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Originally published May 31, 2007 at 12:00 AM | Page modified June 28, 2007 at 4:12 PM

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Brier Dudley

Building "business muscle" gives Microsoft new shape

Brier Dudley was among those invited this week to The Wall Street Journal's D: All Things Digital conference with some of the biggest names...

Seattle Times staff columnist

Brier Dudley was among those invited this week to The Wall Street Journal's D: All Things Digital conference with some of the biggest names in technology. Here are edited excerpts from his blog, as he reports from the California conference.

CARLSBAD, Calif. — Wall Street Journal tech columnist Walt Mossberg asked Microsoft Chief Executive Steve Ballmer a question that a lot of Microsoft watchers have been thinking about lately:

Why is the company manufacturing hardware like the Zune and the new Surface computing table, which it unveiled Wednesday at the conference, after insisting for years that it made software and left hardware to partners?

Ballmer, talking with Mossberg in a D conference presentation, said "modern consumer electronics" is one of the new "muscles" the company is trying to build, along with digital advertising. He also said people shouldn't write off Microsoft after seeing only its initial forays:

"We're trying to build these two new muscles, one in advertising and one in modern consumer electronics, and we're going to keep coming and coming. ... "

Ballmer said the company will pick and choose where it builds hardware. "If we're not willing to grow and adapt and build up new business muscle in addition to new technology muscle, we won't succeed," he said.

Microsoft doesn't plan to build its own mobile phones, Ballmer said. "No, I don't think it will make sense for us to do a phone."

The broader market is also where Microsoft is getting traction, selling "tens of millions" of copies a year of its mobile-software platform to phone manufacturers, he said.

They didn't get specific about the recent $6 billion purchase of Seattle-based aQuantive, but Ballmer explained how Microsoft sees all media being delivered via networks within a few years. Much of the software used by consumers will be ad-funded, he added, in a particularly striking comment.

Microsoft needs to be in the platform layer that's delivering ad-supported services, Ballmer said. It needs to be a player in the portal layer, where Web search is done, and it needs to partner with publishers providing the content.

On the Zune, Mossberg pointed out Microsoft hopes to sell a million by June, while Apple is selling up to 20 million iPods per quarter. Will Microsoft stick with the Zune?

Ballmer's reply:

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"Sure, we don't drop things. There's a very short list of things we have started that we haven't continued. ... We're very committed to Zune."

Ballmer acknowledged that the Zune hasn't blown away techies.

He said the company weighed whether to wait to develop a spectacular device or to get into the market "with a product that's good but not revolutionary compared to Apple."

It opted for the latter, but Ballmer told Mossberg to stay tuned.

"We'll have a lineup this Christmas that's more exciting," he said.

Steve Jobs gives the Apple talk

Answering one of the big questions about the iPhone arriving in late June, CEO Steve Jobs said Apple will allow third-party software developers to write programs for the device this year, after the company sorts out the balance between securing the phone and opening it up to developers.

"Sometime later this year, we will find a way to do that," he said.

But in a conversation with Walt Mossberg, Jobs didn't provide more specifics about when the phone will be released, other than to reiterate "late June."

The chat showed off Mossberg's influence. He jokingly said he heard Apple has a new phone.

Jobs said, "I'll send you one." "Thanks," the columnist replied.

Later, Mossberg asked if Apple will turn away from building computers as it pushes further into consumer electronics. Jobs said the company remains "totally" committed to its computer business.

The phone made a brief appearance when Jobs pulled one out of his pants pocket and held it up for a few seconds, but he didn't turn it on or give a demonstration. Nor did he announce any new features.

Jobs also shared his perspective on why AT&T (then Cingular) took a leap of faith with Apple on the iPhone and agreed to partner on a device it hadn't seen yet. He thinks the company made the deal for two reasons: first, "music on phones hasn't been successful so far" and, second, because it wanted to find a way to improve the Internet experience with phones and make better use of its high-speed network.

