SAN FRANCISCO -- Palm wasn't big enough to compete with Apple, Google, Microsoft and others with its fledgling webOS operating system, former Chief Executive Jon Rubinstein said at Dive Into Mobile.

Rubinstein explained why the company sold to Hewlett-Packard for $1.2 billion in April. He's now senior vice president of its Palm business unit developing mobile devices based on webOS.

"The world moved a little faster than we expected and we ran out of runway," he said. "That's where being acquired by HP is really positive. We bring that innovation and they bring the ability to scale."

As part of the integration, the Palm business group merged with more than 200 employees from emerging business group.

Rubinstein wouldn't say exactly when HP will release a new phone based on the software, but said phones and "radically new" tablets will be released in 2011.

Rubinstein predicted HP will be among the top three to five players in the smartphone market.

In response to a question from host Kara Swisher, he said it's still undecided whether the Palm name will continue to be used.

SAN FRANCISCO -- If Microsoft's Joe Belfiore thought he was roughed up by Walt Mossberg, he should have stuck around to hear Mossberg interview AT&T's Glenn Lurie at the Dive Into Mobile conference.

Mossberg opened the conversation by noting a new Consumer Reports story that panned AT&T service as the least reliable in the country.

"You've kind of become associated with the idea of dropped calls or failed to initiate calls," Mossberg said.

"I agree with the perception to a point," Lurie replied.

Lurie, president of AT&T's emerging devices business, said the company welcomes the feedback and it's spending heavily to keep upgrading its network as data usage explodes.

"The main point I'll say is we're always looking for feedback," said Lurie, a Seattle Pacific University graduate.

AT&T spent $18.5 billion in the past year and $18 billion the year before to keep up with data usage that's grown 5,000 percent over the past three years.

"Aren't you like the dog chasing the car and you're never going to catch it?" Mossberg said.

Lurie, a former professional soccer player, did a little sidestep when asked about Verizon getting the iPhone that's been exclusive to AT&T since its launch in 2007.

Pressed on the question, Lurie said AT&T's not worried.

"We have come out very publicly and said we're not concerned about it at all ... If and when that ever happens, we are in a position to compete with anybody who has any device any time," he said.

Lurie said AT&T is also pleased with the sales of Android and Windows Phone 7 devices.

"The key is when you have 93 million customers that you have everything," he said.

AT&T may be losing its iPhone exclusivity, but it's still tight with Apple. Lurie said he talks all the time with Apple's chief operating officer.

"I talk to Tim Cook pretty much every day," he said.

All networks are going to be under similar pressure from soaring data consumption through new devices and applications, Lurie said, making a bid for the 2010 Positive Spin Award.

"All the carriers are going to deal with this," he said. "We had the good fortune of dealing with it first."

SAN FRANCISCO -- It's a challenging day for Joe Belfiore, Microsoft's Windows Phone design and management vice president

Belfiore came to give an update on Microsoft's grand entry into mobile devices to Walt Mossberg, at the Dive Into Mobile conference. Mossberg pressed for an update on Windows Phone 7 sales, saying the lack of sales info makes people wonder if it's not doing well.

Belfiore said Microsoft has been focused on launching the platform and some devices are just now coming to market.

"It's just too soon to talk about numbers," he said.

Mossberg and audience members also pressed Belfiore to explain what Microsoft will do to compete with Apple's iPad and other slate-like computers.

"Stay tuned," Belfiore said.

Meanwhile, elsewhere in San Francisco, Google's captivating the tech press with big news about its Chrome operating system.

Google showed a test-bed laptop that Google employees are using to test the software. It also said Acer and Samsung will begin selling laptops running the software in mid- 2011, according to Engadget's liveblog from the event.

Chrome isn't really launching today -- it's still to come, but Google's progress in the operating system business is sucking air out of the room at Dive Into Mobile.

Google's news is aimed mostly at developers that the company hopes will develop applications for the browser-like operating system. It's also jumping out ahead of the tablet and PC announcements coming at January's Consumer Electronics Show.

