Steve Ballmer Says Smartphones Broke His Relationship with Bill Gates | Hacker News Reader

Steve Ballmer Says Smartphones Broke His Relationship with Bill Gates

bloomberg.com

79 pointsdenis179 comments

This quote tho:

"I wish I'd thought about the model of subsidizing phones through the operators," he said. "You know, people like to point to this quote where I said iPhones will never sell, because the price at $600 or $700 was too high. And there was business model innovation by Apple to get it essentially built into the monthly cell phone bill."

Apparently he didn't realize cell phone companies had been doing that for nearly a decade before the iPhone.

And it was subsidized on top of the $600 price. I'm sure many of the high-end Windows phones were subsidized too.

The first iPhone was actually being sold unsubsidized. That's why you could pop in and buy one from the Apple Store in cash. It was one of Apple's concessions to AT&T. iPhone 3G was subsidized and sold for $200.

Define subsidized. You had to get a two year contract. You couldn't walk into the Apple Store and buy an unlocked iPhone.

AT&T may not have been handing Apple cash as part of the deal, but the contract made it more expensive than the price of the phone.

I can understand why he didn't realize that. He's a super rich individual and chances are he doesn't personally pay his bills. What I find shocking is that no one in the chain of command bothered to mentioned to him that you know we could subsidize the price. Which tells me that something in high management around that era should be quite rotten.

I have a taken a new job every year or two for the past 10 years. Every place I go is ignoring best practices and mired in their tiny problems as though they were unsolvable. These problems would all simply evaporate if not for their incest of thought.

This behavior that you find shocking, I find completely normal and predictable.

I do business systems consulting and I cannot tell you how true this is... not only are they mired in their tiny problems, sometimes they jealously guard them as well.

I think the most common kind of manager-think is some sort of dedication to appear being conservative in judgments; this can be true for any low level supervisor through to the topmost levels of management. This results in two behaviors: 1) you don't go out on limbs and you work to minimize all risk rather than take well-considered risks; and 2) the problems you deal with daily are "safe problems" that everyone from the board to the employees have accepted as facts of life and their existence is unlikely to get you fired or put you in a bad light.... even if it ought. So you don't solve your problems because the solutions may bring unknown problems of their own. Taking risks, and failing occasionally, is simply seen as failure and successes aren't remembered as long as failures (we remember bad news better than good news)... and any new thinking or new action is seen as risk.

>not only are they mired in their tiny problems, sometimes they jealously guard them as well.

My current position is very much like this. They spent months digging themselves into their current hole. Any attempt to replace their shovels with ladders turns into an argument over how long they spent making their shovels.

upvoted partly for the observation (which I can relate to), but mostly for introducing me to a new phrase "incest of thought"

I think Ballmer is very smart and logical. It is completely crazy to spend so much money to buy a phone even if it doubles as a bad computer. I know many people do it, but IMHO it remains crazy and illogical. How do convince your boss that people will spend so much money in illogical way ?

Conspicuous consumption of all sorts of luxury goods? Who would pay $5000 USD for a Rolex when a $20 Casio tells time more accurately?

For Rolex, the idea is to be part of the small elite that can afford it. But how do you explain that so many people spend so much money for a recent iphone when a 10$ phone works better for phone calls (more autonomy, stronger, better fit in hand).

Probably because most people don't use their phones to make phone calls anymore, so other use cases are more important to them? Messaging, Facebook, etc.

> I think Ballmer is very smart and logical. It is completely crazy to spend so much money to buy a phone even if it doubles as a bad computer. I know many people do it, but IMHO it remains crazy and illogical.

It's illogical for your use case. But most people use their phone to read web pages, send messages, pay their bills, and FB/SC/etc. They don't need a non-"bad" computer. Plus they don't want to go to the computer; with this one they have it with them all the time.

So it's not illogical for them.

My use case is closer to yours (though I have a smart phone as well) but I recognize that other people have different motivations. Even when I don't quite understand them!

1) You had to pay full price and sign up for a two year contract with AT&T when the iPhone first came out.

2) Another fact that supports Ballmer's point that the phones were too expensive is that Apple dropped the price by several hundred dollars a few months after launching it.

So, yes, there were two year contracts, but no smartphone was $0 down or close to it at the time.

You could get a Blackberry for $99/$199 on contract at the time, and BB was the dominant smartphone manufacturer of the day. It was obvious to most that the model you outline in #1 could change at any time, and most people figured it had to change...

