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Talking at Recode’s oddly named Code Conference, former Microsoft CEO Steve Ballmer expressed one big regret from his time at the company: that it didn’t get into hardware soon enough.
“I was too slow to recognize the need for new capability, and particularly in hardware,” he told Kara Swisher. “I wish we’d built the capability to be a world-class hardware company.”
The desire to get into hardware was motivated by two things. First, because even as a software company, Ballmer said that “one of the new expressions of software is essentially hardware.” This is a theme that has been alluded to by Microsoft’s Surface division on many occasions: Surface hardware is designed in tandem with, and to be a reflection of, Windows software, with each part showcasing the other. After early stumbles, the Surface team has produced a number of products that have been well-received, and the device appears to be carving out a decent niche for itself.
Second, Ballmer spoke of a long-term observation made by Microsoft Research: “At the end of the day, there’s only going to be silicon and the cloud: everything in the client is going to get built into silicon, and everything else will be in the cloud.” This was a “wake-up call,” and it drove the thinking behind the “devices and services” mantra that Ballmer promoted near the end of his tenure as Microsoft CEO—and that his replacement, Satya Nadella, quickly dropped.
Ballmer contrasted the tardiness in the hardware world with the other side of that “devices and services” vision: the cloud. In the cloud space, Microsoft has developed not just new products, but a considerable capability in operating data centers and software services at an enormous scale, new approaches of developing software to iterate quickly, and new ways of selling, with subscriptions and usage-based billing instead of Microsoft’s traditional licensing.
In hardware, and particularly in the phone, the company failed to develop this new capability. “The thing that we missed with phones is that we tried to use the old techniques, such as software licensing. The same techniques were never going to get us there,” Ballmer explained. “We had the wrong monetization model, we had the wrong delivery model, because we didn’t build a new capability.”
With the purchase of Nokia’s phone division, Microsoft did, belatedly, try to expand that hardware development capability to include smartphones. But the Nokia that was purchased didn’t have a product pipeline that exemplified that idea of hardware as an “expression” of software, with the company’s stable of 2014 and 2015 product launches being, for the most part, uninspired and uninspiring.
Under Nadella, the hardware division was gutted and the mobile ambitions drastically scaled back. We’ve heard that even the more successful Surface division was impacted by these cuts and that Microsoft’s slowness to update the Surface Pro and Surface Book lines was due in no small part to a shortage of staff with hardware expertise.
In the rest of the Recode interview, Ballmer talked at length about his USAFacts project, designed to act as a kind of Form 10-K for government, giving taxpayers a much better view of how government both raises and spends money. He also talked about his LA Clippers. Ballmer was in good form in the interview, relaxed and engaging, while still retaining his trademark energy.