In the interview that follows, Ballmer offers a series of shrewd observations about why e-commerce fell from favor and why it should soon regain its momentum. (Given the subject matter, the interview happened, naturally, via an exchange of e-mail with Context Editor-in-Chief Paul Carroll.) Ballmer shows a true believer’s love for Microsoft products, but, whether or not Ballmer is right in assuming that Microsoft will be the force that pushes e-commerce to the next level, his observations provide a clear road map to how he believes the Internet will develop. And his track record, though it hasn’t always been available for public scrutiny, is impressive.
 

CONTEXT: Steve, you talk to executives at Fortune 1,000 companies all the time. Do they view the plunges in dot-com stocks as a chance to slow down their own efforts to move their businesses online? Or, do these Fortune 1,000 executives have the same sense of urgency that they did a year ago?

STEVE BALLMER: Executives of large businesses are more interested than ever in the Internet.

They want to use the Web to be more agile and competitive, to help solve their business problems, and to communicate with customers and partners. One of the things chief executives want to talk about, in particular, is the broad question of how to engage their customers over the Internet.

I believe the drop in dot-com stock prices is helping clarify where businesses can and can’t live on the Internet. People are a lot more sober and realize that you can’t just throw money at the Internet; as with any other business, you have to have a well-thought-out strategy and business model. But I don’t sense that executives are looking for excuses to abandon the Internet.

Certainly, we’re not. Microsoft has made an enormous investment in the Internet over the last five years. We’ve affirmed that commitment with our .Net strategy [a broad attempt to let software applications share information more seamlessly]. And we continue to believe that e-commerce will grow significantly in the next decade.

CONTEXT: How quickly do you think "mobile commerce" will develop? What will the early successes be?

BALLMER: Wireless has enormous growth potential, and there are huge advances going on right now. Although the U.S. has an issue because there isn’t a unified standard for wireless communication, we will see more and more uses of wireless devices that offer significant benefits in workers’ productivity.

Microsoft is making a huge bet in this area, too. We just shipped our beta .Net mobile Web developer’s kit. This allows developers to make Web applications accessible to users of mobile wireless devices. Microsoft also released the first beta of our mobile information server, which enables businesses to manage and support mobile communications in their enterprises. We, and the rest of the industry, have a lot of work to do, but the wireless area will grow very quickly.

Already, the Pocket PC [a personal digital assistant based on Microsoft software] has changed how I personally work. Instead of carrying a yellow pad with me wherever I go, I take notes and highlight action items during customer meetings. I have all my contact information with me. I have my e-mail. As we move to a wireless environment, the ability to be connected all the time with e-mail and your calendar, to send mail immediately if you need to respond to a customer, is huge. It is going to greatly increase the efficiency of knowledge workers and mobile workers.

CONTEXT: Three years ago, for the interview in the premiere issue of Context, Bill Gates said that, in terms of profits, "the next four years are going to be pretty barren for everybody" in the dot-com world. A year and a half ago, in another interview with us, Gates said that a lot of people were naively thinking the Internet would transform commerce in two years, when it would really take more like a decade. So, the record for e-commerce predictions by the Microsoft chief executive in Context is looking pretty good so far. Care to venture one of your own now that you’re in the hot seat? Where does e-commerce go from here?

BALLMER: More than a year ago I said the dot-com valuations were way too high. [The widely reported statement briefly knocked down the broad stock market—including Microsoft shares—and had many investors saying, foolishly, that Ballmer just didn’t get it.] The bubble was bound to burst. The reality is, in the frenzy, many companies went public without a solid business model.

However, beyond that, we had all hit a wall. The computing model underlying the use of the Web was really based on a 1970s model. All the processing occurred on a server, and users got just a snapshot of information via their browsers. All the great power and processing of the personal computer wasn’t really being used. We had a one-way model. Information was broadcast, but users couldn’t do enough to manipulate the information on their own or use the information to collaborate with others. The dot-com failures are a testament to the limited technical capabilities of the one-way model, which make it hard to provide increasing value to consumers and business customers.

That said, I am extremely positive about the future. We and our partners and the computer industry can deliver much more value to businesses by taking the power of the PC and integrating it with new types of devices plus the powerful new class of servers based on PC technology. A host of new data standards, together with our .Net, are all about getting businesses, consumers, devices, and software to talk to one another and share information seamlessly.

I think we’re going to continue to see consolidation in the dot-com space, but within the next year I expect we will start seeing investments in start-up companies ramp upward again. When that happens, I think—I hope—investors will be paying more attention to things like balance sheets.