I wouldn't be surprised if Apple themselves didn't think of it until after they had resolved to manufacture and sell a smartphone. Once you are determined to do something, the act of doing it combined with motivation enables you to identify and solve problems.

Of course he knew carriers subsidized phones. In fact he called it out in his infamous statement dismissing the iPhone. Here's the exact quote (emphasis mine)

"There's no chance that the iPhone is going to get any significant market share. No chance. It's a $500 subsidized item."

The iPhone was too expensive even when subsidized. I've said this before and will say it again: Jobs' real genius, besides making a smartphone that actually fun to use, was getting carriers to subsidize it to below $200 (up front, of course; they made it up on the mandatory data plans). Turned out that is the price point that people will actually consider buying a smartphone for personal use, and it created a whole new market which had not really existed previously: the consumer smartphone market.

>"There was a fundamental disagreement about how important it was to be in the hardware business,"

And that's not a settled answer. The two giants in mobile, Apple and Google, have diametrically opposite approaches. Apple has the entire verticle, from SOC to the OS. Google controls primarily the OS and application stack. Both are incredibly successful. Microsoft could never have been an Apple. But they could have been a Google. They could have had Android, and I don't think they would have complained if that was the case.

>Ballmer said the mistake was getting into handsets and tablets too late.

What is he talking about? Microsoft was in the handset and tablet business since the 90s. Their offering didn't resonate. They were also always afraid of cannibalizing their Office and Windows business. Their actions in the 90s and early 2000s also built up a lot of ill-will, so nobody was rooting for them.

>Apple Inc.'s iPhone would never sell because it cost too much? He now wishes he'd realized how Apple was going to make it work -- through mobile carrier subsidies.

That's also part of the problem. Ballmer was obsessed with Apple and while he focused on Apple, Android took over the market.

> What is he talking about? Microsoft was in the handset and tablet business since the 90s.

But not manufacturing hardware under their own brand. MS had software for Dell and HP hardware - I have a couple of Windows CE Pocket PCs in a bin somewhere ...

Again, who says that was the only path to success? Microsoft made billions by letting others handle the hardware. If Microsoft was in Google's position and controlled a dominant mobile OS, I think they would be very happy. Microsoft could never have pulled off Apple's mobile strategy of controlling the entire verticle. It's not in their DNA.

I remember when the Courier[1] demo came out. I was excited about it... Then deeply disappointed when it was unceremoniously shelved. It's speculation whether it would have been a successful product, but I think the idea back then had potential but Ballmer was unwilling to gamble on it.

[PS] On the other hand, he did gamble on long-term things like Azure, so it's not like he made all the wrong bets --but it seemed like an obvious bet to go with something like a Courier, specially after all the buzz it created.

[1]https://en.wikipedia.org/wiki/Microsoft_Courier

To this day, I sometimes come across images of the Courier, and day-dream about what was possible the ideal portable for me. I loved everything about the potential of that project.

Still do.

You and me both. To this day I deliberately don't think about it, because it just makes me sad that what seemed to be incredible potential was shelved. I guess the Surface products are the closest to that potential, but for a long time all we had was the iPad and awful Android tablets. And I still feel like all of it doesn't live up to the ideals the Courier had.

I'm now going to go and forget this comment happened so I don't spend the day depressed about where technology went.

> What is he talking about? Microsoft was in the handset and tablet business since the 90s.

I think he means to directly make the handset as the earlier offerings were on the PC model (Microsoft does OS, Manufacturer does phone).

> That's also part of the problem. Ballmer was obsessed with Apple and while he focused on Apple, Android took over the market.

In a lot of ways, I think the crux is they wanted the same profit Apple was getting and forgot that's not how they won the PC industry. Android succeeds in numbers because it is now the default free phone or the phone offered for non-contract folks. Android basically because the dumb phone replacement. Microsoft probably would have better off going for that market and making their money off apps and services. Other than Samsung and Google, the phones I see are the cheapies. I know LG makes a good phone, but the Android LG phones Walmart has are not them.

I still think RIM (and Verizon if the book Losing the Signal is to be believed) made a huge error in the Storm and should have hit the low-end phone market with the messaging (ok, they did need the big software improvement but the Passport looked good from a keyboard UI point of view). Apple really didn't execute its iPod strategy in the phone market and left a lot of room at the bottom.

IMHO the failure of RIM was to copy Apple instead of focusing on their identity: an enterprise friendly phone with a good keyboard.

I think they had to move into the consumer market, but they should have used their ability with messaging to get them their. Developing something like the Passport instead of the Storm would have been a much better deal.

