The Steve Ballmer Interview

0:00 All right, so David. Steve gave us The Signed. Clippers jersey with the name acquired on it.

0:07 There's only one jersey. What are we gonna do about this? Should we rock paper scissors for it? What Well, you know what? No no. You keep it. There's no Seattle basketball team. Oh keep it there. All right, all right. It'll it'll go in uh acquired museum north. Okay.

0:26 Perfect. All right, let's do it. Let's do it. Who got the truth? Is it you, is it you, is it you Who got No. Is it you, is it you, is it you?

0:39 Down. Another story on the way Welcome to episode one of the summer twenty twenty five season of Acquired, the podcast about great companies and the stories and playbooks behind them. I'm Ben Gilbert. I'm David Resenthal. And we are your hosts. Steve Ballmer is, among other things, arguably the very best investor of the last twenty years.

1:05 It sounds a little funny to frame it that way, but here are the numbers. In twenty fourteen, when Steve left Microsoft. His net worth was twenty billion dollars. Almost entirely comprised of Microsoft stock.

1:18 Today, eleven years later, it is a staggering$130 billion, according to Forbes. It is incredibly rare to reach this stratospheric level. When you are a not the founder of the company. and B no longer CEO or even employed by the company. And all of this

1:37 comes from just one investment decision. Just Keep holding. Substantially all of his Microsoft stock. Incredible.

1:46 We uh chat about it with him in the conversation to come. Now, as most of you know, we did a big two part Microsoft series last year on the history of the company up through when Steve transitioned the CEO role to Satya Nadella. Steve listened to those episodes and uh he had some thoughts that he wanted to share with his recollection. You know, things like what made Microsoft so fabulously successful, what his missteps were as CEO.

2:12 We wanted to share that as a recorded conversation with all of you. So we set up our cameras and our mics at his office, his philanthropy office, Ballmer Group. In Bellevue, Washington. And we pressed record. So we'll go into everything from the misses on mobile, search, social. The huge winds In enterprise and cloud. Steve also reflects on his business lessons learned. He goes into why he stepped down as CEO, when he did.

2:37 And he talks about his relationship with Bill Gates over the years. And of course, we had to talk with him a little bit about the Clippers and the new arena that Steve built and personally owns too. Yeah, into a dome. Incredible place. A cathedral of basketball. As Steve would put it.

2:54 Listeners, if you want to know every time an episode drops, check out our email list. It's the only place where we will share a hint of what our next episode will be. We'll share episode corrections, updates, and little tidbits that we learn from all of you about previous episodes. Come join the Slack to talk about this with us and the whole acquired community. That is acquired.fm slash slack, and the email list is acquired.fm slash email. If you want more acquired between our monthly episodes, check out ACQ two.

3:22 We just released one with Zach Peret, the co founder and CEO of Plad. And we've got some Banger. A CQ two episodes coming up. Yes, we do.

3:32 So with that, this show is not investment advice. David and I may have investments in the companies we discuss, and this show is for informational and entertainment purposes only. Onto our conversation with Steve Ballmer. Well, Steve, first of all, I I noticed you you prepared some printed materials here for us. Listeners should know We didn't ask for this in any way, but Uh

3:53 ten PM last night, you sent us a PowerPoint deck and said I I made you some slides. Sorry it got here so late. And Dave and I are looking at each other like we Oh, it's just some stuff that I've used kind of with Thoughts about how businesses work.

4:12 And I kinda think of this as a time to reflect on things I've learned. Primarily at Microsoft, but also at the Clippers about business. I figured eh. I'll send him to you. And their PowerPoint. Yeah. Always a cheerleader. Always go. I think the word cheerleader is actually in the PowerPoint deck, though. Yes. Well, Steve, speaking of reflecting.

4:37 We sit here today. Microsoft is the most valuable Almost three and a half trillion dollars in market cap. And I

4:47 Think everybody would agree. It's an enterprise company. And that's Largely thinks To you.

4:54 is reasonable to call you the founder of Microsoft's enterprise business. That Is not a narrative that is often discussed. And we wanted to ask you, how do you feel about the fact that it basically defines the business today?

5:09 Yeah. Uh interesting. Uh Very kind. fathering something. I feel good about that. And I think there's a lot of truth to that. Of course, there are many fathers to the enterprise business at Microsoft.

5:23 And I feel both good and bad about it. 'Cause the truth is Microsoft started out as a consumer company. And we built a very Important Consumer business.

5:34 That success. translated into the opening to go build an enterprise business. And one of my regrets is we lost the consumer muscle along the way. Because I think The ability to be

5:48 Ultra, ultra. I mean, we're a great company. Microsoft's great company. But To have both of those muscles totally firing if I'd been able to sustain that consumer muscle and and I have some ideas about why Why that didn't happen.

6:02 But the enterprise muscle? Yeah. Muy macho. And um So I'm very proud of that. And the fact that

6:15 Yeah. It's also funny when you say consumer and enterprise. What does it mean, really, to say enterprise? Sometimes it can sound just like back end stuff. The truth of the matter is Microsoft Office

6:29 Slash M three sixty five, whatever exactly it's called today. It's super important. It was the foundation for Having permission to be in the enterprise and yet it's a product that sits right there in front of users.

6:44 So the question is do you think about users? Or consumer. And do you think about enterprise? What do you think about IT? And then there's developers that span both.

6:56 And so that's kinda my mental model. Do you have products that Appeal to consumers. That IT Can handle.

7:04 And a platform that lets developers build around those and based around those, whether they're building for Users Users and IT, or in some instances just for IT people,'cause there's a lot of tools that are Just for IT people. Yeah.

7:20 Well to contextualize all this, we want to go back Almost all the way to the beginning, right around the time you joined Microsoft. and talk about Microsoft's relationship with IBM. Before the IBM PC and before DOS. Can you

7:35 Catch listeners up who weren't around at that time. What was I BM in that era? Yeah, I think you called it to us, uh, in and when we were talking to you for research. The sun, the moon, and the stars. Yeah, I did, I think.

7:47 Well, it's nineteen eighty. Uh when I when I get here, and the company started obviously in nineteen seventy five. And There were IBM computers. Oh yeah, and a couple others.

8:02 But literally people would say there's IBM. And the bunch. And the bunch was Burroughs, Univag, NCR, control data and Honeywell. But they were just the bunch. IBM.

8:15 And IBM did the mainframe and it did the software and it did The service. It did Everything in computing. Everything. Everything. And then you had this little upstart. Try again, called digital equipment.

8:29 Yep. Very important in our story because Dave Cutler, who was kind of the father of N T, Windows N T He came from digital equipment and they were they were fighting. They were scrappy. They were mini computers, so Smaller than a room.

8:43 But definitely bigger than Bigger than a pa a PC, if you will. And all the initial Microsoft software was developed actually on deck computers. Digital equipment equals deck. And Deck had a nice business. But it was a lot smaller than IBM.

8:59 If I BM breathed, that was the direction the computer industry would go. And IBM was the subject of an antitrust lawsuit. Shockingly. In nineteen sixty nine. That didn't actually get settled, I think, to shortly after I got here, in the term of Reagan.

9:17 So eleven years they'd been living 'Cause they were that big and bad and mighty. And what was the result of that antitrust action? What did they have to do? Uh

9:28 I don't remember. Maybe when they had to unbundle, in fact I think it was When they had to unbund the operating system from the mainframe hardware. So people could build IBM compatible. Mainframes.

9:41 And then one day. Shortly after I got here. Some guys from IBM call and they say, Hey, can we come see ya? And you're gonna have to sign an agreement that says You can use nothing we tell you, anything you tell us, we can use

9:57 And so these guys showed up. And they told us after we signed there. Agreement that they wanted to build a P C And they were hoping to get the operating system and Some of our language software for it. And they were coming to you

10:10 For the language software. No, they came to us for the operating system. Ah. Now why? You'd say we weren't in the operating system business. We had a card. called the CPM soft card or the uh soft card for the Apple two. It was a card that plugged into an apple two.

10:28 That ran CPM, not our operating system. Gary Kildall. Gary Kildall Digital Research was the name of the company. But we had licensed it to put on this card that plugged in the Apple II. And somehow IBM thought they could license CPM

10:46 Even though it wasn't our product, they thought they could license it from us. And we said, No, no, no, but you can license our language software. But there are these guys down in Pacific Grove, California. You know, and Bill called Gary Kildall and said, There's some guys they want to talk to you. They're important.

11:03 And Gary They went down there? And they didn't sign the non disclosure agreement? And in the meantime. There was a company here in Seattle called Seattle Computer Products that had a little

11:16 CPM clone. And so the licensing Of Microsoft DOS. Which didn't even exist when

11:25 IBM approached you about licensing some things. is the single greatest business deal in history. the licensing of that software. Well I just think you look three and a half trillion dollars later at Microsoft's market cap. This kickstarted at all. Pretty good. There was a company that happened to be here in town. Paul uh Ellen and I went down there.

11:49 And we met with the founder who later came to work at Microsoft, a guy named Tim Patterson. And we offered him I think we paid forty Five or forty nine thousand. For

12:01 this operating system. Cause we told IBM No, no, we can Uh take care of it. Me and Paul. uh and Bill and this guy Kazahiko Nishi who ran our kind of affiliate in Japan. Uh, where we were talking about this and there was a lot of let's just say

12:19 Four letter words thrown around. Scroom's five letters, but you get the you get the drift. Scroom, scroom, let's just go get this operating system. Scroom, we can do this. Let's go. Uh that was kind of the the theme. Casa was kind of a cowboy. He was kinda yeah. Yeah, Nishi's absolutely a cowboy. So we went We sold it to him.

12:40 Half of what we paid for it and we th we can do this ten, twenty times. Um Twenty times twenty one thousand, four hundred thousand. Against you know, fifty thousand we paid for it. Pretty good deal.

12:52 So yeah, better than that if you saw it. T Talk us through the structure and how you guys thought about this'cause Yeah, I'm sure you're not. You did not make a lot of money directly from this deal. No, we did not. We remember the key thing was We didn't charge For the operating system on an ongoing basis, we charge for it one time.

13:12 If you got a new version. We charge another time and we did the same thing for basic and Everything else. Because At the time you could think we were like a substitute for an R and D department.

13:25 Which means we were fixed price. It was only I don't know, four or five years later. That we actually switch to licensing per unit. As opposed to just fixed fee, here it is.

13:39 Pay us once and we're done. But the ultimate thing that you guys negotiated was A non exclusive deal. You could sell this operating system. And your language interpreters, but also mainly the operating system.

13:52 To other manufacturing. This is IBM we're talking about here. How on earth did you wanted this. Okay. IBM they were uh experimenting with a different approach. They'd said, look, instead of us building everything all custom We wanna use some industry standard. Parts, components.

14:08 Because that'll Let us be more agile, et cetera. So they didn't come in. loathed any of this. They knew that was our business. They know that was digital research's business. And

14:20 You know, they wanted to use an Intel part versus their own proprietary part. They didn't ask Intel to do them a custom part either. The notion was we'll move fast. We'll get away from the IBM bureaucracy. by taking this approach. So I wouldn't say that was the hardest convincing, if you will, in the In the story.

14:40 But what ended up happening after all these years, and it I I imagine it only took a few years to see it. play out was IBM sold a ton of IBM PCs. And DOS was the operation based on that. And then

14:55 Everybody else adopted DOS because all the application makers, all the software vendors were targeting DOS. As the platform And so Microsoft sort of accrued a huge amount of benefit. You became the point of integration. Yeah, in the old world, IBM would have accrued that sort of platform benefit.

15:13 Did they see they were selling a lot of computers and making profit also? They would have been making more profit than we were at the time, just the way pricing worked. There was a little twisty in here though I should throw at you if you're curious. These things had something called the BIOS basic input output system. which was the lowest, lowest layer. So of firmware.

15:35 sort of first level software built into the hardware. And IBM had its own BIOS. And some applications became BIOS dependent. And so then the question is who was gonna do an IBM compatible BIOS? We weren't gonna get into that game. We didn't wanna have that

15:52 intellectual property, other arguments, but there were people then Compact was ultimately became the big company. Compaq became the big company. Uh I don't remember whether they wrote their own I think the capital b bias, but they were the first one to be IBM compatible. There were plenty of people who ran MS DOS. were actually not IBM compatible because they didn't do

16:14 A compatible bios. I see. So IBM sort of thought Oh, we've got some protection. From Microsoft kind of disintermediating us from all the developers and all the potential customers. Because

16:26 Targeting our BIOS is gonna be important and unreplicatable. Yeah, yeah, one thing you have to remember because yeah, we live in the modern world now. When you say all the developers That wasn't a log list. Remember.

16:41 I'm just There was no software industry to speak of. There were a couple of software companies that made packages for IBM mainframes. But almost everything was custom. So Really, I would say we

16:57 few other companies but say we we defined what a modern software business looked like. And the notion that there could be lots of developers and that yeah, there were some But it's not like we think today. Oh, there was developers doing s lots of standard applications. No. Uh and there was no licensing model, no business model, no no nothing. VisaCalc was around.

17:21 So it would have been counterintuitive or required too many mental hops to think We're IBM, wait, are we giving away the future? By allowing someone to distribute a wide operating system that ends up being the target that everyone standardizes on which eventually

17:36 You know, created. All of modern Microsoft. Exactly. I mean just You you sort of can't blame them? Because there was nothing to build off of?

17:47 But yeah. One of the things my little PowerPoint here says is Luck. is important in the creation of great companies. It is. And A lot of people, you know, sort of say we're masters of the universe.

18:01 We figure everything out. We never have any luck. And it's because we're so talented. Sure, there are talented people and hard working people. Most people have a little luck in their story and this this was our big luck. Clearly. When you were negotiating this, signing it, and then those first couple of years before the clone market really took off, like

18:23 Did you think that This could happen. No. I can't remember what year it would have been. But

18:32 Andy Grove, who was running Intel at the time, said Yeah. Pretty soon we'll be selling a hundred million. PCs a year. Oh.

18:41 Sometime in the eighties I think. I it might have even been in the nineties and Bill and I laughed and said It's not gonna happen. We invested. Big time. And if it did happen, we said that's great, we're not gonna under invest.

18:56 But we thought. He's crazy. This market will never grow like that. Uh I would say we classically under forecast. That was kind of our tendency. Hm.

19:07 So the deal gets signed with IBM. You And uh shipping DOS, it goes on the IBM PC, it's selling like gangbusters. When did you start to realize

19:18 Whoa what we have here is actually leverage over the ecosystem. We actually are becoming the important layer. That ties this whole

19:29 computing world together with the operating computing layer. the mid to late eighties. I mean, you you make it sound very strong. No. We didn't feel very strong. Uh There was IBM, man. IBM was still the sun, the moon, and the stars.

19:48 That didn't change. You know, I would say we didn't drop that theory. Well Well, into the two thousands. Into the two thousands.

20:02 you know, Lotus Notes was coming for us and that was mid nineties and and beyond. And But Maybe maybe you could say Lane, but we were in an enterprise company. If you looked at the enterprise, the enterprise was still IBM. IBM. We used to say we had to hang on to IBM that If we ever let go, they might trample us. We called them the bear, you know.

20:25 You have to stay on. Then of course graphical user interface. It's Kind of coming out of Xerox Park at the time and You know, Apple's doing their thing and we start

20:36 That's another disruption. Could blow everything up. So I would say Uh about controlling the ecosystem well into the nineties before I think any of that. Or at least For me.

20:53 When did you start to feel like Were Getting out from under the thumb of IBM. And maybe walk us through a little bit the OS two Windows world. So

21:04 We've been staying with IBM Uh, they decided they wanted to build something that was Sort of their operating system and sorta not. This is Eighty two, eighty three. We and they would collectively build part of it.

21:19 We would be able to license it. Two others. They would build a value add layer that was a database and uh thirty two seventy emulator.

21:29 Crazy to say now. We were gonna work on the operating system and what was called presentation manager, call that the graphical user interface. And they were gonna have rights equivalent to ownership in the code we wrote. This sounds so convoluted. It was so convoluted. Man. There was a time when I made sixteen trips.

21:48 to the east coast in sixteen weeks. Most of'em to South Florida. A couple of'em to New York. Leave. On the red eye.

