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Press Conference Transcript: Steve Ballmer (Microsoft), Scott McNealy (Sun)

Transcript of Press Conference
Steve Ballmer, CEO, Microsoft
Scott McNealy, Chairman and CEO, Sun Microsystems
April 2, 2004
San Francisco, California

ANDY LARK: Thanks for joining us this morning. My name is Andy Lark. I run the communications at Sun. We've got obviously Scott McNealy and Steve Ballmer here with us here this morning. We're going to --

SCOTT MCNEALY: I'm Scott, that's Steve. (Laughter.)

ANDY LARK: Yes, in case you don't know.

(Logistics discussion)

So with that, why don't I hand it over to you, Scott?

SCOTT MCNEALY: All right, thanks. I appreciate you all being here. I'm sorry about the Friday morning thing, but it just happened about 4:15 this morning.

I know a lot of you think this is kind of here, he and I are up here. Most people don't realize that actually Steve and I went to high school at crosstown high schools in Michigan. We went to Harvard together. We actually were at the Stanford Business School at the same time. And now we've been actually pretty good friends for a long, long period of time. We've had, you know, some rocky moments -- (laughter) -- I don't know, was it something I said, Steve? (Laughter.)

But, anyhow, we have entered into a pretty interesting relationship, and we couldn't think of any other way to make a stronger statement to you all about how serious we are about this partnership other than to -- as we head into playoff time -- exchange gifts as long-time Motown Red Wing fans. So what I'm going to do here is I've got a signed Nicklas Lidstrom Red Wing jersey that I am going to present to my good buddy Steve Ballmer. There you go.

STEVE BALLMER: Wow. (Applause.)

SCOTT MCNEALY: See, it's signed, the whole deal.

STEVE BALLMER: Well, funny you should mention it, because I happen to have right here a jersey that Stevie Yzerman, co-captain of the Detroit Red Wings, our hometown, wore in the playoffs last year for Scott.

SCOTT MCNEALY: Game-worn, huh?

STEVE BALLMER: Game-worn.

SCOTT MCNEALY: Pretty cool. Let's hold yours up.

STEVE BALLMER: There we go.

SCOTT MCNEALY: There you go, huh? They're going to love this.

STEVE BALLMER: Friendship and partnership starts on the ice. (Laughter.)

SCOTT MCNEALY: Yeah, there you go. Now, I'm going to pull your jacket over. (Laughter.) So, anyhow, there's your photo op, gang.

So what happened here? A little less than a year ago, at the prodding of just about every customer I met, who said, you know, cut the rhetoric, Scott, go get interoperable. We have Solaris, we have Sun, we have Java, but we also have Windows and .NET. We need to interoperate, we need to make these things happen, and we need to just stop the noise and start the collaboration and cooperation and get it together.

So I called Steve, and we went and played golf, and sat down to talk about it, and sure enough, 4:15 this morning we got to a signature on a 10-year collaboration to make interoperable in a very unique and exceptional way here we think will advantage both the Microsoft and the Sun customers in a special way, with interoperability, familiarity, while respecting each other's IP in a very solid way.

So I don't know if you have any other comments you'd make, Steve, on how we got here.

STEVE BALLMER: I'd just reinforce. I mean, we sat down. Scott, and I think -- and I'm very thankful of Scott's initiation of the discussions a little over a year ago. People said if you started it, why did it take you so long? Complicated stuff, and we needed to do, I'd say, rebuild between the companies -- not just between Scott and I -- a level of trust, and there was a lot of discussion. We had a team down here, a team from Sun up at Microsoft. We took a breather after Christmas, because we just kind of worked seeing our way through. We got a little tied up, our team did, on a couple other matters here in the last month or so, but after they were freed back up, we got back to it in earnest. And thanks to the good work by Scott's folks as well as our own, we get to an agreement that as Scott highlights is really all about helping our customers who own both of our stuff, who will continue to buy products from Microsoft and Sun that compete in the market, but to really help customers put that together in a unique way.

