The Steve Ballmer Interview

All right, so David Steve gave us the signed Clippers jersey with the name acquired on it. There's only one jersey. What are we gonna do about this? Oh, cool. So we rock paper scissors for it. What, you know what? No, no. You keep it. There's no Seattle basketball team. Oh, keep it there. Up there. All right, all right. It'll go in a acquired museum north. Great. Perfect. All right, let's do it. Let's do it. True. Is it you? Is it you? Who got the truth now? Is it you? Is it you? Is it you? Sit me down. Say it straight. Another story on the way. Who got the truth? Welcome to episode one of the summer 2025 season of acquired. The podcast about great companies and the stories and playbooks behind them. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts. Steve Balmer is among other things arguably the very best investor of the last 20 years. It sounds a little funny to frame it that way, but here are the numbers. In 2014, when Steve left Microsoft, his net worth was $20 billion dollars, almost entirely comprised of Microsoft stock. Today, 11 years later, it is a staggering $130 billion dollars according to Forbes. It is incredibly rare to reach this stratospheric level when you are a not the founder of the company and be no longer CEO or even employed by the company. And all of this comes from just one investment decision. Just keep holding substantially all of his Microsoft stock. Incredible. We chat about it with him in the conversation to come. Now as most of you know, we did a big two-part Microsoft series last year on the history of the company up through when Steve transitioned the CEO role to Satya Nadella. Steve listened to those episodes and he had some thoughts that he wanted to share with his recollection of how things went down, you know, things like what made Microsoft so fabulously successful, what his missteps were as CEO. We wanted to share that as a recorded conversation with all of you. So we set up our cameras and our mics at his office, his philanthropy office, Balmer Group in Bellevue, Washington and we pressed record. So we'll go into everything from the misses on mobile search, social, the huge wins in enterprise and cloud. Steve also reflects on his business lessons learned. He goes into why he stepped down as CEO when he did and he talks about his relationship with Bill Gates over the years. And of course, we had to talk with him a little bit about the Clippers and the new arena that Steve built and personally owns to. Yeah, into it, don't incredible place a cathedral of basketball as Steve would put it. Listeners, if you want to know every time an episode drops, check out our email list. It's the only place where we will share a hint of what our next episode will be. We'll share episode corrections updates and little tidbits that we learn from all of you about previous episodes. Come join the Slack to talk about this with us and the whole acquired community that is acquired.fm slash slack and the email list is acquired.fm slash email. If you want more acquired between our monthly episodes, check out ACQ 2. We just released one with Zach Paray, the co-founder and CEO of plaid and we've got some banger ACQ 2 episodes coming up. Yes we do. So with that, this show is not investment advice. Dave and I may have investments in the companies we discuss and this show is for informational and entertainment purposes only on to our conversation with Steve Balmer. Steve, first of all, I noticed you prepared some printed materials here for us. Listeners should know, we didn't ask for this in any way but at 10 pm last night, you sent us a PowerPoint deck and said, I made you some slides. Sorry it got here so late. And Dave and I are looking at each other. We didn't ask you to prepare for this. Thank you for the materials. Oh, it's just some stuff that I've used kind of with thoughts about how businesses work and I kind of think of this as a time to reflect on things I've learned. Primarily at Microsoft but also the clippers about business. I figured I'll send them to you and their PowerPoint. Yeah. I thought you mixed a few different templates. Yeah, always a cheerleader. Oh, I think the word cheerleader is actually in the PowerPoint deck. Yes. Well, Steve speaking of reflecting, we sit here today. Microsoft is the most valuable company in the world, almost three and a half trillion dollars in market cap. And I think everybody would agree it's an enterprise company and that's largely thanks to you. Is reasonable to call you the founder of Microsoft's enterprise business. That is not a narrative that is often discussed and we wanted to ask you, how do you feel about the fact that it basically defines the business today? Yeah. Interesting. Very kind. Fathering something. I feel good about that. And I think there's a lot of truth to that. Of course, there are many fathers to the enterprise business at Microsoft and I feel both good and bad about it because the truth is Microsoft started out as a consumer company. And we built a very important consumer business. That success translated into the opening to go build an enterprise business. And one of my regrets is we lost the consumer muscle along the way because I think the ability to be ultra ultra. I mean, we're a great company. Microsoft's great company. But to have both of those muscles totally firing, if I'd been able to sustain that consumer muscle and I had some ideas about why that didn't happen. But the enterprise muscle. Moui macho. It's not very big and very strong. And so I'm very proud of that. And the fact that it's also funny when you say consumer in enterprise. What does it mean really to say enterprise? Sometimes it can sound just like back end stuff. The truth of the matter is Microsoft Office slash M365, whatever exactly it's called today, is super important. It was the foundation for having permission to be in the enterprise. And yet it's a product that sits right there in front of users. So the question is do you think about users or consumer and do you think about enterprise or do you think about IT? And then there's developers that span both. That's kind of my mental model. Do you have products that appeal to consumers? That IT can handle and a platform that lets developers build around those and based around those whether they're building for users, users and IT? Or in some instances, just for IT people because there's a lot of tools that are just for IT people. Yep. Well to contextualize all this, we want to go back almost all the way to the beginning right around the time you joined Microsoft and talk about Microsoft's relationship with IBM before the IBM PC and before DOS. Can you catch listeners up who weren't around at that time? What was IBM in that era? Yeah, I think you called it in when we were talking to you for research, the sun, the moon, and the stars. Yeah, I did. I think. Well, it's 1980 when I get here and the company started obviously in 1975 and there were IBM computers. Oh yeah, and a couple others. But literally people would say there's IBM and the bunch and the bunch was Burrows, Univac, NCR, control data and Honeywell. But there was just the bunch. IBM. And IBM did the mainframe and it did the software and it did the service. It did everything in computing, everything, everything. And then you had this little upstart. Try again called digital equipment. Yep. Very important in our story because Dave Cutler who was kind of the father of NT, Windows NT, he came from digital equipment and they were fighting. They were scrappy. They were many computers. So smaller than a room but definitely bigger than a PC if you will. And all the initial Microsoft software was developed actually on deck computers, digital equipment equals deck. And deck had a nice business but it was a lot smaller than IBM. If IBM breathed that was the direction the computer industry would go. And IBM was the subject of an antitrust lawsuit. Shockingly in 1969 that didn't actually get settled I think to shortly after I got here in the term of Reagan. So 11 years they'd been living because they were that big and bad and mighty. And what was the result of that antitrust action? What did they have to do? I don't remember. Maybe when they had to unbundle. In fact, I think it was when they had to unbundle the operating system from the main frame hardware. So people could build IBM compatible main frames. And then one day shortly after I got here some guys from IBM call and they say, Hey, can we come see you? And you're going to have to sign an agreement that says you can use nothing we tell you. Anything you tell us we can use. And so these guys showed up and they told us after we signed their agreement that they wanted to build a PC and they were hoping to get the operating system and some of our language software for it. And they were coming to you for the language software. No, they came to us for the operating system. Ah. Now why you'd say we weren't in the operating system business. We had a card called the CPM soft card or the soft card for the Apple to it was a card that plugged into an Apple to that ran CPM not our operating system. Very killed all. Very killed all. Digital research was the name of the company. But we had licensed it to put on this card that plugged in the Apple to and somehow IBM thought they could license CPM even though it wasn't our product. They thought they could license it from us. And we said no, no, no, but you can license our language software. But there are these guys down in Pacific Grove, California, you know, and Bill called Gary killed all and said there's some guys they want to talk to you. They're important. And Gary, they went down there and they didn't sign the non disclosure agreement. And then the meantime, there was a company here in Seattle called Seattle Computer Products that had a little CPM clone. And so the licensing of Microsoft DOS, which didn't even exist when IBM approached you about licensing some things is the single greatest business deal in history. The licensing of that software today. We mentioned that on our episodes. Well, I just think you look three and a half trillion dollars later at Microsoft's market cap. This takes started. It was pretty good. There was a company that happened to be here in town. Paul, Ellen and I went down there and we met with the founder who later came to work in Microsoft. And Paterson, and we offered him, I think we paid 45 or 49,000 for this operating system because we told IBM, no, no, we can take care of it. There was kind of a famous meeting amongst me and Paul and Bill and this guy, Kazahiko Nishi, who ran our kind of affiliate in Japan where we were talking about this. And there was a lot of let's just say four letter words thrown around. Scrooms five letters, but you get the drift. Scrooms, let's just go get the submarine system. Scrooms, we can do this. Let's go. That was kind of the theme. Kazahiko is kind of a calibur. He was kind of, yeah, Nishi, absolutely a cowboy. So we went, we sold it to him half of what we paid for it with that. We can do this 10, 20 times, 20 times 21,400,000 against 50,000 we paid for it. It was a little better than that if you said it. Talk us through the structure and how you guys thought about this because, yeah, I'm sure you're right. You did not make a lot of money directly from this deal. No, we did not. We remember the key thing was we didn't charge for the operating system on an ongoing basis. We charge for it one time. If you got a new version, we charge another time and we did the same thing for basic and everything else because at the time you could think we were like a substitute for an R&D department, which means we were fixed price. It was only, I don't know, four or five years later that we actually switched to licensing per unit as opposed to just fixed fee. Here it is. Pass once and we're done. But the ultimate thing that you guys negotiated was a non-exclusive deal. You could sell this operating system and your language interpreters, but also mainly the operating system to other manufacturers. This is IBM we're talking about here. How are you? IBM wanted this. IBM, they were experimenting with a different approach. They said, look, instead of us building everything, all custom, we want to use some industry standard parts components because that'll let us be more agile, et cetera. They didn't come in, loath to any of this. They knew that was our business. They know that was digital research as business. They wanted to use an Intel part versus their own proprietary part. They didn't ask Intel to do them a custom part either. The notion was, we'll move fast. We'll get away from the IBM bureaucracy by taking this approach. I wouldn't say that was the hardest convincing, if you will, in the story. What ended up happening after all these years, and I imagine it only took a few years to see it, play out was IBM sold a ton of IBM PCs. And DOS was the operating system. And then everybody else adopted DOS because all the application makers, all the software vendors were targeting DOS as the platform. And so Microsoft sort of accrued a huge amount of benefit. You became the point of integration. Yeah. And the old world IBM would have accrued that sort of platform benefit. Did they see the... They were selling a lot of computers and making profit also. They would have been making more profit than we were at the time, just the way pricing worked. There was a little twisty in here though. I should throw at you if you're curious. These things had something called the BIOS, basic input output system, which was the lowest lowest layer, a firmware, sort of first level software built into the hardware. And IBM had its own BIOS. And some applications became BIOS dependent. And so then the question is, who was going to do an IBM compatible BIOS? We weren't going to get into that game. We didn't want to have that intellectual property, other arguments, but there were people then... That ultimately became the big company. Compact became the big company. I don't remember whether they wrote their own... I think they made me do it. I think they made me do it. I think they made me do it. I think they made me do it. But they were the first one to be IBM compatible. There were plenty of people who ran MS-DOS who were actually not IBM compatible because they didn't do the compatible BIOS. I see. So IBM sort of thought, oh, we've got some protection from Microsoft kind of disintermediating us from all the developers and all the potential customers because targeting our BIOS is going to be important and unreplicatable. Yeah. One thing you have to remember, because we live in the modern world now. When you say all the developers, that wasn't a long list. There was no software industry to speak of. Right. We got started. There were a couple of software companies that made packages for IBM mainframes, but almost everything was custom. So really, I would say we... Few other companies would say we... We defined what a modern software business looked like and the notion that there could be lots of developers and that there were some, but it's not like we think today, oh, there was developers doing lots of standard applications. No. And there was no licensing, no business model, no nothing. Physicalque was around. So it would have been counterintuitive or required too many mental hops to think, where IBM, waiter, we giving away the future by allowing someone to distribute a wide operating system that ends up being the target that everyone standardizes on, which eventually created all of modern Microsoft. Exactly. And it just... You sort of can't blame them because there was nothing to build off of. But yeah. One of the things my little PowerPointy here says is, luck is important in the creation of great companies. It is. And a lot of people, you know, sort of say we're masters of the universe. We figure everything out. We never have any luck. And it's because we're so talented. Sure. There are talented people and hardworking people. Most people have a little luck in their story and this was our big luck. Clearly, but when you were negotiating this, signing it, and then those first couple of years before the clone market really took off, like, did you think that this could happen? No. I can't remember what year it would have been. But Andy Grove, who was running Intel at the time, said, yeah, pretty soon we'll be selling 100 million PCs a year. I don't know. Sometime in the 80s, I don't think. I might even been in the 90s. Bill and I laughed and said, ah, that's not going to happen. We invested big time. And if it did happen, we said, that's great. We're not going to under invest. But we thought, ah, he's crazy. This market will never grow like that. I would say we classically under forecast. That was kind of our tendency. So the deal gets signed with IBM. You end up shipping DOS. It goes on the IBM PC. It's selling like gangbusters. When did you start to realize, whoa, what we have here is actually, leverage over the ecosystem. We actually are becoming the important layer that ties this whole computing world together with the operating system. The personal computing layer. I think by the mid to late 80s, I mean, you make it sound very strong. No, we didn't feel very strong. There was IBM, man. IBM was still the sun, the moon, and the stars. That didn't change. I would say we didn't drop that theory. Well, well, into the 2000s, into the 2000s, Lotus Notes was coming for us. That was mid 90s and beyond. But maybe you could say late, but we were an enterprise company. If you looked at the enterprise, the enterprise was still IBM. IBM. We used to say we had to hang on to IBM that if we ever let go, they might trample us. We called them the bear. We called this bear. You had to stay on. Of course, graphical user interface. It's kind of coming out of Xerox Park at the time. Apple's doing their thing. We start, that's another disruption. Could blow everything up. I would say no sense of confidence about controlling the ecosystem well into the 90s before I think any of that. Or at least for me. When did you start to feel like we're getting out from under the thumb of IBM and maybe walk us through a little bit the OS2 windows world? So we've been staying with IBM. They decided they wanted to build something that was sort of their operating system and sort of not. This is 82.83. We and they would collectively build part of it. We would be able to license it to others. They would build a value add layer that was a database in the 32.70 emulator. Crazy to say now. We were going to work on the operating system and what was called presentation manager called that the graphical user interface. They were going to have rights equivalent to ownership in the code. We wrote. This sounds so convoluted. It was so convoluted. Man, there was a time when I made 16 trips to the east coast in 16 weeks. Most of them to South Florida, a couple of them to New York, leave on the red eye, the Delta Dash flight at around 11. Get into Atlanta around five. Get the flight to West Palm Beach at about seven. Get in and be able to be at a meeting at nine o'clock at IBM. Then work all day, catch the seven o'clock flight home, be here about 10, 30 or 11, 24 hours down and back because you're building something together. Remember, there's no real email at the time. We were literally shipping disks back and forth. Then they decided they were going to do the presentation manager piece in England. There were also then a lot of flights to England. In Texas is where