21:58 The Delta Dash flight at around eleven. Get into Atlanta around five. Get the flight to West Palm Beach. At about seven. Get in and be able to be at a meeting at nine o'clock at IBM.

22:11 And then work all day. Catch the seven o'clock flight home, be here about 10 thirty or eleven, twenty four hours. Down back because you if you're building something together, remember. There's no real email at the time. We were literally shipping discs back and forth. And then they decided they were gonna do the presentation manager piece in England.

22:32 So there were also then a lot of flights to England. So we were trying to and then Texas is where the database and and uh communication IBM This sounds like Boeing. Yeah, we call it it was the I joint development agreement and it was the price of staying involved with IBM. And it was convoluted and we did then Keep

22:54 for for speed of action. We kept going on Windows, which we had started. For listeners, everything we're talking about is OS two. operating system that basically never was OS two extended edition or something, which it had their addition. And Windows was like your plan B.

23:09 It was like your side. No, Windows was our plan. And then they wanted they they wanted to do this new operating system and we Convinced them. You gotta have a graphical user interface.

23:20 And we tried to sell them. Windows and they were resisting. So It almost seems like you're humoring IBM at this point with yeah, let's do us two together. We really think the future's Windows. Mm.

23:35 Humor. It's more than life service. You know, my job was managing by then system software. So I had Windows. I had Shipboon. I'd been the development manager for Windows one oh one. The great videos of you from the Windows one point oh launch. But that's the sales side. I actually manage the engineers. Yeah because the guy who was doing it

23:57 Wasn't being successful. And we had to ship the thing and so that's when I learned something about engineering management from the engineers, basically, had to teach me. To be effective. We're trying to skeep with OS two. Bill's very frustrated with IBM. I'm frustrated, but I know my job is to ride the bear.

24:17 And so Bill's pushing windows hard. But we still suspected OS two could be the winner because it came from IBM. But we couldn't just like stop for three or four years. We couldn't make the mistake we sort of made.

24:31 Uh in the thing that became Vista. Vista. So We kept going with Windows, we kept going with OS two and then May

24:40 Nineteen ninety. They come along. And shoot us. I re I was out running with my wife. Wait, IBM shot you. Yeah. They divorced us.

24:51 They threw us out. I thought the story was y you all Windows was getting gathering strength and you all thought like, you know, maybe we can step out from the little brother. They came out. No, they had a new leader by then, a guy named Jim Canavino, and he was getting frustrated with us'cause we were still selling windows. We were still promoting Windows and they

25:16 I mean, look, this was our first antitrust problem. I don't know if you guys know this is the FTC at the time But we in IBM were working to uh divide the market. 'Cause we had done some positioning. What's Windows good for, what's OS two good for. We and IBM had done that'cause And then they said, No, you guys are colluding. And that's when we first got attention from antitrust authority. This is even before the pre processor licensing issue. Yeah, that came low.

25:42 That came with the DOJ. This was an FTC case. And they started it in in basically ninety, just as we were getting I think ninety, maybe eighty nine. As we were getting our Divorce. My wife and I were remodeling our house. We were living in In a condo.

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28:28 I pick up the Wall Street Journal and I read that IBM's divorcing us. And so what does that mean? Walking away from OS two collaboration? Uh-huh. Hm. Basically they kicked.

28:39 You out. Kicked Microsoft out said we're we're taking OS two in house. Exactly. Exactly. And so you're sitting there. Windows isn't powerful Windows yet. Windows is this fledgling I kind of idea. We still had something called the six forty K barrier. You couldn't speak to more than six hundred and forty K of memory.

28:59 We didn't break the six forty K barrier. Until I think Windows three point one, which I wanna say was ninety one or ninety two. So you're on this run. You see, IBM is divorcing us. You don't really have confidence in Windows yet. What are you feeling?

29:14 And what do you think the pass possible? Yeah. Whoa shoot! Oh my god, we were so We were so you could say energized to me like scared also works. It's like, Oh my God, now we have to confront the bear. You're already like a billion dollar business at this point. By ninety two, you end ninety two at two point eight billion in Reddit. But you're still

29:40 But Pip squeak. We're still Pip squeaked to IBM. And remember, we have no enterprise presence. And IBM has Oh

29:48 Dominant Enterprise presence. So who's using Windows and how are you selling to them at the time? Interesting. Single copies. Some hobbyists and end users, somebody who says, Hey, I really want to use a spreadsheet. And a lot of users In enterprises. So it wasn't going through IT.

30:07 You'd have a user that would buy a P C on the expense account, probably for the department. Buy a copy of Windows, buy a copy of Excel. Like At an egghead software. Mm-hmm. was a software retailer at the time.

30:21 And bring'em in and use them. And then IT started to get Nervous about that. We knew a most of the copies not most, but many of the copies were winding up in businesses. What the hell? IBM's gonna stomp us like a

30:36 Like a bug. You just took his own given assumption that if IBM wants to stamp out this happening. It's gonna happen. So we Oh yeah if we want a future, we gotta play with them. Yeah.

30:46 That's why that's why we were quote riding the bear the whole time because it they'd stomp us out and they'd divorce us in ninety. And then we say, Oh my God. Okay, so at this point your business, even though it's, you know, billion plus scale, it's selling To retailers.

31:02 To sell software, copies of software, DOS, Windows, languages, apps. Not DOS. Doss was always sold to Oh yeah. Yeah, not always. So much the lion's share it's worth saying it was only sold. Because you needed a bios. November.

31:18 You needed a BIOS. So you had to have the hardware vendor build the BIOS into the machine, basically. So you've got that the OEM business, which is the OEM business was the biggest part of the business. Yep. And then we had this retail business. And there was no notion of enterprise license. Yeah, you've got no CIO relationships, no enterprise agreement, no We had a couple of CIO relationships. The airforce Was the first big

31:42 Uh Windows customer. Your first enterprise customer was government. Our first big Windows customer at least as I remember it. was the US Air Force, and they were buying single copies of Windows. You know, when you say government

31:55 There's really two governments in this country. There's government and there's the military. And the military is a very is a much more disciplined advanced user of IT They just They're just better.

32:08 They're more professionally run. than most parts of government. So yeah, it was the air force. So you've got like a little bit, but Yeah, we had like one or two customers just to prove we could actually serve big customers.

32:22 As we understand it, you kinda had this realization at this point once the divorce happens. Well, I'm gonna go figure out how to do what IBM does, like you personally. And to put a finer point on it, the thing that we said on our episode, and I'm curious if it's true or not, is This was not Bill's passion area. And you sort of raised your hand and said.

32:39 I'll go figure out. Enterprise sales. Oh yeah. No no that that's for sure true. Ha. Bill's passion.

32:48 Look, Billhead passions a lot of places. But you know you'd say The apps group And what Windows could deliver to the apps quite Quite appropriately. I'd say that's where

32:59 where a lot of Bill's brain cycles went. Mm-hmm. You know, I'd also hired Dave Cutler. Dave Cutler had been the uh architect of the VMS operating system for digital equipment. You know, we had DOS and Windows and when we were talking to Cutler about coming here, he says

33:15 I don't wanna work any time. Toy operating systems. And I had to say to Dave, Good thing'cause we have a toy operation. But Dave Is the key to getting us there.

33:30 You know, we said, look, you gotta build an operating system whose API looks like Windows. And whose user interface looks like Windows. So developers are can be familiar with it and write apps for it. Yeah. And you might make some changes because you have to, but it's got to be a robust operating system. It's got to have a secure kernel. It's got to have All of these things. wasn't really enterprise grade yet. No, we had a joint development agreement.

33:55 A a joint agreement on land manager with a company called ThreeCom. It wasn't all our stuff. We had a a development agreement with a company called Cybase. To do the SQL database'cause we're trying to figure out all these pieces. IBM Would have Uh and we d we didn't have any of that. An operating system alone's not gonna do it. You need all these other components. Yeah, if you wanna to have back end infrastructure.

34:19 We started scrambling on that in the eighties. So we had all these infrastructure pieces that we had to build if we wanted to sell to I'll say business customers. We weren't even thinking about and when you say enterprises. Sometimes people think very large companies, but We couldn't sell the companies of twenty people without some of this stuff or fifty people.

34:38 You talk a lot now about um This sort of mm management concept of building muscle. Is this where this came from? Of like that you should always be You use the phrase, in the weight room, building muscle ahead of what you need.

34:50 Were you and Bill thinking this way? in the eighties of like Hey, we need to be building up. This muscle across all Parts of computing and business computing.

35:00 Well, Paul Allen. I mean Paul's the key. Paul is the one who said, Bill said, We're never gonna be a be a hardware company. And when the Altair came out, the first real sort of microprocessor based computer.

35:15 Paul says, Okay, let's write all the software that these things will ever need. So Well, Bill and I had a lot of the execution around that. But you know, that that was the push. So and Paul was cracking on me in the early eighties to start building an apps group. Come on, Steve. Come on, Steve. It's not just systems. We need to have applications also. Any code that executes on a microprocessor

35:39 we should have a player in that market. And there was a Visicalic spreadsheet. Come on, word processor. Come on, come on, come on. Let's get the talent. Let's get going. And you know, we were doing mostly college hiring at the time and so you know, okay. And then we met this guy Simone. who'd been at Xerox Park. Charles Simone, right? Charles Simone, exactly. And he came.

36:01 We met him through a mutual friend at Threecom Corporation who'd been at Park. And he really was the first leader of the apps business. But we license I mean look. We worked with other people the way IBM worked with us.

36:14 Right. We went to Cybase and Threecom and Let's Work Together and It wasn't exactly a J D A joint development agreement, but Yeah, we worked with those guys. The way IBM worked I mean, look, the analogy now is a little bit Microsoft working with open AI. You know, when a the big company works

36:35 With the new company. How does that all play out? Over time. Uh, but you know, I I took over system software in eighty four. So that's when we're starting all this stuff.

36:50 And You could say I was a little bit more Enterprisey. So yeah, I I'm looking at your chart here that you made for us. You've got ninety two to ninety eight.

37:00 Titled Lift Off. And that's after the era where you talk about enterprise start. And you have your role switching from Your role is O S division in the previous era. To sales.

37:11 The lift off there, though, is mostly on Windows applications. The lift off isn't really enterprise. I mean look. It was not until the late two thousands. People would say th you guys might find this funny or maybe even know it.

37:26 Customers say you're not an enterprise company. You're not an enterprise company. As late as when. Oh, late two thousands? Really? Absolutely. Yeah. Absolutely. You're not Enterprise Green. You're not Enterprise Ready. Oh, I heard that so much. And in two thousand and five, yeah.

37:45 You had Oracle out there. Remember, there were still mainframes and mini computers and People know those things were enterprise ready. IBM had product still You didn't have enterprise support. You know, our licensing we had to evolve in the early nineties and then again in the late nineties.

38:03 No, we didn't have those things. So no, we weren't an enterprise software company. Yeah. Certainly it wasn't before two thousand and five. It wasn't the beginning of my tenure. We were still trying to prove that we were an enterprise company.

38:19 And now I just find it cuckoo. that you know all Microsoft is characterized as is an enterprise company which I'm not I mean, I think it's more complicated than that, but I'm I'm not gonna say that that's not the primary muscle. For sure it is. But No, I uh me, the company

38:37 I mean I I was hell bent and determined to prove we were an enterprise company. Why was that? Why did you feel like this let's call it ninety two, ninety three, ninety four, why did you feel like It's so important for us. Chip.

38:49 Attack that market. Easy. Because That's where IBM could poun squish us like a bug. Hm. If we couldn't sell our stuff to businesses

38:59 Only to consumers. We knew that by then. We'd only get so far. Because enterprises wanted some features and Enterprise don't like you know, okay, you can go to computer land and buy a few copies. And the consumer market. I mean we're pre mobile, right? So like

39:18 Pre mobile the consumer market. Pre internet, yeah. Is big, but like It's nowhere near. IBM's market and the enterprise market. By revenue, no, for sure not.

39:28 So We've talked a lot about the products. Let's talk about the go to market motion. And this sort of invention of the enterprise agreement.

39:38 What are the key pillars? that you sort of came up with for the enterprise agreement and why did they exist? Okay. Our first sort of software pricing packaging model for the enterprise was not the enterprise agreement.

39:52 First. It was Yeah, we sold your discs. Second, we came up with this notion of what we called select licensing.

40:02 And you could make your own copies. And you just Report. How many copies you sold? And sounds rife with with challenges here. You tell us how many copies and just pay us what you what you did.

40:17 The Enterprise Honor System. Mm-hmm. Mm-hmm. Astonishing. And that's of Windows, that's of Office, that's of the Windows typically by then came with the hard work.

40:27 So you were mostly using the OEM channel. For Windows, yeah. Okay. Yeah. Even to this day. you know, upgrades and stuff are sold direct enterprises. But You know, the b basic computer that comes to an enterprise would have the operating system license to the OEM.

40:44 And so we were on you can call it the honor system. But we just couldn't Make people like buy discs from us or C Ds from Enterprises didn't like that. So we had this thing called Select. And Select had two problems.

40:57 With it. Number one. Very hard to copy the software you print. And number two problem. We were selling

41:05 Uh upgrades. And new licenses. And upgrades were like less than half the price. of new licenses. So what does that mean? The company was headed to a world where it's revenue

41:19 Was half. Yeah, unless you're growing new customers, new logos of a phenomenal clip. So it was a real problem looking thing. And uh, Bill and I we'd always dream of this thing where you get some recurring revenue.

41:35 And then we came up to say, Okay, well why don't we just do a license That You didn't have to count the number of licenses you printed. Just the number of computers midlife. Simpler.

41:46 And we said instead of doing sell you a new license and then God knows when we would sell you another upgrade or whatever. We'll do something that just says, Hey, look, you sign up for three years You pay us. You know, per machine. And you just pay us the same amount of money each year for three years.

42:03 And it Or let us know. Jimmy up the price of the upgrade. Yeah, I'm not going to be able to do it. And you said you get everybody's problem and We solved the difficulty of administration problem and that was the enterprise agreement. And was it from the beginning of

42:21 You get everything. No, that was a special enterprise agreement. So you got all the upgrades during that three year period to the products you licensed. But you were still picking and choosing, Oh, I want Excel. Oh, I want encouraging you to buy office. Yep. But we also had this all you can eat license. I can't remember what we called that, but basically then I think you counted the number of employees and you could use any of our software. For anybody.

42:47 So we just tried to go simpler and simpler and simpler in the administration. recurring revenue that didn't decline over time. And Yeah. Sort of as much as you wanted to eat.

43:00 The upgrades, everything. We did want essentially what you have now. Which is a recurring services business. But we didn't have the cloud. We weren't delivering things. But we're already on that path. I think we started the Energizer you guys mentioned. what we do with Energizer, which is where we wanted to run their IT department.

43:18 Right, they were the pilot customer for this concept, right? They were the first customer. I talked him into it and This is beyond the enterprise agreement. This is where we actually want to run their stuff because we did want to get to this. Recurring Revenue thing. And David was referring to this concept earlier.

43:34 We talked about it a lot in our Microsoft episode and then on our Epic episode. This sort of genius idea of You will get included in your license a whole bunch of software even if you're not ready to use it yet.

43:48 So if at any point you're considering buying this different software package from this other vendor who's a you know Uh they just make this one thing. Yep. When then they look in their paperwork and they're like, Oh wait, actually we get that from Microsoft for free as a part of our the thing we're already doing. Let's just do that. And as long as you're developing a lot of software every year.

44:08 you can sort of indefinitely just make more and more and more stuff so that Your customers don't need to look elsewhere as they expand their software needs. How did that come about?

44:19 We'll start with office. When we created office. B that bill really drove drove that in a great and we're selling Excel, Word, PowerPoint. And then we put these things together and people would complain.

44:33 And we didn't always sell off as could people say our customer our uh users don't use Excel. So we don't want Excel included. Okay, we had a licensing option for you. But it became easier and easier. Yeah. Departments always and and

44:51 were in running IT at the time. Still now, I think. So We did sell you things that you might not be using. But it also If you're trying to you know, depart the departments. We already got it all for you. You may want something different than this department, but you know, we got it all for you.

