Sometimes Steve Ballmer Just Takes Your Breath Away

In a USA Today interview Microsoft CEO Steve Ballmer is asked if he wishes consumers would get as passionate about Microsoft as they do when Apple comes out with something new. "It's sort of a funny question," he answers. "Would I trade 96% of the market for 4% of the market? I want to have products that appeal to everybody." Steve, I've got one word for you: iPod.Ballmer was speaking, of course, about Microsoft Windows vs. Macintosh OS X. In music players the market is reversed. Microsoft's Zune clings to a miniscule share of the market while Apple's iPod crushes all competition.

Ballmer wants to see the "my-OS-on-everybody's-hardware" model play in the mobile phone space the way it has in the desktop-computer space. I am afraid, however, that's not a forward-looking idea, it's backward-looking wishful thinking.

Microsoft has done extremely well providing operating systems and application software for general-purpose devices. But it is my observation that application software is clearly going away. Software-as-a-service is the future. Microsoft actually understands this. This morning CTO Ray Ozzie rolled out Silverlight, which Microsoft hopes will compete with Adobe's Flash.

Ozzie talked about the pendulum that swings back and forth between the desktop and the network, between the standalone device and the "Universal Web," between applications and services.

And he talked about the complexities of developing rich applications that run on multiple platforms.

And he predicted a "sea change" at Microsoft that will refocus the company's efforts on providing services. To show he really meant it he announced that Microsoft services like Windows Live Spaces, Virtual Earth, and Live Search will get APIs that will make them "composable and syndicateable." Silverlight is another one of these "foundational investments," he said. (And you thought Microsoft was just trying to compete with Google and Adobe at the same time.)

The news, of course, is that none of this is news. Software-as-a-service has been obvious for years, and Microsoft is playing catch-up from way back in the pack. The USA Today interviewer reminded Ballmer that Microsoft is still No. 3 in search behind Google and Yahoo, for example.

At the same time, while desktop PCs aren't exactly going away, they're being pushed to one side in the marketplace by other devices, and Ballmer can only dream about 96% of the market for cell phone operating systems. On the small percentage of phones that are smartphones -- that is, they run applications -- Microsoft's Windows Mobile runs a distant third behind Symbian and Linux world-wide, according to figures on Wikipedia. (The breakdown is given as Symbian OS 72.8%, Linux 16.7%, Windows Mobile 5.6%, RIM 2.8%, and Palm OS 1.8%.)

There's one other point to make here: the smartphone market hasn't been a consumer market. It's been driven by the enterprise.

Now let's listen to Ballmer again.

". . . we'll get a chance to go through this again in phones and music players," he says. "There's no chance that the iPhone is going to get any significant market share. No chance. It's a $500 subsidized item. They may make a lot of money. But if you actually take a look at the 1.3 billion phones that get sold, I'd prefer to have our software in 60% or 70% or 80% of them, than I would to have 2% or 3%, which is what Apple might get."

The Wikipedia article pegs smartphones at about 10% of the overall billion-plus cell phones that will get sold a year -- that's about 100 million units. By sheerest coincidence that's the number of iPods Apple has sold in since the gadgets were introduced in November 2001. It will take a lot less time, perhaps a couple of years, to sell the next 100 million. (Apple shipped 10.5 million iPods in the most recent quarter.)

And by 2008 or 2009, my guess is a quarter to a third of those 100 million Apple devices could be iPhones -- not part of the current market for smartphones, but part of an entirely different market for personal devices that Apple is creating. Last fall a Piper Jaffray senior analyst Gene Munster predicted that if the iPhone debuted at Macworld Expo in 2007 it could sell between 8 and 12 million units this year. That's about as wild a guess as anybody could take, I suspect, but it does cast some light on how ridiculously low Ballmer's "2% or 3%" is.

If I were a Microsoft stockholder right now (which I don't think I am) I would be very nervous. The stock has been low for a while. The CEO is nostalgic for a market dominance that looks like history, and he's saying things like "[A Zune phone] is not a concept you'll ever get from us. We're in the Windows Mobile business. We wouldn't define our phone experience just by music. A phone is really a general purpose device. You want to make telephone calls, you want to get and receive messages, text, e-mail, whatever your preference is. The phone really is kind of a general purpose device that we need to have clean and easy to use."

As clean and easy to use as an . . . iPod, say?