the database and communication subs. This sounds like Boeing. It was the joint development agreement and it was the price of staying involved with IBM and it was convoluted and we did then keep for speed of action. We kept going on Windows, which we had started. For listeners, everything we're talking about is OS2. OS2. OS2. OS2. You extended edition or something which had their edition. Windows was like your plan B. It was like your side. No, Windows was our plan and then they wanted to do this new operating system and we convinced them. You got to have a graphical user interface and we tried to sell them Windows and they were resisting. Okay. It almost seems like you're humoring IBM at this point. Let's do OS2 together. We really think the future is Windows. Hey, humor. It's more than that. I would say my job was managing by the system software. So I'd Windows, I'd ship it and I'd been the development manager for Windows 1.0. The great videos of you from the Windows 1.0 launch. But that's the sales side. I actually managed the engineers because the guy was doing it wasn't being successful and we had to ship the thing. That's when I learned some about engineering management from the engineers basically at the Teach Me to be effective. We're trying to keep with OS2. Bill's very frustrated with IBM. I'm frustrated but I know my job is to ride the bear. And so Bill's pushing Windows hard but we still suspected OS2 could be the winner because it came from my IBM but we couldn't just like stop for three or four years. We couldn't make the mistake we sort of made in the thing that became Vista. So we kept going with Windows, we kept going with OS2 and then May 1990. They come along and shoot us. I was out running with my wife. Wait, IBM shot you. They divorced us. They threw us out. I thought the story was you all Windows was getting gathering strength and you all thought like maybe we can step out from the little brother. They came out to you. No, no. No, they had a new leader by then. I got named Jim Cannevino and he was getting frustrated with us because we were still selling Windows. We were still promoting Windows and they, I mean look, this was our first Andy Trust problem. I don't know if you guys know this is the FTC at the time but we and IBM were working to divide the market because we had done some positioning. What's Windows good for? What's OS2 good for? We and IBM had done that because and then they said no, you guys are colluding and that's when we first got attention from Andy Trust. This is even before the processor licensing issue. Yeah, that came later. That came with the DOJ. This was an FTC case and they started it in basically 90 just as we were getting I think 90, maybe 89. As we were getting our divorce, my wife and I were remodeling our house. We were living in a condo. We stopped on a run, used a restroom or something. I pick up the Wall Street Journal and I read that IBM's divorce. All right, listeners. This is a great time to think one of our favorite companies here at acquired. Sentry. That's SEMTRY like someone's standing guard. Yes. Sentry helps developers debug errors and latency issues. 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That's scntry.io slash acquired and just tell them the bed and David sent you. Yes, and they are offering two months free to all acquired listeners. Yes. Thank you, Sentry. I pick up the Wall Street Journal and I read that IBM's divorce. And so what does that mean? Walking away from the last two collaboration? Huh. Basically they kicked you out. Kick Microsoft outside where we're taking OS 2 and house. Exactly. Exactly. And so you're sitting there. Windows isn't powerful windows. Yeah, Windows is this fledgling kind of idea. We still had something called the 640K barrier. You couldn't speak to more than 640K of memory. We didn't break the 640K barrier until I think Windows 3.1, which I want to say was 91 or 92. So you're on this run. You see IBM is divorcing us. You don't really have confidence in Windows yet. What are you feeling and what do you think the past possible? Oh, Mr. Wizard. Whoa, shoot. Oh my God, we were so, we were so, you could say energized. If you like scared also works is like, oh my God. Now we have to confront the bear. You're already like a billion dollar business at this point by 92. You and 92 at 2.8 billion in revenue. Now IBM, but still, but you're still the PIPsqueak. We're still PIPsqueak to IBM. And remember, we have no enterprise presence. And IBM has all dominant enterprise presence. So who's using Windows and how are you selling to them at this point? Interesting. Single copies, some hobbyists and end users. Somebody who says, hey, I really want to use a spreadsheet. And a lot of users in enterprises. So it wasn't going through IT. You'd have a user that would buy a PC on the expense account, probably for the department. Buy a copy of Windows, buy a copy of Excel, like at an egghead software. Because the software retailer at the time and bring them in and use them. And then IT started to get nervous about that. We knew most of the copies, not most, but many of the copies were winding up in businesses. What the hell? IBM's going to stop us like a bug. You just took as a given assumption that if IBM wants to stamp out this happening, it's going to happen. So if we want a future, we got to play with them. Yeah. That's why we're quote, writing the bear the whole time because they'd stamp us out and they divorce us in 90. And then we say, oh my God. Okay. So at this point, your business, even though it's, you know, billion plus scale, it's selling to retailers to sell software copies of software, DOS, Windows, languages, apps. Not DOS. DOS was always sold to... Oh, yeah. Yeah, not always. So much the lion share it's worth saying it was only sold because you needed a bios. Remember, you needed a bios. So you had to have the hardware vendor build the bios into the machine, basically. So you've got that. The OEM business, which was the biggest part of the business. Yep. And then we had this retail business. And there was no notion of enterprise license. Yeah, you've got no CIO relationships, no enterprise agreement, no... We had a couple CIO relationships. The Air Force was the first big Windows customer. Your first enterprise customer was government? Our first big Windows customer, at least as I remember it, was the US Air Force and they were buying single copies of Windows. You know, when you say government, there's really two governments in this country. There's government and there's the military. And the military's a ver is a much more disciplined, advanced user of IT. They're just, they're just better. They're more professionally run than most parts of government. So yeah, it was the Air Force. So you got like a little bit, but we had like one or two customers just to prove we could actually serve big customers. As we understand it, you kind of had this realization at this point once the divorce happens, well, I'm going to go figure out how to do what IBM does. Like you personally. And to put a finer point on it, the thing that we said on our episode, and I'm curious if it's true or not, is this was not Bill's passion area and you sort of raised your hand and said, I'll go figure out enterprise sales. Oh, yeah. No, no, no, that's for sure true. Bill's passion, Bill had passions a lot of places. But you know, you'd say the apps group and what Windows could deliver to the apps quite appropriately. I'd say that's where where a lot of bills, brain cycles went. You know, I had also hired Dave Cutler. Dave Cutler had been the architect of the VMS operating system for digital equipment. And, you know, we had Dawson Windows and when we were talking to Cutler about coming here, he says, I don't want to work any toy operating systems. And I had to say to Dave, good thing because we have a toy operating system. But Dave is the key to getting us there. You know, we said, look, you got to build an operating system whose API looks like Windows and whose user interface looks like Windows. So developers can be familiar with it and write apps for it? Yeah, and you might make some changes because you have to, but it's got to be a robust operating system. It's got to have a secure kernel. It's got to have all of these things. The product set that you had wasn't really enterprise grade yet. No, we had a joint development agreement, a joint agreement on land manager where the company called three-com. It wasn't all our stuff. We had a development agreement with a company called Sybase to do the SQL database because we were trying to figure out all these pieces IBM would have. And we didn't have any of that. An operating system alone is not going to do it. You need all these other components. And if you wanted to have back end infrastructure, we started scrambling on that in the 80s. So we had all these infrastructure pieces that we had to build if we wanted to sell to, I'll say business customers. We weren't even thinking about it. When you say enterprises, sometimes people think very large companies, but we couldn't sell the companies of 20 people without some of this for 50 people. You talk a lot now about this sort of management concept of building muscle. Is this where this came from? That you should always be, you use the phrase in the weight room, building muscle ahead of what you need. Were you in bill thinking this way in the 80s of like, hey, we need to be building up this muscle across all parts of computing and business computing? Well, Paul Allen, I mean, Paul is the key. Paul is the one who said, build said we're never going to be a hardware company. And when the Altair came out, the first real sort of microprocessor based computer, Paul says, okay, let's write all the software that these things will ever need. So, you know, Bill and I had a lot of the execution around that. But that was the push. So Paul was cracking on me in the early 80s to start building an app group. Come on, Steve. Come on, Steve. It's not just systems. We need to have applications also. Any code that executes on a microprocessor, we should have a player in that market. And there was a physical, spreadsheet. Come on, Steve. Word processor. Come on, come on, come on. Let's get the talent. Let's get going. And we were doing mostly college hiring at the time. And so, you know, okay. And then we met this guy, Simone, who had been at Xerox Park, Charles Simone. Charles Simone, exactly. And he came. We met him through a mutual friend at 3Com Corporation who had been at Park. And he really was the first leader of the apps business. But we licensed. I mean, look, we worked with other people the way IBM worked with us. We went to Sybase and 3Com and let's work together. And it wasn't exactly a JDA joint development agreement. But, you know, we worked with those guys. The way IBM worked. I mean, look, the analogy now is a little bit Microsoft working with OpenAI. You know, when the big company works with the new company, how does that all play out over time? But you know, I took over systems software in 84. So that's when we're starting all this stuff. And you could say I was a little bit more enterprising. So yeah, I'm looking at your chart here that you made for us. You've got 92 to 98 title, Lift Off. And that's after the era where you talk about enterprise start. And you have your role switching from your role as OS division in the previous era to sales. The lift off there, those mostly on Windows and applications. The lift off isn't really enterprise. I mean, look, it was not until the late 2000s. People would say that you guys might find this funny or maybe you've been knowing. Customers say you're not an enterprise company. You're not an enterprise company. As late as when? Oh, late 2000s. Really? Absolutely. Absolutely. You're not enterprise grade. You're not enterprise ready. Oh, I heard that so much. In 2005. Who did they pick? Yeah. They were still mainframes in many computers and people, you know, those things were enterprise ready. IBM had product still. You didn't have enterprise support. You know, our licensing we had to evolve in the early 90s and then again in the late 90s. No, we didn't have those things. So no, we weren't an enterprise software company. That's what they do. That's how you do it. So it was the late 2000s. You know, certainly it wasn't before 2005. It wasn't the beginning of my tenure. We were still trying to prove that we were an enterprise company. Now I just find it kuku that, you know, all Microsoft is characterized as an enterprise company, which I'm not, I mean, I think it's more complicated than that, but I'm not going to say that that's not the primary muscle for sure it is. But, you know, I meet the company. I mean, I was hellbent and determined to prove we were an enterprise company. Why was that? Why did you feel like this? Let's call it 92, 93, 94. Why did you feel like it's so important for us to attack that market? Easy. Because that's where IBM could probably squish us like a bug. If we couldn't sell our stuff to businesses only to consumers, we knew that by then. We don't really get so far because enterprises wanted some features and enterprise don't like, you know, okay, you can go to computer land and buy a few copies. And the consumer market, I mean, we're pre-mobile, right? So like, pre-mobile, the consumer market, a pre-internet, yeah, is big, but like, it's nowhere near IBM's market than the enterprise market. By revenue, no, for sure not. So we've talked a lot about the products. Let's talk about the go-to-market motion and this sort of invention of the enterprise agreement. What are the key pillars that you sort of came up with for the enterprise agreement and why did they exist? Okay. Our first sort of software pricing packaging model for the enterprise was not the enterprise agreement. First, it was, you know, we sold you disks. Second, we came up with this notion of what we call select licensing and you could make your own copies. And you just report how many copies you sold. And that's right with the challenges here. You tell us how many copies and just pass what you did. The enterprise honor system. Estonishing. And that's of Windows, that's of office, that's of... Windows typically by then came with the hardware. So you were mostly using the OEM channel. For Windows, yeah. Okay. So, we went to this day, you know, upgrades and stuff are sold direct enterprises but, you know, basic computer that comes to an enterprise would have the operating system license to the OEM. And so we were on, you can call it the honor system, but we just couldn't make people like buy disks from us or CDs from each other. Prizes didn't like that. So we had this thing called select and select had two problems with it. Number one, very hard to copies a software you print. And number two problem, we were selling upgrades and new licenses. And upgrades were less than half the price of new licenses. So what does that mean? The company was headed to a world where its revenue was half of its existing revenue. Yeah. Unless you're growing new customers, new logos, fast enough. Fast enough. So it was a real problem looking thing. Bill and I, we'd always dream of this thing where you get some recurring revenue. And then we came up and say, okay, well, why don't we just do a license that you didn't have to count the number of licenses you printed, just the number of computers made like simpler. And we said instead of doing say a new license and then God knows when we would sell you another upgrade or whatever, we'll do something that just says, hey, look, you sign up for three years, you pay us, you know, a per machine and you just pay us the same amount of money each year for three years. And it sort of let us give me up the price of the upgrade. Yeah. Yeah. So we're selling the upgrade. You get every problem and we solve the difficulty of administration problem and that was the enterprise agreement. And was it from the beginning of you get everything? No. That was a special enterprise agreement. So you got all the upgrades during that three year period to the products you licensed. But you were still picking and choosing, oh, I want to sell. Oh, I want to. You could. So encouraging you to buy office. But we also had this all you can eat license. I can't remember what we called that. But basically then I think you kind of the number of employees and you could use any of our software for anybody. So we just tried to go simpler and simpler and simpler in the administration, recurring revenue that didn't decline over time and sort of as much as you wanted to eat the upgrades, everything. We did want essentially what you have now, which is recurring services business. But we didn't have the cloud. We weren't delivering things. But we're already on that path. I think we started the energizer. You guys mentioned what we do with energizer, which is where we wanted to run their IT department. Right. They were the pilot customer for this concept, right? They were the first customer. I talked them into it. And this is beyond the enterprise agreement. This is where we actually want to run their stuff because we did want to get to this recurring revenue thing. And David was referring to this concept earlier. We talked about it a lot in our Microsoft episode and then in our Epic episode, this sort of genius idea of you will get included in your license a whole bunch of software, even if you're not ready to use it yet. So if at any point you're considering buying this different software package from this other vendor who's a, you know, they just make this one thing, and then they look in their paperwork and they're like, oh, wait, actually we get that from Microsoft for free as a part of our, the thing we're already doing. Let's just do that. And as long as you're developing a lot of software every year, you can sort of indefinitely just make more and more and more stuff so that your customers don't need to look elsewhere as they expand their software needs. How did that come about? I'm going to start with office. When we created office, that bill really drove, drove that in a great, and we're selling Excel Word PowerPoint and then we put these things together and people would complain and we didn't always sell office because people say our customers, our users don't use Excel. So we don't want Excel included. Okay, we had a licensing option for you, but it became easier and easier. Well then departments, departments always end, and we're end running IT at the time. Still now I think. So we did sell you things that you might not be using, but also if you're trying to, you know, depart the departments, we already got it all for you. You may want something different than this department, but you know, we got it all for you. That was an attractive thing for people. And you know, there's an insurance aspect that I learned that IT people really want. They want peace of mind. That's part of what it means to be an enterprise. I want to make sure everything's secure. I want to make sure that everything is well managed. I want to make sure everything is well paid for. I want to make sure there's somebody to call if things go wrong. I want to make sure I bought everything. I don't want to look bad because either I paid too much or I, you know, I have holes and what I bought for people. So I view this and I might, I probably evolved my view to this over time. When you sell the enterprise, you have to provide peace of mind, which is kind of like an insurance