Microsoft CEO Steve Ballmer on Vista's 'Unqualified Success'

Despite the negative attention it's been subjected to, Vista is a huge success in the eyes of Microsoft CEO Steve Ballmer. "It doesn't mean that people aren't still picking on it, but we've sold 180 million copies, something like that, of Vista," he said. Consumer product marketing, however, needs some work, he added.

As chief executive of Microsoft Latest News about Microsoft, Steve Ballmer heads a company that's not just a PC software giant but also a growing presence in the broader consumer electronics industry.

In less than 10 years, Microsoft has become a major player in video games, mobile phones, set-top boxes and Internet search and advertising Learn how you can enhance your email marketing program today. Free Trial - Click Here..

However, the company is nowhere near as dominant in consumer electronics as it is in operating systems. It has spent billions of dollars establishing its various electronics businesses with only limited success.

Microsoft's Xbox 360 Latest News about Xbox 360 has lost its lead to Nintendo's Wii Latest News about Wii and is losing ground to Sony's PlayStation 3 Latest News about PlayStation 3, despite debuting a year earlier than either. Smartphones such as Research In Motion's Latest News about Research In Motion BlackBerry and Apple's Latest News about Apple iPhone are stealing share from Windows Mobile devices. Microsoft's Zune MP3 players are an afterthought in a market dominated by Apple's iPods. In search, the company's MSN Latest News about MSN is a distant third behind Google Latest News about Google and Yahoo Latest News about Yahoo.

During a visit to Silicon Valley late last month, Ballmer talked with the Mercury News about Microsoft's consumer electronics efforts and the challenges it has faced. Here is an edited transcript of his remarks.

Question: How do you assess the state of Microsoft's consumer businesses today?

Answer: We've got various businesses that are in various states. If you needed to have one word that fit all, I think you would say, "very present." Almost everything is entering into kind of a cycle of improvement, which is interesting.

Consumer products are as much about the way they're marketed as the way they're built -- and we have some work to do, I'd say, on the marketing side.

Q: If you look at what they've done in the last year or two, do you view any of your consumer products as unqualified successes?

A: I certainly would say the work that we've done around Xbox is an unqualified success. No question about that.

Q: How so?

A: The product is selling very well. The Xbox is an absolute home run.

Q: But sales of the Xbox have slowed markedly. It's been overtaken by the Wii. The PS3 is starting to catch up. You cut the price on it, which some might say is an indication you have run out of ideas to boost sales.

A: No, that's the craziest thing I've ever heard anybody say. All consoles start at higher prices. They always come down through the long cycle.

Q: The story in July at E3 was that you had many bullets left in your holster that you could use to juice Xbox sales. You had all these great games that were coming out for the fall, and you didn't need to cut price to juice sales -- but now, two months later, you've cut the price.

A: Price is not something you discuss externally. Nobody ever does. So, whether we were planning on cutting price the next day or in six months or a year, we're not going to discuss price changes.

If you ask me, Xbox Live is going gangbusters. The console is selling well.

Q: What else would you say has been an unqualified success of late?

A: Since [we updated it], I'd also refer to Vista as an unqualified success. It doesn't mean that people aren't still picking on it, but we've sold 180 million copies, something like that, of Vista. The quality, the compatibility [and], particularly from the consumer market, the level of acceptance -- I'd call it an unqualified success over the last six months or so.

Our Media Room software for set-top boxes, [Internet protocol]-connected set-top boxes, is certainly an unqualified success amongst those people who have it.

Office 2007. The changes we made in the user interface, the approachability of the product, the ability for people to get deeper -- I would call that an unqualified success.

Q: What are some of the challenges that have faced Microsoft as it has gone from its base in operating systems and productivity software to more consumer-oriented businesses, such as Xbox or Zune?

A: In some senses, what you're seeing is a renewal of our consumer [business]. If you look at where we kind of built the original strength of Windows and the original strength of Word and Excel, it was on the consumer side of the business.

Q: But isn't there a difference between convincing a computer manufacturer to install Windows -- even going over their heads to the consumers -- and directly selling products to consumers?

A: The muscles are all a little different. The muscle around Windows is a little bit different than the muscle around Office and Word and Excel. It's a little bit different than the kind of muscle you need to have around MSN or Live or Search. In the case of Xbox, [it's] a little different because now we've got hardware and promotion, retail display -- and a lot of that stuff becomes more important.

Q: What do you see as challenges for Microsoft in marketing your products to consumers?

A: The way you ask the question implies there's something systemic in Microsoft that is a challenge to doing it. Every one of these things has their own battle.

Another guy's got 70 percent in search and we've got 10. Anytime the other guy's got 70 and you've got 10, you've got challenges.

In the case of Windows Mobile, we had some unique challenges. The [Windows] flag's always there, but people aren't always really thinking, "What I want here is a Windows Mobile" phone.

So, I'd kind of relate them to each battle, more than I'd relate them to anything systemic at our place.

Q: You've said that Microsoft's core competency is software. If that's the case, then why is it necessary for Microsoft to be in such diverse businesses as hardware, Internet search and advertising?

A: When I say our core capability is software, it means developing and commercializing. And sometimes, the best way to commercialize software innovation might be through advertising, through transactions, through hardware, through embedding in other guys' hardware. We have to be open to various delivery models for what are essentially software experiences.

Q: The 10th anniversary of the antitrust case is coming up. How have the restrictions imposed by it affected your ability to compete in the consumer markets you're in?

A: Look, Apple integrates everything. It's not a terrible model. Would we do more integration without the consent decree than we do today? The answer, of course, is yes.