>> rose: welcome to the program. tonight, brian greene and michael tuts from columbia university help us understand the extraordinary announcement coming out of geneva last week about understanding matter. >> it's an elusive, invisible stuff. you don't see it. you have to find some way to access it. and the proposal-- which now seems to bear fruit-- is if you slam protons together, other particles, at very, very high speed, which is what happens with the large had dron collider. >> rose: and you can only do that with a collider like this. >> exactly. and you can sometimes jig this will invisible... sometimes flick out a little speck of this molasses, which would be a higgs particle. so people look for that little speck of a particle and now there's evidence that it has been found. >> it is the thing that explains to us how our fundamental particles got mass and it's a

piece of the puzzle and now that we have this we can move on from here and maybe it isn't even a standard model higgs. maybe it's something more exotic. that remains to be seen. >> rose: what would be another big question this might help us understand? >> well, there are a number of questions. one of the questions that we... depending on what it is, but if it is a standard model higgs what we're trying to understand what is beyond the standard models. what might be there after this. so here we can put this together now and say that this is our understanding, we've got this understanding but what's next. and there might be many different things like supersymmetry, ideas from string theory and so forth. >> rose: we continue this evening with kurt eichenwald, who's written a fascinating piece in "vanity fair" magazine about microsoft's lost decade. >> the problem became is that really starting around 2000 as the world was beginning to change, the technology world was beginning to change, microsoft went through this idea, it was

actually a statement that steve balmer, the fellow running the company, said was we will be the last to cool and the first to profit. meaning... and he would say, people will be looking in their rear-view mirrors at us. and that is the problem because you're saying to all the competitors tell chief justice way we should go. we'll see what you're doing, we'll see if it works and we'll come in and huge our huge financial advantage to get there. will you have a lot of different companies going a lot of different ways, microsoft is putting itself in competition with all of them and the cash advantage that they had in terms of being able to build up faster because they were one of the most cash-rich companies in the world has disappeared largely because those companies that were the ones that were the ones

blazing the trial got the cache of being the first to cool. you know, people... everybody lined up for the iphone. they're not lining up for the windows phone. everybody lined up for the ipad. you just... you don't have that same event sense to it. windows '95, a huge event. the rolling stones and jay leno and the empire state building was... made the colors of microsoft. but since then, you just really haven't had the thrill of innovation coming out of this company. >> rose: the higgs boson herery and understanding microsoft when we continue.

captioning sponsored by rose communications from our studios in new york city, this is charlie rose.

>> rose: last week in geneva, switzerland, the most important scientific discovery of the 21st century was announced. here's the skopt story on the announcement. >> it's not often a scientific break through gets sung about. but the workers at the world's largest atom smasher are singing about the higgs boson particle-- the so-called god particle that's been the holy grail in the world of physics for about 50 years. ever since peter higgs-- now 83-- theorized that the particle must exist in order for the universe and everything in it to hold together twhef the physicists call "mass." without higgs boson there would be no stars, no planets, no us. so at the large hadron collider on the french/swiss border, they've been blasting bits of

atoms at each other and measuring the even tinier bit it is collisions produce. >> as a layman i would now say i think we have it. (cheers and applause) >> reporter: the project's director announced the results to an appreciative audience of scientists. though they couldn't say they positively found the higgs boson particle itself, they could say that found one that walks and talks like one and may be it. peter higgs himself looked satisfied, his theory vindicated. >> to me it's really an incredible thing that has happened in my lifetime. >> the challenge now is to explain what it means. professor heinz wolfe has been trying to explain science for decades. he even devised a machine to blast meat pies at each other to demonstrate what an atom smasher does. (laughter) so what does the discovery mean for us? >> if you're the lay any the supermarket, it isn't going to make any difference to you.

>> other than that the supermarket wouldn't be there. >> yes, the weight of the supermarket or the mass of the supermarket. >> the supermarket exists and the universe exists and now these people believe they've found the tiny particle that provides the cosmic glue that holds it all together. >> rose: the discovery opens doors to the next frontier of understanding the universe. scientists at the large hadron collider in geneva discovered a new subatomic particle. it's likely long-sought higgs boson which is the key to understanding the existence of mass and matter. the search for the elusive particle began over four decades ago when physicists first proposed the theory in 1964. joining me now for this breck through conversation, two physicists from columbia, brian greene is widely credited for ground breaking discoveries in the field of string theory and michael tuts is one of the scientists involved in the experiment at the large hadron collider at certain, switzerland. i'm pleased to have both of them