Meanwhile, Mossberg kept pressing Belfiore on Microsoft's belated phone software and how long it may take the company to catch up to the leading smartphone platforms.

Belfiore wouldn't give a timeframe but said it could take a few years. (Belfiore is at right and Mossberg at left in this photo by Asa Mathat of All Things Digital.)

A few more bits from Belfiore's on-stage interview:

When Mossberg noted how far behind Microsoft's phone platform has fallen behind the iPhone and Android platforms, Belfiore said Microsoft has "tried to take advantage of what we've seen them do in the market."

"Admittedly we've been doing this for a long time, but now we think we have a product that's right up there with those guys," he said.

Mossberg asked "what makes you think it's right up there" when the Windows Phone 7 software doesn't yet have the multitasking and copy-paste features of the iPhone.

Belfiore said WP7 does some multitasking -- loading e-mail in the background, for instance -- and an update that adds copying and pasting is now being tested. He defended Microsoft's decision to focus first on capabilities that are more widely used, such as texting, browsing, email and multimedia.

"What we've tried to build is a software experience that can appeal to a very broad range of users who have needs that may not be as extreme as those tech enthusiasts," he said.

Belfiore wouldn't say when WP7 will get its first major update but said that the update is currently running on his personal phone.

Here's a video of the interview:

SAN FRANCISCO -- Less than two years after it launched its mobile-social service, Foursquare has sorted out its product development system and grown to 40 employees.

The New York-based startup has 40 employees, 4 million users and $20 million in funding -- enough to make it until the end of 2011, co-founder and Chief Executive Dennis Crowley said at the Dive Into Mobile conference.

Crowley said the game mechanics the service is based upon -- rewarding users with virtual badges for checking into various places -- were initially "designed to keep people enthralled for maybe a month or so," to get users to join the company's social network.

"We didn't think it would blow up into what it is now," he told host Kara Swisher.

Now the company's looking into different game mechanics it can introduce and feeding its data to developers building their own applications, such as a service that sends e-mails when the mix of males to females at a bar or club tilts in the user's favor.

The company's also refining the tools it offers to enterprise customers such as Starbucks and Sports Authority.

"Under the hood it's like a stats engine," Crowley said.

Crowley said the company is also looking at ways to provide users with real-world rewards, creating a digital version of the bartender who recognizes regulars and gives a free drink or the restaurant owner who comes over to shake loyal customers' hands.

"There's an opportunity to reproduce some of that with software," he said.

Foursquare isn't profitable yet. Crowley said the company wants to first sort out how it's going to work with local merchants "and then pull levers" to start making money.

Crowley's probably not in a big rush. He sold his last company, Dodgeball, to Google in 2005.

Swisher suggested that he call his next venture Tetherball.

RANCHO PALOS VERDES, Calif. -- Ford's work on integrating computers and other digital systems into cars was presented by Chief Executive Alan Mulally in the final session of the All Things Digital conference.

Mulally, who formerly led Boeing's commercial airplane business, said Ford decided to focus particularly on the interface to help drivers safely manage the entertainment, communication, navigation and other activities.

This debuted in 2007 in the Sync platform that Microsoft developed with Ford.

"We took the point of view that the best thing we could do for the consumer and would actually add value ... would be that we would manage the interface with the driver where everything that they were interfacing with, they could have their hands on the wheel, eyes on the road and voice activated," he said.

To keep advancing the system, Ford monitors what consumers are doing with consumer electronics. That led the company to work with the Pandora music service to integrate its service into the Sync system, for instance, using APIs the company is opening to other software developers.

Mulally said the need for a system like Ford's was demonstrated on his drive to the conference. He saw a woman driving with both arms extended through the steering wheel so she could text with both hands.

"I was going, 'Oh, my goodness,' " Mulally said.

Asked by co-host Kara Swisher about the future of the auto industry, Mulally said he thought a lot about that question when he decided to move from Boeing to Ford. He said he decided "that the automobile industry really is the soul of manufacturing everywhere around the world, and I say manufacturing with a big M."