And it's an agreement that comes from two companies that believe in intellectual property, that develop intellectual property and that are respecting intellectual property. And we needed a framework for our collaboration that honored our mutual interest in intellectual property. And as part of doing all of this collaboration, Oh, by the way, we had to make sure we took care of other ongoing legal matters between the two companies.

SCOTT MCNEALY: Well, that's it. Let's turn it around to Q & A. If we could turn the lights up, that would help.

ANDY LARK: So just raise your hand if you're in the audience, and we'll take questions. Our angler will get you. These lights are like blinding. We actually can't see a thing up here. We can't really see too much. Okay, Steven? Let's get a mike down to Steven down here. If you could just state where you're from and your name, that would be great.

SCOTT MCNEALY: Yeah, who you are, because we can't see you. (Laughter.)

QUESTION: Steve Shankland from CNETnews.com. What were the patent issues between the two companies, and are we going to see a merged version of Java and C#?

STEVE BALLMER: We've never had any kind of patent regime between our two companies. We are both big developers of intellectual property. We both own lots of patents. And in a sense it seems it was impossible to create a technical collaboration framework without having some framework in which both companies could be assured that they've got the right protections looking back and forward with respect to the other's intellectual property. And so that I would say probably took our legal teams as much time as any, so that we could do the things that were necessary licensing one another, protocols, et cetera, to get the kind of technical collaboration that this agreement contemplates.

SCOTT MCNEALY: We're not going to -- we shouldn't say "never," but there's no plans to merge C# with the Java language, or .NET with the Java Web Services architecture. But we are going to work hard to find ways -- in the appropriate manner -- and in fact Bill Gates and Greg Papadopoulos have been meeting on a regular basis for many months now to go drive the appropriate interoperability/compatibility frameworks that allow the two architectures to work in a much more seamless way than they would do had our technical teams not been allowed to collaborate. And this framework now sets up that framework and makes it very clear how the issues are handled going forward.

STEVE BALLMER: There's a level of interoperability, I think we both know people want. I actually think with this agreement announced there will be more customer feedbacks that will help Greg and Bill shape exactly what else customers might want in terms of the way they target our .NET platform as well as Sun's Java platform.

SCOTT MCNEALY: Make no mistake about it: There's nothing about this agreement that would upset us if it resulted in people buying more Microsoft and more Sun equipment than they normally would have. We have no issue with that. I don't think you have a problem, and I don't think we have a problem with that. And the rest of the world has to deal with that. So understand that's part of the motivation here.

ANDY LARK: Great. We'll go to the next question. Let me just go down here.

QUESTION: John Markoff, New York Times. Scott, we've had conversations maybe going back 17 years or maybe 18 years over Microsoft's behavior in the marketplace. Do you believe their behavior has changed? And, as a corollary, do you think as part of this Java desktop and Windows and Office and StarOffice will interoperate?

SCOTT MCNEALY: Today they do interoperate, and this just provides an opportunity and a framework to provide server-to-client, server-to-server, with Solaris and Windows -- and Microsoft and Sun clients talk to those servers to provide a higher level of interoperability and compatibility going forward while respecting each other's IP. So, yes, I believe Sun and Microsystems -- Sun and Microsoft are uniquely -- I can't tell you how many times I've been called Sun Microsoft. (Laughter.) I think these two companies have uniquely advantaged each other from an interoperability perspective with the Solaris and Windows server stacks.

QUESTION: And Microsoft's behavior, which as come up before the courts, will it change?

SCOTT MCNEALY: You know what? I'm not sure we ever asked for this kind of a relationship before. So you know I can't speak for their behavior with respect to other people, or out in the marketplace. I can tell you that the behavior and relationships when Brad and mark worked together with Hank and Lee and everybody else, and at the Steve and Scott level, the relationship has been with a high level of professionalism, like all we could ask, a high level respect and integrity throughout the whole conversation. So you know I -- maybe we've grown up. Maybe they've grown up. Who knows? Maybe the customers are getting more in charge these days, which is kind of what I think is happening -- is the customer is in charge, and if we don't pay attention and listen to them -- you know, I challenge you all to go seek out a large number of customers who are really unhappy with this deal. I think there might be a couple of competitors who are a little shaky on it, but that's probably a good thing.