45:08 That was an attractive Thing for people. And You there's an insurance aspect. That

45:17 I learned that I T people really want. They want peace of mind. Mm. That's part of what it means to be an enterprise. I wanna make sure everything's secure.

45:28 I wanna make sure that everything is well managed. I wanna make sure everything is well paid for, I wanna make sure there's somebody to call if things go wrong. I wanna Make sure I bought Everything. I don't wanna look bad because either I paid too much or I

45:45 You know, I have holes in what I bought for people. So I view This and I my I probably evolved my view to this over time. When you sell the enterprise You have to

45:56 Provide peace of mind. Which is kinda like an insurance policy. So buying more Than you might be using or some u users are using? It's an insurance policy. And software has zero marginal cost and zero distribution cost. And so We're happy to mail you a few more discs if you need'em.

46:13 But we weren't even mailing this by then. Because we had the enterprise agreement in place. So at a certain point along the way, you get to Well, I wanna say the holy trinity, but I think there are more than three pieces of this. But the real Killer.

46:27 Sweet. in enterprises, which is Windows. Window server. Active directory exchange.

46:37 Office. And all of these pieces of software all work in orchestration to Run your enterprise, you know. Your users.

46:48 They do their email on Outlook. Just part of office. Which runs on Windows. Which Uses exchange, which uses active directory, which is server, Disequal server, all these things.

47:00 How long did it take to get to that point? And what went into where I mean to my mind that's when The enterprise is firing on all cylinders here. Okay, so that really comes with

47:12 Email boom. An email boom. is late nineties slash beginning of two thousands. pulled the Oh yeah, no, it's the locomotive. Enterprises wanted email.

47:27 Yeah. When Accenture became a company, we started a joint venture called Avenod. To help Do essentially The holy trinity.

47:36 Help install. We needed support infrastructure and partners who knew how to set up the servers, provision, email, put all that in. We needed partners and we didn't have enough capacity. Uh and that's why we started this thing av and odd with uh which is Big, big company at this stage.

47:55 with Accenture. And that was in the two thousands. I went on the board of Accenture All this to say the way you could kind of pitch an enterprise is Rather than any of these other value propositions, David l listed off a whole bunch of software. You could say You guys want some email, right? We have

48:12 The most reliable, robust. way for your enterprise to adopt email and it's gonna come with all this other great stuff. And everything was nicely integrated. Because remember, you needed active directory to manage you know, file shares to manage, um Uh printers

48:28 mean it was used for a lot of lot of different things. So it it really did all kinda come together as kind of the integrated proposition, like you say. You guys You guys sort of uh made fun of The notion that we called all that stuff the back office as if that was diminutive. Oh, so wrong. So wrong about it. We took that as a signal that Bill just didn't care about this. Oh, completely not right.

48:54 Ah. I wanted it to call it the back office because you needed to buy the office in the back office. And the user, the consumer Saw the office and the back office were the things that were in You know, kinda the server rooms. Slash data centers, but a lot of them were server rooms.

49:12 It's the same thing these days, but cloudized. All right, so as we were preparing for this, there was there's a bunch of big questions that we just desperately want your take on. A big one is around one of your most iconic moments. Nineteen ninety nine. The developers, developers, developers speech.

49:30 I've probably watched this clip twenty, thirty times. Almost everyone listening has seen this clip. What is missing from this clip is all the context around Microsoft and what's going on in the world at this time. and what you need to accomplish as a leader of this company. Help us set that stage. And then understand

49:49 Why you went on stage that way. Well remember, by this Time. We're not through our IBM competition. And we got Linux competition now on the Dock it because Linux is competing with Window Server. Linux is competing with Windows.

50:06 And there's a thing called open office. Open source software for office is competing with Office. So We have all these things going on. We haven't beat Lotus Notes yet.

50:16 And you've got antitrust gone. We have antitrust issues, of course, by then. The culmination of the DOJ suit is happening within twelve months of this moment. Correct. But I mean it's clear in all these competitions the thing you need is third parties that reinforce

50:33 What you've got. Add value around what you've got. And I could say run on your platform, but I'll come to that later if you want to, what a platform is and isn't and if you want to do that. It's Kind of interesting, I think.

50:46 Particularly since everything's called a platform these days. But anyway. Let's take an aside here. Give us your definition of a platform. You could call it. Anything that is extensible. And it's the extensibility

50:59 that quote makes it a platform. 'Cause you're gonna get people to extend the value you add. Mm-hmm. The question is, and the the reason that's important is Applications are platforms too. Not just

51:13 developer platforms. When people say that they might mean Azure AWS or in the old days Windows or Window server or Unix. Uh than Linux. Yes, those are platforms, you extend them. But you also extend Office

51:32 You add value. Partners Plug in. They write applications, they use the file formats, all of this stuff. Yes. platform.

51:42 And Part of the issue I think For Microsoft Is if you see yourself as just a platform company.

51:54 A platforms need apps. You wanna have the top first party app that runs on your platform. Otherwise your platform can't get good. Office was the best first party app.

52:07 I'm Windows. And that's how things Get good. Outlook was the best first party app. On exchange. There were other clients at one point, by the way. So you really do want extensibility in your apps in addition to your quote platform.

52:23 You wanna make sure you own first party app in addition. Two Quote. platform. And I think

52:30 You can get stuck in the mud if you say, We're just a platform company. And I think we got it into our corporate mindset. That we were quote a platform company, far more than I ever intended. I mean, there were people telling me

52:45 In the later in the mid to late two thousands. Well we're a we can't do that. We're a platform company. I said, Yes, we can do that. And and by twenty ten, I was just frustrated with myself and my inability to get people out of the we're just a platform company. And I think

53:07 To this day. You have to think. Up. with platform. You have to think extensibility of the app.

53:15 And the quote platform. And I think we got caught on that. Maybe I got caught on it for a while and I certainly got caught in my inability. To tell people what the company needed to do. 'Cause people had such a culture then of saying we're a platform company. We're a platform

53:32 And So now I go back to yeah uh developers, developers, developers. I'm trying to tell people At that time. That third parties really mattered.

53:43 And you you got different opinions inside Microsoft. And what event was this? At a developer conference, I think. So it's for external developers. External developers. And you know Who's Windows number one client? Is it office?

53:57 Or is it all developers? You ask the Windows team, it's all developers. You ask the Office team, come on, you gotta do for us what we need to do. Yeah, you have to I you have to be able to communicate that you really care. about developers who are not your own that you really want these things because they may think, oh, it's all about running Microsoft Office. And

54:19 We just had to tell people, We want you, we want you, we want you, we want you. And I think we got caught. In Thinking it's all about third parties. And not

54:30 Also about our first party apps. And that's where you say are you uh The word consumer sounds like Unserious. Are you for users and

54:41 For enterprises? Slat which really means I T departments. Or are you for users and not IT departments? And Do you allow both all aspects of what you do to be extended by developers?

54:55 That's the frame I believe in. Hm. Yeah, we had some issues over the course of where we went in the two thousand. We can talk about that if you want to. But go back to ninety nine. You know, come on. We need you we need you guys on Windows.

55:10 IBM's still selling OS two. Linux is right there on the horizon. It's it's coming like a freight train. Is the web starting to enter your psyche at all? Right. We're trying to get people to write for Windows Server. Good point. We're trying to get them to extend Active X controls, I think. This is a heyday R Netscape, right? We're the part of the browser. Uh so we were trying to get our browser to be a platform.

55:35 Une platform I sorry, embrace and extend, I think is what we said. We'll embrace the internet and we'll extend with these active X controls. We need developers to do ActiveX, we need them to do Windows Server. We're just sort of getting ready on.net. And you know, I have my own kind of wild style. And really, really. How do you end a speech?

55:56 You tell people you love'em. That you want'em. That's sort of the call to action. And that's where I think the developers developers thing came. I mean

56:05 Yeah. There before that one, there was a different video that people sort of characterized. I love this company. No, it was my Windows video. I don't know if you've ever seen it. Oh, of course. But wasn't that a parody? Don't people misunderstand It was for fun. It was just a f fun thing. It was not a real speech. And it was for internal consumption, where you're saying Yeah, it was for sales. For this low, low price. Yeah, I mean there's a lot of little nuances in there. We were trying to get our people pumped up about Windows. So what I was looking for there is

56:35 The developers developers developer speech is one where you feel like we haven't really won the last battle yet. We're still in this death grip for enterprise developers or this death fight. Against IBM. And yet there's now Linux and the web for these more sort of like independent or

56:53 platform of the future looking developers. And in some ways we're desperate to sell to win to say, Hey, we have a great platform here. You need to come use our stuff. Exactly. I can't remember whether we're pre lamp or lamp by then. Yeah. But

57:08 I don't remember. There's some infrastructure on top of Linux that people are using to write You know, let's say their back ends, not their user Facing code. And you know, we had we had tons of competition. Yeah. The interesting thing is

57:23 People say only think about your customer, never think about your competitor. I actually think you have to think about both. And Ironically We were pretty consumed with our competitor. Which which I think was essential.

57:38 Uh, and we were pretty consumed about doing new things. But the competitor thing wound up being Very important. I mean we we have no business. We're not in the enterprise. We could lose windows on the client. We have to you know and

57:53 And the company we weren't like really self confident. The DOJ was really self confident that we were kind of a lock and there was no competition and Yeah, life was easy. That's not where our heads were. Now.

58:08 There is some time in the two thousands. Where I think we do I do, we do. We we think that ex Standing. We did a slide once called Windows Everywhere. We used to use this on all these devices.

58:23 And we became Too wed to extending what we had versus jumping to something new. Because in a sense, we were too confident.

58:35 Hmm. We were too confident. If we only Windowsized something. You guys make a point in your your uh episode on us. Uh you guys call it sticking with windows too long, but i that may be it, but I think I don't think we stuck with Windows too long.

58:51 I think what we did is we tried to put windows in places But it didn't. It didn't naturally go. And we tried to be too Windowsy, both in the API and the UI, in some things. Mobile being an obvious. Windows mobile, exactly. And the car and the car. Uh we did a layer on Windows that when you hooked your

59:12 PC up to the TV, it had a simplified user interface for you. It wasn't just Media Center, right? It was some extra. Media Center. Okay. Media Center. Yeah, yeah. Media Center, exactly right. So we became convinced either out of To some degree paranoia and some degree confidence. No, okay. Well our birthright here comes from windows. That's our

59:33 permission to enter the area. But then we also In some areas it just wasn't going to be extensible. So there was both a Like a fear. And a

59:44 you know, overstated confidence. In trying to take Windows. Uh everywhere. All right, listeners, now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture.

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1:01:34 And just tell them. That Ben and David sent you. Let's jump to this point, but What is the generalizable lesson here? You have Windows.

1:01:43 This amazing piece of software with this tremendous multi-sided network effect around it. the logical thing to do is to continue to try and extend it and say, geez, wouldn't it be nice if the next great technology wave was also Windows.

1:01:59 And that worked for us on Windows server. So it's not like we didn't have an existence proof that the thing could work. But You know, if you're gonna In my little deck I gave you. Yes, please. Yeah, if you're trying to skate to where the puck is.

1:02:15 If you're trying to recognize what did I call this? About capabilities. You know, if you're a startup in something. There's an ongoing business. You just fig keep enhancing your products. There's a line extension.

1:02:28 Okay, we're gonna add networking to Windows. No problem. You still call it. Windows. It's related. But new.

1:02:36 SQL Server, for example, was that for a while. It was related'cause we had a back end platform. dynamics somewhat related, our accounting, et cetera, stuff. Uh because You know, there were some enterprisey sales, but it was really new. And it turned out the phone was more like a startup.

1:02:53 Hm. The phone was more like a startup. And Recognizing and thinking about things and then asking yourself what capabilities do you need

1:03:04 You know, I say get in the weight room, you've got to develop capability Yeah. Take a look at a capability we developed that is now essential. We didn't build it for this reason. Hardware design.

1:03:17 Microsoft's a major hardware design company now. No. I I started it out mostly on the clon, you know, to help Client side devices. Surface. Xbox, Surface, Phone. And guess what?

1:03:31 They use that mostly now in Azure data centers. I think the guy who w r actually runs hardware design used to be on Xbox. Hm. Yeah, the back end hardware design for the data center, the chip, et cetera infrastructure. I'm pretty sure

1:03:45 There are a lot of talent we brought in. So building capabilities is important. We built some capability. But we didn't build enough capability, we didn't see things different enough. Okay. Let's try to Keep the comfortable Windows user interface because people understand it. It it wasn't right for the phone.

1:04:06 I don't even remember what processors we started out on, but I'm pretty sure we started out on Intel. Of course that wasn't right. We tried to keep too much consistency. Both out of sort of a fear that this was our permission to to exist. And out of his self confidence that

1:04:25 Yeah, we had to put windows everywhere. So when Should a company that has an existing fantastic business, say No no no.

1:04:35 We cannot extend our existing franchise to this new world. This new world is gonna be dominated by some new paradigm where we have no advantage. How do you play? And then do we choose to get in? Exactly. Then you have to choose to get in. I would say

1:04:53 Two things were true at the time for us. And this is specifically about mobile. Mm. Mm. It's also about something else. Uh it's a little bit out search, too.

1:05:03 There are two things that are true. Number one. You have to be focusing consciously on the issue. It's easy to get caught up in, you know, there's innovators dilemma. It's a little different.

1:05:17 But you get caught up in what you have. You get caught up in what you know. You get caught up in the capabilities. And And you that's why I say to myself, you explicitly have to think about it. And look, if we hadn't developed a bunch of the capabilities we had. The comp uh yo, AI, if we hadn't built Bing. company wouldn't have capabilities. Yeah, you built some capabilities in online services that will come back to that. We built some important capabilities.

1:05:44 But We didn't realize the businesses were enough different. To harness those in the new ways, I'm proud of the capabilities we built. Didn't apply them. The way we should have.

1:05:56 Yeah, where did we learn to build internet scale infrastructure? Well, some some with Azure. Some sir. Even more than Azure. No. Even more than Azure to get started. The office Three what's now M three sixty five.

1:06:13 The office backend. Because that got critical mass as a cloud infrastructure before Azure did. And even more so With Bing! So we developed the capabilities, but then you look at the product and what was our strategy for Bing?

1:06:29 Well, there's too much based upon Windows integration. Mm. You have to say this is a separate before the Bing rebrand it was like Windows Live, right? Windows Live search, right? Everything was Windows Live. One drive. But the file sharing I mean look, Google's done the same thing. And the w you gotta ask where do you run out of gas? Yeah,'cause uh you could make the counter argument.

1:06:50 Shoot, Google is running away with the market. It's very good technology. They've perfected the user experience. They have scale and and you need scale in this business. Uh oh, it's a runaway train that we're never gonna catch. Thank God we have Windows to be able to have some way we can you know, attack'em from the side and with Windows integration, maybe that gives us a fighting chance. That didn't end up being true, but you can paint that narrative at least.

1:07:15 Yeah, Google Him. Look. How late were we to search? The answer is Yeah, when did Google start? Ninety eight, nine. Ninety eight. Yeah. Okay. And we jumped in in two thousand three, I think we pushed.

1:07:28 Now you'd say five years is a lot, or you could say five years isn't that much. You could say we had no birthright. I mean, it's just a completely separate thing. We had no capability. We had nobody who'd grown up In that world.

1:07:42 And you know, we had some re uh guys in Microsoft research who could sort of start getting us there. We took talent that was doing other things in Microsoft. Uh it's hard to go get new talent because search is brand new. Uh, there were people from Inktomie, Google had sort of sucked them up.

1:08:00 So it took us a while to get off the ground. It took us a while even, to be fair. I think this is something both Both Bill and I debated W not just with each other, but just We kicked around too much.

1:08:13 How much quote the verticals in online services would be important versus search And portal is generic. So search in portals generic, but remember we had a thing called Expedia.

1:08:27 We build a travel site. We build a local information site called Sidewalk. We had a car shopping site. What did we call that thing? Carpoint. Uh How much would the verticals V be worth and there was one vertical

1:08:43 That mattered, except it wasn't really vertical. It's called all shopping. There was all information and all shopping. And you can Google. Doing all these detailed specific things. Remember, we did a portal. We did that.