policy. So buying more than you might be using or some users are using, it's an insurance policy. And software has zero marginal cost and zero distribution cost. And so we're happy to mill you a few more disks if you need them. But we weren't even milling this by then because we had the enterprise agreement in place. So at a certain point along the way, you get to, well, I want to say the holy Trinity, but I think there are more than three pieces of this. But the real killer suite in enterprises, which is Windows, Windows Server, Active Directory, Exchange Office and all of these pieces of software all working orchestration to run your enterprise, you know, your users, they do their email on Outlook, which is part of office, which runs on Windows, which uses Exchange, which uses Active Directory, which is SQL Server, Disequal Server, all these things. How long did it take to get to that point and what went into where, I mean, to my mind, that's when the enterprise is firing on all cylinders here. Okay. So that really comes with email boom. An email boom is late 90 slash beginning of 2000s. Because the email sort of the cart that pulled the whole thing. Oh, yeah. No, it's the locomotive. Enterprises wanted email. Yeah. When Accenture became a company, we started a joint venture called Avanod to help do essentially the whole Trinity to help install because you had, we needed support infrastructure and partners who knew how to set up the servers, provision, email, put all that in. We needed partners and we didn't have enough capacity. And that's why we started this thing Avanod with, which is a big, big company at this stage with Accenture. And that was in the 2000s. I went on the board of Accenture, but all this to say, the way you could kind of pitch an enterprise is rather than any of these other value propositions, David listed off a whole bunch of software, you could say, you guys want some email, right? We have the most reliable robust way for your enterprise to adopt email and it's going to come with all this other great stuff. Everything was nicely integrated because remember, you needed active directory to manage, you know, file shares, to manage printers. I mean, it was used for a lot of different things. So it really did all kind of come together as kind of the integrated proposition, like you said, you guys, you guys sort of made fun of the notion that we called all that stuff, the back office as if that was the minute it was just going to end. No, no, no, no, no, so wrong. So wrong about that. We took that as a signal that Bill just didn't care about this. Oh, completely not right. I wanted to call it the back office because you needed to buy the office and the back office. And the user, the consumer saw the office and the back office was the things that were in, you know, kind of the server rooms, slash data centers, but a lot of more server rooms. It's the same thing these days, but cloudized. All right. So as we were preparing for this, there was, there's a bunch of big questions that we just desperately want your take on. A big one is around one of your most iconic moments, 1999, the developers, developers, speech. I've probably watched this clip 20, 30 times, almost everyone listening has seen this clip. What is missing from this clip is all the context around Microsoft and what's going on in the world at this time and what you need to accomplish as a leader of this company. Help us set that stage and then understand why you went on stage that way. Remember, by this time, we're not through our IBM competition and we got Linux competition now on the docket because Linux is competing with Windows server Linux is competing with Windows and there's a thing called open office open source software for office is competing with office. So we have all these things going on. We haven't beat Lotus Notes yet and you've got anti-trust count. We have anti-trust issues, of course, by then. The culmination of the DOJ suit is happening within 12 months of this moment. Correct. But I mean, it's clear in all these competitions, the thing you need is third parties that reinforce what you've got, add value around what you've got. And I could say run on your platform, but I'll come to that later if you want to what a platform is and isn't if you want to do that. It's kind of interesting, I think. Yeah, particularly since everything's called a platform these days. Anyway, so let's take it aside here. Give us your definition of a platform. You could call it anything that is extensible and it's the extensibility that quote makes it a platform because you're going to get people to extend the value you add. The question is, and the reason that's important is applications are platforms too. Not just developer platforms and people say that they might mean Azure AWS or in the old days, Windows or Windows Server or Unix, then Linux. Yes, those are platforms, you extend them. But you also extend Office. You add value, partners plug in, they write applications, they use the file formats. All of this stuff is platform. Part of the issue, I think, for Microsoft is if you see yourself as just a platform company, A, platforms need apps. You want to have the top first party app that runs on your platform. Otherwise, your platform can't get good. Office was the best first party app on Windows and that's how things get good. It was the best first party app on exchange. There were other clients at one point, by the way. You really do want extensibility in your apps in addition to your quote platform. You want to make sure you own first party app in addition to quote platform. I think you can get stuck in the mud if you say we're just a platform company. I think we got it into our corporate mindset that we were quote a platform company. More than I ever intended. There were people telling me in the mid to late 2000s, we can't do that. We're a platform company. I said, yes, we can do that. By 2010, I was just frustrated with myself and my inability to get people out of the, we're just a platform company. I think to this day, you have to think app with platform. You have to think extensibility of the app and the quote platform. I think we got caught on that. Maybe I got caught on it for a while and I certainly got caught in my inability to tell people what the company needed to do because people had such a culture then of saying we're a platform company or a platform. When I go back to developers, developers, developers, I'm trying to tell people at that time that third parties really mattered. You got different opinions inside Microsoft. What event was this at? A developer conference, I think. It's for external developers. External developers. Who's Windows number one client? Is it Office or is it all developers? Yes, the Windows team. It's all developers. You asked the office team, come on. You got to do for us what we need to do. You have to be able to communicate that you really care about developers who are not your own that you really want these things because they may think, oh, it's all about running Microsoft Office. Just had to tell people, we want you. We want you. We want you. We want you. I think we got caught in thinking it's all about third parties and not also about our first party apps. That's where you say are you. The word consumer sounds like unserious. Are you for users and for enterprises, which really means IT departments? Or are you for users and not IT departments? Do you allow both all aspects of what you do to be extended by developers? That's the frame I believe in. We had some issues over the course of where we went in the 2000. We can talk about that if you want to. But go back to 99. Come on, we need you guys on Windows. IBM's still selling OS2. Linux is right there on the horizon. It's coming like a freight train. Is the web starting to enter your psyche at all? The web's part of that. We're trying to get people to write for Windows server. Good point. We're trying to get them to extend ActiveX controls. I think this is a hard-to-part. That's great, right? We're the part of the browser. So we were trying to get our browser to be a platform, a unique platform. I'm sorry, embrace and extend. I think is what we said. We'll embrace the internet and we'll extend with these ActiveX controls. We need developers to do ActiveX. We need them to do Windows server. We're just getting ready on .NET. I have my own kind of wild style. Really? How do you end to speech? You tell people you love them that you want them. That's sort of the call of the action. That's where I think the developers thing came. Before that, there was a different video that people sort of characterised. I love this company. No, there was my Windows video. I don't know if you've ever seen it. Oh, yeah, yeah, yeah. But wasn't that a parody? Don't people misunderstand? It was for fun. It was just a fun thing. It was not a real speech. It was for internal consumption where you're saying. Yeah, it was for sales. For this low, low price. Yeah, I mean, there's a lot of little nuances in there. We're trying to get our people pumped up about Windows. So what I was looking for there is the developer's developer's developer speech is one where you feel like we haven't really won the last battle yet. We're still in this death grip for enterprise developers or this death fight against IBM. And yet, there's now Linux and the web for these more independent or platform of the future looking developers. And in some ways, we're desperate to sell to win to say, hey, we have a great platform here. You need to come use our stuff. Exactly. I can't remember whether we're pre-lamp or lamp by that. But I don't remember. There's some infrastructure on top of Linux that people are using to write, you know, let's say they're backends, not their user facing code. And we had tons of competition. The interesting thing is people say, only think about your customer and never think about your competitor. I actually think you have to think about both. And ironically, we were pretty consumed with our competitor, which I think was essential. And we were pretty consumed about doing new things. But the competitor thing wound up being very important. I mean, we have no business. We're not in the enterprise. We could lose Windows on the client. We have to, you know, and in the company, we weren't like really self-confident. The DOJ was really self-confident that we were kind of a lock and there was no competition. And, you know, life was easy. That's not where our heads were. Now there is some time in the 2000s where I think we do, I do, we do. We think that extending, we did a slide one called Windows Everywhere. We used to use this on all these devices. And we became too wet to extending what we had versus jumping to something new. Because in a sense, we were too confident. We were too confident. If we only Windowsized something, you guys make a point near your episode on us. You guys caught sticking with Windows too long. But that may be it. I don't think we stuck with Windows too long. I think what we did is we tried to put Windows in places that it didn't naturally go. And we tried to be too Windows-y, both in the API and the UI in some things. Mobile being an obvious. Windows mobile, exactly. And the car. And the car. We did a layer on Windows that when you hooked your PC up to the TV, it had a simplified user interface for the TV. Oh yeah, I remember this. It wasn't just MediaCenter, right? It was some extent. MediaCenter. Okay. MediaCenter, exactly right. So we became convinced either out of, to some degree, paranoia and some degree confidence. You know, okay. Well, our birthright here comes from Windows. That's our permission to enter the area. But then we also, in some areas, it just wasn't going to be extensible. So there was both a, like, a fear and a overstated confidence in trying to take Windows everywhere. All right, listeners. Now is a great time to thank a new friend of the show that we are very excited about. Sierra. Yes, we are thrilled to be working with Brett, Clay and the entire team over there. So why are we excited about Sierra? Well, one of the things that we've learned from making acquired over the years is that a great company is often defined by its customer experience. Yep. But being great is hard. Talking to customers is expensive. And while websites and apps are great, they're also kind of slow and clunky. And your customers have to learn them. They don't learn you. Sierra changes all that. They build customer-facing AI agents that can do an insane range of things, like finding the perfect home or picking TV shows or originating mortgages, shipping us so far, returning shoes, authenticating patients for healthcare, ordering credit cards, saving subscribers from cancelling and on and on. In just two years since founding, they've become the leading conversational AI platform with hundreds of incredible companies like ADT, Clear, Minted, Ram, Redfin, Rocket Mortgage, Safe Light, Serious XM, and Wayfair, all trusting Sierra for their customer experiences. Sierra was built to be powerful enough for Fortune 500 companies, including heavily regulated industries like healthcare and financial services, but it really works great for any business including yours. With Sierra, you can build your AI agent once and deploy it everywhere within weeks. On the phone and chat, SMS, WhatsApp, email, all in over 30 languages, you can even publish it to chat GPT. And with their unique and insanely aligned outcomes-based pricing model, you only pay for the value that Sierra delivers, increase customer satisfaction and resolution rates, lower costs, and higher revenue. Sierra enables the great companies of the world to show up at their best consistently every minute of every day, and in fact, we think so highly of Sierra that day-to-day even invested in the company. To find out how you can build better, more human customer experiences with AI, visit Sierra.ai slash acquired, and tell them that Ben and David sent you. Let's jump to this point, but what is the generalizable lesson here? You have Windows, this amazing piece of software with this tremendous multi-sided network effect around it. The logical thing to do is to continue to try and extend it and say, geez, wouldn't it be nice if the next great technology wave was also Windows? And that worked for us. I'm Windows Server. So it's not like we didn't have an existence proof that the thing could work. But if you're going to, in my little deck, I gave you. Yes, please. If you're trying to skate to where the puck is, if you're trying to recognize what did I call this, about capabilities, if you're a startup in something, there's an ongoing business, you just keep enhancing your products. There's a line extension. Okay, we're going to add networking to Windows. No problem. You still call it Windows. It's related, but new SQL Server, for example, was that for a while. It was related because we had a backend platform, dynamics, somewhat related, are accounting, et cetera, stuff, because there was some enterprise-y sales, but it was really new. And it turned out the phone was more like a startup. The phone was more like a startup and recognizing and thinking about things. And then I ask you yourself, what capabilities do you need? I say, getting the weight room, you've got to develop capability. Take a look at a capability we developed that is now essential. We didn't build it for this reason. Hardware design. Microsoft's a major hardware design company now. Now, I started it out mostly to help client-side devices, Xbox, Surface, Phone, and guess what? They used that mostly now in Azure data centers. I think the guy who actually runs hardware design used to be on Xbox. The backend hardware design for the data center, the chip, et cetera, infrastructure, I'm pretty sure there are a lot of talent we brought in. So building capabilities is important. We built some capability, but we didn't build enough capability. We didn't see things as different enough. Okay, let's try to keep the comfortable Windows user interface because people understand it. It wasn't right for the phone. I don't even remember what processors we started out on, but I'm pretty sure we started out on Intel. Of course that wasn't right. We tried to keep too much consistency, both out of sort of a fear that this was our permission to exist and out of a self-confidence that we had to put Windows everywhere. So when should a company that has an existing, fantastic business say, no, no, no, we cannot extend our existing franchise to this new world. This new world is going to be dominated by some new paradigm where we have no advantage. How do you play that? Then do we choose to get in? Exactly. Then you have to choose to get in. I would say two things were true at the time for us. This is specifically about mobile. It's also about something else. It's a little bit out search too. There are two things that are true. Number one, you have to be focusing consciously on the issue. It's easy to get caught up in, you know, there's innovators, dilemma. It's a little different, but you get caught up in what you have. You get caught up in what you know. You get caught up in the capabilities. That's why I say to myself, you explicitly have to think about it. Look, if we hadn't developed a bunch of capabilities we had, AI, if we hadn't built Bing, company wouldn't have capabilities. Why is it going to get into? You know, you built some capabilities in online services that will... We built some important capabilities, but we didn't realize the businesses were enough different to harness those in the new ways. I'm proud of the capabilities we built. Didn't apply them the way we should have. You know, where did we learn to build internet scale infrastructure? Well, some with Azure. Some serve even more than Azure. No, even more than Azure to get started. The office, what's now in 365, the office backend, because that got critical mass as a cloud infrastructure before Azure did. And even more so with Bing. So we developed the capabilities, but then you look at the product and what was our strategy for Bing? Well, there's too much based upon Windows integration. You have to say this is a separate... Before the Bing rebranded, it was like Windows live, right? Windows live. Everything was Windows live. One drive. Not going to be Google with Windows live. Yeah. But the file sharing... Look, Google's done the same thing. You got to ask where do you run out of gas? Yeah, because you could make the counterargument shoot. Google is running away with the market. It's very good technology. They've perfected the user experience. They have scale and you need scale in this business. Uh-oh. It's a runaway train that we're never going to catch. Thank God we have Windows to be able to have some way we can, you know, attack them from the side. And with Windows integration, maybe that gives us a fighting chance. That didn't end up being true, but you can paint that narrative at least. Yeah, we can't take it. Go ahead and tell yourself to look how late were we to search? The answer is, you know, when did Google start? 