ANDY LARK: Right, we'll take the next question, just down here.

QUESTION: Hi, I'm Rachel Conrad, also from Detroit, and -- go team -- and from the Associated Press. And I just wanted to ask Scott in particular could you give us sort of a fly-on-the-wall impression of that first phone call that you made to Steve? And, to be perfectly blunt, how much of eating crow is this?

SCOTT MCNEALY: What, in high school, or recently?

QUESTION: No, the recent one that led to the golf match. And who won? (Laughter.)

STEVE BALLMER: We were partners. We lost. (Laughter.) And I have to say I don't have the lower of the two handicaps in this group.

SCOTT MCNEALY: (Singing) He ain't heavy, he's my partner. (Laughter.)

It was OK, we got through that. The phone call was actually very short. I just said, Hey, Steve, why don't we get together? Do you want to play some golf? And, let's pick a date, and let's go do it. I didn't take more than about two or three minutes. It's not like we don't know each other, haven't known each other forever. And I have some stories I could share with you about him. (Laughter.)

ANDY LARK: Next question.

QUESTION: Scott, you announced some financial stuff today as well, and it looks like the losses were even -- including the charges -- were a little bit bigger than other people or some people expected. Was Sun's financial sort of -- I should say not "financial," but the marketplace sales at the moment a driver of this? Did you feel pressure to do something to kind of help you in this sort of marketplace in a sense?

SCOTT MCNEALY: I feel pressure everyday, and we have been working on this forever, and literally I think the bigger driver here was their ability to apply themselves to the issue just because they had some other issues they were dealing with in a place far, far away. So I think that was actually the real driver here in terms of timing.

STEVE BALLMER: The truth is I think we were close in December, needed a little bit more creativity. And after we were able to kind of reapply, I think there was great creativity from both the Sun team and the Microsoft team that was able to finish up the deal.

ANDY LARK: Okay, next question please. Okay, just down here.

QUESTION: Ian King, Bloomberg News.

I'd just like to ask Scott. You say you're listening to your customers more and that's what's driven this decision. Does that mean there's an increased possibility that we'll see some systems with Intel processors in them?

SCOTT MCNEALY: We've been shipping -- I'm trying to be calm. We've been shipping Intel-based computers for four, five years and we have a complete line of Intel-based products, 1U and 2U products as well as blade products, appliances, OEM and end-user that have been running Solaris as well as Linux on those, and we have announced today that we are certifying all of those products to be Windows ready and Windows compatible.

We also have a very quickly developing line of Opteron servers that are X86, 64-bit X86 compatible machines also and we just bought -- announced that we are in the process of acquiring Andy Bechtolsheim's Opteron server company Kealia and as soon as we get through (Hartscott Radino ?). Isn't that silly that we do (Hartscott Radino ?) on a 50-person software, but I love America. But we will have what we believe will be the most complete X86 Opteron server product line in the industry, again all certified to run Solaris, Windows Server and Linux.

ANDY LARK: We've got a question right at the back there.

QUESTION: Scott (Magrue ?) with the local NBC.

Can you speak to the job losses, particularly in the Bay area?



SCOTT MCNEALY: No.

QUESTION: Give us any detail about it?

SCOTT MCNEALY: No. Sorry. We will be working through this over the next five to six weeks on a global basis, but I just don't have any details locally.

ANDY LARK: A question just down here.

QUESTION: Hi. Rex Crum, CBS Marketwatch.

Could you just refresh our memories a bit? How far back did the original litigation between your two companies go?



SCOTT MCNEALY: Lee, do you remember when?

ANDY LARK: Yeah, I'd say it's 1997.

STEVE BALLMER: If two lawyers agree it was '97, I'll bet that's right. (Laughter.)

QUESTION: And as a follow-up, this is for both of you or maybe for Steve mostly, did you feel there was any need to speed up this as an outgrowth of the EU decision? And also when that decision came down, I mean, Scott, you were quoted in the press release as coming down very much in favor of the EU decision. So I'm just wondering with that decision, with the finding, did you feel like we need to really takes some steps here to tie up some loose ends at home?

