Annotations (25)
“You could call it anything that is extensible, and it's the extensibility that makes it a platform, because you're going to get people to extend the value you add. Part of the issue for Microsoft is if you see yourself as just a platform company, platforms need apps. You want to have the top first-party app that runs on your platform. Otherwise your platform can't get good. I think you can get stuck in the mud if you say we're just a platform company.”— Steve Ballmer
Strategy & Decision Making · Technology & Engineering · Business & Entrepreneurship
DUR_ENDURING
Platform needs first-party apps to succeed
“Qi Lu's a genius. We've got to hire Qi. Satya, me, Harry, fly down to California and we meet with Qi Lu. Qi's brilliant. Qi leaves the room. I don't know who throws the idea out at first, maybe Satya. We should hire Qi and I should work for him. After Qi walked, we talked for about 15 minutes. Then Harry calls Qi and said, do you mind coming back? It's the story I just told you. It's what it told me about Satya. He'll prioritize that. He doesn't have an ego that gets in the way.”— Steve Ballmer
Leadership & Management · Psychology & Behavior
DUR_ENDURING
Satya volunteers to report to new hire
“Sports is so much more accountable than business. Every 24 seconds, you get a report card. You can't say, I'm going to make it up next quarter. You lost that game, that game is on, you lost comp for the rest of the season. You cannot dig yourself out of that one game loss hole. Your customers know everything you know. Every statistic we have, our customers have. There's almost nothing we get to watch practice, our fans don't. But the level of accountability is so high. The speed is high.”— Steve Ballmer
Leadership & Management · Culture & Society
DUR_ENDURING
Sports vastly more accountable than business
“We took a revenue hit. 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. Something like three times the average. 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. There's no checkout. We don't serve eclectic food. Same thing everywhere.”— Steve Ballmer
Strategy & Decision Making · Operations & Execution
DUR_ENDURING
Revenue sacrifice for core experience
“The best teams, the players hold each other accountable, and not just the best player holds everybody else accountable. Everybody's got to hold everybody accountable, which 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 treat everybody nice. Open? Yes. Respectful? Yes.”— Steve Ballmer
Leadership & Management · Culture & Society
DUR_ENDURING
Teamwork = dedicated to making others better
“I wanted to make Intuit Dome the best place for the hardcore basketball fan. You sit in there and you're a fan. It's a live event. Got to have energy, got to have intensity. Essentially, a whole side of the building is structured more like a college gym. Long and steep, there are no suites on the side. We even built a student section right in the middle. It's standing room only. You must stand. You can't wear visiting gear paraphernalia on that whole side. Four thousand seats. It's small.”— Steve Ballmer
Strategy & Decision Making · Creativity & Innovation
DUR_ENDURING
Arena designed for hardcore fan only
“We paid $45,000 or $49,000 for this operating system. We sold it to him, half of what we paid for it. We said, we can do this 10 to 20 times. Twenty times $21,000, $400,000 against $50,000 we paid for it. Pretty good deal. It was a little better than that as you said. We didn't charge for the operating system on an ongoing basis. We charged for it one time. If you got a new version, we charged another time.”— Steve Ballmer
Business & Entrepreneurship · Strategy & Decision Making · Economics & Markets
DUR_ENDURING
DOS: one-time to per-unit licensing shift
“Bill and I went through a year where we didn't speak. I didn't know what it meant to be his boss, and he didn't know what it meant to work for me. When he asked me to be CEO, I said, do you really want me to be CEO or do you just want me to be a figurehead? He said, no, I want you to be real CEO. 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.”— Steve Ballmer
Leadership & Management · Psychology & Behavior
DUR_ENDURING
Year of not speaking with Gates
“Reference checking. How good is the reference checking in most businesses? Not good. Basketball? You should see the amount of reference material we have on a guy before we draft them. People have talked to their old coaches, they've talked to their teammates. That's what scouts do. They've watched them play, they've been to practices, they know what they've talked to references about work ethic. You talk to their parents. There are so many things.”— Steve Ballmer
Leadership & Management · Operations & Execution
DUR_ENDURING
Sports reference checking vastly superior
“I view this, and I probably evolved my view to this over time, when you sell the enterprise, you have to provide peace of mind, which is like an insurance policy. Buying more than you might be using or some users are using. It's an insurance policy.”— Steve Ballmer
Business & Entrepreneurship · Psychology & Behavior · Strategy & Decision Making
DUR_ENDURING
Enterprise sales is selling peace of mind
“Where did we learn to build internet-scale infrastructure? Some with Azure, some even more than Azure, Bing. 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 part.”— Steve Ballmer
Strategy & Decision Making · Technology & Engineering
DUR_ENDURING
Built capability but wrong product strategy
“If you're trying to skate to where the puck is, if you're trying to recognize what capabilities you need, if you're a startup in something, there's an ongoing business, you just keep enhancing your products. There's a line extension. But new, SQL Server for example, was that for a while. It was related because we had a backend platform. But it turned out the phone was more like a startup, recognizing and thinking about things, and then asking yourself, what capabilities do you need?”— Steve Ballmer