at this table. the world knows this is important. we joust got it. we don't quite know because it is about things so fundamental-- like mass and matter and understanding it-- yet at the same time it's so complex because of how it was discovered and... give us a primer on this. >> well, as you said, about 40 years ago a puzzle arose in physics which is where do the fundamental particles like electrons and quarks, where do they get the mass, the heft that experiment reveals them to have? now, mass is the resistance an obstruction of justice offers to having its speed change. you take a baseball. when you through it, your arm feel resistance. a shot put, you feel that resistance. similarly for particles, where does the resistance come from? and the theory was put forward that perhaps space is filled with an invisible stuff, an invisible molasses-like stuff and when the particles try to move through the molasses they

feel a resistance, a stickiness. and it's that stickiness which is where their mass comes from. >> rose: that creates mass. >> exactly. that creates the mass. but the question is how would you ever know if this invisible stuff is real? and that's what the experiments have established now. >> rose: how would you know that this invisible stuff which is now called... >> higgs field. >> rose:... higgs field is real. >> right. >> rose: why couldn't they prove it was real >> >> we think we may have done that but it took a long journey. it's an elusive invisible stuff. you don't see it. you have to find some way to access it. and the proposal-- which now seems to bear fruit-- is if you slam protons together, other particles at very, very high speed which is what happens at the large hadron collider. >> rose: and they can only do that with a collider like this. >> exactly. so you slam the particles together at very high speed and you can jig this will invisible molasses, sometimes flick out a little speck of this molasses,

which would be a higgs particle. so people look for that little speck of a particle and now there's evidence that it has been found. >> rose: so when we mean matter we mean like you and me and we mean this table and this cup and this glass and this pen. >> the fundamental particles making up that matter would have their mass from this interaction with the higgs field, the molasses. >> rose: how big is this idea? >> it's a huge one. it's at the centerpiece which is known as the standard model of particle physics which is an equation that people have developed over many decades that we have been used to predict what would happen at colliders around the world. every experimental result can be explained using this standard model particle physics with the one missing piece of the puzzle being this higgs field, this higgs particle. that's the one we've needed to finish this story. >> rose: so now that we have that and everybody's convinced we have that, correct? >> well, we don't yet know that it's exactly standard model higgs. but we certainly found a new

particle and it begins to smell like a higgs so we'll see over the course of the next few months. >> rose: and what doors does it open to us? >> well, as brian said, it is the thing that explains to us how our fundamental particles got mass and it is a piece of the puzzle and now that we have this we can move on from here. and maybe it isn't even a standard model higgs, maybe it's something more exotic, that remains to be seen. >> rose: what would be another big question this might help us answer? >> well, there are a number of questions. one of the questions that we... depending on what it is. but if it is a standard-model higgs we're trying to understand what is beyond the standard model. what might be there after this? so here we can put this together now and say that this is our understanding. we've got this understanding, but what's next. and there might be many different things like supersymmetry, ideas from string theory and so forth. >> dave: why do they call it "god's particle"? >> well, the anecdote that i

heard from leon letterman... >> the nobel laureate. >> nobel laureate, particle physicist, he wrote a book called "god particle" and it was about this higgs boson. >> rose: why did he say it was a god marl? why did he use that? >> what i heard, the way the story goes is he wanted to call it... we'd been looking for it if so many years he wanted to call it the goddamn particle. >> rose: (laughs) because it was so luceive? >> yes, and then his editor said "maybe not." it has no religious connotation but it simply says that like brian indicated you get... elementary particles acquire their mass this way. if the electron had no mass we wouldn't put together atoms and we wouldn't be here talking. >> rose: what's great about this story-- as you and i mentioned sitting down-- higgs was there in the room. and what does that mean to a scientist? >> yeah. i mean, for most people science is a body of facts that you learn in the classroom. it's cold hard description of nature. when in reality it's a living,

breathingsy sbity with real human fwhags go out on a limb making proposals, making calculations and higgs went out on a big limb many years ago. this was a crazy, wild idea. >> rose: '64? >> yeah, '64, '68. people were developing these theories, other scientists, too imagine doing a calculation and proposing it as a fundamental new feature of the universe. this invisible new stuff that was out there. at first the paper was rejected from the journal to which he submitted it. nobody believed this idea at first, slowly people began to say, yeah, this has leg. and for him to be in the room when they find the particle. he went... i could see him wiping away tear. >> rose: and so would you and so would i. >> of course! there's a drama to this kind of discovery. >> it was pretty spectacular because normally when you listen to a scientific seminar, physics seminar, people listen to it politely and there's some applause at the end. here there was spontaneous applause at the middle of the presentation. for a physics presentation that's unheard of.