1:08:56 And then eventually We all then we did search a few years later. No, we do we were just off. We had the wrong thing. Stack ranked in the wrong way.

1:09:08 my my opinion with twenty twenty hindsight. Uh, and we were spread too thin. So when you say when should you get into a new thing? Well, you probably shouldn't get into five new things if you really only have the talent for one two new things. That's number one.

1:09:23 You know, Scott McNeely at son used to have this expression is we gotta get all our wood behind one arrow. Yeah, it's nice to Try th I was listening to You guys talked about Amazon and how they Okay, we're gonna try small things, but they also put in small cost structure.

1:09:39 We put in big cost structure because we were already all in when we got into something. And so in this particular case A few years later and then what do you do? You get stuck we we have permission to come from behind in a certain way here. Because we've got Windows.

1:09:57 That's your point. Exactly your point. So there are lessons to be learned, but for a company that's got an established business. Being able to get All the way outside of yourself. And say is this

1:10:12 What we're gonna 'Cause you really want it to be. You really want it to be. Or does this really require A different approach.

1:10:22 All doesn't totally ignore. But doesn't take into account what you own any more than the A fresh

1:10:33 Can you higher new capability or how do you build new capability'cause there If it's not like what you're already doing, it must require new capability. If it's exactly l like what you're doing. Then you'd be doing it.

1:10:47 And you should be great at it. And you'd be great at it. So it's it's the things you know, just look. Two models worked in phone. Build the hardware, capture the profit. Have a back end monetization system that even lets you pay the phone manufacturer. That worked, Android slash Google.

1:11:05 So two things worked. That's it. And we weren't in either one. We needed new capability. We needed a new idea. We couldn't use the Windows user interface. I mean there were a bunch of things, but you have to go All the way and yet we had a Windows everywhere slide.

1:11:21 It was on the slide. I don't understand why it didn't work. You get locked you know, I wrote this thing down here. You get locked in your model. We're a platform company. No, we're an app and platform company. On our episode we threw out the idea that Microsoft's competitor, like the truest

1:11:41 form that it should have taken on mobile. was not actually Apple. The iPhone is not. the the bogey. It's it's a pretty different thing. At that point you were not a hardware company. The bogey was Android. I mean they were monetizing it a different way.

1:11:54 through advertising and through giving away for free and Microsoft always monetized through licensing revenue. It seems like Until Android took off. Microsoft actually did have an opening to become the second Christmas. What year Christmas was this? There was a The Christmas of blah blah blah year.

1:12:13 And it was being on time with the stuff we needed for Verizon. Mm. There was a Verizon design win, because Verizon by now is really feeling like it's getting its ass kicked. Iphone launches on ATT. Right in July of two thousand seven. And then it might have been Christmas Eve in two thousand eight. Yeah, because Apps of the East. Yep. Uh possibly even oh nine. But I think O eight. Mobile was like this when it started. Could have been nine could have even been O nine.

1:12:41 But Verizon the Emperor had uh the Empire had to strike back against ATT and there was a window. Yeah. And they went with draw. Look. They would have taken our stuff.

1:12:51 'Cause they could put pressure back on the manufacturers. But we didn't have the stuff they wanted at the right time. They went to Android. And then Yeah, we we kept pushing'cause that's You know, I believe in

1:13:04 Staying hardcore and then Learning and fixing. The problem was we were so locked into our model it was hard to To say, hey, we're gonna learn and fix. Yeah.

1:13:14 Would Microsoft You know, w I don't know where we would have gone with things uh on phone if I had Stuck around. But I probably would have stayed at it. And maybe it it would be an Android phone at this stage. Who knows? Uh and maybe not. Like a microphone. Because if you think of yourself as just a platform company.

1:13:33 You say we can't do that. If you can think of yourself as an app and platform company with apps that are extensible Ah, then you can say, Hey, we we actually have a pretty cool user experience that can also leverage some things that we do and can leverage our software skills. And it's okay. Two

1:13:52 Embrace that P comp competitor and extend. But there's so many technologies that are hard to Not just popularize, but even get good at unless you have a phone these days. Just take voice.

1:14:06 Yeah, if you want to really be good at voice. You gotta get enough signal and you'll get the signal off the phone. You can't say talking to my PC is sufficient. And and it's not the only, you know, if you want to get good at maps, if you w there's so many things. We're being

1:14:23 On phones. There's some some things even you can make happen by being on cars. You know, I I think Tesla gets good at certain things in software because it is a different form of mobile. So they get good at different things. But

1:14:38 We missed? Should the company have kept after it? I don't know. That's not my you know, Satya know and Amy and company, they know where they were. But To your original question, big companies deciding. Well, it's not always a mistake to build off what you got.

1:14:54 But it can be Try to get out of sight of yourself. If you get in Do you have the ability From the top to shake the system and say, No, we started with our old model, but it ain't gonna work.

1:15:11 That's what we tr that's what I did with Surface. Mm-hmm. Wind up it hasn't played out. And you know, partly Uh

1:15:20 No, I didn't have that much as much time with it. But the You know, there were no high end PCs. That would really compete with Mac. And we I decided the only way we were gonna get there, we couldn't sit there with our OEM model and have it work.

1:15:34 If we're gonna have high end PCs That appealed to users. 'Cause I wanted us to be a consumer slash user company, not just an IT company.'Cause ThinkPad had uh IBM. Then uh by then Lenovo had some higher end computers. But you never saw'em you never saw him in schools, you never saw him in coffee shops.

1:15:54 We needed a high end PC and the economics weren't gonna let Of marketing and romancing. It wasn't gonna that was not gonna be an option for our OEMs. And I said, We gotta go do surface. No we You know, again, would we have tweaked things, done things a little bit better, you know, or part of that iPad? Sure.

1:16:12 But The model was not going to work. Okay, so we've spent a lot of time talking about all these bets that sound very reasonable to make in mobile, in search. We didn't talk about social, but in social and all the dancing you did with Mark Zuckerberg over the years.

1:16:28 In Yahoo, in d all these things that Ended up not panning out and these were trillion dollar companies that were built Not inside of Microsoft. We talked about

1:16:38 one multi trillion dollar thing that did work with the enterprise There's another one. with Azure. Can you tell us the story of how Azure really got started? Yeah.

1:16:50 So We are in probably two thousand five, two thousand six. Uh AWS has a little lift aw. I think AWS comes to market what Around then. Around then.

1:17:05 And It's not like the cloud is some surprise to us. The energizer, if you go all the way back to that energizer thing from the mid nineties. It's all about The cloud. It's before it was called the cloud. It's before all the infrastructure that becomes the cloud.

1:17:20 So it's not like we say, Oh, woke up one day, ooh, there's AWS. We didn't wake up one day and say, Oh, there's back ends to applications too. We've been doing that with Window Server and SQL Server. We've been in the cloud, blah blah blah. But At that point I think we might have already had exchange in the cloud. as a standard product, which you have to remember is super important because

1:17:42 I really want to give you my sense of what Microsoft's businesses are. And But we didn't have a platform. And so I said we've got to do one.

1:17:53 Let's go get cutler. Let's just go get Cutler. So I say okay, we gotta get Cutler on Cutler and I have a great relationship. We to this day we have a great relationship. Cutler and I have been to basketball game together. We've played golf a number of times. We've done golf trips together. So But you know, colours. He's a hard ass at work. I mean, if you don't want to do something, he'll tell ya if he thinks you

1:18:20 Are wrong, he'll tell you. If he thinks somebody else in the organization is bad, he'd tell you. I mean he's like a thoroughbred horse, you know, like he's very really fast, but you gotta get him. Very blind. Yeah, was great athlete in college. Uh two sports. I think he played maybe three even in college.

1:18:38 Uh but anyway. So I get cutler. And there's a guy working in MSR who I think is underutilized too. This guy Amitab. Sarvastivas who you guys talk about. I thought he was underutilized doing what he's doing. So grab him.

1:18:52 Grab Cutler. Uh bring'em both onto this project. I think Bill Is Billy still with the company? He's about to transition. He's about to leave, I think. Yeah. Yeah. I think he had probably told you that he was told me, but you know.

1:19:08 But he told me but hadn't left yet. So he looked he was involved until until until he left and even then You know. different nature of involvement. But anyway. Um So I get Cutler and Amitab to go d do this.

1:19:25 thing. And then Cutler brings Some of his I'll call gang, his favorite guys, he brings them over'cause he's a magnet for talent. And we get started. And we made an explicit decision, and I guess you could say it's also a function of thinking Windows first. I think you you guys may have talked about this in your episode.

1:19:45 We say we're gonna build platform as a service. Because it's a Windows. platform. Infrastructure as a service a little bit if you think about it. You're s you're sort of by nature accepting

1:19:57 Everybody's infrastructure. It's by nature multi quote multi platform. You become a different kind of a platform because you're running other people's Linux and whatever. It doesn't leverage Microsoft's strength of owning the Windows franchise if you're just gonna be in the leverage our strengths in the sense that we've got great low level operating system people. So we have all the talent to go do it. But You know, we say, Hey, we're gonna do pl and it was explicit we wanted to do platform as a service. Uh we said

1:20:26 Yeah, hey, they're doing it. And B It's all about the developers. And if it's all about the developers, then you gotta have platform as a service, not just infrastructure as a service. Well, that assumes that the developers targeting Windows server are still a big, strong, important, relevant developer group. Which they they were and they weren't.

1:20:47 Windows server had a strong developer group. Unix. had a strong developer group. And on the

1:20:54 Front end Windows was definitely stronger. On the back end. Unix was definitely stronger. But on the front end by two thousand six, seven the web was clearly the emerging developer platform of choice. Emerging.

1:21:08 Okay. Emerging. Okay. Absolutely emerging. Not fully emerged. Yes. Emerging. I would challenge you to say like what in two thousand six, what amazing uh Windows apps were coming out that would sweep the world and go get a hundred million users because they were great. Hard for me to remember. I'm I think if you If you go to the field of productivity

1:21:29 The answer is Yes, there were still. The problem is if you left the areas of productivity. And gaming. Productivity and gaming, yes. If you leave productivity and gaming, I think the answer was no. I mean we we we talked about this on the other side. You know, people remember people were

1:21:48 The web wasn't good for a number of things for IT'cause people couldn't count on People didn't feel like they could count on the connectivity. Either the amount of bandwidth or latency or just its very existence. We're still at that point. So I'm not saying fair. We were right in the way we thought about. Not saying that.

1:22:08 But I'm also saying there was a a Windows There was still a great Windows sort of uh developer ecosystem. It didn't go from You know, a lot ninety nine to nothing by oh five. Totally fair. And then on Windows Server, Unix was stronger on the backend. And of course we're trying to make Windows strong and we're trying to get to the cloud.

1:22:28 And then we're learning more things about the cloud from both exchange in the cloud and Azure in the cloud. How do you make it easy to provision? What's the speed of provisioning? You know, what do you do to serve developers? The notion that you give them you know, a number of you know, sort of a f set of free usage.

1:22:48 And then let them embrace because Developers have to two aspects too. There's developers who are not part of enterprises and there's developers Who are. And the developers who are not part of enterprises need a whole different sales motion. You can call them consumer development.

1:23:03 developers of consumer apps. But they are like And independent software. Students are an example, but there's plenty of others. Uh who are trying to do startups and blah blah blah.

1:23:18 Um So In any event. You know, we kind of get going. We're learning, you know, how to do the things. We're building capability for sure in the cloud through both products. Uh and uh

1:23:32 You know, by the time I leave we have some some some momentum with Azure. But Some momentum. Ha. Yeah. The big momentum really is in the last

1:23:42 Yeah, eleven years since I Well I think you're bypassing and underselling here. It it really struck me as you were describing The challenge is around with a big company like Microsoft and attacking wildly different vectors like mobile, like search, like hardware. Azure was that. The cloud was I mean it's extremely disruptive to server and tools. Extremely disruptive. But it wasn't.

1:24:07 Єсену. The things we understood. were translatable. Now Getting the company. People get locked into a model. Yeah. That was not obvious back in two thousand eight, two thousand nine.

1:24:26 It's not like You know, Amazon was an enterprise company at the time. It was mostly for startups and Yeah, that th that's who was using AWS at the time. And so No.

1:24:38 I agree I do agree with you. Yeah. We had to shake up our internal culture. God. Dang it.

1:24:45 This was my basic message. God dang it, this is our future. We can preserve And enhance. These businesses we can take more value out of the

1:24:56 System. Because Other people the customers don't have to set up their servers anymore. They don't have to do all this work. Essentially money that would have been spent on people and and hardware will get spent with us. Come on! We're gonna do this. And it was hard for me

1:25:15 Even Telling our people. There was still, you know, la resistance, as they say. And that's why I did the speech at U Dub where we talked about the fact that we're all in on the cloud. It was partly the reminder to people

1:25:30 You know, get with it or get out of it. You'll get out of the way. Tune. communicate something to your internal employees. In a big company, man, I'll tell ya. It's very uh Some of what you have to do,'cause people believe the newspaper more than they'll believe an internal email. Well the uh people always talk about how the think different campaign that Steve Jobs did was for Apple employees as much as it in fact way more than for the the general public.

1:25:54 Going back to the core initial start of Azure. I find it very interesting that Microsoft had a business called server and tools business, and that is not Where Azure started. Azure started as a incubation by Rayazi with a completely separate team.

1:26:10 Then your existing like actual product group selling server and tools. But this that's sort of a classic. That's not It shouldn't be mind blowing. I mean Windows and Windows N T were indifferent

1:26:24 Groups too. Yeah. Sometimes in order to protect The sort of Baby.

1:26:31 While it grows up. You can't put it with the thing that's established. I mean, you could say it's part of the issue with Windows when we tried to use Windows on things. for which we probably should have started. This would have played out differently if you'd taken this approach with We did break it out.

1:26:48 But we constrained it with Windows. We broke. Windows N T out And constrained it with Windows, it worked fine because Windows belong. So you know, how you do Those incubations. And in this case I just said look it'll

1:27:04 It'll get probably subsumed. I don't know, partly Ray wanted you know, Ray was Ray wanted some operating control. Over the thing. And putting it under mugly would have made it harder for Ray and Yeah, obviously it was less

1:27:19 Palatable. And I'm not sure Cutler would have Gonna work on it. If it was all you know, all in server and tools, but Um

1:27:30 It was the right it was the right thing to do, even though it was, quote, part of the future of servers you know, uh it was the future of server and tools, essentially. And so this Is pretty lost in the common narrative. If this is two thousand and six That is seven eight years before you left Microsoft.

1:27:47 Yeah, eight years. Eight years. No, we we'd been working on the cloud since Energizer. We'd been working on Azure for eight years. Yeah. People think

1:27:58 Everything in tech gets popular and Ten minutes. People think acquired was founded two years ago. Good point. Different scale. Twenty sixteen, I think. Okay. Yeah.

1:28:13 So Seven or eight years after It really became Something. Okay, fair fair to say. And I give'em all the credit in the world.

1:28:22 Seven or eight years. Most things. Take a while. Even things that are quote Oh Oh they just burst on the scene.

1:28:30 People been sweating You know, b blood, sweet and tears. For years before these things get Lift off as I call it my little deck here. And

1:28:42 So yeah, we we were starting to get to lift off. But yeah, eight years. And we had more in on exchange. Most businesses Are zero trick ponies.

1:28:54 You never create a billion dollar business. You never create yeah, y you might create something that goes nowhere. You might create what's essentially a feature. for somebody else's business and get acquired. Um you might. I'll call that Zero Tricks. Then you get a one trick pony. And one trick ponies are

1:29:13 Amazing. Amazing. I mean people should be in awe of one trick ponies. fifty to hundred billion dollar market cap companies. Or could be no, could be more. Yeah, or more. Yeah. Could be more. Google's a one to one and a half trick pony. Still. I mean if you just look at its revenue. You can call it a debate trick. But it's

1:29:44 It's not clearly a second trick. And they're huge and they have great market cap. T SMC You did an episode on them. They're one trick pony.

1:29:53 Very successful one trick pony. NVIDIA. Is a one trick pony. Well gaming and AI. Okay. Two trick pony, but the first trick two trick. First trick was not that big. Yeah, you can decide whether to call it a trick or not. But I'm not taking anything away from NVIDIA and I should know the company better. But

1:30:12 So you say One trick ponies, they're amazing. Like everybody should be in awe of a one trick pony. Now Two track parties.