CONTEXT: Where do you think that companies still need to make real improvements in order to take advantage of e-commerce? My pet peeve is the lousy customer service that I generally get online, but you may have seen other, more important problems.

BALLMER: Considering the relative infancy of the Internet, I think a lot of companies are making real headway. To the degree that customer service is limited, it is due to some extent to the current limits of the Internet—the fact that it’s hard to "talk" to a Web page. This is exactly the kind of thing we hope to help solve with .Net.

Privacy and security are still big issues. People might spend $50 or $100 for books or CDs, or to purchase some clothing. But most people think twice before plopping down $2,000 for airline tickets, or 10 times that for a car, or before applying for a home loan online. You still see people researching big purchases online and then making them elsewhere. This will change over time, but dot-com companies need to keep working the issues of privacy, security, and usability.

CONTEXT: What other technologies need to improve to make e-commerce more robust and more widely used?

BALLMER: We’re putting tremendous resources into .Net because we believe it is central to taking the Internet and e-commerce to the next level. The fundamental idea behind .Net is that the focus is shifting away from individual Web sites and devices individually connected to the Internet. Instead, the focus is shifting to constellations of computers, devices, and services that work together to deliver rich, interactive solutions to people wherever they are.

Today, different types of devices—PCs, phones, faxes, and hand-held devices—are not connected with one another very well, if at all. There is enormous benefit in linking these islands of information.

For end users, the benefits are obvious. They will be able to interact with rich content through any sort of device, anytime, anywhere, using handwriting, speech, and vision technologies. Businesses will benefit from increased agility, efficiency, and productivity as employees, customers, data, and business applications are connected seamlessly.

CONTEXT: What new technologies, other than wireless, do you see on the horizon that you think could make the Internet and e-commerce more powerful?

BALLMER: The most significant paradigm shift that we see on the horizon is obviously .Net. A key part of this will be a new user interface that revolutionizes the way people interact with devices, the Internet, other people, and businesses. We also are working on making the programming model easier and more powerful than ever, and on a new model for integrating software applications.

This year, we’ll be launching the next version of Windows, code-named Whistler, which will offer the rock-solid performance of Windows 2000 for consumers and business users alike. In 2002, we’ll be launching the Tablet PC, a remarkably flexible and advanced device. It will weigh in at less than three pounds, have amazing high-resolution color, wireless connectivity, long battery life, and the ability to take notes with a stylus on screen and search those notes just as you search text files. Our next version of Office will include speech-recognition technology that will enable customers to control any Office program, and create and edit documents, by simple spoken dictation. It will also include a new Web-based collaborative application called Microsoft SharePoint.

So, from the Microsoft standpoint, there’s a lot in the pipeline.

One of the interesting debates a lot of people are having these days regarding the future of technology is "thick" vs. "thin." Companies such as Sun Microsystems and Oracle are totally focused on big servers and thin clients. [In other words, they assume that there will be big, centralized processors and databases, and relatively dumb, or "thin," devices that will connect to them over high-speed connections.] Most of the rest of the world is racing to put more intelligence on devices, whether it’s the personal computer, hand-held devices, cellular phones, or advanced TV set-top boxes [making those devices "thick"].

The reason [for thickness] is obvious. People want a richer experience. They want more control over their devices and information. They want the greatest possible ability to interact with that information and with each other. This wish for richness, control, and interaction is what’s behind the success of downloadable music, for example.

CONTEXT: What do you buy online personally? What do you like about the experience? What do you dislike?

BALLMER: Right now, I’m checking out golf schools online.

I’m pretty impressed with Ticketmaster.com. The site had more than 200,000 concurrent users the day an ’N Sync concert was announced in Los Angeles, and, as the father of an eight-year-old boy, I can tell you that site was one hot ticket. The site uses Microsoft software, by the way.

There’s a lot of creative stuff going on out there, but still, much of it isn’t all that dynamic or interactive. That’s what we hope to help change with .Net.

CONTEXT: Are you still having fun?

BALLMER: Well, I just won a golf tournament, but I presume you’re asking about work. Yes, I’m having a great time. I am working with 40,000 people who truly are passionate about how their contributions can change the world. Microsoft is making some very big bets aimed at providing people with the technology tools they need, anytime, anyplace.

We may be the biggest software company in the world, but we take absolutely nothing for granted, and that makes coming to work every day very exciting.