Steve Ballmer has been making regular appearances at D conferences. This time at D8, he was accompanied by Ray Ozzie, the cloud computing visionary at Microsoft. Unlike Steve Jobs’ appearance, the interview started of slow and boring. But later on with the mention of competitors and future of computing, Steve Ballmer started charging up. No surprises there. ;) How Microsoft feels about competing companies and products was interesting to see.

Steve Ballmer at D8

Steve Ballmer went on to match Android on tablet to Linux on netbooks. I guess he still doesn’t know that Android is doing way better than Windows Mobile in the mobile space despite being a Linux variant in some ways. He did admit that they used to be the leaders in the mobile space, long ago, but now they’re lost their way and are lagging far behind.

D8 Interviews_ Microsoft_s Steve Ballmer and Ray Ozzie | D8 Conference | AllThingsD-2.jpg

Ray Ozzie seemed to be more appreciative of competitors. He actually admitted that Chrome OS is the future, while Ballmer was stayed stubborn on his point that Google has two operating systems which isn’t a good thing. Maybe he needs to see how many operating systems Microsoft has. Windows (Lots of versions; desktop, servers, embedded systems, supercomputers), Zune HD OS, Windows Mobile and Windows Phone 7. If I’m missing something, let me know.

D8 Interviews_ Microsoft_s Steve Ballmer and Ray Ozzie | D8 Conference | AllThingsD-3.jpg

While I admire Microsoft and its products, I don’t feel good about the reaction Microsoft executives show when talking about competition. Steve Ballmer was one of those who had downplayed the iPhone – look where it is now. He’s now downplaying the iPad and Android tablets. His firm belief that desktop apps are here to stay doesn’t seem to be a representative of the overall market trend where people seem to be using smart phones and other form factors more than conventional computers. I don’t say that conventional computers like desktops and laptops will die, but to stay ahead of the game, Microsoft should have the bases covered. Having mere concepts for tablets just doesn’t cut it. Still claiming after a decade that voice and pen input are what tablets should be all about doesn’t cut it either. The consumer should be given what he/she wants and apparently, it’s not pen input or voice, but a great finger touch friendly user experience.

Here’s the complete transcript of the interview. Videos after that.

8:09 am: Stay tuned. This morning’s interview will begin soon.

8:16 am: Before the main event, a few introductory remarks from Wall Street Journal Managing Editor Robert Thomson. Obligatory Steve Ballmer hoodie joke.

8:17 am: Thomson talking about Australia’s contributions to the technology industry. His top example: the Ugg boot, which solved Australia’s sheep overpopulation problem.

8:18 am: Thomson now drawing parallels between “Harry Potter’s” Harry and Hermione and Walt and Kara.

8:20 am: Walt takes the stage with a faux wand. “Expelliamus.”

8:21 am: Ballmer and Ozzie take the stage.

8:21 am: Neither is wearing a hoodie.

8:22 am: This is Ozzie’s first appearance at D. Ballmer’s a veteran.

8:22 am: A first question for the pair: Where do you think the economy is these days.

Ballmer: I would say in the developed world, things have come off the lows for sure. I think our industry is even more revved up than others…but we’re in a good product cycle that has propelled the market….We’ve seen some comeback in business spending….What’s the old adage? Burn me once, shame on me…[pause] whatever it is….At least for now we continue to see developed countries coming back. Emerging markets are a bit different.

Ballmer talks for a moment about China and intellectual property protections there, which are obviously problematic.

8:25 am: Walt asks about the cloud and the transition from the desktop. Microsoft has been the dominant company in local clients, but now you’ve said you’re “all in” in the cloud. What sort of opportunity is this?

Ozzie: I can’t remember a time when it’s been so exciting from the perspective of so many transitions happening concurrently….Now we’ve got everybody connected on the Internet…all devices connectible on the Internet….Now we’ve got companies around the industry coalescing around standards-based ways for storing data. We’re at a shift in the enterprise space and how it manages IT.