1:30:22 Ooh la la those people tend to go down in business. History. Especially if those tricks stay stay alive for a long time. No IBM was a one trick pony. Microsoft?

1:30:36 Two to two and a half tricks. All right. Give us your trick accounting. Okay. You can do it a little differently. I'm gonna call the desktop business. Which I include windows and office. And the server Slash enterprise business, back office.

1:30:53 Two tricks. Now they both both tricks could have died if they didn't get moved to the cloud and I knew they could die. But there's two tricks. Two different revenue models, two different licensing models. Essentially different sales motions. The even the way Microsoft sells those stuff. I don't know about today, but when I left.

1:31:12 They were kinda different muscles, one account manager, two different muscles,'cause One, you're selling applications and one you're just selling hey. This is to serve your users. You need an A D account, an exchange account, exact a windows, and I mean that's what you need. Uh that's what M three sixty five you could call the two the tr the modern translation of those two things are. The Windows OEM business and M three sixty five.

1:31:36 And Azure. And then you could say, Is gaming a its own trick? I call it a half a trick, just like you do. It's a half a this is an update since we last talked. I feel like we had a conversation at one point we were we're We both kinda landed in.

1:31:49 Unclear how profitable that business is for Microsoft relative to the I'm gonna call it a half trick, or you could say it could be a trick. I mean look I would say I would say Microsoft is optimistic it'll be a full on trick. Mm. Okay.

1:32:06 Oh yeah, I hope it is. I I run into Phil Spencer at the golf course and you know he's a real optimistic guy and uh Yeah it could be. But I'll I'll give you this. If we call NVIDIA's first trick a full trick, then Xbox is a full trick. There we go. Whatever you want to call it. You said it's a small trick. And I think that's probably right. Um

1:32:24 So I that's amazing. Amazon's two tricker. AWS and and the store. They're too tricker. Apple's two tricks.

1:32:33 What's your trick accounting there? Mack. A mobile. If I you want to say it's high power consumption and low power consumption. Is it fair to call services a third? And I by my estimates, their profit dollars from services have now eclipsed iPhone hardware.

1:32:49 Profit. I consider it just part of the trick. It's if you go by your platform definition, it's part of the platform. They've just monetized it. It's kinda like us adding things to office and redoing the EA and

1:33:04 It's a monetization model. It's a monetized it's an additional monetization model. But it's not a new locomotive. Locomotive is a the business that can pull the cabooses. And the locomotive remains the phone. You know, the services business go away pretty quick if the phone volume fell apart.

1:33:21 I'll call I'm gonna call I'm gonna It's additional very important But not uncorrelated, the way that AWS and I get the sense of the three. Mac versus everything IOS is also uncorrelated. Yeah.

1:33:36 I get the sense you You really wanted three tricks. Absol freaking Lutley. What's the one that eats you up inside? Which one do you think you were closest to getting that you didn't get?

1:33:49 Not social. Okay. Forget social. Doesn't feel Microsoft y. You wanted to buy five. Sure, because but they were still on the Paul Allen strategy.

1:34:00 the software that these things will ever need. I mean it was still of the mindset that said And that there's an arrogance to that, and there's a hunger to that. That says there's just nothing we shouldn't do. And I don't think that was a good mindset by the time I took over and yet it was still sort of baked in with Bill, baked in with me.

1:34:21 And I think that was a mistake. So not focusing on the social doesn't. But So You can You know, this is like asking me to pick.

1:34:30 Between Negative children, I don't know. But the phone Because it was a client side device. Or search Because it was a productivity tool.

1:34:44 Microsoft, both of those were Microsoft big businesses. Yeah. The desktop. The phone. Or office.

1:34:54 Or you know. Client side devices we had done well with a certain model. client side devices our minds should have been able to wrap around, but we had to tell ourselves it didn't look the same. Technology didn't look the same. Nor did

1:35:10 Business model. been business model astonishingly for search. Advertising Call it two thousand five. I think Google was making more money.

1:35:20 off of a PC user than Microsoft was. 'Cause their business model generated more search revenue. By O five? I don't think so. Not later on, I think so. But not by O five. I would suspect not. I mean you can go check. But isn't that astonishing that of the piece and for enterprise PCs PCs bought by businesses, it certainly wouldn't have been the case. For consumer PC.

1:35:42 It could well have already been the case. Right. I mean it it actually is a A notable difference because of everything else we s We've Our post sales monetization was with applications. Theirs were with ads.

1:35:54 But There it's a new productivity app. We put office on the back by then. We would have had to put productivity elsewhere. So in the sense that we missed a

1:36:04 major productivity area. And we're in the productivity business. And we were in the client. area and we missed a client device. Yeah. Those are the two.

1:36:13 We met quote missed. You had an opportunity for Fortrix. And you got it. Yeah.

1:36:22 Part of the problem was we didn't see Uh particularly we didn't see mobile as a different trick. We thought of it as underneath the window strick, if you will. No, but I mean you can go through. I don't know that I could come up with a three trick pony for you. Hm.

1:36:37 I mean it's possible that at the Elon level The Musk Empire could have three tricks, right? Cars, connectivity and um In finance you can do it. Finance, I don't th I I don't think there are multiple tricks. And you could say asset management versus the investment banking is different. Maybe maybe, I don't know. I'm not convinced, but I I hear you. Well, possibly. I think this makes sense because Microsoft is the most valuable company in the world with two. So if anybody

1:37:05 Yeah, if you look at the most valuables, you're not going to find three. That's a good point. Sony is nowhere near the market cap of these companies, but it's like pretty evenly diversified across their five segments from Gaming. To Consumer electronics.

1:37:20 Movies, music, finance. Yeah. They do businesses in multiple areas. I can't call Sony pictures. Yeah trick. Fair. Yeah. Yeah. It's just not big enough. Well you can acquire to start a trick. I mean that that part I have no

1:37:36 Yeah, I there's no pride. There should be no pride in having a trick that starts with something small and Google bought it. Sure, but they but that's a trick for them. Well Android's not a trick. Okay. Android is a piece of the search trick. It's uh lead gen. Yeah.

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1:39:34 Who's managing them all? So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely, at scale. Go check out service now dot com slash acquired and tell'em that Ben and David sent you. Okay, so we've been dwelling here in the products. And reflecting back on big wins and misses. During your tenure as CEO

1:39:55 Can you reflect back on your non product wins and mistakes? Look, my biggest hit. From My time running sales to president to CO is establishing us With

1:40:08 IT departments. IT professionals, you can call that the enterprise. uh if you will, and putting in the framework from a sales and marketing perspective, the staff. It's a capability we had to to develop. Nobody developed that software model but us.

1:40:25 We invented essentially how you do that. Um Oracle had done some invention, but we came on and and did our own invention. Uh, we took it to the cloud. We were able to successfully nav navigate that with I mean look.

1:40:40 Yeah. From a sales, there's a product part to that that you highlight. But But that's a That's a big deal.

1:40:48 And I feel very Very proud about that. From a financial standpoint. You know, everybody likes to say we about tripled revenue and about tripled profit. The truth is we Dramatically.

1:41:01 Increase profit more than a triple. 'Cause people forget there was a major change that came along early in my tenure. And that's the move to have to expense stock options. Um so if you had restated our books to the time I actually took over stock option expense would have

1:41:21 Reduced profits. Notably. Stock options were Unaccounted for. So if you look at what starting profitability would have

1:41:29 Looked like If stock options had it would have been lower. And the multiple over my tenure would have been M much more than three. Okay. So three plus

1:41:40 Yeah, I think you might say three in revenue and probably closer to four plus in five, maybe even on profit. About the same time the dot com bubble busts. So you have two problems. Number one, now We're showing our books all this expense.

1:41:57 For stock options. Okay. But People don't value those things that what we have to expense. And the stock is flat, so they value him even less.

1:42:08 This is a really insidious problem. You gotta get rid of stock options. And we transition then from stock options to stock awards. Which If you notice, I think we were the first to make that as a major transition, but everybody's made the same transition. You know with the exception of a few senior executives, options are not the primary form of compensation.

1:42:28 Little different in startups, but when you look at larger companies, everybody's us. Yep. So And we had to start that. Mm. I didn't realize that Microsoft started that. You can check, but I know we move before m most of the tech companies.

1:42:44 It's a tough thing to have to inherit right at the beginning of your tenure. coming off of an already all time high multiple. Of the price. The dot com bubble bursting. then our stock price burst did too. But I think to your point what you're saying is like this became a

1:42:58 employee motivation cultural issue. Like it's not just No, we had two problems. Before the dot com bubble bursts. You have everybody saying, Oh, maybe we should go to a dot com company because we're gonna make a lot more money. Then the bubble bursts and everybody says, You know, sort of Oklahoma, but there's a song Poor Judd is Poor Judd is dead absolutely and the Lud is dead. And that was kind of w the way people felt about sort of uh stock compensation. And not just in our place, people were down because

1:43:32 You know, everybody thought they had a ton and then they thought they had less. So yeah, it was a real employee morale issue in the early two thousands. We had to really sell the stuff in. That's a big thing I had to work on. Obviously the antitrust.

1:43:49 I mean when you took over as COVID. What we said in our episodes was that was actually your number one priority. Was just End this. Uh it was right up there. Yeah. I mean it w it was up there. I mean it I think when I took over.

1:44:08 I'm not even sure we saw a path to resolution. But having it. An overhang. I'll give you I'll give you a story'cause it was after I took over CEO. We had an executive retreat.

1:44:20 We did it down in Bend, Oregon. Uh I can't remember the name of the live Sun River, I think. And We all fly down there. We rented a plane. to fly everybody down there. I don't know how many people by then it was probably eighty, ninety, something like that. And the first session was supposed to be a report.

1:44:38 We did this. A report from the field. What are people seeing out there? What's the environment? And this guy Orlando Ayala was running sales at the time. And he gets up. And you know, this is probably oh two ish, oh one, oh two, or still in the throws of the thing. My name is Orlando Aella.

1:44:57 I'm a proud Colombian. I am not a prod Microsoft y today. Our integrity is under assault. My personal integrity feels like it's under assault. Now you didn't Blame us?

1:45:11 for having behaved badly. But it Highlighted the thing that's on everybody's mind. Which is it wasn't just Like a business issue that needed to be taken care of. It was a culture issue. It was bothering people.

1:45:25 Particularly senior people very personally. So I had this whole agenda Had to blow the thing up. And reorient. to to to to address that elephant in the room. It was not where I was going with this thing.

1:45:41 Completely remap, change the breakout sessions, focus in on this issue. Bill was not happy. The whole thing. Yeah, Bill bore the weight of the antitrust thing very hard. Because for him, I think it also felt like a personal attack.

1:45:58 Course. And everybody took it personally. Took it even more personally because, you know, he he was the face of vilification, if you will. uh for this

1:46:09 But it's a reminder that it was a cultural issue to take care of, not just a market issue. And people focus in on the well, were you moving slowly? But yeah, there was some of that too. People say, Oh, I wonder if we can do this. That was an issue.

1:46:24 The cultural issue I think was even bigger. So he said, Yeah, we gotta get this thing resolved. And then there was the order to break us up. I forget what year that was. You were gonna run one company and Bill was gonna run the other company. Yeah, we never really got to the point of Really planning that through. But that's what the federal government like ordered, right? No, they ordered it split. They didn't say w who had to run run which was just that you couldn't be at the same time. I would run operating systems and Bill would take applications. Uh So I mean it just gives you a sense of

1:46:56 each where each of us were associated with in the mind of the company. So that's your starting place as you're taking over from CEO. As CEO. The the dot com bubble's bursting. Antitrust is dominating the company's culture and the external narrative. You have this big accounting headache that you now have to deal with that affects the the way your profitability is shown.

1:47:17 But then there's a decade after that. Where you Triple the business. But the stock price is flat.

1:47:23 Mm-hmm. Why didn't Wall Street get I'm gonna give you Uh three reasons. Reason number one and it's material.

1:47:37 Bill and I always So Bill and I and then me And Bill when I became CEO. We always were trying to tell people don't get our stock price too high. Don't have too big expectations for us. You know, we never wanted people to feel like they got cheated buying our stock.

1:47:55 And partly probably we're trying to lower the expectations on ourselves. I never thought of it that way. I don't think Bill did, but essentially That was part of it. And so we do this financial analyst meeting every July and we'd always warn people No don't get too excited. That's one. As part of that whole theme.

1:48:15 Bill never went to a Quarterly analyst call. And I never went to a quarterly analyst call. And if you really think about it, part of morale is the stock price. It is.

1:48:27 And it took me a while to realize that, but I then never broke my pattern. You know, it's sort of like going to the newspaper every day. You don't sell stock every day, so you really should only care what the stock price is when you sell stock. But people go every day and it's kinda like, Oh, did my team win last night? It's like going to the sports section and say, How did the clips do last night? And

1:48:51 So talking more regularly to investors And talking with not not a pie eyed, but a a realistic view. Guidance? We gave no guidance. I had to fight people. They wanted to give guidance. And I didn't want to give guidance. Why? Just deliver the results you get. I mean You know, there was a bit of a buffet

1:49:11 Style. Totally. I mean going on because Bill and Warren were were very good friends and Warren didn't go to quarterly calls, I don't think. And but you know, he's Warren. I don't even know if they do quarterly calls. I don't think they're I don't yeah, I don't think they do, yeah. So if they do the annual meeting, obviously. Um

1:49:29 So Yeah. Let's call that a first reason. A second reason is yes, I did take over when the stock was ridiculously Too highly priced. Yeah.

1:49:42 But that normalized within a year or two. Yeah. Narrative. About About things.

1:49:54 Um So that I'd say is No, no, fo I'll give you four reasons then. Next. I was hardcore about telling people I'm gonna spend to do the things we need to do to succeed.

1:50:05 That's not what Wall Street likes to hear. No. But I was View as a spender. And I was much louder on this than than Satya is on anything financial. Because I'm it's kinda how I'm programmed. He's programmed a little differently. And Amy is more balanced.

1:50:23 I mean She'll talk about balance and I would say We're gonna win with surface. I mean whatever it is. paraphrase my view of it.

1:50:33 You were willing. To say we're gonna spend whatever it takes. And Amy goes and says, I'm gonna account for every dollar of spend real tight. And make sure that Every dollar demands a return. Yeah. And so I have no credibility.

1:50:45 In terms of what some investors wanted to hear. Okay. Uh and my actions. were consistent with that. It's not like they were inconsistent. And then lastly People did worry about the future of

1:50:59 A couple of our franchises, most notably Windows. So you get all these things. Narrative. Transition from high price Some issue about franchises and me being a big spender.

1:51:15 No wonder the stock stayed flat. And You know, by the end of my tenure, it was even bothering me. Yeah, when did it start? But towards the end. I mean, at some point I just got too tired.

1:51:28 But By then it was also Probably hard for me to reset that dialogue. For me to go to investors and say

1:51:37 I'm a changed man. I'm not gonna spend anymore. Nobody was gonna believe that shit. They just wouldn't have believed it. Right? I mean You can't come in and say, Well, I've been a certain way for about thirty five years but or thirty years. But I'm a Hey I'm a new man. I'm reformed. It that doesn't work that way. If you're a spender I worship at the altar of capital allocation now. If you're a spender, you're a spender. If you're not Good with investors. They're not gonna buy in overnight that you've changed.

1:52:09 You know, there's a certain and I didn't intend it that way, but there's a certain disrespect by not going to quarterly calls. With hindsight. People aren't gonna say, Oh, he's showing up. He's he's a changed man. was too high or worry about it. Now he's gonna tell us, No, the stock should be okay. It should be higher. No, there was no way to reset.

1:52:32 My Uh The investor view of me. You need a full rebrand. Full clean slate. Well you probably need a full new CEO.