Strategy & Decision Making · Leadership & Management · Operations & Execution
DUR_ENDURING
Startup mode requires new capabilities
“Orlando Ayala gets up, this is probably 2002-ish, 2001-2002, we're still in the throes of the thing, my name is Orlando Ayala. I'm a proud Colombian. I am not a proud Microsoftee today. Our integrity is under assault. My personal integrity feels like it's under assault. It wasn't just a business issue that needed to be taken care of. It was a culture issue. It was bothering people, particularly senior people, very personally.”— Steve Ballmer
Leadership & Management · Culture & Society
DUR_ENDURING
Antitrust as personal integrity crisis
“Most businesses are zero trick ponies. You might create something that goes nowhere. You might create what's essentially a feature for somebody else's business and get acquired. One-trick ponies are amazing. People should be in awe of one-trick ponies. Two-trick ponies, ooh la la. Those people tend to go down in business history, especially those tricks stay alive for a long time.”— Steve Ballmer
Strategy & Decision Making · Business & Entrepreneurship
DUR_ENDURING
Zero, one, two-trick business taxonomy
“I had no credibility in terms of what some investors wanted to hear. My actions were consistent with that. People did worry about the future of a couple of our franchises, most notably Windows. 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. With hindsight, people aren't going to say, oh, he is showing up. He's a changed man. There was no way to reset the investor view of me.”— Steve Ballmer
Leadership & Management · Psychology & Behavior · Economics & Markets
DUR_ENDURING
Some narratives require new CEO to reset
“I was very transparent with everybody. We brought the management team in. I let everybody speak. It's a big decision to be in the phone hardware business. We do the presentation. The process from there to the time the board says no, I didn't find very respectful. I was not happy with the process, but they wanted me to stay. I said, this is a good time. We can't make my play here. The cloud's just coming on. We're going to have to build new capabilities.”— Steve Ballmer
Leadership & Management · Strategy & Decision Making
DUR_ENDURING
Board rejection of phone triggered resignation
“If you sell it, you're just going to pay capital gains taxes. If you're really just being a financial monster about it, you got to decide, will Microsoft underperform the index by enough to offset the capital gains taxes. I don't need the money. I got plenty to live on without selling anything. Where's that money going to go? Some will go to my kids, but most of it's going to go to the government or to philanthropy.”— Steve Ballmer
Economics & Markets · Strategy & Decision Making
DUR_ENDURING
Hold unless underperformance exceeds cap gains
“Charlie Munger gets up to the mic and says, Steve, 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 loyal. I don't know why Paul and Bill didn't hang on. You'd have to ask them. But for me it's from the heart thing. What's the worst thing that happens? Microsoft goes to zero? Probably not, but even if Microsoft goes to zero, me and my family, we can live, we can give away money.”— Steve Ballmer
Psychology & Behavior · Economics & Markets
DUR_ENDURING
Loyalty trumps optimization for Ballmer
“Andy Grove who was running Intel at the time said, pretty soon we'll be selling 100 million PCs a year. I think it might have 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 underinvest. But we thought, ah, he's crazy. This market will never grow like that. I would say we classically underforecast, that was our tendency.”— Steve Ballmer
Strategy & Decision Making · Psychology & Behavior
DUR_ENDURING
Underforecast but never underinvest
“IBM divorces us in 1990. My wife and I were remodeling our house. We were living in a condo. We stopped on a run, used a restroom. I pick up the Wall Street Journal and I read that IBM's divorcing us. Mr. Wizard. Whoa. Shoot. Oh my God. We were so, you could say energized if you like. Scared also works. It's like, oh my God. Now we have to confront the bear.”— Steve Ballmer
Strategy & Decision Making · Psychology & Behavior
DUR_ENDURING
IBM divorce: fear and opportunity
Frameworks (2)
Platform-App-Extension Framework
The three-legged stool of platform strategy
A platform requires three inseparable components to succeed: core extensibility, first-party applications that showcase the platform's capabilities, and a thriving third-party ecosystem. Companies that see themselves as just platform providers without investing in first-party apps create platforms that never reach their potential. The first-party app is the existence proof that makes the platform credible to third-party developers.
Components
- Build Core Extensibility
- Develop First-Party Applications
- Cultivate Third-Party Ecosystem
Prerequisites
- Technical capability to build extensible systems
- Product capability to build great apps
- Ecosystem development capability
Success Indicators
- Third-party revenue exceeds first-party app revenue
- First-party apps are consistently market leaders
- Platform capabilities expand faster than any single team could build
Failure Modes
- Becoming just a platform company without apps
- Building weak first-party apps that don't showcase platform
- Creating hostile ecosystem where third parties don't want to build
The Trick Pony Business Classification
A taxonomy of business model durability
Most businesses are zero-trick ponies that create no lasting value. One-trick ponies build a single sustainable business locomotive, which is remarkable. Two-trick ponies build two uncorrelated business locomotives, which is extraordinarily rare and generates legendary outcomes. A trick is defined as an independent revenue stream with its own growth dynamics, customer base, and competitive moat.
