InformationWeek

November 22, 1999

Gates: It All Starts With Software
Microsoft CEO discusses business transformation, software distribution, and more

IW: There are business as well as technology issues that organizations must address as they plan their strategies. What are some of the business issues that you feel are most important?

Gates: When a company says that the Internet is the most important change agent out there, and that every analyst meeting they go to and customer meeting they go, or when they want to hire smart kids off the campus, they ask, "What's your Internet strategy?" it really creates a challenge for the organization in terms of where is the leadership going to merge that's going to solve these tough problems. And that's part of an ongoing trend. Historically, if IT ran the back-end processes well, the checks got out on time, and they didn't try to increase the budget too much, the CEO could think about other things and leave them alone.

Then you've got this whole knowledge-worker productivity thing where, almost without it ever being an explicit step, the whole infrastructure for how people share information and create documents got added into their portfolio and to their budget. They could try and dodge it by saying, "No, let's put it in the individual budgets," but then when you want to have a common security approach and standards, you pretty much want to have centralized expertise and licensing.

Then boom, the next thing you know they've got a big support function there. Now, you've got to run this Web site that's up 24 hours a day. You've got to turn that Web site into the primary marketing vehicle, polling customers about what they think about things, substituting for a lot of the things that were done in the past with direct mail. Then you have to take all the processes inside the company and have those be digital so that they map with the way the customers are coming in and asking for support. It's pretty much a reworking of all the processes inside the company. So is it the CEO's role to bring this transformation or is it the CIO? Well, obviously it's a mix, but it's a huge expansion to say, "Help us understand how we should market on the Internet, how we should manage customer relationships on the Internet, how we should take all these processes that have been paper driven that the IT department doesn't get involved in." More than ever [IT] is central to making those things go very smoothly. As those expectations go up, [is there] the ability to hire the right size staff and renew the skill sets of some of the people who have been around for a long time, and really understand what the business goals are so that you're matching everything that you're doing in that technology infrastructure with where the business is going? All those issues really are mixed now--business technology decisions.

IW: How has that changed your focus on IT?

Gates: Microsoft has been, year by year, stepping up to a huge level of enterprise involvement. You go back six years, we didn't have Microsoft Consulting, we didn't have full-time account managers, we didn't have 24-hour support capabilities, and so every year we've just raised the bar. About two years ago, Steve [Ballmer] said that every account IBM calls on, we're going to call on. So I think we've been stepping up every year. I don't think we're at the end of that process.

Take now this desire to have these sort of arbitrary scale servers that basically never go down. That's a new requirement. In the past that requirement really only existed in, say, stock exchanges or phone networks, and that's where Tandem got virtually all the business because they had a software-driven architecture that led to that kind of reliability and scalability. Now people are saying in the Windows mainstream we want exactly the same benefits that came with those Tandem boxes. We want to buy industry-standard servers, connect them together, think of them logically as a single machine and get the aggregate performance and sort of arbitrary reliability that comes out of that. It's a new thing. We'll roll out Windows 2000 with the App Center extension on top of it. It raises the centrality of Microsoft's role much higher, the number of people who say Microsoft is the strategic supplier, and it's just a question of when we unplug the last mainframe is a pretty small percentage. They're out there, particularly medium-sized companies, but in most cases it's going to be a heterogeneous environment going forward. But the role of Microsoft in that environment goes up as people are saying, "Boy, writing these Internet applications is hard. That's a software problem we want to work with you on. Empowering these knowledge workers, getting rid of paperwork, that's hard. We want a software partner who can help with those things." Our role goes up because the interesting things are software, they're not hardware at this stage. Yes, we expect continued miracles from the hardware business in terms of LCD screens and wireless networking and incredible levels of performance and storage and all that. The move this year up to 64 bit, the high-speed memory buses, those are all super good things. But when a company really says, "Will these digital processes work? Can we get rid of meetings, can we have better feedback?" Fundamentally all those things, doing it well or not doing it well, is how you plan out your software infrastructure.

And so we are, even though as a percentage of the IT budget, we're very small. There are vendors who are a much, much higher part of that IT budget--whoever you buy your bandwidth from or whoever you outsource some kind of support to or the hardware pieces. But in terms of helping people think through what they should do for their goals, we are more and more at the top of the list of strategic suppliers. And it implies really stepping up to that level. Microsoft Consulting is growing very rapidly, even though the whole philosophy of Microsoft consulting is to pass along the skills to people who are in the consulting business as a real P&L. So we're only doing the sort of architecture design things that really have to be us, and it has to be us on the line. There's never been a consulting operation more oriented to turning over work so that we're always pushing the leading edge and getting as much product feedback as we can. And yet even with doing that and doing that very well, the demand for Microsoft Consulting has gone up. A lot of these big contracts and enterprise agreements we do now, have the services just built in. Sometimes they want us to price it separately, sometimes they want us to price it together, but it's all being made as a decision to really partner with Microsoft.

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