There Goes That Tongue Again!

Patents! Patents! Patents! Patents! Patents! Patents! Patents! Patents! Patents!

SEATTLE (Rixstep) -- Remaining onstage after his keynote for a SQL Server conference today, Steve Ballmer responded to a totally unexpected question by a member of the audience regarding the 2 November 2006 agreement with Novell.

UNEXPECTED QUESTION FROM TOTALLY ANONYMOUS MEMBER OF THE AUDIENCE:
My question is about your deal with Novell and Linux. I thought Windows and Linux were trying to stay apart and now I see you as kind of siding with the open source community. Are you guys kinda selling out a little bit or what's going on?

STEVE BALLMER'S TOTALLY UNREHEARSED RESPONSE:
That of course is the $64 billion question!

Let me explain what we did, and I think at the end of the day we'll all agree it's got a lot of positive attributes! Let me just do a small show of hands.

How many people have Windows Server in their data centers?

Good. That's what I figured! How many people would have Linux someplace in your data center? Whoops, not what I would have hoped, but nonetheless! How many of the people who have both sometimes ask themselves questions about the interoperability between those two environments? Anybody?

At the end of the day for basically the whole 18, 19 years that we've been pursuing the server and enterprise opportunity, our number one competitor in the data center for new applications has been Unix. Unix! Unix! Unix! Unix!

Today the form of Unix that people want is Unix that runs on Intel architecture systems. I think everybody has kind of gotten themselves to the point of understanding, at the end of the day, Intel architecture systems are going to be most of what you have in a data center.

What is the popular form of Unix on Intel? It's Linux! We have a lot of customers who have both, and while we have about 65 or 70 percent of the server business, Linux has about 20 percent and other forms of Unix have the other 10 percent. At the end of the day we understand there's going to be Unix on Intel, and therefore Linux, for the long foreseeable future.

Therefore our job has got to be to help our customers get interoperability. And of course all vendors secretly are wondering when they do interoperability, did I do something that's going to help me win more of their customers? Or something that's going to help them win more of my own customers? Of course you don't know for years after! But interoperability is always good for the customer and it's important! And we know customers want the interoperability that the hands showed between the Windows world and the Linux world!

We've had an issue, a problem that we've had to confront, which is because of the way the GPL works, and because open source Linux does not come from a company - Linux comes from the community - the fact that that product uses our patented intellectual property is a problem for our shareholders! We spend $7 billion a year on R&D! Our shareholders expect us to protect or license or get economic benefit from our patented innovations! So how do we somehow get the appropriate economic return for our patented innovation and how do we do interoperability? The truth is because of the complex licensing around the GPL we actually didn't want to do one without the other!

What we were able to craft with a lot of hard work with Novell was an agreement essentially where we would do the technical work in a variety of different areas to improve interoperability between the two environments. And we agreed on a - we call it an IP bridge: essentially an arrangement under which they pay us some money for the right to tell the customer that anybody who uses SuSE Linux is appropriately covered.

There will be no patent issues. They've appropriately compensated Microsoft for our intellectual property, which is important to us. In a sense you could say anybody who has got Linux in their data center today sort of has an undisclosed balance sheet liability! Because it's not just Microsoft patents - because of the way open source works, there's nobody who's been able to do patent coverage or patent indemnification behind that!

So we built a technology bridge, and we built an IP bridge and a commercial framework that supports that. Novell said to us 'hey look if you're serious about this stuff you better help us promote SuSE Linux'. To which we said 'you know we're trying to sell Windows, that's what we do for a living, Windows Windows Windows baby, we don't do Linux that way here'.

What we agreed - which is true - is we'll continue to try to grow Windows share at the expense of Linux. That's kind of our job! But to the degree that people are going to deploy Linux, we want SuSE Linux to have the highest percent share of that, because only a customer who has SuSE Linux actually has paid properly for the use of intellectual property from Microsoft!

And we took a quota, you could say, to help them sell so much SuSE Linux. That's part of the deal! We're willing to do the same deal with Red Hat and other Linux distributors - it's not an exclusive thing! But after a few years of working on this problem, Novell actually saw the business opportunity because there's so many customers who say 'hey look we don't want problems, we don't want any intellectual property problem or anything else, there's just a variety of workloads where we today feel like we want to run Linux, please help us Microsoft and please work with the distributors to solve this problem, don't come try to license this individually'. So customer push drove us to where we got.

But we haven't lost our - well, you asked whether we'd sold out. I'll let you decide at this stage. We have been customer focused!