98, 98, okay. And we jumped in in 2003, I think we pushed. Now, you'd say five years is a lot. You could say five years isn't that much. You could say we had no birthright. I mean, it's just a completely separate thing. We had no capability. We had nobody who'd grown up in that world. You know, we had some guys in Microsoft research who could sort of start getting us there. We took talent that was doing other things in Microsoft. Uh, it's hard to go get new talent. The search is brand new. Uh, there were people from ink to me. Google would sort of suck them up. So it took us a while to get off the ground. It took us a while, even, to be fair. I think this is something both, both Bill and I debated, not just with each other, but just we kicked around too much. How much quote the verticals in online services would be important versus search and portal is generic. So search and portals generic, but remember, we had a thing called Expedia. We build a travel site. We build the local information site called sidewalk. We had a car shopping site. What did we call that thing? Carpoint. Uh, how much would the verticals be worth? And there was one vertical that mattered, except it wasn't really vertical. It's called all shopping. There was all information and all shopping and you can do all these detailed specific things. Remember, we did a portal. We did that. And then eventually we all then we did search a few years later. We were just off. We had the wrong thing. Backranked in the wrong way, my opinion, with 2020 hindsight. And we were spread to them. So when should you get into a new thing? Well, you probably shouldn't get into five new things. If you really only have the talent for one to two new things, that's number one. You know, Scott McNeely, its son used to have this expression he used. We got to get all our wood behind one arrow. You know, it's nice to try them and I was listening to you guys talk about Amazon and how they're okay, we're going to try small things, but they also put in small cost structure. We put in big cost structure because we were already all in when we got into something. And so in this particular case, a few years later, and then what do you do? You get stuck on what we have permission to come from behind in a certain way here, because we've got windows. It's your point. Exactly your point. So there are lessons to be learned, but for a company that's got an established business, being able to get all the way outside of yourself and say, is this really like what we're doing? Because you really want it to be. You really want it to be. Or does this really require a different approach that doesn't totally ignore, but doesn't take into account what you own any more than the person starting it afresh. Can you hire new capability or how do you build new capabilities? If it's not like what you're already doing, it must require new capability. If it's exactly like what you're doing, then you'd be doing it. And you should be great at it. And you'd be great at it. So it's the things, you know, just look, two models worked in phone. Build the hardware, capture the profit, have a backend monetization system that even lets you pay the phone manufacturer that worked. Android slash Google. So two things worked. That's it. And we weren't in either one. We needed new capability. We needed a new idea. We couldn't use the Windows user interface. I mean, there were a bunch of things, but you have to go all the way. And yet we had a Windows everywhere slide. It was on the slide. I don't understand why it didn't work. You get locked, you know, I wrote this thing down here. You get locked in your model. We're a platform company. No, we're an app and platform company. On our episode, we threw out the idea that Microsoft's competitor, like the truest form that it should have taken on mobile, was not actually Apple. The iPhone is not the, the bogey. It's a pretty different thing. At that point, you were not a hardware company. The bogey was Android. I mean, they were monetizing it a different way through advertising and through giving it away for free. And Microsoft always monetized through licensing revenue. It seems like until Android took off, Microsoft actually did have an opening to become that second. That's what your Christmas was this. There was the Christmas of blah, blah, blah year. It was being on time with the stuff we needed for Verizon. There was a Verizon design win. There was Verizon by now is really failing like it's getting its ass kicked. iPhone launches on AT&T. Right. It's July of 2007. And then I might have been Christmas even 2008. Yeah, because absolutely it's Christmas 2008. Yeah. Possibly even 09, but I think oh, eight. The mobile was like this when it started. It could have been not, it could have even been 09. But Verizon, the empire had, yeah, the empire had to strike back against AT&T and there was a window. Yeah. And they went with the stuff. Look, they would have taken our stuff because they could put pressure back on the manufacturers. But we didn't have the stuff they wanted at the right time. They went Android. And then we kept pushing because that's, I believe in staying hardcore and then learning and fixing. The problem was we were so locked into our model. It was hard to say, hey, we're going to learn and fix. I don't know where we would have gone with things on phone if I stuck around, but I probably would have stayed at it. And maybe it would be an Android phone at this stage, who knows. And maybe not. Like a Microsoft hardware. If you think of yourself as just a platform company, you say we can't do that. If you can think of yourself as an app and platform company with apps that are extensible, then you can say, hey, we actually have a pretty cool user experience that can also leverage some things that we do and can leverage our software skills. And it's okay to embrace that competitor and extend. But there's so many technologies that are hard to not just popularize, but even get good at unless you have a phone these days. Just take voice. If you want to really be good at voice, you got to get enough signal and you get the signal off the phone. You can't say talking to my PC is sufficient. And it's not the only, if you want to get good at maps, if there's so many things where being on phones, there's some things even you can make happen by being on cars. I think Tesla gets good at certain things in software because it's a different form of mobile so they get good at different things. But we missed, should the company have kept after it? I don't know. That's not my, you know, Sachin and Amy and company they know where they were. But to your original question, big company is deciding, well, it's not always a mistake to build off what you got, but it can be try to get out of the side of yourself. If you get in, do you have the ability from the top to shake the system? And say, no, we started with our old model, but it ain't going to work. That's what I did with Surface. I didn't wind up, it hasn't played out. And partly, I didn't have that much as much time with it. But there were no high NPCs that would really compete with Mac. I decided the only way we were going to get there, we couldn't sit there with our OEM model and have it work. If we're going to have high NPCs that appealed to users, because I wanted us to be a consumer slash user company, not just an IT company, because think pad had IBM, by then Lenovo had some higher end computers. But you never saw them in schools, you never saw them in coffee shops. We needed a high NPC and the economics weren't going to let of marketing and remancing. That wasn't going to be an option for our OEMs, and I said, we got to go do Surface. Now we, again, we do have tweak things, done things a little bit better, or part of that, I bet sure. But the model was not going to work. Okay, so we've spent a lot of time talking about all these bets that sound very reasonable to make in mobile and search. We didn't talk about social, but in social and all the dancing you did with Mark Zuckerberg over the years. And Yahoo, and all these things that ended up not panning out, and these were trillion dollar companies that were built not inside of Microsoft. We talked about one multi trillion dollar thing that did work with the enterprise. There's another one with Azure. Can you tell us the story of how Azure really got started? Yeah. So we are in probably 2005, 2006. AWS has a little lift, I think AWS comes to market around then. And it's not like the cloud is some surprise to us. The energizer, if you go all the way back to that energizer thing from the mid 90s, it's all about the cloud. It's before it was called the cloud, it's before all the infrastructure that becomes the cloud. So it's not like we say, oh, woke up one day, there's AWS. We didn't wake up one day and say, oh, there's back ends to applications too. We've been doing that with Windows Server and SQL Server. We've been in the cloud blah, blah, blah. But at that point, I think we might have already had exchange in the cloud as a standard product. What you have to remember is super important because I really want to give you my sense of what Microsoft's businesses are. But we didn't have a platform. And so I said, we've got to do one. Let's go get Kotler. Let's just go get Kotler. So I say, okay, we've got to get Kotler on it. And Kotler and I have a great relationship. To this day, we have a great relationship. We have a personal friend. He's still writing code at Microsoft. He's still writing code at Microsoft. But I mean, Kotler and I have been a basketball game together. We played golf a number of times. We've done golf trips together. But you know, Kotler's, he's a hard-ass at work. I mean, if he doesn't want to do something, he'll tell you. If he thinks you are wrong, he'll tell you. If he thinks somebody else in your organization is bad, he'll tell you. I mean, he's like a thoroughbred horse, you know? He's very fun. He's very fun. He's very fun. He's very fun. He's very blunt. You know, he's a great athlete in college, two sports. I think he played maybe three even in college. But anyway, so I get Kotler. And there's a guy working in MSR who I think is underutilized to this guy, Yamat Taube, Sarvastava, who you guys talk about. I thought he was underutilized doing what he's doing. So grab him, grab Kotler, bring him both onto this project. I think Bill is Billy still with the company. He's about to transition out. He's about to leave, I think. Yeah. I think he had probably told you that he was leaving that day. They had told me, you know, talk about that. But he had told me but hadn't left yet. He was involved until he left and even then, you know, different nature of involvement. But anyway, so I get Kotler and Amat Taube to go do this thing. And then Kotler brings some of his, I'll call gang, his favorite guys. He brings them over because he's a magnet for talent. And we get started. And we made an explicit decision. And I guess you could say it's also a function of thinking Windows first. I think you guys may have talked about this in your episode. We say we're going to build platform as a service because it's a Windows platform. Infrastructure as a service a little bit if you think about it. You're sort of by nature accepting everybody's infrastructure. It's by nature, multi-quote, multi-platform. You become a different kind of a platform because you're running other people's Linux and whatever. He doesn't leverage Microsoft's strength of owning the Windows franchise if you're just going to be infrastructure. It does leverage our strengths in the sense that we've got great low-level operating system people. So we have all the talent to go do it. But we say, hey, we're going to do, and it was explicit, we wanted to do platform as a service. We said, hey, they're doing it and be, it's all about the developers. And if it's all about the developers, then you've got to have platform as a service, not just infrastructure as a service. Well, that assumes that the developers targeting Windows Server are still a big, strong, important relevant developer group. Which they were and they weren't. Windows Server had a strong developer group. Unix had a strong developer group. And on the front end, Windows was definitely stronger. On the back end, Unix was definitely stronger. But on the front end, by 2006, 2007, the web was clearly the emerging developer platform. Emerging choice. Emerging. Okay. Okay. Absolutely emerging. Not fully emerged. Yes. Emerging. I would challenge you to say like, what, in 2006, what amazing Windows apps were coming out that would sweep the world and go get 100 million users because they were great. Hard for me to remember. I think if you go to the field of productivity, the answer is, yes, there were still. The problem is if you left the areas of productivity and gaming, productivity and gaming, yes, if you leave productivity and gaming, I think the answer was no. I mean, we talked about this in the episode. Yeah, there were lots of, it was a transition. People remember, the web wasn't good for a number of things for IT because people couldn't count on. People didn't feel like they could count on the connectivity. Either the amount of bandwidth or latency or just, it's very existence. We were still at that point. So I'm not saying fair. We were right in the way we thought about, not saying that. But I'm also saying there was a Windows. There was still a great Windows sort of developer ecosystem. It didn't go from, you know, a lot in 99 to nothing by O5. Totally fair. And then Windows Server Unix was stronger on the back end. And of course, we're trying to make Windows strong and we're trying to get to the cloud. And then we're learning more things about the cloud from both exchange in the cloud and Azure in the cloud. How do you make it easy to provision? What's the speed of provisioning? What do you do to serve developers? Then the ocean that you give them, you know, a number of, you know, sort of a set of free usage and then let them embrace because developers have two aspects too. There's developers who are not part of enterprises and there's developers who are and the developers who are not part of enterprises need a whole different sales motion. You can call them consumer development, not developers of consumer apps, but they are like, and you depend on yourself. They are not like big corporations in terms of the way they use. Or an example, but there's plenty of others who are trying to do startups and blah, blah, blah. So in any event, you know, we kind of get going. We're learning, you know, how to do the things. We're building capability for sure in the cloud through both products. And you know, by the time I leave, we have some momentum with Azure, but some momentum. The big momentum really is in the last 11 years. I think you're bypassing and underselling here. It really struck me as you were describing the challenges around with a big company like Microsoft and attacking wildly different vectors like mobile, like search, like hardware. Azure was that the cloud was extremely disruptive. It was extremely disruptive, but it wasn't. Yes, and no, the things we understood were translatable. Now, getting the company, people get locked into a model. You had to replace server and do a lot of things that run in the cloud. That was not obvious back in 2008, 2009. It's not like, you know, Amazon was an enterprise company at the time. It was mostly for startups and, you know, that's who was using AWS at the time. And so, no, I agree. I do agree with you. We had to shake up our internal culture. God dang it. This was my basic message. God dang it. This is our future. We can preserve and enhance these businesses. We can take more value out of the system because other people, the customers don't have to set up their servers anymore. They don't have to do all this work. Essentially, money that would have been spent on people and hardware will get spent with us. Come on. We're going to do this. And it was hard for me, even telling our people, there was still, you know, Lares Estons, as they say. And that's why I did the speech at UWB where we talked about the fact that we're all in on the cloud. It was partly to reminder to people, you know, get with it or get out of it, you know, get out of the way. Making an external speech to communicate something to your internal employees. In a big company, man, I'll tell you. It's very, some of what you have to do because people believe the newspaper more than they'll believe in internal email. Well, people always talk about how the think different campaign that Steve Jobs did was for Apple employees as much as it, in fact, way more than for the general public. Going back to the core initial start of Azure, I find it very interesting that Microsoft had a business called Server and Tools Business, and that is not where Azure started. Azure started as a incubation by Raiazi with a completely separate team. Then you're existing like actual product group selling server and tools. And that's sort of a classic thing. That's not, it shouldn't be mind blowing. I mean, Windows and Windows and T were in different groups too. Sometimes in order to protect the sort of baby while it grows up, you can't put it with the thing that's established. I mean, you could say it's part of the issue with Windows when we try to use Windows on things for which we probably should have started. Yeah, I was going to ask you. There's a shout out differently if you've taken this approach with. We did break it out, but we constrained it with Windows. We broke Windows and T out and constrained it with Windows. It worked fine because Windows belonged. So how you do those incubations, and in this case, I just said, look, it'll get probably subsumed. I don't know. Partly, Rai wanted some operating control over the thing. And putting it under Mugly would have made it harder for Rai. Obviously, it was less palatable. And I'm not sure Cutler would have gone over a cut if it was all, you know, all I'd server in tools. But it was the right thing to do, even though it was part of the future of server, you know, it was the future of server in tools, essentially. And so this is pretty lost in the common narrative. If this is 2006, that is seven, eight years before you left Microsoft. Yeah, eight years, eight years. No, we'd been working on the cloud since Energizer. We'd been working on Azure for eight years. You know, people think everything in tech gets popular in 10 minutes. It's kind of people think acquired was founded two years ago. Good point. Well, it was open AI actually founded 2016, I think. OK, yeah. So seven or eight years after it really became something, OK, fair to say, and I give them all the credit in the world, seven or eight years. Most things take a while, even things that are quote, oh, they just burst on the scene. been sweating, you know, blood sweat and tears for years before these things get lift-off as I call it my little deck here. And so yeah, we were starting to get to lift-off. But yeah, eight years. And we had more in on exchange. Most businesses are zero trick ponies. You never create a billion dollar business. You never create, you might create something that goes nowhere. You might create what's essentially a feature for somebody else's business and get acquired. You might call that zero tricks. Then you get a one trick pony. And one trick ponies are amazing. Amazing. I mean, people should be in awe of one trick pony. They're not, one trick ponies are 50 to 100 billion dollar market cap companies. Or could be, no, could be more. Yeah, or more. Yeah, could be more. They're not many one trick. I might ask you that Google is a one to one and a half trick pony. Still. I mean, if you just look at its revenue. 