Ozzie talks about sharing-based operations in enterprise computing….How does the mobile phone connect to these scenarios–the real opportunity for us is how do we re-pivot to the cloud and make all these devices connect to the cloud.

8:29 am: Ballmer jumps in and notes that almost all players in the business believe the desktop will be important for some time, despite all that we’re hearing about the cloud and HTML5….At the end of the day, the world we’re talking about is driven from the cloud out, but it’s smart cloud talking to smart devices and apps that are controlled locally.

8:31 am: More from Ballmer–the experiences people want will almost always require some device with a reasonable amount of storage and graphics ability….The trend today is all about getting smarter on the client, not getting thinner on the client.

8:32 am: Ozzie says that regardless of what the device is, applications will feel more cached than installed thanks to the cloud.

8:32 am: Walt–So the cloud isn’t a threat to you?

Ballmer: There’s nothing bad for us in the trend. It’s all good. But it’s a transition and as such it’s a period of tumult. So we need to be smarter and more vigilant. But not because we’re moving from a world that’s fundamentally good for us to a world that’s not. We’re moving from a world that’s good for us to a world that’s potentially even more good for us.

8:34 am: Walt–Who’s your competition today?

Ballmer: The main ones are folks that people would guess: Google, Apple, Oracle (ORCL), VMWare (VMW)….And of course we still always have the things that come out of Open Source–Linux, etc.

8:35 am: Walt asks about synching. He describes it as an unmet need. People need to synch their stuff across multiple devices, sometimes cross-platform. Why isn’t this just built in to things today?

Ozzie: Right now one core synch tech is built into most devices these days. It’s called OpenSync….Synch is hard, but it’s a straightforward engineering task….What’s transpiring on the Net is unusual, because we’re spreading our data all over the Web. But we don’t really have a conceptual model for this that’s as clean as those of the past….I think at a high level, what we all want is how are we going to agree as an industry on some meta-data ways of how and where I keep my data….I don’t think we’ll end up in a world where all our data is stored in a single place.

8:39 am: Walt pushes ahead. Notes Zuckerberg’s appearance last night and the privacy implications of this.

Ballmer: There’s an innovation problem here. If you want to share some things and not share other things, you can wind up with something at a complexity level that people don’t want to or can’t engage….Getting the UI right is an innovation challenge.

8:41 am: Walt follows up, asks if competitors are coming together on a standard level.

Ozzie says they are, but not at an “experience level.”

8:41 am: Ballmer–Companies are going to try to get a differential advantage here and that means users are going to struggle with the privacy model for their information….Remember the cookie debate? Consumers didn’t understand what the cookie was. So how do you craft the discussion around issues like these so that they do?

8:43 am: Ozzie on privacy in the cloud–Businesses want to know that we’re not looking at their data. We’ve got to be very clean about this.

8:44 am: Ballmer–I think that the notion that there are different tastes in privacy and there are different opportunities to commercialize this is important…but there’s got to be a dialogue with the customer; the customer has to be allowed to make the choice.

8:45 am: Ballmer talks a bit about the differences between the consumer cloud and the enterprise cloud.

8:46 am: Walt recalls Tuesday evening’s Steve Jobs interview. Steve thought we’re on a course where fewer people will be using PCs and more portable devices (like the iPad). What do you think?

Ballmer: I think that people are going to be using PCs in greater and greater numbers for years to come….But I think PCs will look different…they’ll evolve. They’ll get smaller…they’ll get touch…their innards will change. The real question is what is a PC? Nothing that’s done on a PC today will get less relevant tomorrow….I think there will exist a general purpose device that does anything you want, because people don’t want multiple devices, or can’t afford them….I think the PC as we know it will continue to morph in form factor. So the real question is where do you push? Ballmer notes Jobs’s truck metaphor and says, “Windows machines will not be trucks.”

8:50 am: Walt circles back, notes that Ballmer uses the term PC to include things that most people don’t think of as PCs. Is the iPad a PC?

