Ballmer: Bill Gates Didn't Want Microsoft to Make Hardware

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Bill Gates believed that getting into the business of selling PCs and mobile devices would be a mistake for Microsoft, which was more or less the opposite of former CEO Steve Ballmer's opinion, Ballmer recounted in an interview with Bloomberg this week.

Ballmer said he and Gates had a "fundamental disagreement" about whether or not Microsoft should enter the hardware business. The company ultimately did so in 2012 with the first Surface tablet, though Ballmer said he had to spent a lot of time convincing Microsoft's board, which largely shared Gates's view.

"I had pushed Surface," Ballmer told Bloomberg. "The board had been a little...little reluctant in supporting it. And then things came to a climax around what to do about the phone business."

Unlike the Surface line, which eventually became profitable despite a rocky start, Microsoft's phone offerings were far more lackluster. Sales of its dedicated Windows Phone have all but died out, except to a handful of enterprise customers like the New York City Police Department. Microsoft is now focusing its efforts on a unified Windows operating system that can power mobile devices as well as PCs.

Despite the setbacks, Ballmer said that expanding into hardware was ultimately the right call, and if anything he wishes Microsoft had done it sooner. He especially regrets his initial skepticism of Apple's sales strategy for the iPhone, which relies heavily on carrier subsidies to make its laptop-like price more palatable.

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

Ten years later, Microsoft has ceded the high-end smartphone market to Apple, Samsung, and others, but the innovation gap is narrowing when it comes to PCs. Early adopters and creative professionals oogled Microsoft's new Surface Studio when it was introduced last month. Meanwhile, they largely panned Apple's decision to include a "Touch Bar" on its latest MacBook Pro instead of a full touch screen.

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