80% search ad revenue. I mean, you call YouTube probably another half a trick. Yeah, you call it a second trick. But it's not clearly a second trick. And they're huge. They have great market cap. TSMC. You did an episode on them. They're one trick pony. Very successful one trick pony. Nvidia is a one trick pony. Well, gaming an AI. Okay. Yeah, two trick pony. But the first trick was not that big. Yeah, you can decide whether to call it a trick or not. But I'm not taking anything away from Nvidia. And I should know the company better. But so you say one trick ponies. They're amazing. Like everybody should be an awful one trick pony. Now two trick parties. Oh, la, la, those people tend to go down in business history, especially those tricks stay stay alive for a long time. IBM was a one trick pony. Microsoft. Two to two and a half tricks. Give us your trick accounting. Okay. You can do it a little differently. I'm going to call the desktop business, which I include Windows and Office. And the server slash enterprise business back office. Two tricks. Now they both that both tricks could have died if they didn't get moved to the cloud. And I knew they could die. But they're two tricks. Two different revenue models, two different licensing models, essentially different sales motions. The even the way Microsoft sells those stuff. I don't know about today. But when I left, they were kind of different muscles, one account manager, two different muscles. Because one, you're selling applications and one, you're just selling, hey, this is to serve your users. You need an AD account and exchange accounts exact of Windows. And I mean, that's what you need. This would M365. You could call the two, the modern translation of those two things are the Windows OEM business and M365 and Azure. And then you could say is gaming its own trick? I call it a half a trick just like you do. It's a half a trick. This is an update since we last talked. I feel like we had a conversation at one point where we were, we both kind of landed in unclear how profitable that business is for Microsoft relative. I'm going to call it a half trick. Or as you could say, it could be a trick. I mean, look, I would say, I would say Microsoft is optimistic. It'll be a full on trick. Okay. I hope it is. I run into Phil Spencer at the golf course and he's a really optimistic guy and I could be. I'll give you this. If we call Nvidia's first trick, a full trick, then Xbox is a full trick. There we go. Whatever you want to call it, you said it's a small trick. And I think that's probably right. So that's amazing. Amazon's two tricker. AWS and the store. They're two tricker. Apple's two tricks. What's your trick accounting there? Mac and mobile. If I want to say it's high power consumption and low power consumption. Is it fair to call services a third? No. By my estimates, their profit dollars from services have now eclipsed iPhone hardware profit. I consider it just part of the trick. It's more if you go by your platform. I call it. I call it. It's really a trick. They've just monetized it. It's kind of like us adding things to office and redoing the EA and it's a monetization model. It's an additional monetization model, but it's not a new locomotive. A locomotive is the business that can pull the cabooses and the locomotive remains the phone. You know, the service is business to go away pretty quick if the phone volume fell apart. So I'm going to call it's additional very important. But not uncorrelated the way that AWS and I get the sense. And I think Mac versus everything iOS is also uncorrelated. So I get the sense you really want it three tricks. Apps are freaking loosely. What's the one that eats you up inside? Which one do you think you were closest to getting that you didn't get? Not social. Okay. Forget social. Doesn't feel Microsoft. You want it to buy things? I'm going to tell you why it's either sure because there were still on the Paul Allen strategy. We've got to do all the software that these things will ever need. I mean, it was still of the mindset that said, and that there's an arrogance to that. And there's a hunger to that that says, there's just nothing we shouldn't do. And I don't think that was a good mindset by the time I took over and yet it was still sort of baked in with Bill baked in with me. And I think that was some stake. So not focus social doesn't. But but so you can, you know, this is like asking me to pick between negative children. I don't know. But the phone because it was a client side device or search because it was a productivity tool. Microsoft both of those were Microsoft big businesses. Yep. The desktop, the phone or office or you know, client side devices we had done well with a certain model. Client side devices. Our mind should have been able to wrap around. But we had to tell ourselves it didn't look the same. It's not with technology didn't look the same nor did business model. Then business model astonishingly for search advertising call it 2005. I think Google was making more money off of a PC user than Microsoft was because their business model generated more search. Five oh five. I don't think so. Not later on. I think so. But not by oh five. I would suspect not. I mean you can go check. But is not astonishing that of the pie. And for enterprise PCs, PCs bought by businesses, it certainly would have been the case for consumer PC. It could well have already been the case. Right. I mean, it actually is a notable difference because of everything else. We we are both sales monetization was with applications. There's were with ads. But there's a new productivity app. We put office on the Mac by then. We would have to put productivity elsewhere. So in the sense that we missed a major productivity area and we're in the productivity business. And we were in the client area and we missed a client device. Yeah. Those are the two. See feeling nothing else we met. We met quote missed. You had an opportunity for four tricks. And you got to. Yeah. Part of the problem was we didn't see particularly we didn't see mobile is a different trick. We thought of it as underneath the windows trick if you will. But I mean, you can go through. I don't know that I could come up with a three trick pony for you. I mean, it's possible that at the Elon level, the Musk Empire could have three tricks. Right. Cars connectivity and in finance, you can do it. Finance. I don't think they're multiple tricks. And you could say asset management versus the investment banking is different. Maybe, maybe. I don't know. I'm not convinced. But I hear you. Well, possible. I think this makes sense because Microsoft is the most valuable company in the world with two. So if anybody, yeah, if you look at the most valuables, you're not going to find three. That's a good point. Sony is nowhere near the market cap of these companies. But it's like pretty evenly diversified across their five segments from gaming to consumer electronics movies, music, finance. Yeah. They have a remarkable businesses in multiple areas. But I can't call Sony pictures. Yeah. Fair. Yeah. It's just not big enough. You can acquire to start a trick. I mean, that part I have no. There's no pride. There should be no pride in having a trick that starts with something small. Yeah. They'll do a good bot answer. But they bid that's a trick for them. Well, Android's not a trick. Okay. As you highlight it, Android is a piece of the search trick. It's lead gen. Yeah. Yeah. Exactly. Lead generation for searching. Yeah. That's right. Okay. Listeners, now is a great time to tell you about a new friend of the show. We are very excited about work OS. Yes. Work OS is the enterprise ready platform used by OpenAI, cursor, perplexity, for cell, plaid, and literally hundreds of other winning companies. So what are all these companies using work OS for? Imagine you're a fast growing startup. You've got product market fit and you're getting inbound interest from big enterprise customers. Very exciting. But then they send you their security questionnaire. Yep. And it's like 47 pages long with requirements that kind of sound like alphabet soup. Do you support sammold2.0? Can you integrate with our octa? Do you have skim provisioning SCIM? What about R-Box, R-B-A-C? And you're thinking I have no idea what these acronyms even mean. Let alone how to implement them. So here's the thing. These are not nice to have. These are deal blockers. Without SSO, without skim, without R-Box, without audit logs, you simply cannot close enterprise deals period. But none of these features make your core product better. They don't make your beer taste better to use our favorite analogy here on acquired. So if you're building like a design tool, spending six months building sammold authentication doesn't make your design tool more powerful. So this is where work OS comes in. They've built stripe four enterprise features. Work OS turns enterprise authentication requirements into drop-in APIs, abstracting away as much unnecessary complexity as possible. So instead of your team spending months reading sammold specs, you can implement enterprise SSO in minutes. Work OS handles user provisioning, permissions, audit logs, all the check box items that enterprise IT requires. So whether you are a seed stage company trying to land your first enterprise customer or already big and expanding globally, work OS is the fastest path to becoming enterprise ready. Just visit work os.com or just message their slack support. They have real engineers in there who answer questions fast. And when you get in touch, just tell them Ben and David send you. Okay, so we've been dwelling here in the products and reflecting back on big wins and misses. During your 10 year as CEO, can you reflect back on your non-product wins and mistakes? My biggest hit from my time running sales to president the CEO is establishing us with IT departments, IT professionals. You can call that the enterprise if you will. And putting in the framework from a sales and marketing perspective, the staff, it's a capability we have to develop. Nobody developed that software model, but us. We invented this. How you do that? Oracle had done some invention, but we came on and did our own invention. We took it to the cloud. We were able to successfully navigate that with, I mean, look, from a sales, there's a product part to that that you highlight, but that's a big deal. And I feel very, very proud about that. From a financial standpoint, everybody likes to say we about triple, revenue and about triple profit. The truth is we dramatically increased profit more than a triple. Because people forget there was a major change that came along early in my tenure. And that's the move to have to expense stock options. So if you would restate it our books to the time I actually took over, stock option expense would have reduced profits notably. Stock options were unaccounted for. So if you look at what starting profitability would have looked like, if stock options had, it would have been lower. And the multiple over my tenure would have been much more than three. Okay. So three plus times revenue and probably closer to four plus in five, maybe even on profit, about the same time the dot com bubble busts. So you have two problems. Number one, now we're showing our books all this expense for stock options. Okay. But people don't value those things at what we have to expense. And the stock is flat, so they value them even less. This is a really insidious problem. You get to get rid of stock options. And we transition then from stock options to stock awards, which if you notice, I think we were the first to make that as a major transition. But everybody's made the same transition, you know, with the exception of a few senior executives, options are not the primary form of compensation. Little different in startups. But when you look at larger companies, everybody even startups are now doing our sys. Our sys. Yeah. So and we had to start that. I didn't realize that Microsoft started that. You can check. But I know we moved before most of the tech companies. The tough thing to have to inherit right at the beginning of your tenure coming off of an already all time high multiple of the stock price. The dot com bubble bursting meant our stock price first did too. But I think to your point, what you're saying is like, this became a employee motivation cultural issue. Like it's not just, it's not we had two problems before the dot com bubble burst. You have everybody saying, whoa, maybe we should go to a dot com company because we're like a lot more money than the bubble burst. And everybody says, you know, you guys, you haven't seen the Oklahoma, but there's a song poor judge or John is dead absolutely. And the light is dead. And that was kind of the way people felt about sort of stock compensation. And not just in our place, people were down because, you know, everybody thought they had a ton and then they thought they had less. So yeah, it was a real employee morale issue in the early 2000s. We had to really sell the stuff in. That's a big thing I had to work on. Obviously, the heavy trust. The heavy trust. I mean, when you took over as CEO, what we said in our episodes was that was actually your number one priority was just end this. It was right up there. Yeah, I mean, it was up there. I mean, I think when I took over, I'm not even sure we saw path to resolution. But having it an overhang, I'll give you a give you a story because this after I took over CEO, we had an executive retreat. We did it down in Ben Norgon. I can't remember the name of a large sunriver, I think. And we all fly down there. We rented a plane to fly everybody down there. I don't know how many people by then it was probably 80 90 something like that. And the first session was supposed to be a report. We did this a report from the field. What are people seeing out there? What's the environment? And this guy, Orlando Ayala was running sales at the time. And he gets up and you know, this is probably a two ish, a 102 or still in the throws of the thing. My name is Aura Lando Ayala. I'm a proud Colombian. I am not a proud Microsofty today. Our integrity is under assault. My personal integrity feels like it's under assault. They didn't blame us for having behaved badly. But he highlighted the thing that's on everybody's mind, which is it wasn't just like a business issue that need to be taken care of. It was a culture issue. It was bothering people, particularly senior people very personally. So I had this whole agenda to had to blow the thing up and reorient to address that elephant in the room. It was not where I was going with this thing completely remap changed the breakout sessions focusing on this issue. Bill was not happy with the whole thing. Bill bore the weight of the antitrust thing very hard because for him, I think it also felt like a personal attack. Of course. And everybody took it personally. Bill took it even more personally because he was the face of vilification if you will for this. But it's a reminder that it was a cultural issue to take care of. Not just a market issue. And people focusing on the well, were you moving slowly? But yeah, there were some of that too. People say, oh, I wonder if we can do this. That was an issue. The cultural issue, I think, was even bigger. So he said, yeah, we got to get this thing resolved. And then there was the order to break us off. I forget what year that was. You were going to run one company and Bill was going to run the other company. Yeah, we never really got to the point of really planning that. But that's what the federal government like ordered. Yeah, no, they ordered it split. They didn't say who had to run, which I think it was just that you couldn't be at the same. You couldn't be at the same. I would run operating systems and Bill would take applications. Let me just give you a sense of where each of us were associated with in the mind of the company. So that's your starting place as you're taking over from CEO, as CEO. The dot com bubbles bursting antitrust is dominating the company's culture and the external narrative. You have this big accounting headache that you now have to deal with that affects the way your profitability is shown. But then there's a decade after that where you triple the business, but the stock price is flat. Why didn't Wall Street get? I'm going to give you three reasons. Reason number one and it's material. Bill and I always so Bill and I and then me and Bill and I became CEO. We always were trying to tell people don't get our stock price too high. Don't have too big expectations for us. We never wanted people to feel like they got cheated buying our stock. And partly probably we were trying to lower the expectations on ourselves. I never thought of it that way. I don't think Bill did, but essentially that was part of it. So we do this financial analyst meeting every July and we'd always worn people. Don't get too excited. That's one. As part of that whole theme, Bill never went to a quarterly analyst call. And I never went to a quarterly analyst call. And if you really think about it, part of morale is the stock price. It is. And it took me a while to realize that, but I then never broke my pattern. It's sort of like going to the newspaper every day. You don't sell stock every day. So you really should only care with the stock prices when you sell stock. But people go every day. It's kind of like, oh, didn't my team win last night? It's like going to the sports section and say, how did the clips do last night? And so talking more regularly to investors and talking with not not a pie eyed, but a realistic view guidance. We gave no guidance. I had to fight people. They wanted to give guidance. I didn't want to give guidance. Why just deliver the results you get? I mean, you know, there was a bit of a buffet style totally. I mean, this thing going on because Bill and Warren were very good friends and Warren didn't go to quarterly calls. I don't think. And bad, not, but you know, he's worn. I don't even know if they do quarterly calls. I don't think they do. Yeah. So if they do the annual meeting, obviously. So that's a, let's call that a first reason. A second reason is, yes, I did take over when the stock was ridiculously too highly priced. Yeah. But that normalized within a year or two. The bubble burst that normalizes some, but it creates sort of another narrative about things. So that I'd say, no, no, I'll give you four reasons then. Next, I was hardcore about telling people, I'm going to spend to do the things we need to do to succeed. That's not what Wall Street likes to hear. No, but I was viewed as a spender. And I was much louder on this than then Sasha is on anything financial because I'm just kind of how I'm programmed. He's programmed a little differently. An Amy is more balanced. I mean, she'll talk about balance. And I would say, we're going to win with surface. I mean, whatever it is. If I could paraphrase my view of it, you were willing to say, we're going to spend whatever it takes. And Amy goes and says, I'm going to count for every dollar of spend real tight and make sure that every dollar demands a return. And so I had no credibility in terms of what some investors wanted to hear. Okay. And my actions were consistent with that. It's not like they were inconsistent. And then lastly, people did worry about the future of a couple of our franchises, most notably Windows. So you get all these things, narrative, transition from high price, some issue about franchises and me being a big spender, no wonder the stock stayed flat. And by the end of my tenure, it was even