Microsoft seem to have believed that they shouldn't compete with their OEMs by offering their own hardware. This doesn't seem to be a problem for Android.

CE Pocket PC et al suffered the same problem as Symbian and everything before iOS: they didn't have the App Store, and as such it was a pain to get software for the devices other than through the OEM. And OEM bundled software is always terrible.

> CE Pocket PC et al suffered the same problem as Symbian and everything before iOS: they didn't have the App Store, and as such it was a pain to get software for the devices other than through the OEM.

Huh? Software could be installed by downloading a file and clicking on it. In many ways was a simpler and more pleasant process than interacting with App Stores. The problem wasn't with finding or installing anything, it was with monetization. App Stores and always-online model made it trivial to charge people and show them ads.

Overall, I remember my Windows CE PDA with fondness. Using it was a positive experience, which I can't say about any smartphone I owned.

Chicken and egg though, surely? The inconvenience of selling apps to people was a disincentive to writing them.

(Didn't they all have resistive touchscreens too? That was the other big iPhone launch advantage, much better touch)

So Apple invented carrier subsidies for cell phone purchases just for the iPhone, and that's why the iPhone worked?

Yeah. Solid reasoning there, Ballmer...

They were a thing long before the iPhone.

But then again, hugely successful people almost never say: "yeah, I was an idiot who just didn't see it".

And he was very successful in terms of increasing revenue and working the markets.

Came here to say exactly this -- of course, at his level of wealth, he probably never noticed that the phones were subsidized as a matter of course (unless you broke your phone) in the US.

They did not line item phones into monthly bills to the extent they do now. And they especially did not for smart phones. I remembered freeby phones, and high end phones you purchased with rebates attached. But the high end consumer phones were certainly not being attached like this.

In the states maybe but in the rest of the entire freakin world, thats how we paid for phones.

That said, it still blows me away when I see my friends taking these "subsidies" without understanding that they are basically paying full price for the phone, if not more.

This. It's in the same way that I don't understand people living pay check to pay check. Live really poor for 3 months, then keep your income/costs above 1, and you'll be able to plan better and never pay for anything through the nose. It got me through college without any help from parents nor loans, and it worked when I was unemployed, and obviously works now that I make a lot more.

Carrier subsidies are all but dead nowadays. Carriers are mostly just offering phone leasing or payment plans now.

Yes, but locking you into a plan in a time when plan features and pricing are almost constantly improving.

T-Mobile is interest free. I'm not sure about the others. T-mobile does charge an insurance fee though.

Where I live there is very high competition in the mobile carrier market, and subscriptions are incredibly cheap.

I'm always amazed at how many are actually throwing away money by accepting a 'subsidied' phone which forces you to take a contract 2-3 times as expensive as you would actually need it.

Even if you see it as 0% financing, in my quick calculations it always worked out to be more expensive than just buying the phone outright.

Here in Canada, prices are not cheap yet, but getting better slowly due to increasing competition. What I see is that the subsidized plan makes sense in the moment, in that it's the regular plan + the cost of the phone divided over 24 months, but the problem with that is that cost of a regular plan, or the features (e.g. amount of data, minutes) that are provided by it, are going to improve substantially over the next 6 month and even moreso over the next 12-24 months. If you can afford it, you're much better off buying the phone outright and then going month-to-month with the cheapest plan you can find. The problem is, most of the people doing this can't fathom affording buying the phone outright, but it's easier to stomach as a hidden cost.

For many, many people, cash flow is far more important than total amount paid.

Even ignoring personal anecdotes, a perfect example is SaaS: many corporations happily pay a monthly fee even though in total it's far more than it would have been to purchase a similar package outright.

Not what he said obviously. He meant you could actually target that price point because people would accept it with carrier subsidies. He thought that direction would fail because it'd be sold like any other computer/tablet/smart phone was sold then.

I'm never going to be in that kind of billion dollar bet situation, so I'm always trying to think of how to relate these experiences to my level of execution. To that end I do see a thread of matching product to pricing model:

- While I hate it, it's extremely clear that if you're in the mobile space you'll make more money doing free+IAP than charging up front. While some things could change this structure (built in support for time limited or account trials, and better paths to upgrade), it seems like it's here to stay on the consumer side.

- Kind of similarly, the innovation of SAAS+PAAS is in many ways that its cheaper + easier to pay by the month than to hire people in house and or sign them up for a six figure bill and 20% support+maintenance in perpetuity.

My guess is that he had assistants to do those mundane things for him like purchasing his personal phone and making sure the bills were paid.