Components
- Identify the Zero-Trick Reality
- Build and Protect Your First Trick
- Recognize True Two-Trick Status
- Assess Three-Trick Possibility (Extremely Rare)
Prerequisites
- Ability to distinguish between tricks and features
- Patience to build depth before breadth
- Capital to sustain long-term investments
Success Indicators
- Each trick could survive independently if spun out
- Revenue and margins are substantial in each trick
- Customer bases are largely non-overlapping
- Competitive threats are different for each trick
Failure Modes
- Declaring two tricks prematurely before one is proven
- Spreading resources too thin trying to build multiple tricks
- Confusing platform monetization methods with independent tricks
Mental Models (4)
Transition from Fixed Price to Recurring Revenue
EconomicsThe shift from one-time licensing fees to recurring per-unit or per-user licensing represents a fundamental business model evolution. Microsoft initially sold DOS for a fixed fee per OEM, then evolved to per-unit licensing 4-5 years later. This transition captures more lifetime value from a customer relationship and creates more predictable revenue, but requires confidence in market size and customer retention.
In Practice: Ballmer describing how Microsoft charged IBM and other OEMs fixed fees for DOS, then switched to per-unit licensing several years later
Demonstrated by Leg-sb-001
Tax-Adjusted Holding Period Returns
EconomicsWhen deciding whether to hold or sell a concentrated position, the rational calculation is whether the expected underperformance (relative to alternative investments) exceeds the capital gains tax you would pay to switch. Ballmer's framework: Microsoft would have to underperform the index by the capital gains rate (20-37% depending on holding period and state) to justify selling. Since he doesn't need liquidity and most proceeds will ultimately go to philanthropy or estate taxes anyway, the hold decision becomes very rational unless Microsoft fundamentally deteriorates.
In Practice: Ballmer explaining why he never sold Microsoft stock despite it being 90%+ of his net worth for decades
Demonstrated by Leg-sb-001
Revenue Sacrifice for User Experience
EconomicsThe deliberate choice to accept lower revenue per user in order to deliver a superior user experience. Ballmer designed Intuit Dome with fewer premium suites, no suites on one entire side, and $1000 season tickets for prime standing-room positions. Each decision reduced potential revenue but improved the experience for hardcore basketball fans. The model recognizes that some constituencies (hardcore fans, power users, developers) create disproportionate long-term value even if they don't maximize short-term revenue.
In Practice: Ballmer describing explicit revenue tradeoffs made in Intuit Dome design to optimize for hardcore fan experience
Demonstrated by Leg-sb-001
Platform Requires Apps Feedback Loop
Systems ThinkingA platform cannot improve in isolation from applications. First-party apps stres
In Practice: Ballmer explaining why seeing yourself as just a platform company is dangerous,
Demonstrated by Leg-sb-001
Connective Tissue (2)
Wayne Gretzky's skate to where the puck is going
Ballmer uses Gretzky's famous principle of anticipating future position rather than chasing current position as a metaphor for strategic planning in technology. The parallel: when Microsoft faced mobile and search, they needed to recognize whether these were line extensions of Windows or fundamentally new games requiring new capabilities, like a hockey player reading where the play is moving versus where it currently sits.
Reflecting on why Microsoft missed mobile by trying to extend Windows rather than building new capabilities for a new paradigm
24-second shot clock as accountability mechanism
Ballmer contrasts basketball's 24-second shot clock with business quarterly reporting, arguing that sports creates far higher accountability because feedback loops are orders of magnitude faster and outcomes are public and irreversible. In business, you can say 'we'll make it up next quarter,' but in basketball, a lost game is permanent. The shot clock forces decision-making under time pressure with full transparency, unlike business where executives can defer, obscure, or reframe failures.
Comparing accountability levels between professional sports and business, arguing sports is vastly more accountable despite business claiming to value accountability
Key Figures (9)
Bill Gates
42 mentionsMicrosoft co-founder, CEO before Ballmer, Chief Software Architect during Ballmer's CEO tenure
IBM Corporation
37 mentionsDominant computing incumbent
IBM was the sun, the moon, and the stars in computing when Microsoft started.
- IBM wanted to use industry standard parts to move faster
Satya Nadella
8 mentionsMicrosoft executive, later CEO
Qi Lu
6 mentionsYahoo executive, later Microsoft executive
Paul Allen
4 mentionsMicrosoft co-founder
Harry Shum
3 mentionsMicrosoft Research, later search engineering
Orlando Ayala
2 mentionsMicrosoft sales leader
Andy Grove
2 mentionsIntel CEO
Charlie Munger
2 mentionsBerkshire Hathaway Vice Chairman
Glossary (1)
rebate
DOMAIN_JARGONRailroad rate discount given selectively to large shippers like Standard Oil
“Railroad rebates were the primary competitive lever in 1870s oil.”
Key People (3)
Andy Grove
(1936–2016)Intel CEO who built Intel into dominant chip maker
Warren Buffett
(1930–)CEO of Berkshire Hathaway
Charlie Munger
(1924–2023)Vice Chairman of Berkshire Hathaway
Concepts (1)
Per-Unit Licensing
CL_FINANCIALSoftware pricing model where vendor charges fee for each copy sold
Synthesis
Synthesis
Migrated from Scholia