bothering me. Yeah, when did it start to bat towards the end? I mean, at some point I just got too tired. But by then it was also probably hard for me to reset that dialogue for me to go to investors and say, I'm a changed man. I'm not going to spend anymore. It was going to believe that shit. It just wouldn't believe it. Right? I mean, you can't come in and say, well, I've been a certain way for about 35 years, but 30 years. But I'm a new man. I'm reformed. I worship at the altar of capital allocation now. If you're a spender, if you're not good with investors, they're not going to buy in overnight that you've changed. You know, there's a certain, and I didn't intend it that way, but there's a certain disrespect by not going to quarterly calls with hindsight. People are going to say, oh, he's showing up. He's, he's a changed man. You know, he used to tell us the stock price was too high or worried about it. Now he's going to tell us, no, the stock should be okay. It should be higher. No, there was no way to reset my, the investor view of me. You need a full rebrand full clean slate. You probably need a full new CEO. I mean, when I wrote my letter of, you know, sort of goodbye to the board, I did say, look, this is a unique opportunity. There's a lot of things in our brand and our image that would only be able to be reset by a new CEO by having a new CEO because people don't walk in and say, oh, yeah, you know, guys are changing. So it's hard to change the narrative if you without the chain. Not I'm not saying that means CEO should go every time there's a bad narrative. That's not really my point, but it's, it's just gets harder. Particularly since, look, I'd been, I meant to only been CEO since 2000. But it's not like I wasn't there since 1980. Yeah, yeah, it was there since 1980. And essentially, I'd been the, you know, second voice of the company for 20 years and then for 14, you know, it was the first voice theoretically. Although that, that's complexity too. I kind of get the sense by the end, it wasn't fun for you anymore too. Now that's not true. No, no, it looked. The toughest time was probably the ship of Vista. Yeah, that was probably the toughest time. That in the early 2000s, when I took over on my little, my little sheet here, I highlight that 98 to 2004 were kind of tough years plus Xbox because that's the antitrust. That's where I move back to be president of the company and then CEO and Bill and I went through a year where we didn't speak. Really? Yeah, I think it was basically from some time in about March or April of 2000 to 2001. I mean, literally, we weren't speaking. I didn't know what it meant to be his boss and he didn't know what it meant to work for me. You know, when he asked me to be CEO, I said to him, look, and I knew he was struggling with the DOJ and all this. I said, do you really want me to be CEO? Or do you just want me to be a figurehead? And he said, no, I want you to be real CEO. Okay, that meant something to me. I would probably have said, yes, even if he said, be a figurehead, but he said, what do you want it? And probably him saying to himself, hey, I've got to have a transition path. So I said, okay, I'll do that. Well, he didn't know how to show me a different kind of respect. I didn't know how to show him a different kind of respect. There were things that I thought, you know, where I just disagreed with him and now I expected it to go the other way. I was always happy. I was happy being a number two guy. I was fine. Salute. I don't like the decision. I either salute or I'd body punch and then salute or body punch. I need a degree with me. Body punch means it's a slower process. And then, you know, we didn't know how to do that. We just didn't know how to do that. And after a year, we started talking again, basically our wives were the ones who pushed us back together. We had a very awkward dinner to health club down the street here. But, you know, we get back together. But we never really got the right mojo. I mean, Bill's chief software architect and I was very deferential then to, you know, sort of product direction from Bill. And that he's working on Longhorn at this point because it's post XP, which was a mistake. Longhorn was a big mistake. I have to take accountability. I was CEO. Bill's got to take a lot of accountability. And it was the mistake of mistakes. And between the company, you know, Bill and I to the disagreed about whether we should do hardware. That was a big one. We did surface was big disagreement, phone, big disagreement, HoloLens, big disagreement. What about Azure? Were you aligned? Bill was fine with Azure. The cloud, Bill and I had agreed on in the 90s, right? I mean, Energizer, Energizer. I think Energizer could have been Bill's idea, not mine. Yeah, pretty sure it was Bill's idea, not mine. I executed it. Bill's idea, not mine. But, you know, we never hit it. There were places there should have been more contention. Maybe even during the late 90s, I don't know. But there were certainly places where there should have been more contention. And I, you know, my God, I was, you know, these are the smart technical guys, Bill and I'm trusting. Vista. I'm beginning to have a pit in my stomach. But we didn't have the right contention. I mean, it was at the, and this is not directed at Bill, personally, it's directed at all this. We kind of had an emperor that had no clothes. Yeah, that was long. That was long. It was the emperor that had no clothes. And partly it was the centrality of windows and the notion that windows would say central. Therefore, people would all want this new stuff. Partly, there was sort of a, there's too much change all at one time. We didn't do a new operating system, but we're kind of doing a new operating system. We probably have been better. It may not have sold at all, but we probably would have done just or just to do it. Yeah, I just don't know. Forget what we called it. Just starting from scratch. Maybe keeping parts of the kernel, but otherwise starting from scratch and throw out all that cob, you know, all the, the scruff. Now, I don't think we would have popularized it. And if we'd looked at that way, we probably wouldn't have built it. But by then, you know, we're a little cocky about windows and it was our thing. So I don't think we had the right grind in our system there in the early 2000s. I just, between Bill and I, you know, did we make some good decisions? Yeah, we did make a good decision to do Xbox. Were we doing too many things? Yeah, we were doing too many things. And I would say there was probably a voraciousness misplaced by Bill and me. Maybe, you know, I had to be a deal with some of the pragmatics of hiring people and stuff. So I probably, I didn't push back on it. But I probably felt the pain a little bit more in terms of trying to hire people. And, you know, so that's kind of 2000 to 2004. And then by 04, Bill was already, you know, sort of talking to me about wanting, you know, wanting to be able to go. And then 06, we announced that he was going to go in 08. I also think we screwed that up. You can't have a long goodbye. Long goodbyes are not helpful. Yeah, yours was short. Yeah, it was goodbye. You know, I stayed on the board for one more board meeting after I left. That was it. But a long, a long goodbye, then nobody, that nobody knows their role. I think I did some of my very best work after Bill left. If you ask me, when do I think I did my best work when I started when I was running sales and sort of evolving the center prize business. Someone I ran system software. And then the last last six years I was there. That's cloud. That's surface. That's some of the improvements in windows. I feel really good about my last last six years. Bing, that's when we hire, I think that's when we hired Chilu. Chilu? Yeah. Chilu, do you guys know the story of Chilu at Microsoft? Chilu is one of the most pivotal things at Microsoft. Okay, why? I knew it was important, but tell us the story. The story. In a way you, in a way you may not even know. First of all, bring a guy, great guy. So Chilu is talking about leaving Yahoo. He's at Yahoo at the time. And Chilu, I think, went to graduate school with Harry Shum, who had been in Microsoft research. And Harry was now working on search. And he was working for Satya, who was running Bing. And Harry says, which that's an amazing sentence all in itself. Oh, Satya, the guy who was running Bing. He was running Bing. And Harry says, cheese a genius. We've got a higher Chee. Or, you know, we, and we, and we, I don't know if she really wants to work or, we got to pick cheese brain. We just have to learn from Chilu. Okay. So Satya, me, Harry, fly down to California and we meet with Chilu. And we talked to Chee and Chee's brilliant. We're learning all this stuff about Chee and Chee leaves the room. God, there's a lot. And I don't know who throws the idea out at first. Maybe Satya, we should hire Chee and I should work for her. Whoa. So Harry and Harry was all in. Harry worked for Satya, who worked for Chee. Now, we flipped it around. You flipped the whole reporting structure to hire Chee in the room. After Chee walked, we talked for about 15 minutes. And then Harry calls Chee and said, do you mind coming back? Wow. Wow. I forget where Chee was thinking he'd take his next job. He had a next job in mind. Maybe it was with Baidu. I can't remember someplace. Wow. So then what did he do at Microsoft that made him so impactful? It's the story I just told you. It's what it told me about Satya. I mean, I love Satya. We were giving him more and more responsibilities anyway. But it told me this guy will do the right thing for the company. He'll prioritize that. He doesn't have an ego that gets in the way. And Chee did great work. I mean, Chee knew about Sir, or she could bring in a different, you know, he was an old pro at it. And it started the cash flowing billions of dollars eventually. Eventually. I mean, and Chee's in it. I mean, Satya is not an engineer by training. Chee's an engineer. He's a PhD in computer science. And he had a lot to bring. Satya's been great at managing product development. That's for sure. But, you know, he's like that meeting digging the bits and bytes kind of thing. So, but the meeting is the thing that was important. Chee was important. Sure. But what Satya and Harry did that day where they just found a guy and said, well, hi, please Steve, go hire him as our boss. Yeah, you don't hear that very often. No. What year was that? See what year would she have come? Oh, it was probably it was after Yahoo, see, oh, we don't know. Six years before. Oh, nine. Yeah. Satya became CEO for five years. And that let me then be able to also say, now I can give Satya more responsibility doing something else. Why did you move him to server and tools? I thought it would be great to get. We had Chee. So we could probably move him. I thought it would be important to give him other experiences to try to get him right to, you know, be able to be CEO because he was on a list of three or four internals at that time who he said, we'd been on a list of guys we had been talking about because we did an annual succession plan thing. You know, succession plan is two candidates. It's what happens if you get hit by a bus and what happens if you get served a term, whatever term feels like. And though they're different people, right? If you get Satya gets a by bus, if Satya serves another five years, it's probably a different person. Now I think that's true and most most companies you got to think about it differently. Anyway, so I said, hey, get him another experience. You know, he hasn't worked in apps, hasn't worked in server and tools and it was kind of a good time to sort of switch things around, you know, Bob wound up obviously being super successful because Bob was running server and tools at the time. And I love Bob. Bob's one of my favorite guys I've ever worked with. What on to be CEO Snowflake? Yeah, absolutely. Worked out for everybody. He's done fantastically well, but we moved Satya into that job. But you know, and then that was he was on a great path and cheese higher made search as strong or stronger. Showed just how right Satya was, we talk about this in basketball, you know, he said all about team first or not, all about team first, which is essential. And we were able to give him the additional experiences, which were super helpful in terms of him then taking over CEO. That's why he was turbocharging. Yeah. All right, listeners. Now is a great time to thank one of our favorite companies and one that has become essential to how we make acquired and theropic and their newest flagship model, Claude Opus 4.6. Which we have been making heavy use of here at acquired HQ. I actually just lease some space for the new acquired studio here in Seattle. And when the landlord sent over a pretty simple lease, I thought, oh, this is totally something I can review myself. I looked at it, but then I also thought, okay, I could use a sanity check. So I uploaded it to Claude and asked if there was anything that I should be mindful of or in consistencies or anything I should push back on. And Claude actually found three things that I totally missed on my own review. It's amazing. You told me about that. I've actually been using a lot here for writing show notes. I end up with so much detail in my like 50, 60, 70 page script documents that I'm like way too close to the material. And I need a fresh set of eyes for what the big points are as I write up the show notes for each episode. And I used it for something similar too. When we were preparing for our Super Bowl Innovation Summit, I had Claude go back through our old NFL episode and searched the web for what numbers had actually changed since then, then go through it with me and figure out if that changed any of our older conclusions. Yeah. As Anthropic puts it, Claude is the AI for minds that don't stop at good enough. It's the collaborator that actually understands your entire workflow and thinks with you. Whether you're debugging code at midnight or strategizing your next business move, Claude extends your thinking to tackle the problems that matter to you. So whether you are shipping the next great product or tackling problems that need deep thinking, Claude Opus 4.6 thinks through complexity with you, not for you. It's your intelligent thinking partner. So if you're ready to tackle bigger problems, get started with Claude today at Claude.AI slash acquired to try Claude with 50% off pro for three months. And if you want to explore their enterprise offerings, just tell them that Ben and David sent you. We want to talk a little bit about your post-microsoft term, but let's sort of leave Microsoft with a final question of why did you resign? Yeah, a couple things. Two or three things. Number one, the phone was very on my brain. When you said are you having fun, that was the thing that was eating at me the most. It was the phone. And I decided we needed to flip the model around. Your episode's pretty good about all that happened. So I'm not going to go through all that. But I knew we had to do hardware. I knew it. There was just no question. We weren't going to be able to play the search game, the Android slash search game because we just didn't have the power of monetization that they did. And Apple's Apple, but there are going to be two phones. It's not like there'd only be one phone that was popular in the world. And this is something you guys didn't put in the episode. I'd been trying to buy a hard I had talked about buying a phone company for years, a number of years before the Nokia deal. I forget what year it was. I flew to Taiwan and we were looking at buying HTC. They were the biggest Windows phone OEM at the time. Nokia wasn't signed up. I finally just decided Terry Myers and I had three, four trips to Taiwan to talk to Peter. Look at the organization. I just decided it would be too tough to buy a Taiwanese company that it would be. I would worry too much about the integration. I liked Peter Cho who ran HTC. I don't know if that name means anything to you guys. Of course. But I'd been looking at that thing for two or three years maybe before. And Bill and I had continued to have all the tension. We had about anything that had hardware in it. So it's not like our relationship was calm and it's clear. It had it had always been bumpy. I mean, even back to the beginning. I almost quit after four weeks because we were in it. Five weeks maybe. So it's not like it had ever been that would be a very poor economic decision. It had never been linear. We had another big fight year after about financial stuff. So it had never been linear. It had been it had helped build Microsoft. But that didn't mean it had always been easy for him or me. So the hardware thing was exacerbating our our relationship. I thought we really needed to do a phone and then the board said no, we don't want to do a phone. And I was very transparent with everybody. I was like, here's. You know, we brought the manager. You got this right. We brought the management team in and I don't know if it was more wanted to buy or didn't want. But I let everybody speak. I mean, it's a big decision to be in the phone hardware business. And then the process from we do the presentation and the process from there to the time the board says no, I didn't find very respectful. More than asked me to leave the board. I just didn't find the process. Very respectful. And I probably won't go into the detail that. So and a lot of it has to do again with my relationship with Bill. Because you know, we're and look, I knew Bill didn't love the idea. And I was willing to sort of accept whatever the board decided. I was no no question about but the process wasn't very good. And I was not happy with the process. But they wanted me to stay. But the probably I just decided to things. If we're not going to buy phones, that's kind of my best shot for a consumer future for the company right now. That's my best shot. Now I tried to fire the Yahoo shot, the phone shot, those were my two things. Remember mobile in search. And so I said, look, this might be this might be the right time. We can't we can't make my play here. Not out of peak. It's just, hey, I thought about this in advance and said, look, if it doesn't work, it doesn't work. If the board doesn't want to do it, fine. And so I said, this is a good time. It's also good time because the clouds just coming on. And I'm saying to myself, look, we're going to have to build new capabilities. Even the way you we're moving to a gross margin to a non something below 100% gross margin business. We have whole new capabilities. We need to build up around that. I even think of it through the lens of the accounting system. Like how do you we have these revenue and cost reports. They have to change in the world of the cloud because you really have to get tight on gross margin, not on not on revenue revenue. I don't really pay much attention to Microsoft's revenue. I pay attention to the gross margin growth. These days, you're saying those days, when I said the move to the cloud, I used to say this to analysts, you should expect us. You want us to have lower gross margins going forward, but we'll make it up in volume. Right. I mean, that that is the whole problem. Yeah. Yeah. Yeah. Lower gross margins. It's like wall marks and okay company, even though it's, you know, that margins, whatever, a percent and a half to percent, you just got to make it up in volume. So