1:52:43 Mean I when I wrote my letter of, you know, sort of goodbye to the board, I did say, Hey, look, this is a unique opportunity. There's a lot of things in our brand in our image. that would only be able to be reset by a new CEO. By having a new CEO. Because

1:53:01 Mm People don't Walk in and say, Oh yeah. You know, guys are changing. So it's hard to change the narrative if you without

1:53:09 The chain. That means CO should go every time there's a bad narrative. That's not really my point. But it's it just gets harder. Particularly since look, I've been I may have only been CEO since two thousand, but it's not like I wasn't Be there since nineteen eighty. Yeah. Yeah, I was there since nineteen eighty and essentially I'd been the

1:53:27 you know, second voice of the company for twenty years and then for fourteen I was the first voice. Theoretically. Uh although that that had some complexity too. I kinda get the sense by the end it wasn't fun for you anymore too. Uh, that's not true. No. No.

1:53:47 The toughest time Was probably the ship. of Vista. Yeah. That was probably the toughest time. That in the early two thousands.

1:54:02 Uh when I took over on the my little My little sheet here. I highlight that ninety eight to two thousand and four were kind of tough years. Plus Xbox. 'Cause that's the antitrust. That's where I move back to be president of the company and then CEO and

1:54:19 Bill and I went through a year where we didn't speak. Really? Yeah. Basically from some time in about March or April of two thousand to two thousand one.

1:54:30 I mean, literally we weren't speaking. I didn't know how what it meant to be his boss and he didn't know what it meant to work for me. Yeah, when he asked me to be CEO I said to him, look And I knew we were struggling with the DOJ and all this.

1:54:46 I said, Do you really want me to be CEO? Or do you just want me to be a figurehead? And he said, No, I want you to be real CO. Okay. That meant something to me.

1:54:57 I I would probably have said yes, even if he said, You know, be a figure, Ed. But he he said what he wanted. And probably him saying to himself, Hey, I've got to have a Uh a transition path. So I say okay, I'll do that.

1:55:11 Well He didn't know how to show me a different kind of respect. I didn't know how to show him a different kind of respect. There were things that I thought, you know, where I just disagreed with'em and now I expected it to go the other way. I was always happy I was happy being a number two guy. It was fine.

1:55:27 Salute. I don't like the decision. I either salute or I'd body punch and then salute. Or body punch and he'd agree with me. Body punch means it's a slower process. And then You know, we didn't know how to do that. We just didn't know how to do that. And after a year we started

1:55:46 We started talking again. Basically our wives were the ones who pushed us back together. We had a very awkward dinner at a health club down the street here. But Yeah, we we we get back together. But we never really got the right mojo. mean Bill's chief software architect and I was very deferential then to

1:56:06 You know, sort of product direction. From Bill. And that he's working on Longhorn at this point,'cause it's post XP. Which was a mistake. Long home was a big mistake. I have to take accountability.

1:56:17 I was a CEO. Bill's gotta take a lot of accountability. And it was the mistake of mistakes. And between The company

1:56:27 You know, Bill and I to the Yeah. disagreed about whether we should do hardware. That was a big one. We did surface. This big disagreement.

1:56:38 Um phone, big disagreement. Uh Hollow Lens. Big disagreement. What about Azure? Were you aligned?

1:56:49 Bill's fine with Azure. The cloud, Bill and I had agreed on in the nineties, right? I mean energizer, energizer. I think energizer could have been Bill's idea, not mine. Yeah, pretty sure it was Bill's idea, not mine. I executed. But Bill's idea, not mine. But you know th we never hit it. There were places there should have been more contention.

1:57:08 Maybe even during the late nineties, I don't know. But there were certainly places where there should have been more contention. And I I you know I my gut I was you know, these are the smart technical guys, Bill and some uh and I'm trusting Vista. I'm beginning to have a pit in my stomach. But we didn't have the right contention.

1:57:29 I mean it was it the uh this is not directed at Bill personally, it's directed at all of us. We kinda had an emperor that had no clothes. Yeah, that was a long way. Was the emperor that had no clothes. And partly it was the centrality of Windows and the notion that Windows would say s central. Therefore people would all want this new stuff. Partly there was Sort of a

1:57:51 Y there's too much change all at one time. We didn't do a new operating system, but we're kinda doing a new operating system. We would probably have been better It may not have s sold it all, but we probably would have done better just to call Windows. Yeah, yeah, just do forget what we called it. Just starting from scratch. Mm-hmm. Maybe keeping parts of the kernel.

1:58:12 But otherwise starting from scratch and throw out all that. Cobb you know, all the the scruff. Now I don't think we would have popularized it. Um and if we'd looked at that way, we probably wouldn't have built it. But by then, you know, we're a little cocky about Windows and it was our thing. So

1:58:29 I don't think we had the right grind in our system there. in the early two thousands. I just Between Bill and I am

1:58:39 You know, did we make some good decisions? Yeah. We did make a good decision to do X box. Were we doing too many things? Yeah, mm we're doing too many things and I would say there was probably a voraciousness. Misplaced by Bill and me.

1:58:56 Um Maybe, you know. I I had to be uh deal with some of the pragmatics of hiring people and stuff. So I probably I didn't push back on it. But I I probably felt the pain a little bit more in terms of trying to hire people. Um

1:59:12 And Yeah, so that's kinda two thousand to two thousand four. And then by O four Bill was already you know, sort of talking to me about

1:59:22 wanting you know, wanting to be able to go in an O six We announced that he was gonna go in O eight. I also think We screwed that up. You can't have a long goodbye. Mm. Long goodbyes are not helpful.

1:59:36 Yeah, yours was Short. Yeah, it was goodbye. Ha.

1:59:41 Yeah, I stayed on the board for one more board meeting. After I left. That was it. But A long a long goodbye. Then nobody

1:59:52 That nobody knows their role. I think I did some of my very best work. After Bill left. Yes, me when I think I did my best work. When I started

2:00:04 When I was running sales and sort of evolving this enterprise business. Um Some when I ran system software. And then The last

2:00:14 Last six years I was there. That's cloud. Um that surface. That's some of the improvements in Windows. I feel really good about my last

2:00:25 Uh last six years. Bing. That's when we hire I think that's when we hire Chi Lu, yeah. Chi Lu is do you guys know the story of Chi Lu at Microsoft? Pivotal things at Microsoft. Mm.

2:00:41 Okay, why? Tells the story. In a way you in in a way you may not even know. First of all, brilliant guy, great guy. Uh, so Chi's talking about leaving Yahoo. He's at Yahoo at the time. And she I think went to graduate school with Harry Shum.

2:00:59 who had been in Microsoft Research and Harry was now working on search and he was working for Satya. Who was running big. And Harry says Which that's an amazing sentence all in itself. Oh Satya, the guy who was running Bing. Who's running Bing. And Um

2:01:16 Harry says Chi's a genius. We've gotta hire Chi. Or yeah, we we and we ch I don't know if she really wants to work for uh Well we gotta pick Chi's brain. We gotta we just have to learn from Chi Lu. Okay, so Satcha me

2:01:33 Harry Fly down to California and we meet with Chiloo. And we talked to Chi and Chi's brilliant. We're learning all this stuff about Chi and She leaves the room. I don't know who throws the idea out at first, maybe Satya.

2:01:49 We should hire Chi and I should work for him. Whoa. So Harry And Harry was all in. Harry worked for Satya, who worked for G.

2:02:01 No. We we flipped it around. So you flip the whole reporting structure to higher T in the room. After she walked, we talked for about fifteen minutes. And then Harry calls Chi and said, Do you mind coming back? Wow. Wow. I forget where T was thinking he'd take his next job. He he had a next job in mind. Maybe it was with uh Baidu. I can't remember.

2:02:24 Some place. Wow. So then what did what did he do at Microsoft that made him so impactful? It's the story I just told you. That's what it told me about Satya. Uh

2:02:34 I mean I love Tatcha. We were giving him, you know, more and more responsibilities anyway. Uh But it told me this guy will do the right thing for the company. He'll prioritize that. He doesn't have an ego that gets in the way.

2:02:51 And she did great work. I mean She knew about Sir, she could bring in a different, you know. He was an old pro at it. And it started uh cash flowing billions of dollars eventually. Eventually. I mean and she's an I mean, such is not an engineer by training. She's an engineer, and he's a PhD in computer science. Uh and he had

2:03:12 A lot to bring. Now such has been great at managing product development. That's that's for sure. But Um Yeah.

2:03:22 Yeah. Cheese like that meeting. Dig in the bits and bites kind of thing. So but the meeting is the thing that was important. She was important. Sure. But

2:03:31 What Satcha and Harry did that day where they just found a guy and said we'll hire Please, Steve, go hire him as our boss. Yeah, you don't hear that very often. When year was that? See what year would she have come? Oh.

2:03:46 It was probably it was it was after Yahoo's yeah, oh eight oh nine. Six years before Oh nine, yeah Satya became CEO or five years. And that let me then be able to also Say now I can give Satcha more responsibility doing something else. Why did you move them to server and tools? I thought it would be great to g we had chi.

2:04:05 So we We could probably move him. I thought it would be important to give him other experiences to try to get him right. to you know be able to be CO'Cause he was on a list of three or four internals. At that time who said we'd been on a list of guys we had been talking about'cause we did an annual succession plan thing.

2:04:25 Uh no, succession plan has two candidates. It's what happens if you get hit by a bus and what happens if you g serf to term. Whatever f term feels like. And th they're different people, right? If you get Sacha gets it by bus, if Satcha serves another five years, it's probably a different person. Um No, I think that's true in most most companies you gotta think about it differently. Anyway.

2:04:47 Uh So I said, Hey, we'll get'em another experience. No, he hasn't worked in apps, hasn't worked in Server and tools and It was kind of a good time to sort of switch things around. You know, Bob won't up obviously being super successful.

2:05:02 'Cause Bob was running uh uh server and tools at the time. And uh I love Bob. Bob's one of my favorite guys I've ever worked with. Went on to be CO Snowflake. Snowflake. Yeah, absolutely. He's done done fantastically well, but uh we move Satcha into that job. But it You know.

2:05:20 And then now he was on a great path. And cheese higher. Made search. As stronger, stronger. Show

2:05:29 Just how right sa was we talk about this in basketball. You know, is it all about team first or not? All about team first, which is essential. And w we were able to give'em the additional experiences, which were

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2:06:40 to how users actually behaved. So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com slash acquired to get started. We wanna talk a little bit about your post Microsoft term, but let's sort of leave Microsoft with a a final question of Why did you resign?

2:07:03 Yeah, I a couple things. Um A c two or three things. Uh number one. The phone was very on my brain. When you said are you having fun?

2:07:14 Um That was the thing that was eating at me the most was the phone. And I decided we needed to flip the model around. Your episode's pretty good about all that happened, so I'm not gonna go through all that. But I knew we had to do hard work.

2:07:28 I knew it. There was just no question. We weren't gonna be uh be able to play the search game. The Android slash search game because we just didn't have the power of monetization that they did. And Apple's apple.

2:07:42 But there are gonna be two phones. It's not like there'd only be one phone that was popular in the world. And Yeah, this is something you guys didn't put in the episode. I'd been trying to buy a hard I had talked about buying a phone company for years, a number of years. Before

2:07:58 The Nokia deal. I forget what year it was. I flew to Taiwan. And we're try looking at buying HTC. Hm. They were the biggest Windows phone OEM at the time. Nokia wasn't signed up. I finally just decided I Terry Myers and I would have three or four trips to Taiwan to to talk to Peter, look at the

2:08:19 Organization. And I just decided it would be too tough. To buy a Taiwanese company. That it would be I would worry too much about the integration. I liked Peter Cho, who run

2:08:32 H D C. I don't know if that name means anything to you guys. Yeah, of course. But I'd been looking at that thing for Two or three years maybe before And You know, Bill and I had all continued have all the tension we had about anything that had hardware in it.

2:08:47 Uh so You know, it's not like our relationship was calm and is is clear. It had it had always been bumpy. I mean even back to the beginning. I almost quit after four weeks'cause we were in it. Five weeks, maybe.

2:09:05 Uh So It's not like it had ever been a very poor economic decision. It had never been linear. Uh We had another big fight. A year after about financial stuff. So it had never been linear.

2:09:16 It had been It had helped build Microsoft, but that didn't mean it had always been easy for him or me. Uh So The hardware thing was exacerbating our

2:09:26 Our relationship. I thought we really needed to do A phone. And Um

2:09:35 Then The board Said no, we don't want to do a phone. And and I was very transparent with everybody. Here's You know.

2:09:44 We brought the manag you got this right. We brought the management team in and I don't know if it was more wanted to buy or didn't want, but I let everybody speak. I mean It's a big decision to be in the phone hardware business. And then the process. From We do the presentation.

2:10:00 And the process from there to the time the board says no. I didn't find very respectful. Ha. Board didn't ask me to leave. The board I just didn't find the process very respectful. I and I I I probably won't go into the detail then.

2:10:16 So And and a lot of it has to do again with My relationship with Bill. Because you know we're And and look, I knew Bill didn't love the idea.

2:10:27 And I was willing to sort of accept whatever the board decided. I was. No c no question about that. But the process wasn't very good. Uh and I

2:10:39 I was not happy with the process and Um But they wanted me to stay, but the pro I just decided two things. If we're not gonna buy phones. That's kinda my best shot.

2:10:52 For a consumer future for the company. Right now. That's my best shot. I tried to fire the Yahoo shot. The phone shot.

2:11:01 Those were my two things, remember? Mobile and search. And so I said, Look, this might be this might be the right time. We can't we can't make my play here. It's just Hey.

2:11:13 I thought about this in advance and said look If it doesn't work, it doesn't work. If the board doesn't want to do it, fine. Uh And So I said this is a good time. It's also a good time'cause the cloud's just coming on.

2:11:26 And I'm saying to myself, look, we're gonna have to build new capabilities. Even the way you we're moving to a gross margin to a non Something uh below hundred percent gross marginal business. We have whole new capabilities we need to build up around that. I even think of it through the lens of the accounting system. Like h how do you

2:11:49 We have these revenue and cost reports. They have to change in the world of the cloud because you really have to get tight on gross margin, not on Not on revenue. Revenue I I don't really pay much attention to Microsoft's revenue. Uh I pay attention to the gross margin growth. Hm. These days, you're saying.

2:12:06 Those days. When I said the move to the cloud, I used to say this to analysts. You should expect us. You want us to have lower gross margins going forward. But we'll make it up in volume.

2:12:17 Right? I mean that that is the whole proposition. Yeah, yeah. You know, lower gross margins. You know, it's like Walmart's an okay company, even though it's, you know, net margin's whatever, percent and a half, two percent. You just gotta make it up in volume. So I knew it was a good time. to let

2:12:34 The new person sort of build from what we had. Two sort of the next generation of all the machinery that would have to happen to make cloud happen. Phone was

2:12:46 I never lost my desire to be an end user company. I bemoan the fact that I couldn't keep us. Focused on being an end user company slash consumer. Uh it killed me. And it's sort of you don't just I want to be a consumer company. No, you've got to find the locomotives, not just a bunch of cabooses.

2:13:08 You know, at the end of the day, Zune was a caboose. A lot of the things we inv invested in were cabooses. We had to find the locomotive. And there are only two possible locomotives that made any sense. And I didn't have a play that I thought was going to break through any time soon in search. Mobile was gonna be really hard. But I knew in my heart of hearts that without physical hardware we weren't gonna break through there either because of search.

2:13:31 Board said no. I said okay. Bill and I are it's not really a board being d disrespectful. Like uh maybe it is, but it's mostly be me and Bill. We're grinding, grinding, and that's never fun. When we grind. And I say, Okay, we're grinding. Uh I know it's frustrating for him, it's frustrating for me. We're grinding. Here goes my idea.

2:13:50 That's my idea, and oh, by the way, this is a great juncture point. Um So it's okay. Um L

2:13:57 I'll pass. And then the board changed. Changed. Yeah, so why did they end up buying Nokia then after Your decision was final, you were out.

2:14:10 Oh, I don't know. Yeah. I don't I don't really know. I mean, I'm not sure they really understood what I had told them. About you know We had a deep partnership with Nokia and I'm not really sure, maybe Guys really understood. I hadn't done a good job explaining how close the partnership was.

2:14:26 So there was really no go back to Nokia and see if we can have a bigger partnership. The problem with the partnership with Nokia is They didn't have the money. to invest in marketing.

2:14:38 We did. We did. They didn't have the market to go they did not have the ability to go deep pockets. We did.