that was astonishing. >> rose: so where are we? i mean... the same question i asked but a larger question. where are we going? what will we find out about what it means to live in this universe and what this universe is all about and these big questions. >> rose: those are big questions and they are the questions that make us get up in the morning and go to work at our desks and one of the things this discovery has done for us is this: our work as theoretical physicists-- mike builds these experiments-- but we theorists do calculations mathematical manipulations and most of the time what we do is wrong. not that we make a mistake, it's just not relevant to the universe. so the whole question of which math is the right math to follow. and the fact that the math that yields the higgs particle is potentially now confirmed gives us confidence because we use that same math all the time. so, yes, we want to understand how the universe got started and things like that and perhaps these kinds of ideas will play a role. >> rose: there's a big question, how did the universe get

started? >> well, here's the amazing thing. our best theory of how it got started, it's called inflationary cosmology and it posits that the universe early on was filled with a little amount of field very much like the higgs field. we call it the inflaton field but its properties are has the capacity to create a repulsive gravitational push that would drive the universe to expand. so if the higgs particle is real, if it really has been confirmed as the experiment suggests maybe we're on the right track for this other bigger question. >> rose: what do we have to do to prove everything we need to know about the higgs? >> so one of the things that what our theorists friends tell us and what we predict is the way... after you produce a higgs particle-- let's imagine that you do-- it decays in different possible ways. it could decay into different classes of elementary particles. so what we do in the experiment is we look for these kinds of

decays. and they also tell us how often it should decay into various different kinds of particles. and so the thing that we want to do is to actually confirm that this is the particle that we expected from theory, is it a... it behaves that way. in order it that has right kind of decay properties, it gets produced with the possibility we expected, decays with the probability we expected. so if all of those signs are right and it has another property called spin and you'd like to understand if that's correct as well so there are a number of property wes need check. >> rose: i want to come back to you. what's your definition of the universe? >> all there is now. >> rose: all there is. (laughs) >> that's a word that's undergone some change of late because many of our cutting-edge theories, which would be beyond the standard model, some suggest that what we long thought to be everything may be a small part of an even grander hole to which we now have the name multiverse. so this is highly speculative ideas but it could be that our

reality is part of something even vaster. >> rose: and what does string theory is to do with all of this? >> well, strike theory is an attempt to put into the standard model something that it's missing. so the standard model particle physics, it's in a form that l.a. that sits on a t-shirt. in fact, charlie, i brought one of those four you right here. so here is the standard model of particle physics, right there. so the first line describes three of nature's four forces mathematically. the strong nuclear force, the weak nuclear force, the electromagnetic force. the bottom line, that's the higgs field. that's the missing piece. but there's something else that's missing in this equation which is the force of gravity. so where does gravity fit into the story? it's very hard to put gravity into that formula. string theory is one of our best hopes for melding that equation, the standard model, with gravity into one unified hole. this dream that einstein had of a single theory... >> rose: that's exactly what i

was thinking about. so tell me about... a single theory of everything. >> yeah. >> rose: he died believing there was a theory of everything? >> more than that. he was on his deathbed in princeton in 1955 in the hospital in princeton, new jersey, and he asked for a pad of paper in which he had been scriping equations in the desperate hope that even in the final minutes he would complete this journey. that's the drama of science. and he didn't find the unified theory. >> rose: a near they tells how it fits together. >> how all nature's forces work. >> rose: steven hawking used to work on this, too, didn't he? >> i think he made a bet that the higgs wasn't there and it was a hundred bucks. >> rose: he acknowledged he lost the bet. >> that's right. >> rose: so what are the other big questions that are out there excite me about physics. >> so another great discovery that's probably in some way related to this-- which happened about a dozen years ago-- is that we've known for a long time the universe is expanding. it's getting bigger and bigger over time. but everybody thought the expansion would be slowing down. it's like if you throw up a

baseball in the air it goes up slower and slower because gravity pulse it back. we thought the gravitational pull on each galaxy would also slow the expansion. so a couple astronomers went out to measure the rate of slowdown and lo and behold they found it's not slowing down, it's speeding up. like you take the ball and throw it up and it goes faster and faster. so the big mystery is what's pushing the universe apart? and one of the possibilities is a higgs-like field. another invisible substance filling space that can give an outward push that would explain this remarkable surprising discovery of the accelerated... >> rose: so when are we going to find this, mike? >> well, that's a good question. we're not going to find it. but there is another piece. the thing brian was talking about might be like 70%, 75% of the universe. the stuff now where you and i are made of, we're kind of 4% of the universe. you, me. but there's another kind of 20% or so called dark matter. we don't know... we know it's out there, we just don't know what it is. >> rose: i've heard of dark

