A Better Value Proposition

At the end of a long day of presentations to Wall Street analysts on Microsoft's campus last month, Steve Ballmer summed up the distance between the company's vision and its present.

"This meeting doesn't happen significantly differently than it ever would have happened," the CEO said. "We're not beaming this presentation to you over the wireless network. You're not recording your notes with the audio and video that you're hearing. We're not helping. We're not delivering the maximum value per hour at this hour."

To get companies to participate in spanning that gap, business technology has to deliver more value than it does today. "We've got to deliver products that help people take out operating costs. To the degree we do that, that money can get redeployed into new applications," he said in New York last week after a 12-hour day of customer meetings.

Microsoft is betting big on Web services, manifest in its .Net strategy, and on XML as a medium for software integration. "I think that will, over the next couple of years, be a huge idea--a fundamental change in platform architecture for almost every piece of software in our business," Ballmer says. "We'll start to see momentum in the next two years." Also, Microsoft, like other software companies, is making significant changes in its licensing strategy as it tries to transform itself into a company that rents software as a renewable service, rather than one that sells it in shrink-wrapped boxes.

Ballmer, sporting a newly trimmed-down frame but with as much animation as ever, acknowledges some competitive challenges, including Java, Linux, IBM's WebSphere, and academic mindshare. "A lot of kids coming out of college have more expertise in Java than they do in our tools," he says. "We're not pretending we're the incumbent." Even Microsoft, with plans to boost R&D spending by 20% and hire another 5,000 people during the next 12 months, has a lot of work to do.

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