2:14:48 But if we didn't have the monetization capability back through the phone we weren't gonna be able to make it work as a partnership because we had to put in the cash and therefore we had to get the return. And it it wasn't gonna work. You had to buy the company or Or just cut bait totally on the Yeah, just because the the money the math wouldn't work. What we had to do to be successful was beyond their financial capacity.

2:15:11 But if we were gonna do what it took to be successful. We couldn't do it on like four dollar Right. You needed the margin dollars from the hardware too. Exactly. Exactly. So

2:15:21 You left. You did it. Pretty incredible thing. Really, you didn't do an incredible thing. You held everything.

2:15:33 You're still the largest individual shareholder in Microsoft. I think I might be other than index funds the largest institutional investor, too. On the one hand, I imagine it was very simple. And you've given reasons in other interviews in the past. You're a loyal guy, et cetera. Just talk us through like The emotions thinking about that, like I imagine that was

2:15:55 Not so simple. No, not. I leave. And then What does it mean to emotionally detach?

2:16:05 'Cause if you're if you're not there, you have to emotionally detach. You can't say Because you don't you can't control anything anymore. So it's hard you don't want to stay quite that emotionally attached because it's like oh I got It fits everything. Uh but

2:16:21 I said I'm gonna be the best investor. We're gonna know everything about this company. We're gonna go to I'm gonna read everything just like I used to. We're gonna go to conferences just like we used to. I went to one shareholder meeting and I was kind of a dick. In my opinion. I mean literally one of the shareholder, shareholder meetings. And I just yeah, I was too emotionally attached.

2:16:43 And so Yeah, it took me about a year to say I I I just have to emotionally detach. So It took some work. But I kinda was able to get there.

2:16:54 But I'm still loyal. Didn't want to sell. There's one. Then we get our philanthropy started. And

2:17:04 Then I do need to do something. 'Cause we do need some of the asset value to give away. So I went through a a bit where Um We gave some away, i.e., we put it into our donor advise fund.

2:17:19 Uh, and I also, you know, sold a little bit at the time. Yeah, and I was thinking This is like twenty fifteen ish? Yeah. Might have been even sixteen, something like that. And then

2:17:30 Yeah, because our philanthropy was just ramping up. Uh I mean Connie'd been giving away money, but the dollar value was ramping up. And And then I said Maybe I should just sell it all. Mm.

2:17:42 Full emotional detection. Let's do full emotional detachment. Because look, yeah, it was my It was my baby. It's my baby.

2:17:51 I mean, I'm not a founder, but I think of myself as a founder. I was there so early and I hired basically everybody and Yeah. Everybody was a senior leader I'd recruited and Yeah, it's not true anymore. Now things have changed.

2:18:07 Yeah, it's probably only ten percent of the people who are there now were there when I was there or something. higher at the senior levels. I mean I can go through the math on why that's true. Very understandable decision of just that just put it on. Yeah, yeah, yeah. My only thought process was emotional detachment. I was I was I was wrestling and You're ready to hit the button. You're ready to hit the button. I was wrestling.

2:18:31 And then Lady who works here. Uh X Microsoft E. In f who works here in finance, who's the woman who sort of really charts what's going on financially at Microsoft.

2:18:42 She and her boss. Who's another ex Microsoft y who used to work with me most closely on the financial stuff. But she says You can't sell. You can't so.

2:18:53 This is gonna be worth a lot more. You can't sell. You can't. So she effectively made a Microsoft stock pick. Mm. She made us and she she was recommending She had some she has loyalty too. It's not like

2:19:06 Yeah, we have a bunch of Microsoft E's here. And it's not like they lack loyalty either, but it was a little bit loyalty and a lot. A pick. And I I said, look, my loyalty Trumps my emotional attachment. I can get through my emotional attachment, but my loyalty

2:19:25 And look, I think of the thing as I think of the thing is like a two headed Hydra. I thought about this the whole way. Things could go to nothing. Where things could explode. That's partly why we tamped on the stock, because we always saw the possibility.

2:19:40 for either of two radically different outcomes. And then finally I say look, I don't really I'm not gonna sweat whether we're gonna get the downside or the upside. I'm just gonna be loyal. And I'm gonna be enough emotionally detached for this to be okay.

2:19:56 'Cause for you it kind of doesn't matter. There there's not a downside that could be so bad that actually impact. You could still run one of the best philanthropies of all time, even if the We could be explained in our fa I hear you want to do it. I mean A T McCone would have been okay with it. I mean, she finds it difficult to give away as much money as we have. Every she wouldn't have minded a smaller problem to start with. She would have been okay. I've been charting it over the last three years, you guys are giving away almost somewhere in the neighborhood of a billion dollars a year. Cash out the door. But your net worth is ballooning every year way faster than you can give money away. Because of the Microsoft hold. Yeah, and one other thing that yeah, Microsoft hold, but you may be missing one thing on the Microsoft hold that's important. And that's the size of the dividend check.

2:20:42 Uh. between Microsoft and the other stuff I own. The dividend checks are Pretty close to what we give away.

2:20:55 So you can look at the appreciation, but You know, we're we're we're just above the dividend judge, though. You're just trying to shovel the money that is coming in the door or out the door. So you can fund the whole philanthropy without selling additional shares. Well there's two things that are going on. One The dividend checks are pretty good. And number two.

2:21:15 Um, I do have stuff that's not in Microsoft. Do you hold I think mostly index funds outside of the Clippers. Is that right? Yeah. Clippers slash arena index funds. I have one business I invested in with a guy who I Went to college with, who worked at Microsoft. Uh, it's called Stagwell Media. It's a marketing services company, call it a modern day ad agency, but it's not really an ad agency.

2:21:39 Uh a guy named Mark Penn. So I do have some money that's not in index funds, but mostly I'm in index funds and uh Which I mean that anybody else, you know, in your um The same couple top pages of you know lists that you're on. You must be the only one that operates like this.

2:21:57 Huge family offices, lots of investments, private equity, funds. Yeah, but if you look at the guy, I mean, look I would say you probably would find that Zuckerberg is pretty concentrated. I I don't know this, but I'm gonna guess you would find I don't know about Ellison. But you know, obviously some of the guys who own More privately held businesses.

2:22:19 But Pretty concentrated. The Google guys, I imagine, are concentrated, but I don't know that. I mean I I can't speak for anybody else. Uh

2:22:30 Obviously Bloomberg is concentrated. Right, right. So well, I think in practice It all works out. The same way of like

2:22:37 Is everything. And look, if you sell it, you're just gonna pay capital gains taxes. So you really If you're really just being a financial monster about it, you gotta decide. Will Microsoft underperform the index by enough? Right, right, right.

2:22:55 I don't need the money. I got plenty to live on. Without selling anything. That's number one. Financially.

2:23:02 Where's that money gonna go? Some will go to my kids, but most of it's gonna go to the government. Or to Philanthropy. So why would I

2:23:14 sell so we have left less to give to philanthropy someday. Unless I really think Microsoft's gonna underperform the market. By essentially the capital gains rate. I feel like I'm watching a live USA facts video right here. I I got this question once. I'm a member of a country club in LA.

2:23:34 And one of the things country clubs do sometimes is they'll do QA with members. to entertain And I did a Q and A uh with a f friend of mine at the club. And who had been president of the club, actually. And also as a

2:23:50 kinda knows Charlie Munger pretty well. And Charlie Munger's Uh, there as well. And Charlie Munker comes up to him beforehand. And to me, I know Charlie through Bill and Warren. And says.

2:24:02 If you call on me, I have a question. As only Charlie can. So So you did a Charlie episode. So yeah. So we do the Q we do our panel thing, the two of us. And then Q and A. Charlie, yeah.

2:24:18 Gets up to the mic. He's not moving super well, but he gets up to the mic. And Oh. Charlie, we can call on you. And Charlie says, Steve

2:24:31 You know, I'm wondering why you held on to your Microsoft stock when your partners over there didn't. I know you're not that smart. Ha ha ha. I said no, Charlie, but I'm not loyal.

2:24:48 Wow. Oh, I don't know why why Paul and Bill didn't hang on. I don't know. You'd have to ask them. But For me it's No, it's sort of a from the heart kinda thing. And

2:25:00 I think it'll be fine finan it's not gonna screw anything up financially. I mean, what's the worst thing that happens? You know, Microsoft goes to zero? Probably not. But even if Microsoft goes to zero. Me and my family, we can live, we can give away money, we You know, it's not gonna go to zero.

2:25:17 And And I'm okay. Either. Any any way it goes, I'm fine. And are the clippers and the Intuit Dome fully paid off at this point? Uh the clippers are

2:25:28 fully paid off. I paid them off the day I bought them. Uh that's not true. Uh I didn't want to sell stocks at the time. So I borrowed some money, which is long paid off.

2:25:38 Intuit Dome, we borrowed some money against Intuit Dome. So I don't owe any money on it. Oh, that's not true. I owe it some I have some margin debt. Uh the light. Used to

2:25:49 But again, it's just a timing thing. I didn't want to sell stock. So took some margin debt, which As dividends come in, I'm reducing the bar to debt. Uh but the building itself has debt on it. Why?

2:26:02 Because to sell the building, let's say something was to happen to me and Connie uh my wife had to sell sell it. It obviously has a lower Val uh the buyer would have to come up with less cash because it has debt on it. So call it worth X billion. Right, you just rolled it. And then it's got Y billion on debt on it.

2:26:20 You're only selling it for X minus Y. You're not selling it for X. meaning the universe of buyers is bigger because it has debt on it. And oh by the way, I happen to get the debt at a very good time at a very good rate. So it's sort of a double value to a pot you know, to a future buyer. So that's the reason we put that on the building. Uh in the margin debt was just a

2:26:43 Timing issue, if you will. I feel like I've done you or we've done you a great disservice by going into the clippers and into it dome. Through the elementary. Yeah. Uh can I ask you No that I do not own the financial. Unlike Microsoft It cannot go to zero.

2:27:06 Yeah. Yeah. Like the asset value. Not a chance. It is Far more secure than Microsoft. Hm. Why? Not making more of'em.

2:27:16 They're not making more of them. And As long as anybody in the world's getting richer. The buyer pool will only go up. And people don't buy them for their earnings.

2:27:27 I wish we had more earnings. But the end of the day People are buying them because almost more like a piece of art. I mean

2:27:36 Not everybody, some uh people don't like negative cash flow, blah blah blah. But at the end of the day and and I have you know the Clippers. We have The best market in the world.

2:27:49 You're going on on a basketball team. Other than maybe Miami. The only I mean, the place players wanna play is LA and if you look at buyers You know, w if you're a buyer

2:28:01 And you Where do you want to care about if you don't live in LA? Where do you wanna go? Well, you wanna go to LA or you wanna go to Miami. You don't wanna go to New York in the wintertime. And if you're a foreign buyer You know, potentially.

2:28:15 You want to go to LA. So that asset value I mean, we should get on to something other than Nasset value. And I'm not selling the thing. My estate may sell it. I don't know what the Connie and the kids will want. But at the end of the day That one does not have a lot of volatility. It's a nice retirement fund.

2:28:32 What's been the most surprising thing in your clippers journey? I'll give you two parts of the answer. First is How the I relate to that business versus The businesses I've known.

2:28:44 Number one, there are more similarities than I ever thought. I mean we do version upgrades just like you do. What's a version upgrade? You do major major version upgrades over the summer. That's the draft and free agency.

2:28:58 And trades. And you do a minor version upgrade at the time of the trade deadline. So that yeah. Six month ship cycle. It's your your service pack. Yeah, a major provider related to the SP one and SP Tamo, by the way. You know how people like agile now development? Guess what? That's called changing the game plan.

2:29:19 Per you know, the coaches are always modifying in that sense. So it's a little bit similar. Ah, I never thought about that. Uh the business Is just like Microsoft. We sell both advertising and that's called Sponsorship.

2:29:35 And we sell tickets. Mm-hmm. Software licenses. Software li oh No, that's like software licenses and we have an OEM business. That's called broadcast revenue. It's a hundred percent

2:29:46 It's called remarkably similar. Yeah. I mean just in terms of business modeling. Um We do have a union. That's very different. What that means in terms of the complexity through the collective bargaining agreement, it also covers things like what's max salary, what trades can you make, all that.

2:30:07 Very different. Uh yeah, actually you're kinda r you really are business partners with your With your competitors. That's are this different. I mean you actually get together and talk to'em. I never did that when I was at Microsoft. Uh, but you you get together and you talk to'em, but you're trying to compete.

2:30:25 Um If you have somebody who wants to advance through their career Oftentimes the best way for them to advance, they have to go to another team. I mean we have a president of basketball. It's not an open job. And I don't plan for it to be an open job. I don't wanna lose anybody, but if you know

2:30:44 A lot of the career moves people make would be to other other organizations. We we don't like that, but we want to have the talent everybody loves. Right. Microsoft your domain is always growing. And so there's always the domain is growing or number of people, you can move people, oh you're an engineer, you you you're bored, you've worked on X, we'll move you to work on a different product, for example. It's different the way you think about people because Primarily because of the union. But also

2:31:12 Yeah, just There's only thirty head coaching jobs. There just are. So if somebody wants to be a head coach and they're not our head coach? They have to find a job someplace else.

2:31:24 Again, not what we want. But the reality is we don't want people held back in their career. It's not like Microsoft where I felt like I could always find a job that somebody should want. Uh so that's that's different. I'll give you I'll give you another one to think about. You know, business likes to say, Oh, we're accountable, we're agile, we're this, we're that.

2:31:44 I've uh Sports is so much more accountable. Then business. It's like a joke. I'm being a bit extreme for fun for fun.

2:31:54 But Every twenty four seconds. You get a report card. Basketball shot clock. Every forty eight minutes.

2:32:03 You can't say, I'm gonna make it up next quarter. We missed, but I I got it next quarter. No, you lost that game. That game is on. You're lost calm for the rest of the season. You cannot dig yourself out of that one game loss hole. You can't. It's gone. And you can probably also be reasonably confident about each individual's contribution to that win or loss. Now let me get to that. Your customers

2:32:28 Know everything you know. It's not like you could say back in the lab. You wait till you see what we got in the lab. Oh every statistic we have Our customers have. You wanna know how many miles uh uh James Harden ran last game? Comes out of the statistical systems. You can you can find that out. If you want to know how many pick and rolls we ran of a certain type and how they were gardened and how we did scoring against them, don't worry. You can read about it.

2:33:01 You wanna look and see what the dynamics look like on the sidelines? You can just sit there and watch our players and say, Oh, I don't know everything. I don't know what they're saying, but I can see their body language. Oh, so and so seemed really charged up. Oh, that's great. So and so cheers for their teammates. So and so seemed down. There's almost nothing. I mean we get to watch practice. Fans don't.

2:33:23 But the level of accountability is so high. The speed. Is high. Think of teamwork. Teamwork, man.

2:33:34 It's all on display. Not as it's on display. But you absolutely know you need teamwork. One star does not Can't bail you out. You may have one star, but then the pieces have to fit around the star.

2:33:50 Yeah, it's just It's just kind of the way it is. You can't t you know how businesses you say, okay. Everybody wants to talk about teamwork. And in a lot of places that would mean

2:34:02 Hey Ben You know, I I don't know. We could work better on this, and then Ben can say Uh, your team's doing things wrong and then we can get back together. Talk a little more and then a month later we can talk about it some more. Probably you've seen this in some organizations.

2:34:24 And then at some point we'll talk about it as if it were a great collaboration. Right. Between our two teams. And you know what has to happen in our business? Every minute Yeah, you have to actually say it pass the ball. Yeah. Or, you know, hey, this isn't working. You gotta do X.

2:34:40 You gotta give real time feedback. It ca you can't lolly gagger, ah, well, you know. Let's rub each other's belly. No, if you want that team to be better. You have to hold one another accountable, not just the coach. The best teams, the players hold each other accountable, and not just the best player holds everybody else accountable.

2:35:00 But The guys who are not stars have to be able to hold Everybody's got hold everybody accountable, which means Really means Give the feedback.

2:35:12 In Microsoft I we got rid of the value called teamwork. I didn't want that one. I said Uh Open and respectful and dedicated to making others better. 'Cause teamwork could sound like a treat everybody, nice, nice.