I'm reminded of the time back in the early 90s when president Bush (Sr.) was amazed at grocery store technology, having likely never shopped for his own groceries for decades [1]. It was really embarrassing and highlighted how he struggled with relating to common people. Executives who live lives of privilege like this need to recognize that their lifestyle is a potential blind spot. Anyone who has worked in a company where the rich top brass made all the product decisions (instead of the lower-level normals) knows what I'm talking about.

1: http://www.nytimes.com/1992/02/05/us/bush-encounters-the-sup...

The Bush thing is almost certainly a fake story. He was playing along with being impressed by some new UPC code reader technology that was being demonstrated that could read damaged UPCs.

http://www.snopes.com/history/american/bushscanner.asp

Snopes rates that story as false:

http://www.snopes.com/history/american/bushscanner.asp

Hmm, interesting read, thanks. Fooled me. I still stick to the overarching point about it being a potential blind spot. Even if the Bush example is false I've known lower-profile wealthy/privileged people who were totally out of touch with the needs of regular people.

“Anybody gone into Whole Foods lately? See what they charge for arugula?”

I gather, as someone else noted, the Bush thing may have been a fake story. But I remember at least one other time when some presidential candidate or other (maybe a Bush) didn't really know the price of a dozen eggs or a gallon on milk. Why would they?

And, over the years, I've seen companies make various decisions with respect to paycheck timing and other similar administrative details for various reasons including greater consistency across the company. And there's often a hue and cry, some of it from lower paid employees who are genuinely inconvenienced by the change. And I'd be willing to bet that, in just about every case, the execs who made the decision didn't even stop to think that someone might care about minor cash flow changes.

The more fun article is "When the elves leave middle-earth".

(Which is the HN equivalent of saying "Darmok and Jalad at Tanagra")

Carrier subsidies were a huge thing in the US market. It was why lay people were able to buy Blackberries in mass before the iPhone in the US. It was also why Nokia had no standing in the US market at all, despite being the biggest seller outside, with phones that were pretty much unparalleled (until BB). They did not want to give carriers the control the carriers wanted (such as gimping features and stuff), which meant they were not subsidized by the carriers, which meant their phones didn't sell int he US.

One of the other poorly executed things he did was the Danger acquisition. It was a dead-end. Didn't contribute to anything and distracted them in mobile, to some extent.

Hindsight is 20/20

More important decision would have been "consumer" vs "business". Even if they invested in phones earlier, it would have made no difference if the company was still run by salespeople focused on business seat sales.

I actually think Ballmer really was the perfect finance-oriented CEO between tech-oriented Gates and Nadella. Except instead of 14 years it'd probably have been better a 5-8 years period or so. Sadly, 14 years was a too long period and maybe Microsoft lost some good trains along that time.

People seem to be too rash to bash him about subsidies. Yes, they were standard before. No, phones at the time did not cost nearly as much. Prices of modern top-notch smartphones are insane. The trick was in hiding the price and Ballmer just did not expect how much people are willing to pay monthly. I wouldn't guess it either.

It may be true Microsoft didn't want to get into mobile initially but this quote from Ballmer in 2007 about the iPhone says everything: "it doesn't have a keyboard, which makes it not a very good email machine."

The [old] Microsoft was not able to see mobile as anything other than another way to sell outlook.

> The [old] Microsoft was not able to see mobile as anything other than another way to sell outlook.

This is best evidenced by their pre-iPhone smartphones, most of which were little more than PocketPCs with keyboards and cellular hardware tacked on.

Hmm. I'll give him that, since I still think phones without keyboards are not very good email machines. How can you touch-type with nothing to touch?

Warning: This page autoplays video (/audio).

The point they made about mobile carrier subsidies is surprisingly big. A $600 phone even today languishes without carrier support (though I believe on a carrier subsidy, the total cost of the phone ends up being something like a grand to the customer). But Apple kind of invented the concept of "phone-as a-service"?

Gates-Ballmer era in Microsoft was incredibly successful, but not because they had technological insight or creativity.

It's hard to come up with any technological innovations from inside Microsoft in 80's and 90's. Microsoft strategy was to buy out companies that seemed to build something new and either integrate the software or bury it. Gates and Ballmer were both smart and ultra-aregressive ruthless businessmen. Technology was always secondary to business.

Few examples of their failures and corrective measures: The internet and the browser, Java and Smartphones. In each case they were hopelessly late and their reaction was buying spree, failure and repeat until success.

"any technological innovations ... in 80's and 90's"

What? Ok, first, do you think they've ever innovated anything? During the 2000's? What exactly?