I knew it was a good time to let the new person sort of build from what we had to sort of the next generation of all the machinery that would have to happen to make cloud happen. Phome was, I never lost my desire to be an end user company. I bimoned the fact that I couldn't keep us focused on being an end user company slash consumer. It killed me. And sort of you don't just, I might be a consumer company. No, you got to find the locomotive, not just a bunch of cabooses. You know, at the end of the day, Zoon was a caboose. A lot of things we invested invested in were cabooses. We had to find the locomotive. They're only two possible locomotives in the meaning sense. And I didn't have a play that I thought was going to break through anytime soon in search. Mobile was going to be really hard. But I knew in my heart of hearts that without physical hardware, we weren't going to break through there either because of search. Bored said, no, I said, okay, Bill and I are, it's not really a board being this respect. Like, maybe it is, but it's mostly me and Bill were grinding grinding. And that's never fun when we grind. And I said, okay, we're grinding. I know it's frustrating for him. It's frustrating for me. We're grinding. Here goes my idea. It goes my idea. And oh, by the way, this is a great juncture point. So I said, okay, I'll pass. And then the board changed. So why did they buy Nokia then after your decision was final? You were out. Oh, I don't know. Maybe you don't know. Yeah. I don't really know. I mean, I'm not sure they really understood, but I told them about, you know, we had a deep partnership with Nokia. And I'm not really sure maybe guys really understood. I hadn't done a good job explaining how close the partnership was. So there was really no go back to Nokia and see if we can have a bigger partnership. The problem with the partnership with Nokia is they didn't have the money to invest in marketing. We did. We did. They didn't have the market to go. They did not have the ability to go deep pockets. We did. But if we didn't have the monetization capability back through the phone, we weren't going to be able to make it work as a partnership because we had to put in the cash and therefore we had to get the return. And it wasn't going to work. It reached a point where you had to buy the company or just cut bait totally on the whole thing. Yeah, just because the money, the math wouldn't work. What we had to do to be successful was beyond their financial capacity. But if we were going to do what it took to be successful, we couldn't do it on like $4. Right. You needed the royal margin dollars from the hardware too. Exactly. Exactly. So you left. You did a pretty incredible thing or really you didn't do an incredible thing. You held everything. You're still the largest individual shareholder in Microsoft. I think I might be other than the index funds, the largest institutional investor too. Basically besides Vanger. Not far from the economy. On the one hand, I imagine it was very simple. And you've given reasons and other interviews in the past. You're a loyal guy, etc. Just talk us through the emotions thinking about that. I imagine that was not so simple. No, not. I leave. And then what does it mean to emotionally detach? Because if you're not there, you have to emotionally detach. You can't say because you know what you can't control anything anymore. So it's hard. You don't want to stay quite that emotionally attached because it's like, oh, I'm going to get back in and fix everything. But I said, I'm going to be the best investor. We're going to know everything about this company. We're going to go to I'm going to read everything just like I used to. We're going to go to conferences just like we used to. I went to one shareholder meeting and I was kind of a dick in my opinion. I mean, literally one of the shareholder shareholder meetings. And I just, yeah, I was too emotionally attached. And so, you know, took me about a year to say I just have to emotionally detach. So it took some work, but I kind of was able to get there. But I'm still loyal. Didn't want to sell. There's one, then we get our philanthropy started. And then I do need to do something because we do need some of the asset value to give away. So I went through a bit where we gave some away, i.e. we put it into our donor advice fund. And I also sold a little bit at the time. And I was thinking. This is like 2015ish. Yeah, it might have been even 16 something like that. And then, because our philanthropy was just ramping up, I mean, kind of even giving away money, but the dollar value was acting. And then I said, maybe I should just sell it all. Full emotional detachment. Wow. Let's do full emotional detachment because look, it was my baby. It's my baby. I mean, I'm not a founder, but I think of myself as a founder. I was there so early and I hired basically everybody. And everybody was a senior leader. I recruited. And it's not true anymore. Now things have changed. I should probably only 10% of the people who are there now were there when I was there or something higher at the senior levels. I mean, I can go through the math and why that's true. But that would be a very understandable decision. It's just emotional detachment. It had nothing to do with money. Yeah, yeah, yeah. My only thought process was emotional detachment. I was, I was, I was wrestling and you're ready to hit the button. You're ready to hit the red cell. I was wrestling. And then lady who works here, ex-microsofty, who works here in finance, who's the woman who sort of really charts what's going on financially at Microsoft. She and her boss, who's another ex-microsofty, who used to work with me most closely on the financial stuff. But she says, you can't sell. You can't sell. This is going to be worth a lot more. You can't sell. You can't. So she effectively made a Microsoft stock pick. She made a, and she was recommending. She had some, she has loyalty too. It's not like, you know, we have a bunch of Microsofties here. And it's not like they lack loyalty either, but it was a little bit loyalty and a lot of pick. And I said, look, my loyalty trumps my emotional attachment. I can get through my emotional attachment, but my loyalty. And look, I think of the thing is, I think of the thing as like a two headed hydra. I thought about this the whole way. Things could go to nothing or things could explode. And that's partly why we tamped on the stock because we always saw the possibility for either of two radically different outcomes. And finally, I said, look, I don't really, I'm not going to sweat whether we're going to get the downside or the upside. I'm just going to be loyal. And I'm going to be enough emotionally detached for this to be okay. Because for you, it kind of doesn't matter. There's not a downside that could be so bad. I had an actually packed table. It's not like my family's going to. You could still run one of the best philanthropies of all time, even if the we could be starting our fat. I hear you. I mean, kind of, kind of would have been okay with it. I mean, she finds it difficult to give away as much money as we have. Every she wouldn't have mind a smaller problem to start with. She would have been okay. I've been charting it over the last three years. You guys are giving away almost somewhere in the neighborhood of a billion dollars a year. Cash out the door. But your net worth is ballooning every year way faster than you can give money away because of the Microsoft hold. Yeah, I'm one other thing that yeah, Microsoft hold, but you may be missing one thing on the Microsoft hold that's important. And that's the size of the dividend check. Between Microsoft and the other stuff I own, the dividend checks are pretty close to what we give away. So you can look at the appreciation, but you know, we're just above the dividend check. You're just trying to shovel the money thing is coming in the door out the door. So you can fund the whole philanthropy without selling additional shares. Well, there's two things that are going on. One, the dividend checks are pretty good. And number two, I do have stuff that's not in Microsoft. So you hold, I think mostly index funds outside of the clippers. Is that right? Yeah. Clippers slash arena index funds. I have one business I invested in with a guy who I went to college with who worked at Microsoft. It's called Stagwell Media. It's a marketing services company called a modern day ad agency, but it's not really an ad agency. A guy named Mark Penn. So I do have some money that's not in index funds, but mostly I'm in index funds. And which I mean, that is anybody else, you know, in your the same couple top pages of list that you're on, you must be the only one that operates like this. Everybody else, huge family offices, lots of investments, private equity, funds. But if you look at the guy, I mean, I would say probably would find that Zuckerberg is pretty concentrated. I don't know this, but I'm going to guess you would find, I don't know about Ellison, but obviously some of the guys who own more privately held businesses, pretty concentrated. I'd be concentrated. Yeah. Yeah. Who else? The Google guys, I imagine are concentrated, but I don't know that. I mean, I can't speak for anybody else. Obviously Bloomberg is concentrated. Right. Right. So, well, I think in practice, it all works out the same way of like there's one thing that is everything. And look, if you sell it, you're just going to pay capital gains taxes. So you really, if you're really just being a financial monster about it, you got to decide, will Microsoft underperform the index by enough to write, right, right, right. Top of the capital gains taxes. I don't need the money. I got plenty to live on without selling anything. That's number one. Financially, where's that money going to go? Someone go to my kids, but most of it's going to go to the government or to philanthropy. So why would I sell? So we have left less to give to philanthropy someday. Unless I really think Microsoft's going to underperform the market by essentially the capital gains rate. So I feel like I'm watching a live USA facts. Yeah. Did you right here? Yeah. I got this question once. I'm a member of a country club in LA. And one of the things country clubs do sometimes is they'll do Q&A with members to entertain. And I did a Q&A with a friend of mine at the club. And who'd been president of the club actually. And also is a kind of knows Charlie Munger pretty well. Charlie Mungers there as well. And Charlie Munger comes up to him beforehand. And to me, I know Charlie through Bill and Warren and says, if you call on me, I have a question. As only Charlie can. So you did a Charlie episode. So we do the Q&A panel thing, the two of us. And then Q&A Charlie gets up to the mic. He's not moving super well, but he gets up to the mic. And oh, Charlie, we can call on you. And Charlie says, Steve, you know, I'm wondering why you held onto your Microsoft stock when your partners over there didn't. I know you're not that smart. I said no Charlie, but I'm not loyal. Wow. I don't know why my Paul and Bill didn't hang on. I don't know. You'd have to ask them. But for me, it's sort of a from the heart kind of thing. And I think it'd be fine. It's not going to screw anything up financially. I mean, what's the worst thing that happens? You know, Microsoft goes to zero probably not. But even Microsoft goes to zero. Me and my family, we can live. We can give away money. We, you know, it's not going to go to zero. And and I'm okay. Either anyway, it goes. I'm fine. And are the clippers in the into a dome fully paid off at this point? The clippers are fully paid off. I paid them off the day I bought them. That's not true. I didn't want to sell stocks at the time. So I borrowed some money, which is long paid off. Into a dome, we borrowed some money against into a dome. So I don't know any money on it. Oh, that's not true. I owe some I have some margin debt that I used to, but again, it's just a timing thing. I didn't want to sell stock. So took some margin debt, which as dividends come in, I'm reducing the margin debt. But the building itself has debt on it. Why? Because to sell the building, let's say something was to happen to me and my wife had to sell it. It obviously has a lower value. The buyer would have to come up with less cash because it has debt on it. So call it worth the X billion. Right. You just rolled it and it's got Y billion on debt on it. You're only selling it for X minus Y. You're not selling it for X. Meaning the universe of buyers is bigger because it has debt on it. And oh, by the way, I happen to get the debt at a very good time at a very good rate. So it's sort of a double value to a future buyer. So that's the reason we put debt on the building. And the margin debt was just a timing issue if you will. I feel like I've done you or we've done you a great disservice by going into the clippers and into it, dome through the elemental lens. Yeah. Can I ask you now that I do not own well, and I will also tell you unlike Microsoft, it cannot go to zero. Yeah. Yeah. Like the asset value, not a chance. It is far more secure than Microsoft. Why not make it more of them? They're not making more of them. And as long as anybody in the world's getting richer, the buyer pool will only go up and people don't buy them for their earnings. I wish we had more earnings. But the end of the day, people are buying them because almost more like a piece of art. I mean, not everybody, people don't like negative cash flow. But at the end of the day, and I have the clippers, we have the best market in the world. You know what I want to ask a ball team, other than maybe Miami, the only place players want to play is LA. And if you look at buyers, if you're a buyer and you where do you want to go? You care about where you live in LA. Where do you want to go? Well, you want to go to LA or you want to go to Miami. You don't want to go to New York in the winter time. And if you're a foreign buyer, you know, potentially, you want to go to LA. So that asset value, I mean, we should get on to something other asset value. And I'm not selling the thing. My estate may sell it. I don't know what the Connie and the kids want. But at the end of the day, that would just not have a lot of volatility. It's a nice retirement fund. What's been the most surprising thing in your clippers journey? I'll give you two parts of the answer. First is how the, I relate to that business versus the businesses I've known. Number one, there are more similarities than I ever thought. I mean, we do version upgrades, just like you do, what's a version upgrade? You do major, major version upgrades over the summer. That's the draft and free agency and trades. And you do a minor version upgrade at the time of the trade deadline. So yeah, it's very similar. Six months, chip cycle. So you're service pack. Yeah, major. He's a minor release. He won an SBT. And by the way, you know how people like Agile now development. Guess what? That's called changing the game plan per, you know, the coaches are always modifying in that sense. It's a little bit similar. I never thought about that. The business is just like Microsoft. We sell both advertising and that's called sponsorship. And we sell tickets. Software licenses software like, oh, no, that's like software licenses. And we have an OEM business. That's called broadcast revenue. That's 100%. It's called. Actually, it's, yeah, remarkably similar. Yeah. I mean, just in terms of business modeling, we do have a union. That's very different. What that means in terms of the complexity through the collective bargaining agreement, it also covers things like what's max salary, what trades can you make, all that very different. Yeah, actually, you're kind of, you really are business partners with your, with your competitors. That's sort of different. I mean, you actually get together and talk to them. I never did that. It's a Microsoft, but you get together and you talk to them, but you're trying to compete. If you have somebody who wants to advance through their career, oftentimes the best way for them to advance, they have to go to another team. And we have a president of basketball. It's not an open job. And I don't plan for it to be an open job. I don't want to lose anybody. But if, you know, a lot of the career moves people make would be to other other organizations. We don't like that, but we want to have the talent everybody loves. Right. Microsoft, your domain is always growing. And so there's always the domain is growing or number of people, you can move people. You're an engineer, you're bored, you've worked on acts, we'll move you to work on a different product. For example, it's different. The way you think about people because primarily because of the union, but also, you know, just, there's only 30 head coaching jobs. They're just R. So if somebody wants to be a head coach and they're not our head coach, they have to find a job someplace else. Again, not what we want. But the reality is we don't want people held back in their career. It's not like Microsoft, where I felt like I could always find a job that somebody should want. So that's different. I give you, give you another one to think about, you know, business likes to say, oh, we're accountable, we're agile, we're this, we're that sports is so much more accountable. Hmm. Then business, it's like a joke. I'm being a bit extreme for fun. But every 24 seconds, you get a report card basketball shot clock. Every 48 minutes, you can't say I'm going to make it up next quarter. We missed, but I got it next quarter. No, you lost that game. That game is on. Your loss come for the rest of the season. You cannot dig yourself out of that one game loss hole. You can't. It's gone. And you can probably also be reasonably confident about each individual's contribution to that winner loss. Now, now, now, let me get to that. Your customers know everything you know. It's not like you could say, well, I'm back in the lab. You wait until you see what we got in the lab. Every statistic we have our customers have. You want to know how many miles James Harden ran last game comes out of the statistical systems. You can you can find that out if you want to know how many picking roles we ran of a certain tight and how they were guarding how we did scoring against them. Don't worry. You can read about it. You want to look and see what the dynamics looked like on the sidelines. You can just sit there and watch our players and say, oh, I don't know everything. I don't know what they're saying, but I can see their body language. Oh, so and so seem really charged up. Oh, that's great. So and so cheers for their teammates. So and so see down. There's almost nothing. I mean, we get to watch practice. Fans don't, but the level of accountability is so high. The speed is high. Think of teamwork. Teamwork, man, it's all on display. Not as on display, but you absolutely know you need teamwork. One star does not can't bail you out. You may have one star, but then the pieces have to fit around the star. You know, it's just it's just kind of the way it is. You can't take you know how businesses, you say, okay, everybody wants to talk about teamwork. And in a lot of places that mean, hey, Ben, you know, I don't know, we could work better on this and then Ben can say, uh, your team's doing things wrong. And then we can get back together and talk a little more. And then a month later, we can talk