matter, i have no idea what it is. >> one possibility is some of these particles-- perhaps, if supersymmetry exists, and perhaps the lightest one of those particles-- might be the stuff of dark matter. so that would be pretty exciting and we're looking very hard for things like the existence of supersymmetry and see if we find evidence for that. so that's certainly one of the directions in which we're going. >> rose: the experimentations in physics is throughout the world. everywhere it's going... it's taking place wherever. there's a general sort of worldwide push to answer these questions. or is it located more here than there? >> so the problem is, for example, why did it take so long to find the higgs? one of the reasons it took so long is that it weighs about 120 times more than a proton. so it's one that's really very heavy and the way these machines work, what we do is when we collide these particles together it takes the energy that you had of this motion and uses einstein e equals m.c. 2 into "m" the

mass. and it creates new particles and you hope that one of them is the higgs particle. so you needed an accelerator with enough energy and you needed... so it's very rare so we needed enough collision. so we collide, for example, when it runs a bunch of a hundred billion protons passing through another bunch of a hundred billion protons and there are a thousand bunchs in this accelerator. so you need lots and lots of collisions to see this very rare process. >> rose: there was this notion that coming out of certain was this experiment that subjected that there was something faster than the speed of light. >> yes. >> then my sense is they backtrackd? >> yes, that's correct and when that was announced it was startling but most physicists say... >> rose: really startling! >> most physicists said we don't believe it. whenever you challenge einstein it will get a lot of attention but it also requires a lot of evidence. >> rose: so which mistake did they snake were these serious

people? >> they were serious people and these are hard experiments to do. they were sending these neutrinos through solid rock which it can easily pass through from geneva to grand sasso in italy and it was getting there 60 nano seconds early. that was 60 billionths of a second over 400 miles. that's a very tough measurement. >> rose: (laughs) that's a hard one. >> they found, i believe, one of their fiber optic cables had a little bit of a problem which when corrected the results had gone away. >> i offered to eat my hat. the. >> rose: so you're saying that you believe that there's nothing will be discovered that will suggest there's something that's faster than the speed of light. >> so far einstein's predictions have been spot on. >> rose: are they a bunch of people trying to prove einstein was wrong? >> as experimentalists, when our friends tell us something, the first thing we should do is why and try and understand it and check it and push the boundaries >> rose: so do you believe there's something faster than speed of light? >> i don't.

einstein's special theory of relative city really in good shape and there doesn't seem to be any evidence that it will fail at the experiments that we can achieve at the large hadron collider and beyond. but one thing that needs to be emphasized is finding the higgs particle may complete a certain chapter in our search to understand nature. but we are even more excited when new things happen that are completely unexpected. so if you're to ask me what would i like to have happen at the large had ron collider next... >> rose: yes. >> ...i'd like something completely crazy to happen. something unexpected. something that makes us go back to the drawing board and say "holy moly." and rework the equations and come to a deeper understanding at the end. >> that's exactly what we want to do. we want to send our friends back to the drawing board and discover something totally unexpected. >> rose: and there is this. i mean, you've got size now in terms of computers that give you computational abilities you've never had before and are more likely to lead to discoveries we could not imagine. is that a fair statement?

>> that's a fair statement. when we do the analysis for our experiment we have in the order of 100,000 computers worldwide that are used to analyze the data that comes from these trillions of collisions that we see. so without them we couldn't do it. >> absolutely. >> rose: it's an exciting time, isn't it. >> yeah. and maybe there's a possibility of finding black holes at the large hadron collider or... >> but we're at a new energy regime. >> rose: energy regime in >> this is the highest energy accelerator in the world. it's four times higher than the previous one which was a place called fermi lab which just shut down last year. we will be going to 13 or 14 trillion electron volts which will... we're at eight now and we'll be going to 13 or 14. this is completely unexplored territory. this is columbus heading put into the ocean and we hope to see something. >> rose: have... scientific