Wasn't Windows NT, for example, innovative? The kernel is still powering the Windows operating system.

Internet Explorer was a hugely successful browser dominating the market.

Innovation isn't only creating something from scratch. One can also create innovative products by acquiring the basis for that and developing until it is successful.

Of course they're approach has been to "repeat until success". And they quite often get there.

> Internet Explorer was a hugely successful browser dominating the market.

Mostly because it was shipped with Windows and many people wont change it (Non tech). Furthermore, setting aside the anti-trust case, I would rather say they did not capitalize on that start they got IMHO.

Though the Netscape Mariner debacle probably didn't help either.

>Wasn't Windows NT, for example, innovative?

MS hired VAX VMS team to write their second system. It was basic engineering and basically next better version of VMS from scratch.

>Internet Explorer was a hugely successful browser dominating the market.

Only because monopoly power. IE6 delayed new innovations from emerging.

I think they actually did a good job against the java language and runtime with C# and .NET (with no small help from Oracle)

But C# isn't much of an innovation on Java. It's more of a clone with a few tweaks.

Does anyone know if Bill Gates also opposes Microsoft's manufacturing of other hardware such as Surface products or was it just the mobile phones?

I never detected that Gates was less than genuine in his zeal for the Zune (the few times he spoke about it, that is).

The stars aligned(aka Jobs was brilliant) with the iphone. $199 cheap enough for consumer(with subsidy).

leverage people's current ipod music investment into the iphone. no buttons. slick design.

"felt like phone as an app on my new ipod."

really easy to use for non-tech people.

> leverage people's current ipod music investment into the iphone.

Yeah, no. Before streaming by and far the most amount of people didn't buy music in iTunes. They either torrented it or (if technically challenged) simply bought it physically and then ripped it to iTunes.

"(if technically challenged) simply bought it physically and then ripped it to iTunes."

Minor nitpick, but ripping from CD to iTunes in the early days was a nontrivial process for the technically challenged. I'd argue that audiophiles were the group most likely to have done this, i.e., to get lossless music files. (The resulting file sizes were monstrous, of course, and this eventually led to some storage issues. But I digress.)

I'd argue that the technically challenged were the vanguard of buying music files on iTunes. The tech-savvy were torrenting, and everyone else found the iTunes store a really easy way to click and download music. In fact, I distinctly remember snarky comments back in the day about how paying $0.99 per track on iTunes was "a tax on technical illiteracy."

If you inserted a CD, iTunes instantly offered to rip it for you, fully automatically. Didn't even need to fiddle with settings, it was literally just pressing 'ok'.

I'd say of the technically challenged there was a subset that used iTunes to buy maybe a few tracks or albums, and certainly not enough to keep them 'trapped' in the Apple ecosystem.

"If you inserted a CD, iTunes instantly offered to rip it for you, fully automatically."

You're correct. I think my memory of product timelines in the early days is a bit hazy.

Even still, I'd love to see data that ripping from CD was a prevalent use case at all in the early days. I believe it was originally intended as an onboarding process / ecosystem-lock mechanism. The assumption: a lot of consumers (at the time) have CD libraries; by allowing them to easily port over to iTunes, we can port their libraries onto our ecosystem; from there, we have them. That was clearly the idea...but I'd love to learn more about how common a use case this ended up being.

Purchased or no, there was an investment in time and money to populate your iTunes library. I think the original comment stands on its own.

2006 February iTunes sells its one billionth song

May Apple and Nike introduce Nike+iPod, including an in-shoe sensor to track the wearer's workout on their iPod nano

Colorado Rockies pitcher Jason Jennings shows one of the iPods he and his teammates use to scout opposing batters during the 2006 season

September iTunes begins selling full-length feature films

iPod nano gets a new aluminum design available in five colors

Apple unveils a wearable new iPod shuffle with built-in clip

October Apple announces the new iPod nano (PRODUCT) RED Special Edition to benefit The Global Fund to Fight AIDS, Tuberculosis and Malaria

Number of iPods sold through 2006: 88 million

https://www.apple.com/pr/products/ipodhistory/

obviously enough to convince AT&T to let them sell the iPhone.

As a person who used to make their living completely off the msft stack and now is completely off it - I'd redo that headline to say every action of Ballmer's probably helped break his relationship with Gates - yes, Gate's Microsoft was very predatory and could be a very bad actor, but Ballmer's entire achievement was to help drive non-msft solutions to dominance and leave Nadella in a Sisyphean role -

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