"They, along with everyone else in the business, have spent or are spending a fortune to build these 3G networks," Jobs said. "So far, there ain't a lot to do with them. ... People aren't signing up to use bandwidth."

But Sling Media Chief Executive Blake Krikorian called Jobs on his 3G reference. The iPhone actually works on a slower network, AT&T's Edge, that's considered 2.5G, he pointed out.

Jobs replied by pointing out the phone also has Wi-Fi, which is faster than Edge, and the phone automatically switches to Wi-Fi when in range. He noted that there are lots of Wi-Fi networks, especially in Palo Alto, Calif., where he lives.

On another matter, Mossberg repeatedly joked about delays in Apple's upcoming "Leopard" operating system, but Jobs never took the bait or said anything about the timing or cause of delays.

Indirectly acknowledging Apple TV hasn't yet set the world on fire, Jobs described the device for streaming media from a computer to a television as a "hobby" instead of a real business for Apple.

"The iPod started this way. The iPod's a really great phenomenon, today it's a great business today, but it started off a lot smaller, it started off feeling like this."

The obligatory nasty Microsoft comment came when Mossberg pointed out the free iTunes jukebox is one of the most widely used applications on the Windows platform.

Jobs' reply: "We've got cards and letters from lots of people saying iTunes is their favorite app on Windows. It's like giving a glass of ice water to somebody in hell."

Mossberg's comeback: "There's that humility, that Steve Jobs humility."

A sort of meeting in the elevator

I forgot to bring toothpaste, so I headed down to buy a tube before breakfast.

Waiting to board the elevator with me was Vinod Khosla, the Sun Microsystems founder-turned-venture capitalist.

Khosla, whose latest focus is biofuels, was talking on a Bluetooth headset about energy legislation all the way into the lobby.

Forget the potential federal subsidies; that saved him from talking to a reporter with awful morning breath.

Here a gawk, there a gawk

I'm fighting the paparazzi impulse, but I've got to share a few tidbits.

After some tense policy talk, Republican presidential candidate John McCain and host Kara Swisher cracked up the audience with a Microsoft joke.

McCain had been saying if he were president, he'd fill key positions with the smartest people in the country, instead of appointing cronies and political hacks.

Asked for examples, he mentioned Cisco Chief Executive John Chambers, sitting in the front row, and FedEx founder Fred Smith.

Then he said Steve Ballmer is another person he'd like to hire to help run the country.

Swisher chimed in: "I'm curious; Steve Ballmer's secretary of state, right?"

McCain caught the wave of laughter with a comeback: "How about ambassador to China?"

I wish I'd known about McCain's offer when I saw Ballmer earlier during the pre-dinner cocktail reception.

Ballmer was talking to some investor types and mentioning that his busy summer schedule includes a Harvard reunion. I butted in and asked if he'll still have time to buy Yahoo!, as had been speculated.

He smiled and said he wouldn't comment on that. I think he was smiling to be polite, not to send any kind of message about a deal. What he really wanted to talk about was the Detroit Pistons.

As I said, I don't want to go paparazzi, but every time I write about Charles Simonyi, I get a bunch of questions about his friendship with Martha Stewart.

Yes, I saw them together Tuesday night at the reception, looking pretty snazzy, at one point talking to RealNetworks CEO Rob Glaser.

I thought about asking about the menu she created for his recent spaceflight but held off.

Even though this is a conference hosted by journalists, I felt I'd be as welcome in their conversation cluster as a fly in the champagne.

I left them alone by the cupcake and fondue line and headed back to blog central, my room with a view of the parking lot, where I'm working through the tin of Swedish fish candy that RealNetworks put in the guests' goodie bags. The lid says "Real it in!"

This material has been edited for print publication.

Brier Dudley's blog appears Thursdays. Reach him at 206-515-5687 or bdudley@seattletimes.com.

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About Brier Dudley

Brier Dudley offers a critical look at technology and business issues affecting the Northwest.
bdudley@seattletimes.com | 206-515-5687

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