discoveries happen when people are in search of something else? >> many of them. >> rose: and you find out along the journey... >> sure. >> rose: dhash this other thing is more remarkable. >> that's the serendipity of science. when i talk to kids about science and try to give them a sense of that journey of discovery, that's what it's about. as michael said, you head out into the unknown bravely and figure out what's there. >> rose: it used to be believed that the united states-- because of its great universities and other factors, so many people who are immigrants from other places came here to study and stayed and became parts of great research projects that we've lost some of that edge. is that a fair statement or a concern? >> it's a concern. for example, we're still a major part of the allied sea in cerne. our experiment has 20% or so u.s. and the other experiment has 30 plus. but there are now as of the time

that the fermi lab accelerator shut down there are no native u.s.-based accelerators. and so it's hard... >> rose: there was a time, in fact, which they were going to build it here. >> there was going to be something called the superconducting supercollideor. >> rose: it was killed. >> it was killed by congress. so that's a concern. i think the important point to real size that not only are these inspiring ideas and critical but kind of the basic research of today is the technology of tomorrow. so, you know, whatever. 20 years, 40 years, 50 years from now what we're doing now and you think of as basic research will be the technology people will take for granted at this that time. >> rose: if this doesn't make you excited about science nothing will. it is an extraordinary sense. as in so much of science all the benefits of it, that the an unfolding drama. >> i think quantum mechanics itself is a great story. if you interviewed the people

developing quantum mechanics and what is it good for they'd say "i don't know, we're talking about atoms and molecules so far from everyday life." but the fact is that you have medical technology that has an integrated circuit or cell phone that rye rey lies on quantum physics. people calculated something like 35% to the gross domestic product comes from quantum physics. >> rose: how much? >> 35%. now, whether that's exactly accurate i don't know. but a lot of it. the fact is basic research over the course of many decades, it starts with trying to understand things but then it allows us to manipulate inge things and that affects daily life in a profound way. >> so i guerin knee the future it will absolutely... the basic research we do today will be fundamental to that. it inspires because people... a silly anecdote. i was having my hair cut and the hairdresser said "what were you doing on fourth of july?" i said "i was busy, up late." and she said "working?"

i said "no, you may have mean? the news." and she said "oh, the god particle." (laughter) >> rose: we it that name god particle? >> but it's good p.r.. >> rose: people may know what you're talking about. something important happened and they called it the god particle. michael, thank you, great to have you here. is >> great to see you, as always. >> we'll be right back. stay with us. curt eichenwald is here, he is the contributing editor of "vanity fair" magazine. he has a piece coming out in the august edition called microsoft's lost decade. eichenwald says it chronicles ten years of astonishingly foolish management decisions that could serve as a business school case study on the pitfalls of success. while microsoft's stock price has remained static at $30 since 2002, apple's stock price is worth 20 times what it was then. i'm pleased to have kurt eichenwald at this table. welcome. >> thank you. >> this is a great question. many things stewart a question,

as you well know. and it is what happened to microsoft. how did this question begin for you? >> the question began when graydon carter, top guy ativanty fair, put down the question "what happened to microsoft." and it was a venture on my part to figure out the answer to that question. because when you really got down to it, if you go out into the general public talking about technology, you are talking about apple, you're talking about facebook, you're talking about google and microsoft is a conversational also-ran. which in ten, 12 years ago it was the one that people couldn't imagine wouldn't be in control of everything so you really step back and say "what happened"? >> rose: there was an important moment in which eric smit said

it will be a contest between facebook, google, amazon and apple. leaving out mooft. unbelievable! yet many people said "i understand where he's coming from." >> yeah. and it was... it's sort of this odd thing that microsoft doesn't know what it wants to be when it grows up. it was founded on really good products and a really good business when you had the operating system and word and servers this which people tend to forget. and those were great and they could then... they had the possibility of building off into a really stronger business-to-business consulting kind of work which they do well. the problem became is that really starting around 2000, as the world was beginning to change, the technology world was beginning to change, microsoft went through this idea, it was actually a statement that steve

ballmer, the fellow running the company, said was "we will be the last to cool and the first to profit." and he would say "people will be looking in their rear-view mirrors at us." and that that is the problem because you're saying to all the competitors "tell us which way we should go. we'll see what you're doing, we'll see if it works and then we'll come in and huge our huge financial advantage to get there well, you have a lot of different companies going a lot of different ways. microsoft is putting itself in competition with all of them and you know, the cash advantage they had in terms of being able to build up faster-- because they were one of the most cash-rich companies in the world-- has disappeared. largely because those companies that were the ones blazing the

