Ballmer Talks: Microsoft Boss on India, Google and the Recession

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S. already has one of the highest corporate tax rates in the world, and part of the current tax regime in the U.S. is designed to help U.S. companies be competitive in countries outside the U.S. which have lower tax rates. So, I think U.S. government is going to be thoughtful about that because there are unintended consequences; will their actions create jobs in the U.S., or will they tend to drive even more jobs out of the U.S.? In general, business is saying this is not a good thing. My initial reaction is probably like most of the other businesses, (but) I reserve judgment until I see the specifics.

Also, the tax issue is not linked to protectionism. Right now, the U.S. government has said, "We are going to respect the jurisdictions outside, as long as you do not bring money to the U.S." The discussion is very complicated, and until it's fleshed through, it would be difficult to comment. But it's not really protectionism as much as it is about trying to decide the jurisdiction; and it would actually give us incentives in some cases to move jobs out of the U.S., which I don't think is the intent of the proposal.

Q. Has Microsoft missed out on search innovation? You did try to create a stronger rival by attempting to acquire Yahoo, but that did not materialize.

A. Google has done a great job; they have built a great business, they are dominant, regulators can decide what that means. The question is: Will they face any competition, and will the search market be an area of high or low innovation? The level of innovation in any category is high when there is competition. We have competition from this funny thing called Linux, which does not even require it to be successful. We have the best and the worst of competition; we have a competitor that's going to keep competing whether it's successful or not because it does not require financial resources, it's keeping our prices down.

So are there innovations to be done in search, and the answer is clearly yes. I can't speak for Indian languages, but in English, the average search query is 2.2 words because people have learned that if you type longer queries, you get worse answers. Is there an opportunity for innovation here? I think so. Almost half of all queries never answer somebody's questions. So 50% of the time you don't get what you are looking for; that's interesting. The material that people are looking for on the Internet gets broader every day, so the opportunity to be dynamic is quite large. We also think there is a lot of opportunity to invent in business models. Google did a great job of inventing a business model, but is it always going to stay the same?

Unfortunately, search is a game where being in it, it's expensive to open the door. You have to be willing to invest in R&D to scan billions of documents on the Internet. It's not cheap, it's like competing with Boeing in the airplane business. You can't be a little start up.

In most businesses, the number two guy does have more flexibilities. We are in the game, we are going to compete, it’s going to cost us money. We certainly need to have innovation capability ourselves to go and get this done. We are not counting on Yahoo.

Now, with that said, there would be advantages in the quality of our product not because of technical reasons but business reasons. We and Yahoo together will be stronger. Everybody who advertises on Google in the U.S. and elsewhere, would like to advertise on a combination of Yahoo and Microsoft. So there are some advantages. We are not going to acquire them, but are open to working together.

Q. How do you look at India a as market?

A. We categorize the market in three segments: the affluent class of around 150 million people, the emerging middle class and the rest. At 150 million, you are talking about half the size of the U.S. The middle class presents interesting innovation opportunities because they tend to want an all-in-one solution. For revenue opportunities, the affluent segment is going to be number one, almost forever. The rest of India does not look different from the rest of China. I think of it as less country specific and more like an economic pyramid.

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