STEVE BALLMER: No. No. I really think you've got completely separate -- I certainly do completely separate the two things. As I said, as Scott's said, it's been almost a year that we've been at work at this and sometimes there's an ebb and flow of things in a big, complicated deal like this. It is true that our capacity to focus in, some of the same folks were involved in some of the other matters going on, but the truth is this is a good idea today, this was a good idea 12 months ago or so when Scott called, this would have been a good idea 12 months from now and I'm thankful and I think, as Scott points out, our customers will all be quite thankful that we got on with it as quickly as we possibly could and last night at 4:00 in the morning just happened to be the time.

ANDY LARK: OK, we'll take another question just down the middle there. There you go.

QUESTION: Dan Farber from ZDNet.

A question for Scott. Does this mean as of 4:00 this morning that you no longer call Microsoft a hairball or welded shut or any of the other interesting terms you've come up with over the years?

SCOTT MCNEALY: I don't predict. I'm going to do my best to be good. (Laughter.) I will be good.

STEVE BALLMER: But I want to actually take -- look, we're going to continue to compete. You're going to continue to hear from me and from our guys about why Windows servers are the best and blah, blah, blah and you're going to continue to hear from Scott and his guys about why Solaris, why Java. That's good, healthy stuff.

The thing I don't think you'd hear on either one of us is that anything is welded shut. The customer says do these things, interoperate well, can I get information I want back and forth, do they play together well. That's the thing absolutely that we're agreeing to agree on, even if, you know, we have other great work that we're going to sell in competition to each other.

SCOTT MCNEALY: I think Steve is on the right point. The customers do not want us to stop competing and competing on R & D, on architectures, on strategies, all the rest of that. They want that choice. That's the beauty of the market economy.

QUESTION: (Off mike).

SCOTT MCNEALY: Yeah, why?

STEVE BALLMER: I think we both have understood it for a while. I think there are a few things that go on. I do think that in an environment that gets litigious it's harder to have open discussion. I remember I saw Scott a couple summers ago at a golf tournament and it was just hard to have open discussions because neither party knows exactly what to say, what to do.

I think this is complicated stuff. Frankly, the agreement that got put in place by the teams on both sides, there was a lot of creativity required because we do both believe in intellectual property, we do both value our work. And so the question is, how do you interoperate without giving away the crown jewels, so to speak, an issue both for us and for Sun, I'm quite sure.

So with the right kind of respectful environment, and we spent a lot of time -- it wasn't just sort of one golf game, send people away. There have been a number of discussions, as Scott said, between Bill and their CTO Greg Papadopoulos. We had a number of joint meetings with our teams. We were doing weekly phone calls for what, two months, three months last fall. So it took a lot of time to kind of not only develop the framework but I think build a level of trust that let us actually go and do what was probably obvious to both of us as a good thing a number of years ago.

SCOTT MCNEALY: And by the way, don't underestimate the fact that we work and interoperate to a large degree already and we both do the IP stack, we're on lots of standards bodies together and our customers make our products work well together already. There's just a lot more we can do if we put the legal stuff behind and set up a framework around which to do joint IP development and technology sharing.

ANDY LARK: We'll take another question just down here.

QUESTION: I had two questions. The first one is can you talk more specifically about what you'll be licensing from each other and what sort of sums of money we're talking about exchanging hands?

The second one is, Scott, you've had strong rhetoric against Microsoft. I just wonder if some people would view this as a surrender and how would you defend it as not that way? What in your mind is Sun's -- what's the most important thing Sun is getting from this?

SCOTT MCNEALY: There has been an equal amount of rhetoric coming back the other way; mine was just more clever. (Laughter.) And there will continue to be the rhetoric around whose products are better and all the rest of it, but I think one of the areas that we will not argue on is around interoperability and the fact that we're both trying to solve the same problems.

So I feel comfortable that the tone will be the kind that the customer wants to see, the kind of competitive, hey, tell me why your stuff is better than theirs. They want to hear that, they want to see that and it will be a lot less -- I mean, one of the advantages of this -- of now -- and by the way, the rhetoric was toned down many, many years ago. You just all can Google that old stuff up. (Laughter.)