trail got the cash of being the first to cool. people... everybody lined up for the iphone. they're not lining up for the windows phone. everybody lined up for the ipad. you don't have that same event sense to it. windows '95, a huge event. the rolling stones and jay leno and the empire state building made the colors of microsoft. but since then you just really haven't had the thrill of innovation coming out of this company. >> rose: and how much do you put at the notion of bill gates leaving microsoft as c.e.o. to full-time work on his foundation. >> it's one of those hard questions. would they be the same? i truly believe that the problem is that gates, i would think,

would be less if a here because i think he would probably have recognized at some point that microsoft is getting too divergent. but maybe not. >> rose: it's also important to point out that bill gates famously understand that microsoft was missing the internet and literally wrote a long memorandum and turned that thing around and said "we have to change." >> right, but the problem is that they really didn't. there's a difference between knowing what to do and having the vision to get there. and if your vision is merely "the competitors tell us what to do do" you're just not going to get there. you're never going to be in the lead, you're never going to be the one that has that customer excitement. >> rose: a lot of giants that have run in at hard times-- yahoo! being one, nokia being

another, hewlett-packard is another, i.b.m. was another and they turned it around, apple most famously. >> yup. and apple looked at what it was and reinvented itself. and, you know, the thing... >> rose: steve jobs looked at what it was and reinvented apple. >> yes, after he... he got booted out, succeeded by john scully who then got booted out and steve jobs came back. but that's the thing... >> rose: what it shows that people dimension these questions. >> yes, but it also shows how far outside-- i hate to cruise management consulting terms-- but how far outside the box you have to think. steve jobs came back and essentially said that he's going to make apple into a media/social/technological chain. in other words you get the

iphone, it works with the ipad, it connects with the i mack. all of these things which lead you to be locked into the variety of products as you accumulate microsoft did not have that broader perspective, that where are we going? what are we doing? yes we know we have to do the internet. well, what does that mean? how does that mean? mobile devices. they were very far ahead of the game on that. and they blew it. they just flat out blew it. because what you had was a... remember, their opening philosophy, the gates dream which he succeeded, p.c. on every desk. well, we're past that era and we're way past that era. >> rose: that was the mission statement. >> that was the mission statement and it was probably in

corporate history the most amazing accomplishment ever. but now it's moved on and they don't know who they're supposed to be. >> rose: here is bill gates on this program last week. roll tape. you thought about a tablet and you thought about a touch system. probably as early not early... if not earlier than steve jobs. >> way too early. >> rose: were you too early? >> well, i think a few things could have been done differently to get to critical mass. you see the phenomena that if you get a device to critical mass then you get application written to take advantage of that then you get volume on hardware so you can bring the price down. so you see you can have something that was almost good enough, almost good enough that if forgotten for all time and then the thing that just crossed that threshold-- even though it came later-- goes up and is gigantic. >> rose: but that still doesn't answer my question of how come he was able to cross the

threshold and you weren't. >> in that case he did some things better than i did. >> rose: like what? >> oh, his timing in terms of when it came out, the engineering work, just the package that was put together, the tablet wes had done before weren't as thin and... >> rose: pretty. >> they weren't as attractive as what came along. now microsoft has something that may change the rules again. >> rose: so what do you make of that? >> i think it misses the point. >> rose: misses the point by saying we maybe were too earlly. >> yeah, because if you think about it steve jobs his... not to keep defying him, but steve jobs had the philosophy of the hardest part is knowing what the customer wants/needs. the easy part is the engineering

people weren't program that mortaring for an iphone. they never thought of what it would be. they never thought of it. jobs created that market and now the i phone is selling more than all of microsoft combined. people were not saying "i need an ipad." there was sort of this movement towards pads and they come out with it and that... you know, when they first came out with it my initial reaction was "well, i have an iphone and i have a laptop, why do i need this thing?" >> rose: so are you saying what microsoft needed was a steve jobs? >> i'm saying microsoft needed somebody who recognized that you don't just say "the customers is going to drive us to where we need to be." >> rose: is that what microsoft said? >> yes. that is... that's what the whole not first to cool idea is. that somebody else goes out first, we'll see if it works,

we'll see if it takes off and then we'll go... they will prove the business market and then we will go in. but, you know, there was a time when that worked. >> rose: that's what they did with the browser. >> exactly. and if you go back and you look at what they did, they kept doing it in a period when devices were taking off. and, you know, at that point you had these products that were getting infused with wide public acceptance. and actually there is an e-mail-- i think i quote hit in the magazine article, i have a lot of e-mail-- where gates is talking about the ipod and saying "we have to get throughout with this because apple is locking their customers into this. people are going to get thousands of songs, they're not going to want to go to the

