What is your philosophy of competition?
Of course, competition is the thing that drives everybody to do their very best work, and it's the very best work of competitors that winds up bringing the very best value to customers. I start with the fundamental premise that says competition is a great thing, everybody deserves to both get and give good competition. Any business worth being in, you're going to have great competition, and that's a good thing.
There's kind of a high-rhetoric and a low-rhetoric way to compete, and I'm not sure some of the high-rhetoric ways of competing are all that valuable. We've seen them in our industry more than in any other industry. I'd say we are as intense a competitor as we have ever been. We're generally a little lower-rhetoric a competitor than we've been in the past. And certainly if you look at some of the things our erstwhile competitors have said about us in the past, they were very high-rhetoric, and I'd point you probably to a couple big (Silicon) Valley-based companies for that kind of rhetoric.
Very passionate competition that leads to customer value that is unencumbered by random rhetoric that's off target. That would be kind of my philosophy of competition.
You talked about how Microsoft has toned down its rhetoric. And some of those Silicon Valley companies have as well. Why do you think that is?
Rhetoric does not appeal to customers because despite having a philosophy that says competition is a very good thing, particularly in our industry, there still needs to be a level of cooperation amongst people who compete. We and IBM do interoperate. But we compete. We and Oracle do interoperate at certain levels. But we compete. And when you introduce what I'd call more random personal chest-thumping rhetoric, it really scares the customer as to whether or not the company is mature enough and responsible enough to engage in the right cooperation, in addition to the right level of competition.
We have a good relationship now with Sun. But there was certainly a lot of rhetoric, particularly from Scott (McNealy). I'm not sure that rhetoric, at least for the last six or seven years of it, was actually doing them any good. I think it was having a negative impact on customers, and I think he realized that. And that's why our industry kind of has evolved away from that.
What personal attributes do you think are essential for a successful competitor?
Commitment, passion, energy, drive. That doesn't have to be noisy. I'm an effervescent, bubbly-ish personality, and things come out of me in a certain way. But I think people have to be very focused, very committed to doing the right stuff, and very willing to be innovative and flexible, not only in how to add value with customers but how to differentiate from the other guy. If you have 5% better value and are otherwise undifferentiated, you have a hard sell to make.
Microsoft has faced regulatory challenges over the years. How hard is it to strike that balance between being a responsible corporate citizen and remaining seriously competitive?
I don't really see them as being in conflict in any way, shape, or form. The world wants there to be good competition that yields good outcomes for consumers, for users around the world.
Because of what we've been through, there's a set of responsibilities that we have taken with the U.S. government. We have a set of responsibilities put upon us by the European regulatory authority; that's part now of our competitive framework. We live in that competitive framework, but it shouldn't stop us in any way, and doesn't stop us from being a very serious, very intense competitor.
Employees look to you and others in leadership roles for guidance on how to compete. What do you say to them?
You just go out every day and compete. I would say if you go back a few years, nobody was quite sure (how to compete). Does a regulatory judgment mean you don't compete? I think we're through that, and now the question just is how do we comply with our regulatory obligations—which we do, and we take very seriously—and at the same time get out there and try to win every piece of business that we can.
We're not going to win them all. I hesitate to say that, because the message I give our people is anytime somebody doesn't use our stuff, you have to ask why. It's not OK to lose. You may lose, but it's not OK. Why? What was it in our offering? What was it technically? What innovation were we lacking? What was it in our brand? What was in our service? What was in our pricing? What, what, what, what, what, what, what, what, what? And we're going to be as relentless about that as ever.
Certainly the outside world views you as a very competitive person. Do you think of yourself that way?
I don't think of myself in the upper echelon of competitive people I've ever met. My wife finds that beyond humorous. But I've been in environments where people were quite competitive, whether going back to my high school, to college, to the people I worked with as a manager of the football team (at Harvard University). I've been around quite competitive people in my life. But I'm certainly a competitor. There's absolutely no doubt, no issue about that. And I think I'm a very good competitor. I wouldn't want to compete with me. But there are other good competitors out there, too.
Has your competitive streak ever led you to do things that you regret?
No, I won't say things that I regret. I'm sure I have rhetoric in my past that I would not engage in (now). I am sure that's the case. But I've never done anything I felt was incorrect. (But) I would tone down past rhetoric.