Ballmer: Of course it is. What do you do on it? Answer email….A guy tried to take notes on it at a meeting I was at yesterday–that was interesting [chuckles from the audience]. He suggests that the positioning of devices like the iPad as something beyond the PC is just a marketing tactic.

8:52 am: Walt talks a bit about Microsoft’s history in tablets. What’s the company doing in this area these days? Are there going to be tablets that look like the iPad that run Windows?

Ballmer: Sure. You’re going to have a range of devices over time that are light and don’t have a keyboard and will run Windows….Depending on what you want, there will be devices that offer a similar experience to Windows….There will be others that will be more customized, more optimized….This will be a real competitive form factor of innovation…we will with out partners drive innovation in form factor. Windows Phone, for example….Apple’s chosen to do this as well.

8:55 am: Still more from Ballmer–Some people will want to have two different devices for two different purposes…but there has to be an option for an integrated device….The bulk of the market is going to stay with general purpose devices.

8:57 am: A question for Ozzie–Do you think that the tablet will have a mass appeal this time around?

Ozzie: I think there’s going to be success in a number of form factors–in the pad form factor, in the tablet mode. I think there will be appliance-like screens that will be in our living rooms….This isn’t science fiction anymore; it’s possible….There are certain fundamental differences in productivity in consumption and creation experiences, though. Both must exist on these devices.

8:59 am: Ballmer says Microsoft and Apple will eventually “run into each other” in the market. Is the iPad really that different from the PC? No, it’s just a different form factor. The Mac’s got minimal market share…iPad’s got a surge of momentum….The race is on.

9:01 am: Walt–I think the Mac, while still at a low market share, has done pretty well for Apple.

Ballmer: Apple had a heck of a quarter last quarter…but their market share remains the same. He seems to suggest that the debut of the iPad is a signal that the Mac is going away. PCs running Microsoft software are not.

9:02 am: Conversation shifts to talk of the mobile space. Where are you now?

Ballmer: We had a good longtime employee who wanted to retire and he’s going to do so. And it doesn’t make sense to replace him….On the phone side of the business, we learned the value of excellent execution. We were ahead of this game and now we find ourselves No. 5 in the market….We missed a whole cycle. I’ve been quite public about the fact that I’ve made some changes in leadership around our Windows Phone software….We had to do a little clean-up….The excellence in execution is an important part of innovation. We’re driving forward in the phone business….But this is a very dynamic business; the market leaders here have shifted over twice in the past few years…and that’s an opportunity for us. So we’ve got to have great ideas and we’ve got to execute consistently.

9:05 am: Walt asks about rivals in the mobile space. Let’s talk about RIM.

Ballmer: They’re obviously a good competitor….There’s this old myth that they’re primarily an enterprise company, but they’ve done quite well in the consumer market….As a general purpose tech platform, RIM has less robustness than its competitors, but there’s a reason they’ve got such a huge following.

Walt: What about Nokia?

Ballmer: I know they’ve got this huge global market share. But being in the U.S. skews your perspective because they’ve got such small share here….On the software side they’re also trying to get their act together.

Walt: Apple?

Ballmer: They’ve done a good job of coming from nowhere a few years ago….They’ve done the best job on the browser. People focus on the apps, but the browser is really the thing that has distinguished their phones from others.

9:09 am: Ballmer–The irony of the situation is that the Internet was designed for the PC and then re-optimized for the PC. And partly what everyone’s trying to do with the phone is say, Okay, I’m not a PC, I’m a phone–how do I plug into this? So rivals like RIM that don’t have a PC business may be at a disadvantage….Or they may have better perspective.

9:11 am: Walt asks the pair’s thoughts on Google and its advances in mobile, tablets, etc.

Ballmer: On the phone, Android’s a real competitor. On the larger screen devices, who knows. I don’t know that these Android-based things will matter. But I don’t know that they won’t either….I don’t really understand why Google has to have two different operating systems…. Chrome? It’s like two, two, two operating systems–but they’re not in one! You want to know about Chrome, talk to them.