trouble of switching over to zune." and that was exactly problem. the problem was they stood back, ipod worked, we'll come in. well, by that time all of the ipod customers were gone and they could not be retrieved. and that, you know... i would argue-- and i think the numbers hold it up-- that the ipod popularity fed into the iphone popularity. and, you know, each product filled in to the next and people were getting locked in. the zune, which is microsoft's version of the ipod, has been the exact opposite. hasn't done very well in sales and people have not been moving from the zune to the windows phone. and last year they canceled the zune. they said "we're not selling it anymore because we want people to go to windows phone." so they weren't leading from one thing to the next and that's what apple did that made it work. but they had to come in first to

do it. >> rose: do so do they have meetings at microsoft and talk about this very thing? why can't... why have we lost it? >> yes. there's... in fact, there is another e-mail among the upper reaches of microsoft and one of the fellow says "why hasn't apple lost its way the way we have?" and i think it's that same e-mail when he said "if i didn't work at microsoft today i'd buy a mac." and you think about that. they recognized it. they also had employee surveys that were done every six months and the surveys came back saying the same thing. you know, survey after survey after survey about what was wrong inside the company. and they didn't change it. they didn't fix these things. >> rose: so where do you put steve ballmer, one of the original first employees brought

in by bill gates worth billions and billions of dollars because of microsoft stock. probably the most important partner for bill gates after paul allen left. where do you put anymore this story today? >> he was the guy at the top of the company, the guy really making the day-to-day decisions when this whole transition was taking place this whole market transition was taking place. and he was really the biggest proponent of this phrase i keep going back to. i think it identifies the company "last to cool and first to profit." and when that you have mind-set and the world starts slipping away it's gone. we want to say well microsoft didn't go after the pad because it didn't have the business

there. when these products were introduced, when the iphone was introduced, is ballmer publicly said essentially "what a joke. nobody's going to buy this thing." when google was burning along he said "google isn't a real company, it's a house of cards." and this has been enormously embarrassing for the technical people inside the company who saw where things where going. ballmer's not a technical guy. he's really a business guy. >> rose: so why is steve ballmer still in his job? >> i think he's been give an lot of opportunity. and a lot of chance to make things work. you really don't want to rip the guy out of his position too quickly. the development period of technology... >> rose: ten years is not... >> ten years is starting to get... i mean, if you had like two years ago where david einhorn, who's... may have been a year ago, david einhorn, who's a big shareholder of microsoft

was saying "it's time for ballmer to go." you have this new wave of products that's about to come out. windows 8, their next servers. xbox 720, you just had windows phone 7 coming out. maybe that will turn it around. >> rose: and these products are getting good reviews now. >> but they aren't selling. windows 7 is out. windows 7, great product. people who buy it love it. very well reviewed. but it's not selling. and i would say it's not selling because of that whole iphone cache. >> rose: on the other hand, android has come on now strong as an operating system for wireless devices. >> and it's just... it's... on some levels it's confusing. why has it fallen so badly? i'm beginning to wonder if there's a problem with the windows brand applied to other

devices. because in a way if you think about it, windows is a word that's been around for 25 years going back to the late '70s and when you have in the technology world somethinging that is also associated with windows vista, for instance, which was a disaster, the operating system they had in 2005 i think. if you had all of these things it doesn't... it doesn't have that capture the public imagination. i don't know this. >> rose: does anybody you know have a smart idea to fix soft? >> break it up. that's... i would they if we were sitting here ten years from now we would be talking about the baby microsoft because if you look at microsoft and you look at who is it competing with

well, it depends on who we're talking about. in the business of business it's i.b.m., in devices it's apple. in search engine it's google. in xbox it's sony. and no company should have different competitors spread out across the company when you're trying to have a unified strategy. xbox is a great example. xbox is a great product and it makes money. but within the behemoth of microsoft, the amount of money it makes is inconsequential and it's drowned out by the huge costs of the entire operation. >> rose: so what would xbox be if it was an independent division of microsoft. >> rose: it would be the entertainment division of microsoft. goldman sachs was calling for the spinout of the entertainment division. you need a mobile devices

division spun out. each one of these things in and of itself if you first freed it of the bureaucracy of microsoft and freed it of this huge overhang of this corporate crust you would be able to transform them into much more dynamic and faster moving... >> rose: but at the same time what you see as the reality of silicon valley today and that whole sense of what that community represents is everybody's in everybody's business. they all have divisions doing different things. take amazon, for example. it's no longer just e-commerce, it sells things. >> yeah. but the main thing... >> rose: i mean, it manufactures things. >> the big thing they manufacture is their e-reader, is kindle. but if you think about it, what