The message here is that we are both very well established in these enterprise customers. Everywhere we go he's there. Everywhere he goes we're there. It's just there's a fairly high level in the enterprise and server provider market. There's a fairly high level of near ubiquity for both platforms. So we run into each other a lot and it's become more and more clear that this kind of relationship was required.

I forgot the first part of your question.

STEVE BALLMER: It was sort of technical detail on what really got -- why don't I do that?

SCOTT MCNEALY: You know, you're the techie guy. I'm the quipper. You can be the techie.

STEVE BALLMER: No, there's a few things. First, we put in place -- we deal with all of the antitrust matters. That has to -- just so we have a foundation to move forward.

Second, we put in place what I'd best describe as a patent regime between the two companies that serves as a framework to make -- to ensure that we don't run afoul of one another in ways past or forward-looking that would be problematic to the technical collaboration.

Third, we agreed on specific technical collaboration as it relates to how you make servers and clients talk to one another across the network. And each of these is long and detailed and certainly the detail of that is best probably gone through with the key teams on both sides and there are folks here from both Sun and Microsoft who can do that. But there are things that need to get licensed in terms of making these things plug together over the network. There's a licensing framework that's put in place for that.

So I'd say that's the elements and then if you take a look at the payment, some of the money is to resolve our antitrust lawsuit. Some of the payment takes a look back and says let's make sure we are clean with respect to one another on patents. Some of it is forward-looking in terms of how we work together from a patent perspective. And then some of it is forward-looking, us to Sun and Sun to us, in terms of the licensing of key intellectual property that relates to making these things plug together and interoperate well over the network.

And so it's all kind of laid out in the press release, it's quite detailed, but those are what I would say are the key elements.

SCOTT MCNEALY: And what you'll see from Sun Microsystems is every quarter when we do our network computer launch you'll see more -- every quarter we'll announce another set of features or capabilities of interoperability and compatibility with the Microsoft environment. So it will just be an evolution. There will be no like one product that we launch; it will be just as the technical teams get at the issues you'll see a gradual building of the portfolio of compatibility.

ANDY LARK: We'll just take a question down here.

QUESTION: Yeah, Mike Singer with Jupiter Media.

You're saying that this is obviously a good thing for your customers but both of you have said on many occasions that everything begins and ends with the developers. I'm curious about what your thoughts are on that and, for example, Scott, I know that your R & D budget is huge. Is this going to put more pressure on making sure that you work with Steve's stuff?

SCOTT MCNEALY: I think this actually makes our engineering budget more productive. Without the technological -- the technology collaboration, you're kind of guessing and you're kind of trying to reinvent stuff and the testing and certification and the guarantees that you can give a customer are much more tenuous, and I think this will make both of our organizations more productive from an R & D perspective.

STEVE BALLMER: Yeah, I would say for the IT customer who has to put together and manage these systems, I think the benefits -- we could clearly articulate the benefits right here, right now. I think from the developer perspective we see some immediate benefits and we're also asking Gates and Papadopoulos to spend more time trying to figure out and develop more fully the rest of the potential benefit while still Sun needs to have it's differentiation to compete and we need to have our differentiation to compete. And so I think we've done part of the job we need to for the developer but I suspect there will be more creativity that now comes out of that process.

SCOTT MCNEALY: There's a potential this is just phase one.

QUESTION: (Off mike).

STEVE BALLMER: No. No. Look, if you look at who's got the most robust development platform for next generation applications, you could get us to have a wingding, drag-out about why ours is better, why theirs is better. But the gap for the next one, that's a big gap. That we both agree on, that's a big gap. And I think there's nothing in this, nothing, nothing, nothing, nothing that will do anything other than delight customers. I really -- we've been modeling it through together because we're looking for the downside and I don't think there's any downside.

SCOTT MCNEALY: And the fallout is if customers like this, that's what attracts developers. Developers want volume. And so this attracts more customers, it's going to attract more developers and, in fact, I think does quite the opposite; I think it draws more developers to the two platforms.

ANDY LARK: Great. Well, thanks, Steve, thanks, Scott.

(Logistics discussion)

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