2:35:27 Open. Yes. Gotta say what's on your mind. Respectful, yes. But number one dedicated to

2:35:34 To making each other better. Which I think is What the purpose of teamwork is. As opposed to the word teamwork. Oh that's interesting. Teamwork is a like an implementation detail, but that's not actually the goal.

2:35:47 We don't seek to have an organization full of teamwork. It's Teamwork because we want some output. Exactly. And and You know, I think back to the old HP. Team you know, I'm okay, you're okay, let's all be nice to each other and Yeah, there's a little bit of that that's kinda come back into the general

2:36:05 uh narrative of culture today and you know generations ya much younger than me. But at the end of the day, if you want to succeed You're right. The goal is succeeding. Yeah. Getting and in an NBA team play well together. And in an NBA team, you're gonna know. In two and a half hours, sure so two hours, you're gonna know. It's interesting. Yeah. Professional sports is kinda like

2:36:28 Maybe like the last bastion of There's not room for I'm okay, you're okay, let's talk this out. Oh, your teams talk to my t's like Extreme accountability. Extreme accountability, extreme Teamwork. See l I learned some things that would have been very helpful.

2:36:46 For me to understand at Microsoft. I'll give you another one. Reference checking. Everybody does reference checking, right? How good is the reference checking in most businesses?

2:36:57 Not good. Well, most people call front of sheet references, which has never made sense to me. Or you call somebody who probably doesn't feel like they can give you an honest answer because they don't want to get sued, or blah, blah, blah. Basketball? You should s The amount of reference material we We have on a guy before we draft him.

2:37:17 I mean, people have talked to their old coaches, they've talked to their teammates, they've Right. You know, and it's not just I mean, that's kinda scout's dude. They've watched him play. They've been to practices. They kinda know what they've Talk to references about work and Imagine if you could scout your future employees. You could just go hang out at their current job. Yeah. Or you you know, talk to their parents. I mean, there's so many things.

2:37:44 The draft choices are Such a crucible decision, right? Because Free agency. I mean you mostly know what you're getting, right? Like you're you they have a body of work. If you see the body of work, you may know What happens behind the scenes.

2:37:58 You may not. Right. So there's some risk to it. Some risk. But there's a body of work. Yeah. A draft You get two choices. Every year. Well, we traded some away, but yes, right, right, right. But yeah, in aggregate, yes, David. You know, in in aggregate every team gets two choices every year.

2:38:15 And you could choose to deal those choices. Yeah, yeah. But like that's uh And that's hugely, hugely impactful and you Well and you're dealing with one other thing. Uh my wife reminds me.

2:38:27 Boys' brains don't fully develop until they're what, twenty five? And we're drafting guys who are nineteen, twenty, twenty one. Yeah. So you you're also having to say by everything I know. What do I project that guy looks like as they get into their Yeah, you could say you enter your prime around twenty seven, when do you start looking at

2:38:47 Though You're gonna look pretty good or not by twenty three, twenty four, twenty five. So you have to sort of have a progression of what you think happens to the young man. uh when you draft them. And so the more So reference checking. Bigger d much bigger deal, I found.

2:39:04 Uh and You know, people say, Oh, well, you know, it's simple, it's sports. The strategy decks. I get. Thirty five power points, forty power points.

2:39:16 Easily. to go through okay, here's our strategies. What about this? What if? What about this? What do we do here? The complex we have a PhD Uh physicist. who, you know, is a key part of our our analytics group.

2:39:32 Uh, focuses on our analytics systems and It's not like you know this stuff's not complicated. It is. Analytics has become this really big buzzword in sports. Where do you see real alpha actually happening in data science and sports versus what's just like table stakes at this point? They're too

2:39:52 Ways to use analytics. One is for game planning. Yeah. Literally, what does this tell us about the best way to guard uh Anths in this situation? Or these situations.

2:40:04 Very helpful for that. I'd say the data is probably table stakes. Honestly. The way you use it. Not so much.

2:40:16 Do you ask the right questions? Maybe not. Yeah, does coach really understand and embrace Are the analytics people really

2:40:25 uh able to mine meld. With coach. So the coaches You know. get the insights they can for game planning.

2:40:34 The second is what about for drafting and trading? Analytics are actually A little less important. In that In that instance.

2:40:44 Because they don't really tell you how if you mix Charlie with Harry it's different than if you mix Charlie with Bobby. And Charlie and Harry haven't played together before. So It's a little different. They are helpful. We have analytics, for example, and all all the kids we're gonna draft.

2:41:01 Less less valuable than on pros'cause you're playing against a different level of competition. Um Do people have differential data? Not much.

2:41:12 I mean the same cameras in the ceiling are recording the same games. Most of the analytics data now gets processed through Standard, you know, sort of software packages. They get licensed to everybody? So there's a company called Hawkeye second spectrum and

2:41:28 Basically You know, they've built machine learning layers on top of On top of the raw motion data, et cetera, and Yeah. So every team wind up with the same tools.

2:41:41 Uh doesn't mean you don't need smart guys. It doesn't mean to do You don't do analysis on top of it. Has anyone had a breakthrough form of measurement? Is uh is there an example in the last five years of a team that's had a great data source emerge? A different data source than other people have? No, I don't think so at all. It's

2:41:59 The things people emphasized In terms of what they look like. look at could be different, I think, very much by By teams. Yeah.

2:42:08 There are teams at the draft who just have you take a psychological test. You get to interview a set of kids and they might just have you take a test. Other teams, it's all about the interview. Some people I don't know if they have'em see psychologists. I don't I don't know, but People will use different techniques. to try to to do some of that. It's a little different than analytics, but it gives you the sense of what is imp you know, how do you assess what's important.

2:42:32 Fascinating. Interesting. How does Into a Dome? Fit into all this. I love into it, though.

2:42:39 Uh since we talked a lot about products And I've been involved in Yeah, I'll say the The visioning.

2:42:49 I don't call myself a visionary, but what should this product look like and Particularly those that you know a number of'em, both Windows, but Also certainly on the back end products, back end meaning they're not customer visible. But I would say Intuit Dome's probably the product for which I had the clearest vision I've ever had. I knew what I wanted.

2:43:10 Uh it evolved some because we went and looked at, you know, a bunch of other arenas. But I I I had a point of view. I know what user I wanted to make. Make happy So I bet a lot of people aren't familiar What is the thesis behind Into a Dome?

2:43:27 I wanted to make Intuit Dome. The best place for the hardcore basketball fan. And Particularly the hardcore clippers fan, right. Sure.

2:43:38 Sure. Sure, of course,'cause we're the only team that plays there. Um you've got another team who plays there every night, your visiting team. Not trying to not try to help them. You know, yes, Clipper fans, but I wanted you we're gonna have the Olympics.

2:43:53 We'll have every Olympic basketball game and into it. I want it to be great for those environments. We have some college games or high school games in there. Basketball, basketball, basketball. So you sit in there and you're a fan. You want it's a live event. Gotta have energy. Gotta have intensity. If you're a basketball fan, come

2:44:11 Let's go and so you want it tight. You want to have it reverberating with people who are cheering. We built Essentially. Uh a whole side of the building is structured more like a college gym, long and steep.

2:44:27 There's no there's no uh sweets on the side. We even built a student section. Right in the middle. I. It's standing room only. You must stand. That's what you have to agree to if you're gonna sit there. Or be there. You have to agree to stand. You have to agree to cheer. And if you don't, we'll find you another place in the building to sit. But you can't wear visiting gear paraphernalia on that whole side. Four thousand teach.

2:44:52 We'll move ya if you know otherwise. It's small. Not the number of seats is a little small. But the way we pulled it together, there's no hockey. I didn't want hockey. Not that hockey's not a great sport, but Um compromises you'd have to make to the other. You have to spread it out. You have to spread people out'cause the rink is better bigger than the court.

2:45:11 Very different. Basketball. We put in this We have an acre of scoreboard. Okay. Yeah.

2:45:18 The halo board is unreal. More statistics. More statistics. We did we we we went four K from the start. I don't realize it's an acre. You have an acre. Between the inside and the outside it's almost an acre. It's the largest indoor screen in the world. Yeah. Yeah, for sure. Uh, for sure.

2:45:36 And what you were describing before is the wall. So at the wall for any fans that haven't or listeners who haven't seen a game there or seen a anything, you've done interviews about this. It's an unbroken fifty one rows. Unbroken. All the way up. Student. I call it the student section, we call it the swell. Clippers, waves get it swell.

2:45:56 The swell is right in the middle. They do a chant before the game starts. They're chanting, they're making noise. A bunch bunch of them they'll find weird things they want to bring to games. Funny posters, but Every and

2:46:11 You you basically sign up, first come, first serve. If you're not there early. You're not in the swell that game, so we oversell the section. It's a thousand bucks for the year, which is only twenty five bucks a game. Hell of a price. You're expected to deliver the goods. You have to bring the value. You gotta bring the value. And the thesis behind the wall, if I'm sort of understanding correctly, is It should be Easy to be a clipper player, but hard to be an opposing player.

2:46:41 So it makes noise right into the visitor's huddle. We put the swell right behind The backboard. So basically when you're shooting free throws on that end, you're looking right at the swell. And it makes a difference. I saw data that said that the lowest sh free throw shooting percentage of the league for the visiting team is against the wall. Like Steve, this worked. That's what I want. What did the other owners think about y this? We've had a bunch of people come through look at the building and uh would I be surprised if a number of the new arenas get built don't have a wall? No, I would be s or at least the student uh duration of your advantage because

2:47:19 Not every other team is doing build or remodel an arena. But you also have to remember I I took some financial hits on this. We have fewer suites. Less revenue. And we only charge a thousand bucks for a season ticket. They get you pretty close to the damn floor. And you didn't have any public funding for it. So in terms of the cash out.

2:47:39 Public funding for arenas. That's why we don't. So you pay for the whole arena at and you're gonna have slower payback on that because you have less ro revenue opportunity. Yeah. We we took a revenue, definitely we could have made more revenue on that side if we'd done things a little bit differently, but it's about basketball. We have a lot of toilets. Three times the average or something like that? Something like that. Why? It's about basketball.

2:48:03 Get out and get back into your seat. Don't miss the action. We we started out with a lot more concession stands and then we said no no let's just do this Completely frictionless. So if you register your face, you just walk in, grab what you want, and leave. If not, you could just tap your phone on the way in, grab your stuff and leave.

2:48:21 Uh there's no checkout. We don't serve Eclectic food, little Everything same thing everywhere. Why? We don't want you walking around having to look for your favorite food. No, you're gonna get the same great stuff. Everywhere.

2:48:37 Eighty five percent of what gets bought is in five items anyway. It's a hamburger. It's A hot dog, it's uh nachos, uh chicken tenders and I don't know, I'm not remembering off the top of my head. Is part of the calculus of this for Attracting players. Two?

2:48:52 Sure. If you look at our back And spaces like our practice facility. I think most people your opponent's gonna have a lower free throw shooting percentage in your home arena. Uh sure. I think people think players have said they think it's really cool. No. And and that's good.

2:49:12 That's good. Players offices are also good, i.e. the training facility, uh I mean the training area, the practice area. Or outdoor pool and sauna and cold plunge, uh our weight room. Yeah.

2:49:27 Uh sports performance center. So that that stuff's all, I would say, uh pretty Uh pretty good as well. Uh very good. So we've done a bunch of things. We have the best breaths room, I think, in the league.

2:49:40 We called the refs union and and said Uh yeah, what do you guys need? the media area. We said let's But look, if we're gonna build a new arena Are visiting locker rooms the best in the league?

2:49:54 Best weight room, best type. That's your sales pitch to visiting stars. Exactly. Yeah. We say, Hey, we care. And it we care about everybody. And then we make it about the basketball. In and out. Oh.

2:50:07 What's our artwork? I mean we have public art that is required. Uh, some of which is basketball oriented. But our major piece of public R Is a clipper ship.

2:50:17 Whose masks are backboard replicas of backboards from around the world. Basketball, basketball, basketball. Our art inside the building? We have a jer high school basketball jersey from every high school in the state of California. It looks like art almost,'cause it's nice colors on the wall.

2:50:36 Basketball, man. It's about the basketball. This building feels like your personality into a physical structure. Like the the competitiveness, the loyalty, the like fixation on what matters. On the customer. Yes. Yeah, it is and look, I knew You know how oftentimes startups come about because the founder like is in love with some topic and builds the product they wanted to use? I think that happens a lot.

2:51:03 I don't think people start back and look at the market, they say oh I think the Yeah, I think Zuckerberg did that, Bill did that, programming. Everybody does it, right? That's what you did. I didn't I didn't try to go out and survey. We could have designed for the let me call it the contemporary audience. We would have had more lounge space.

2:51:22 We could have designed for what I'd call traditional long term. That's kinda how I think about it. We could have designed In a lot of ways. I designed for me. In some large measure.

2:51:34 Guys like me. And if it turns out Clipper fans are a little bit Are like me. Because some of'em were long suffering. The team wasn't good there for a number of years. People are diehards will come up to you and say, I'm eighty nine.

2:51:49 Which really means they bought their season tickets in nineteen eighty nine and they've been there and now we've ex voaded in the last whatever fourteen years we haven't had a losing season. Uh So

2:52:01 Hopefully a championship here at some point. When are you gonna overtake the Lakers? You know there are battles. In tech. Where you just have to be patient and long term.

2:52:15 Our goal in LA. It's weird to have a sport a town with two teams. Our goal is to be long term grinders on that. And We want to beat him every time on the court.

2:52:26 Right. It's it's okay to have two popular teams. Los Angeles County, for gosh sakes, has the same number of people as the state of Ohio, pretty much. So there's plenty of people to be fans. We don't wanna be quote little brother.

2:52:39 We don't want to be the Team with twenty a nice twenty percent market share. No. Yeah. We wanna get our fair share. We're never gonna get a hundred. The Lakers have tradition, so y you know, just like at Microsoft.

2:52:52 Patient. long term hardcore approach. And if we don't do that, no, we we The Lakers have the position. They've earned it. They got a lot of championships. I don't mean we're not gonna keep coming and coming and coming.

2:53:07 Steve, thank you so much. Thanks, man. Thanks, David. Thanks, Steve. Appreciate it. Ooh, David. That was fun. Yes it was.

2:53:16 I've always wanted to interview Steve Ballmer. In fact, when I was at Microsoft, I you know, I wasn't a podcaster then, but At the time I was such a junior employee. But man, there was a complicated landscap that Steve was navigating. Between You know, the

2:53:31 product set, between developer relevance, between the sort of shifting landscone underneath him and it will Windows be the interesting bet to make going forward. you know, personnel stuff, board stuff, eventually CEO transition. That is not a job I want. It's kinda fun for

2:53:49 Us as a show too. I mean obviously this is meaningful for you personally, but Well, we started the show in Seattle in twenty fifteen.

2:53:59 Microsoft, the Microsoft transition, Steve, Satya, this is what was In the water. This is what we all talked about at Madrona or at Seattle and the tech ecosystem. And it's not clear that Microsoft was gonna be this amazing juggernaut that it turned into. I mean Obviously Steve had planted some seeds in Enterprise and What would become the juggernaut of Azure. But

2:54:20 We were early in Satya's tenure when we started the show. Everyone had high hopes. He had started to transform the culture, but It's come a long way. Steve knew. How great Azure

2:54:32 was gonna be. But the rest of the world Didn't yet. Yeah. So fun.

2:54:37 If you like this episode, go check out our two big episodes. On the history of Microsoft. Part one is basically the era where Bill Gates was CEO. Part two is basically the era where Steve was CEO. And if you want more acquired between the monthly episodes, check out ACQ2, our interview show where we talk with founders building their businesses today, often in spaces that we've covered on the show. If you wanna know more every time an episode drops, check out our email list. It's acquire dot fm slash email get

2:55:04 Updates. Get corrections, get hints at what the next episode will be. We announce all kinds of cool stuff in there. When you finish this episode, come discuss it with the other smart members of the acquired community at acquired.fm slash slack, and with that listeners, we'll see you next time. We'll see you next time. Who got the truth?

2:55:23 Is it you, is it you, is it you Who got the truth now? Oh.

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