Ozzie: On the Android versus Chrome issue….Android is a bet on the past; Chrome is a bet on the future. When you install an app you’re targeting a device. When you use Chrome, you’re looking at a cloud-based future.

Ballmer: So why do two? Why not focus on one? Having two OS’s is confusing. You need coherence.

Walt: Well, you have OS variations, don’t you?

Ballmer concedes, but notes that Microsoft also has coherence. Do one. Make a bet and pursue it.

9:16 am: Walt–How is Bing doing against Google?

Ballmer: Well, we launched only a year ago, but we’re the first search engine to gain market share in a long time…but this is a long game. We’re up 54 percent in unique users year over year; our demographics are good….We over-index with younger crowds….We’ve done a lot to establish a name and that we have a good product that delivers relevant results…but I think we have our work cut out for us in a battle with a very large behemoth.

Walt: Wait. You’re calling some else a behemoth?

Ballmer chuckles, remarks on the Yahoo deal, notes that search is a scale business. Scale is important for improvement in product quality. The Yahoo deal will help with this, he says.

9:19 am: Walt–Is Microsoft taking an app ecosystem approach with Bing?

Ozzie says that it is. Suggests that the company is developing it with a plug-in architecture in mind. Talks about layering.

Ballmer: Rarely when you search do you want to search. You’re not looking for a list of Web sites. You want to find the Web site you’re looking for. You want to do something….If we can help the user take actions more quickly, that would be a great breakthrough.

Walt: You really could have a good encapsulate app in Bing.

Ballmer: That is what we have. The question is, is that extensible?

Q & A

Q: Is Apple right to dismiss the stylus?

A: Ballmer–We do we think people want to take notes and draw. What’s the best way to do that? Well, there are different ways to do that and we’ll support them all….Today, we offer devices that do use a stylus. I certainly believe that people do want to take the things that they do today with pencil and paper and do them with new technologies.

Ozzie: The software here has not kept up with the hardware. We haven’t yet with touch even figured what the control architecture should be….There will be slates you use a stylus on, there will be others that you use touch, etc.

Q: Talk about your degree of comfort in following the law in China. And how are you dealing with the security issues there?

A: Ballmer–Do we think there are hackers everywhere, including China? Yes. Are there professional hackers everywhere? Yes. Do we think that almost every government employs people to read things that they shouldn’t? I don’t know, but I suspect they do….I don’t find any of this amazing.

When it comes to China, if you’re going to stay and do business someplace, I’m not going to put my employees in harm’s way. The best way to make a difference in China and other countries is to stay in the country….We’re staying and trying to be part of a reformation process…and I think that’s the principled stand to take.

Q: Any advice for Apple and Google as they face potential antitrust troubles? [laughter]

A: [Ballmer grins] No advice….I just wish them the best in getting lots of good experience.

Q: Question about healthcare.

A: Ballmer–It’s a slow moving market….Certainly the money that was put into the healthcare bill gives an incentive to have these things proceed a little more quickly.

Q: What do you want Microsoft’s role to be in media?

A: Ballmer–media starts with what gets created, so we need great tools for creators to make content, and we need to make tools to help people monetize that….This is an area that the advantages Google has in search can and are being leveraged.

Q: Question about weak battery life in the laptop form factor.

A: Ballmer–We’re doing a lot with software….We’re doing work to support Intel’s efforts to create chips with better power consumption….This is an area of improvement for us.

Q: What are your thoughts on cross-platform development?

A: HTML5 will show up everywhere. The question is, will that be enough to write great apps? Will there be folks that may have some things that run cross-platform? I think there will be. But developers are going to optimize for one platform.

Walt: Will Silverlight run on the iPhone?

Ballmer: It doesn’t. And my guess is that if it did, it would be blocked.

And that’s a wrap.

On Cloud

On Mobile