about it some more. Probably you've seen this in some organizations. And then at some point, we'll talk about it as if we're a great collaboration. Right between our two teams. And you know what has to happen in our business every minute. Yeah, actually, yeah, actually say it, pass the ball. Yeah. Or you know, hey, this isn't working. You got to do X. You got to give real-time feedback. It can't lolly gag or I will, you know, let's rub each other's belly. No, if you want that team to be better, you have to hold one another accountable, not just the coach. The best teams, the players hold each other accountable. And not just the best player holds everybody else accountable. But the guys who are not stars have to be able to hold everybody's got to hold everybody accountable, which means really means give the feedback. In Microsoft, we got rid of the value called teamwork. I didn't want that one. I said, open and respectful and dedicated to making others better. Because teamwork could sound like a treat everybody. Nice, nice, open. Yes. Got to say what's on your mind? Respectful. Yes. But number one dedicated to making each other better, which I think is what the purpose of teamwork is as opposed to the word team. That's interesting. Teamwork is a, like an implementation detail, but that's not actually the goal. We don't seek to have an organization full of teamwork. It's teamwork because we want some output. Exactly. And, you know, I think back to the old HP team, you know, I'm okay. You're okay. Let's all be nice to each other. And, you know, there's a little bit of that that's kind of come back into the general narrative of culture today and, you know, generations, you're much younger than me. But at the end of the day, if you want to succeed, you're right. The goal is succeeding. Yeah. And in an NBA team, play well together. And in an NBA team, you're going to know in two and a half hours or so, two hours, you're going to know. It's interesting. Yeah. Professional sports is kind of like maybe like the last bastion of, there's not room for the AMOKE. You're okay. Let's talk this out. Oh, your team's talked to my, it's like extreme accountability, extreme accountability, extreme teamwork. See, look, I learned some things that would have been very helpful for me to understand at Microsoft. I'll give you another one. Reference checking. Everybody does reference checking, right? How good is the reference checking in most businesses? Not good. Well, most people call a front of sheet references, which has never made sense to me. Or you call somebody who probably doesn't feel like they can give you an honest answer because they don't want to get sued or basketball. You should see the amount of reference material we have on a guy before we draft them. I mean, people have talked to their old coaches. They've talked to their teammates. They've, right. Yeah. And it's not just, I mean, that's kind of scouts, dude. They've watched them play. They've been to practices. They kind of know what they've talked to references about work. I just, if you could scout your future employees, you're going to just go hang out at their current job. Yeah. Or you, you know, you talked to their parents. I mean, there's so many things that draft choices are such a crucible decision, right? Because free agency, I mean, you mostly know what you're getting, right? Like you're, you do, they have a body of work. See the body of work. You may know what happens behind the scenes. You may not. Right. So there's some risk to it. But there's a body of work. Yeah. A draft, you get two choices every year. Well, we traded some away. But yes, right, right. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. You know, in aggregate, every team gets two choices every year. And you could choose to deal those choices. Yeah. Yeah. Yeah. Yeah. Yeah. But like that's, uh, and that's hugely, hugely impactful. And you, well, and you're dealing with one other thing, uh, my wife reminds me. Boys, brains don't fully develop until they're what 25 and we're drafting guys who are in 19, 20, 21. Yeah. So you're also having to say, by everything I know, what do I project that guy looks like as they get into their, you know, you could say you enter your prime around 27. What do you start looking at though? You're going to look pretty good or not by 23, 24, 25. So you have to sort of have a progression of what you think happens to the young man. Uh, when you draft them. So the more, so reference checking bigger, much bigger deal I found. Uh, and, you know, people say, uh, well, you know, it's simple. It's sports. The strategy decks I get 35 power points, 40 power points easily to go through. Okay, here's our strategies. What about this? What if what about this? What do we do here? The complex, we have a PhD, uh, physicist who, you know, is a key part of our, our analytics group, uh, focuses on our analytics systems and it's not like, you know, the stuff's not complicated. It is. Analytics has become this really big buzzword in sports. Where do you see real alpha actually happening in data science and sports versus what's just like table stakes at this point? There are two ways to use analytics. One is for game planning. You know, literally, what does this tell us about the best way to guard, uh, Anthony Edwards in this situation or these situations? Very helpful for that. I'd say the data is probably table stakes. Honestly, the way you use it, not so much. Do you ask the right questions? Maybe not. You know, does coach really understand and embrace the analytics people really, uh, able to mind meld with coach so that coaches, you know, get the insights they can for game planning. The second is what about for drafting and trading? Analytics are actually a little less important. In that, in that instance, because they don't really tell you how if you mix Charlie with Harry, it's different than if you mix Charlie with Bobby and Charlie and Harry haven't played together before. So it's a little different. They are helpful. We have analytics, for example, and all the kids we're going to draft less, less valuable than on pros because you're playing against the different level of competition. Do people have differential data? Not much. I mean, the same cameras in the ceiling or recording the same games. Most of the analytics data now gets processed through standard, you know, sort of software packages that get licensed to everybody. So there's a company called Hawkeye, Second Spectrum, and basically, you know, they built machine learning layers on top of the raw motion data, et cetera. And, you know, so every team winds up at the same tools. Doesn't mean you don't need smart guys. It doesn't mean to do, you don't do analysis on top of it. Has anyone had a breakthrough form of measurement? Is there an example in the last five years of a team that's had a great data source emerge? A different data source than other people have. No, I don't think so at all. It's the things people emphasize in terms of what they look like, look at could be different, I think, very much by teams. There are teams at the draft who just have you take a psychological test. You get to interview with set of kids and they might just have you take a test. Other teams, it's all about the interview. Some people, I don't know if they have them see psychologists. I don't know, but people will use different techniques to try to do some of that. It's a little different than analytics, but it gives you the sense of what is important. How do you assess what's important? Fascinating, interesting. How does Intuit Dom fit into all this? I love Intuit Dom. Since we talked a lot about products, and I've been involved in, I'll say the visioning and to call myself a visionary, but what should this product look like? Particularly those, a number of them, both windows, but certainly on the back end products, back end meeting, they're not customer visible. But I would say Intuit Domes, probably the product for which I had the clearest vision I've ever had. I knew what I wanted. It evolved some because we went and looked at a bunch of other arenas, but I had a point of view. I know what user I wanted to make. Make happy. I bet a lot of people aren't familiar. What is the thesis behind Intuit Dom? I wanted to make Intuit Dom the best place for the Hardcore basketball fan. Particularly the Hardcore Clippers fan, right? Sure. We're the only team that plays there. You've got another team that plays there every night. You're visiting team. But like Intuit Domes. Yeah, they're not trying to help them. So, yes, Clipper fans, but we're going to have the Olympics. We'll have every Olympic basketball game and Intuit. I wanted to be great for those environments. We have some college games or high school games in their basketball, basketball, basketball. So you sit in there and you're a fan, you want, it's a live event. I have energy. I have intensity. If you're a basketball fan, come on. Let's go. So you want it tight. You want to have it reverberating with people who are cheering. We built essentially a whole side of the building is structured more like a college gym long and steep. There's no, there's no sweets on the side. We even built a student section right in the middle, i.e. at standing room only. You must stand. That's what you have to agree to if you're going to sit there or be there. You have to agree to stand. You have to agree to cheer. And if you don't, we'll find you another place in the building to sit. But you can't wear visiting gear paraphernalia on that whole side. 4,000 seats. We'll move you if, you know, otherwise. It's small. Not the number seats is a little small, but the way we pulled it together, there's no hockey. I didn't want hockey. Not that hockey's not a great sport. But, compromises you'd have to make to the arena. You have to spread it out. You have to spread people out because the rink is bigger than the court. Very different. Basketball. We put in this, we have an acre of scoreboard. The Halo board is unreal. More statistics. More statistics. We did, we went 4k from the start. I didn't realize it's an acre. You have an acre of scoreboard. Inside and the outside. It's almost an acre. It's the largest indoor screen in the world. Yeah, yeah, for sure. For sure. And what you were describing before is the wall. So at the wall. For any fans that haven't or listeners who haven't seen a game there or seen anything, you've done interviews about this. It's an unbroken 51 rows, unbroken. All the way up. Student, I caught the student section. We caught the swell. Plippers, waves, get it swell. The swell is right in the middle. They do a chant before the game starts. They're chanting. They're making noise. A bunch of them find weird things. They want to bring to games. Funny posters. But every and you you basically signed up first come first serve. If you're not there early, you're not in the swell that game. So we oversell the section. It's a thousand bucks for the year, which is only 25 bucks a game. Hell of a price. You're expected to deliver the goods. You have to bring the value. You got to bring the value. And the thesis behind the wall if I'm sort of understanding correctly is it should be easy to be a clipper player, but hard to be an opposing player. Put it right on top of the visitor's side. So it makes noise right in the visitors. Huddled. We put the swell right behind the backboard. So basically when you're shooting free throws on that end, you're looking right at the swell. And it makes a difference. I saw data that said that the lowest free throw shooting percentage of the league for the visiting team is against the wall. Like Steve, I mean, that's what I want. What are the other owners think of this? We've had a bunch of people come through look at the building and would I be surprised if a number of the new arenas get built don't have a wall. No, I would be or at least at least you student section duration of your advantage because not every other team is doing builder remodel and arena. But you also have to remember I took some financial hits on this. We have your sweet less revenue and we only charge a thousand bucks for a season ticket that gets you pretty close to the damn floor. And you didn't have any public funding for it. So in terms of cash out there, you can't have public funding for arenas. That's why we don't. So you pay for the whole arena at and you're going to have slower payback on that because you have less revenue opportunity. Yeah. We took a revenue. Definitely we could have made more revenue on that side if we'd done things a little bit differently, but it's about basketball. We have a lot of toilets. Three times the average or something like that. Some like that. Why? It's about basketball. Get out and get back into your seat. Don't miss the action. We started out with a lot more concession stands. And then we said, no, no, let's just do this completely frictionless. So if you register your face, you just walk in, grab what you want and leave. If not, you could just tap your phone on the way in, grab your stuff and leave. There's no check out. We don't serve eclectic food, little everything. Same thing everywhere. Why? We don't want you walking around having to look for your favorite food. No, you're going to get the same great stuff everywhere. Turns out 85% of what gets bought is in five items. Anyway, it's a hamburger. It's a hot dog. It's nachos, chicken tenders, and I'm not remembering off the top of my head. It's part of the calculus of this for attracting players too. Sure. If you look at our back end spaces like our practice facility, I think most people think, oh, with this stuff, but I'm thinking even like, if you know your opponent's going to have a lower free-throw shooting percentage in your home arena. Sure. I think people think players have said they think it's really cool. Now, and that's good. That's good. Players offices are also good. IE, the training facility, I mean the training area, the practice area, our outdoor pool and sauna and cold plunge, our weight room, our sports performance center. So that stuff's all, I would say, pretty good as well. Very good. So we've done a bunch of things. We have the best breaths room, I think, in the league. We called the Refs Union and said, what do you guys need? The media area, we said, look, if we're going to build a new arena, our visiting locker rooms, the best in the league. Best weight room, best. That's your sales pitch visiting stars. Exactly. We say, hey, we care. And we care about everybody. And then we make it about the basketball in and out. Oh, what's our artwork? I mean, we have public art that is required, some which is basketball oriented, but our major piece of public art is a clipper ship whose masks are backboard, replicas of basketballs from around the world, basketball, basketball, our art inside the building. We have a high school basketball jersey from every high school in the state of California. It looks like art almost because it's nice colors on the wall, basketball, man. It's about the basketball. This building feels like your personality into a physical structure, like the competitiveness, the loyalty, the like fixation on what matters on the customer. Yes. Yeah. It is. Look, I knew, you know how oftentimes startups come about because the founder, like, is in love with some topic and builds the product they wanted to use. I think that happens a lot. I don't think people start back and look at the market. They say, I think, you know, I think Zuckerberg did that bill, did that programming every every day. Everybody does it, right? That's what you did. I didn't I didn't try to go out and survey. We could have designed for the, let me call it the contemporary audience. We would have had more lounge space. We could have designed for what I'd call traditional long term. That's kind of how I think about it. We could have designed, in a lot of ways, I designed for me in some large measure, guys like me. And it turns out Clipper fans are a little bit, are like me because some of them were long suffering. The team wasn't good there for a number of years. People are die hard. So come up to you and say, I'm 89, which really means they bought their season tickets in 1989. And they've been there. Now we've exploded in the last whatever 14 years. We haven't had a losing season. So hopefully a championship here at some point. When are you going to take the Lakers? You know, there are battles in tech. We just have to be patient and long term. Our goal in LA, it's weird to have a town with two teams. Our goal is to be long term grinders on that. And we want to beat them every time on the court. It's okay to have two popular teams. Los Angeles County for gosh, like has the same number of people as the state of Ohio pretty much. So there's plenty of people to be fans. We don't want to be quote little brother. We don't want to be the team with a nice 20% market share. No, we want to get our fair share. We're never going to get a hundred. The Lakers have traditions. So, you know, just like at Microsoft, patient, long term, hardcore approach. And if we don't do that, no, we, we, the Lakers have the position. They've earned it. They've got a lot of championships. I don't mean we're not going to keep coming. You're coming in coming. Steve, thank you so much. Thanks, man. Thanks, David. Thanks, Steve. Appreciate it. Oh, David, that was fun. Yes, it was. I've always wanted to interview Steve Balmer. In fact, when I was at Microsoft, I, you know, I wasn't a podcaster then, but at the time, I was such a junior employee. But man, there was a complicated landscape that Steve was navigating between, you know, the products set between developer relevance between the sort of shifting landscape underneath him and it will windows be the interesting bet to make going forward, you know, personnel stuff, board stuff, eventually CEO transition. That is not a job I want. It's kind of fun for us as a show, too. I mean, obviously this is meaningful for you personally. But when we started the show in Seattle in 2015, I mean, Microsoft, the Microsoft transition, Steve Satya, this is what was in the water. This is what we all talked about at Majona or Seattle and the tech ecosystem. And it's not clear that Microsoft was going to be this amazing juggernaut that it turned into. I mean, obviously Steve had planted some seeds in enterprise and what would become the juggernaut of Azure. But we were early in Satya's tenure when we started the show. Everyone had high hopes. He had started to transform the culture, but this come a long way. Steve knew how great Azure was going to be. But the rest of the world didn't yet. Yep. So fun. If you like this episode, go check out our two big episodes on the history of Microsoft. Part one is basically the era where Bill Gates was CEO. Part two is basically the era where Steve was CEO. And if you want more acquired between the monthly episodes, check out ACQ2, our interview show where we talk with founders building their businesses today, often in spaces that we've covered on the show. If you want to know more every time an episode drops, check out our email list. It's acquired.fm slash email, get updates, get corrections, get hints at what the next episode will be. We announce all kinds of cool stuff in there. When you finish this episode, come discuss it with the other smart members of the acquired community at acquired.fm slash slack. And with that listeners, we'll see you next time. We'll see you next time.