is kind? it's a mechanism for going into buying their primary product and the other sort of footnote on kindle microsoft was developing an e-reader in the late '90s. they late it fall apart because it didn't have the windows desktop kind of frame. what amazon now has or what amazon had to start its kindle was what was developed by microsoft. so in a way microsoft was the research and development arm of amazon. >> rose: i'm sure steve ballmer has heard this criticism before. what does he say? >> that microsoft is the greatest company in the world. that they have a vision, they know where they're going. that there have been mistakes in the past but that that is the past and the company has righted itself and it's ready to take on the world. >> rose: so he's optimist sglik

>> very. steve ballmer is a very nice man. people like him. he's very upbeat, a great salesman. everybody know he is doesn't need to be there. this is a guy from billions and billions of dollars. but at some point you need to be more than a cheerleader. you need to be able to say here is where microsoft is going. >> rose: are you sure he hasn't done that? >> not in a way that's been reflected in what the company is doing. right now people stand back and say steve jobs has passed away, what's next for apple? where is it going? what is the future of apple? it's a question that's... really picks at the mind if people are interested in technology. you stand back and look at microsoft and rather than saying where is it going and have people who work there saying i don't know where it is.

and that is the problem. when you don't have a singular coherent strategy and on top of that you don't have an express vision of where you're going you're going to be spinning your wheels. >> rose: who can influence the conversation? >> i think gates still has a lot of influence. i think there is an upper echelon of management that talks among themselves a lot. when you get down into the levels below that there's really... people feel very impotent about trying to express what they see on a daily basis. then you're going to have go out to the shareholders and the shareholders have a lot of influence and the... what in the world are you... >> rose: institutional

stockholders have a lot of shares. >> and they're not happy. ten years ago today, microsoft was on a split basis about $50 a share. and it's $30 now. and it has been there forever. and if you are a tech investor this is a company that's been trading like a pipeline company. >> rose: what's its p.e.? >> i don't know off the top of my head. >> rose: you talked about a ranking system pioneered by jack welch at g.e. what impact does that have? >> it's a disaster. one of the thing us found really interesting... i interviewed dozens of people and every single phone call within or meeting within five minutes the person will bring up stack ranking is a disaster for this company and the way stack ranking works... it might work at g.e., but at microsoft...

i'll explain it and explain why it's so problematic. if you have five people in a division, everybody in the unit, everybody in the division is pitted against the other. you have... you can't just do well. you have to do better than the next guy. and if you don't do better, well, that affects your income, that affects bonuses, that affects whether you can't to work at the company. and the way it's set up, five people, one of them is ranked great, one of them is ranked... these are just made up numbers because they change the percentages all the time, one of them is ranked below great, two of them are ranked average and one of them is ranked terrible. and going into the beginning of the year you know somebody's going to be ranked terrible. one of the sort of maybe little mean... one of the things i pointed out in the article is okay, suppose you had the five

greatest people in technology. suppose they'd been hired before... really successful business guys before they were famous. what if steve jobs and smit and zuckerberg, bezos were in one unit, one would have to be rated as terrible. so the result you have within microsoft is stars, really smart people who will fight to stay out of a division with other really smart people. if you're in a division and you realize you are competing with me, well, i have some information you might need so i'm not going to tell you. there are people who talked about how they openly sabotage each other's work. >> rose: it was said not long ago that google is the new microsoft and facebook is the new google. you don't hear that much anymore. does that have resonance with you? >> i think that both of them are

just new directions. the unless you're talking about who has money. google, yes, has a lot of money on hand, they're basically the same as microsoft. in terms of strategy and direction, totally different company. facebook-- i hate to say this-- i've never quite understood their business model. and you're starting to see that issue in the marketplace. but google had a very, very smart business model and they're continuing down that path. so i think... i can see where google is going. i can see what their future is. i'm not so sure about apple, i'm not so sure about facebook and i'm definitely not sure about microsoft. and so when you have those, i think, yeah, google probably is the power player, is the next microsoft. apple could be depending i don't know the next step is.

facebook i don't think is ever going to be a power player. watch, this will be played back to me a few years. (laughs) well, what did i know? >> rose: thank you for coming. his article on microsoft in "vanity fair" magazine for august. thank you for joining us. see you next time.