, still, I don’t understand why they needed another one. They must have gotten the first one wrong. They must – they’ve got the first one. I mean, I really don’t know. They must think they got the Android wrong and somehow. Otherwise, in the OS business, it’s generally advisable to get it right and stay right as opposed to have many of them. We have one and a half operating systems, Windows and Windows Mobile. Windows Mobile is kind of a half because it’s not entirely the same as Windows. And everyday, I say I’d love to get those two things to share more.
 
So I don’t know why Google before they have one successful one, decided they needed a second one. You know, I was expecting this Fall, or if not this Fall, next Winter, to really see a rash of essentially things that look like PCs running Android.
 
Mr. ARRINGTON: Yeah.
 
Mr. BALLMER: I think that’s a little tougher for them now because they basically tell the hardware community Android is dead, Chrome is the thing or maybe Chrome isn’t the thing. Maybe it is Android. The cacophony there is probably helpful to us in the grand scheme of things and I don’t know why they would have chosen to do it, at least the way you read the press.  It probably has a lot to do with internal squabbles, but I just don’t know.
 
Mr. ARRINGTON: When you think of Windows 7 and explore competitive positioning versus Snow Leopard which just came out and has had some problems, and also, Chrome OS, how do you think about that?
 
Mr. BALLMER: I don’t know how you position against something that just doesn’t exist.
 
Mr. ARRINGTON: That’s fair.
 
Mr. BALLMER: Really, I don’t. So, when you do it, can I do Android or do Linux?
 
Mr. ARRINGTON: You can do either.
 
Mr. BALLMER: I think, well, because I sort of understand if you look at the competitive vectors – here’s Windows and Windows is a very successful product. How do you attack Windows? Well, you attack with the high end, and hardware. That’s an attack. That’s – I won’t call it the Snow Leopard attack. I’ll call it the Mac attack of which Snow Leopard is a piece. You could attack from the side. That’s the Chrome – Firefox attack. You can attack from cheap, from below. You’re not from the side. You’re one on one, but that’s kind of a Linux, Android, presumably Chrome OS, who knows, attack vector. You can attack through phones that grow up. You know, mama don’t let your phones grow up to be PCs or something. I don’t know. But that’s another attack vector. So, you could say how do I feel about all these attack vectors? Strong, I feel very strong here.
 
Mr. ARRINGTON: Yeah.
 
Mr. BALLMER: I mean, we’re gaining share. Apple is expensive. And in tough economic environment, people get it. Their model is, by definition, expensive. And we’ve actually held or maybe even gained just a tiny bit of share relative to the Mac in the last 12 months. And it’s not really Snow Leopard. It’s really Windows PCs versus Mac.
 
That’s the trade-off. We’ve done extremely well versus Linux-powered machines with the Androids or Linux and we’ve done that primarily by having a better solution and being willing to do the right thing from our pricing perspective. And Windows 7 will only make this, I think, more competitive here.
 
Mr. ARRINGTON: And part of what we’re talking about here is Netbooks, of course.
 
Mr. BALLMER: Yeah, well, Netbooks are just the first battleground.
 
There’s no question that there was a Linux PC battleground and then it became “the MID” and if you remember that mobile internet device. That’s what they call Netbooks before Netbooks, is in the new battleground. We’ve done a very good job and I think we’ll continue the job.

Phones, I think the jury is out. Nobody has yet tried to take the phone and turn it into a PC or take a PC and turn it into a phone. But this is where we have to be. We’re going to have it and we’ve got to have our phone act together. I like our 6.5 release. I like our plans for the future. But you know, we’re certainly in a period now where competition has got a lot more commotion.
 
Mr. ARRINGTON: As you said the market there is just getting started.
 
Mr. BALLMER: It’s still awfully nascent. People don’t think about it that way because phones aren’t nascent. Smart phones are more nascent. And then this attack is perhaps the most, I don’t mean this in a negative sense, but it’s the most insidious because some people don’t even know that it’s really an attack. Those are operating systems. They all run their own proprietary rich-client code and we’re competing against them.

The most successful by far is Firefox. Chrome is a rounding error to date. Safari is a rounding error to date. But Firefox is not. The fact that there’s a lot of competitors probably is to our advantage. Yeah, we’re right now about 74 percent overall with the browser market, roughly speaking. But we’re having to compete like heck with IE 8, with great new features. The other guys are getting more and more unanticipated competitive attack factors, the thing that Google announced yesterday where they replaced IE but they don’t tell you.
 
I mean that’s how I would say it. For all intents and purposes of what they’re doing IE is not there. It’s their operating system. Instead of now masked as browser, it’s masked as a plug in basically to IE. So, you know, we’re going to have to compete like heck and you know, see where things go. The one thing that’s unclear is what’s the economic play for anybody else competing with us at the browser level. Is this all about kind of controlling the search box or is it about something else?
 
Even Firefox – all the economics from Firefox come from that box.
 
Mr. ARRINGTON: The search box.
 
Mr. BALLMER: The Google search box, yes.
 
Mr. ARRINGTON: You have, I think Silverlight has  — 35 percent of computers have Silverlight on them.
 
Mr. BALLMER: Yeah. That’s right.
 
Mr. ARRINGTON: Is Silverlight essentially competing with Windows? I mean, the way you described some of this here, it’s like they’re competing with each other.
 
Mr. BALLMER: No, it depends on what the strategy is. IE only runs from Windows. Anybody who uses IE uses Windows. So does it compete with Windows? No it helps Windows.

On the other hand, when we tell people the right applications which are not unique to Windows that doesn’t particularly help Windows. And so we’ll continue to see and do things that are standard-based because that’s important. And you continue to see us encourage developers to do things that run uniquely on the Windows platform. You know, with the new Silverlight, you can build Silverlight applications that are flash-like in the sense that they run across platform. But you can also do things which are even nicer which really narrow down and run only on Windows.  And given that Windows is a billion units, you can afford to make optimizations as long as they bring value and do your applications that are Windows unique.

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