Why would you tone down the past rhetoric?
Because I don't think it actually helped us with the customers. It was cute for a while. Maybe it broke through. It made some noise. It got a journalist to giggle and write a story. But in the long run I'm not sure most of those high-rhetoric things actually mattered a bunch.
While we try to engage in less high rhetoric—and sometimes people assume high rhetoric means high competition—I think high rhetoric is just some funny sideshow. The real competition is, do you tell your story? Do you tell it intensely? Do you build good stuff? Do you build better stuff than the people you're competing with? Do you price your stuff in a way that's attractive? Do you give people the business models they choose? And I think you can be very intense about that. And rhetoric won't make up for that, nor does rhetoric necessarily enhance that.
You've played basketball. Is competition in sports similar to competition in business?
I actually think they are similar. There's a distinction, particularly in our business. There have been things that we have attempted to do, new products, new categories, like entering the enterprise business versus the minicomputer guys and IBM, et cetera. And sometimes you've got to keep at it for a while. That's true of being good in athletics. But I think most athletic teams, if you don't at first succeed, you trade and try again. You can't take the same kind of long-term perspective that we can take in our business.
What's the toughest competitive situation you've ever experienced?
I'd probably point to two. Certainly the most intimidated we've ever been in a competitive fight was the competition for the operating system with IBM in the early '90s. Make no mistake about it, they were bigger, they were stronger as a company. We had spent the better part of ten-plus years basically with them as the center of our computing universe with DOS on IBM PCs. I'd put that top of the list.
Over the last four or five years, the competition with open-source products, be that Linux, Open Office or some of the others, is interesting because we have had to learn about competing with a different business model, more than with just another company. At some point, new commercial competitors look like new commercial competitors. They can be tough. They could be weaker. But there's sort of a wisdom about how to compete with them.
With these so-called open-source alternatives, there's no company, they have no cost structure. It's a different way of competing, a different business model. People said we were going to go away, and we've either grown or held share in all places where we've engaged. So I'd say we have done well, but it's really gotten us to be better at competing, thinking more outside the box than ever before.
The next challenge is going to come from ad-funded competition. With traditional commercial competitors, the guy who uses something pays for it, and we learned to play that competitive game. The second competitive game was there's no company out there, so it's all about value and differentiation, and that's been our open-source thing. In this so-called ad-funded world the guy who pays is not the guy who uses.
So the way you bootstrap that dynamic is again different. And, you know, hey, we're strong. We're the No. 3 online-advertising company in the world. But we're only No. 3. And we don't want to be No. 3. We want to have a higher rank on the food chain, and we're going to be very good in this competitive sphere as well. But it's a new form of learning to compete in a way.
Is there an individual who you've competed against who stands out as being a particularly tough competitor?
Philippe Kahn (the founder of Borland Software Corp., which made developer tools and spreadsheet software and competed fiercely with Microsoft in the late 1980s and early 1990s). That guy was not only a crafty competitor but a crafty innovator. I would probably say, as a single individual, I'd probably list Philippe more than anybody else as somebody I learned something from. You know, $99 Turbo Pascal, rewriting the rules of how you build things, what the pricing model looks like, the advertising. The guy was a very clever competitor.
He wouldn't have been the first person that jumped in my mind. History shows you did pretty well against him.
We did pretty well for a lot of reasons—our own good work, the fact that we basically bet on a better strategy. A lot of competition, you've got to assess historically. A lot of people want to act like everything is short term. Yet we believe competition is about the long term. It's about long-term innovation. It's about long-term bets. It's about persistence. So many people in our industry drop out early in a wave of innovation or early in a wave of competition. "Oh, we didn't do well in the first inning, let's stop. Oh, it's the fourth inning, we certainly can't spend any more of our shareholders' money."
And partly, the way we have created value for our shareholders, value for our customers, and succeeded against our competition is by absolutely being persistent and patient and taking a long-term view, whether it was competing with IBM, with Windows versus OS/2, whether it was breaking in with Windows Server, whether it was competing with Lotus 1-2-3 and WordPerfect, or whether it will be competing with the likes of Yahoo! and Google in the online advertising market. We're in the first or second or third inning of the game. And we're going to be, as we always are, very patient, very determined, very persistent long-term players and competitors.