"Not only is it the soul of manufacturing, it's also part of the solution to economic growth, energy independence and environmental sustainability," he said.

The internal combustion engine will be around for a while. Meanwhile, Ford's producing hybrid vehicles and will start selling an all-electric car next year.

Mulally also recalled what it was like to testify in support of the federal bailout of his biggest competitor, GM. At stake was not just GM but the fate of a supply chain that accounts for about 4 percent of the GDP, and is 70 percent shared with Ford.

"At the most fundamental level we felt that was the right thing to do" for the industry and the economies of the U.S. and the world, he said.

"I hope that they get back to operating well," he said, but added that he feels good that Ford was well positioned with a restructuring plan that began three years before the recession began.

Under that plan, the company focused on the Ford brand, shed other brands such as Mazda and Aston Martin, decided to produce "a complete family of vehicles" with each one best in class.

Mulally said he drives a different car every night, in part to keep abreast of the competition. That caused a kerfluffle the first time he drove a Toyota Camry to Ford headquarters, he said.

Even before Mulally got going, he had apparently won one new customer.

"We might actually be buying a Ford car for the first time," Swisher said.

RANCHO PALSO VERDES, Calif. -- Peter Chou's hunch was right. His Taiwanese phone company, HTC, was founded in 1997 to pursue the vision that smartphones would be transformative.

HTC went on to produce the first Windows smartphone in 1999 and later the first phone based on Google's Android software. On Friday, it launches the first smartphone running Clearwire's 4G network.

Chou showed Walt Mossberg the 4G Evo that HTC's making for Sprint during his appearance at the All Things Digital conference.

Mossberg asked Chou to discuss how his company is building phones based on both Google's Android software and Microsoft's Windows phone platforms.

"Different people like different things," Chou said. "What we try to do is have the best mix of technologies and design and give people a choice."

What's the difference between Android and Windows, Mossberg asked.

"Windows has a lot of Windows users -- legacies -- and they are very familiar to the Windows experience."

Asked about the challenges Windows Mobile has had, Chou said "Windows has a lot of value" and noted that HTC is making phones based on the upcoming Windows Phone 7 software.

Android appeals to people who do more social networking, and it has good applications, like maps, Chou said.

HTC -- which has U.S. headquarters in Bellevue and a software center in Seattle's Pioneer Square -- is moving from a somewhat invisible manufacturer of phones for other companies to a consumer brand with more prominent logos and a proprietary software interface.

Chou said its recent brand campaign is working and customers are now asking for HTC phones by name, he said.

Mossberg questioned whether consumers will get confused by all the brands appearing on phones now -- the manfucturer, carrier and software provider.

"There's a lot there," Mossberg said.

"We are trying to minimize that a little bit, so there are some of those on the back and not everyone on the front like right now," Chou said.

Smartphone sales are surging, but they're still expensive to produce -- about $400 apiece wholesale -- and are complicated for some users, Chou said.

The company is working on a lower-priced alternative, the HTC Smart, that will cost phone companies about $150, run apps and be based on Qualcomm's Brew platform.

Asked about the fragmentation of Google's Android platform, Chou said the proliferation of different versions "causes a little bit of problem" but that's the nature of a modular product.

During audience questioning, Chou was asked about the short battery life of the Evo. He replied that the battery works longer if the phone's more advanced features aren't being used, but he said battery life is something that needs to improve on smartphones.

"The battery technology is one area that innovates very slowly," he said, adding that he spends a lot of time talking to battery suppliers.

"I don't have a lot of good news, but I hope one day we don't need a battery to run the device," he said.

In response to a question from an interested investor, Chou said he hopes to have the stock listed in the U.S. as well as on the Taipei market.

RANCHO PALOS VERDES, Calif. -- AOL was overly focused on a few metrics -- gross revenue and page views -- according to Tim Armstrong, who left Google to become AOL's chief executive last year.

Now the venerable portal is remaking itself, in part by developing a sort of digital newspaper with local coverage and ad sales in cities across the country.

In an interview with Kara Swisher at the All Things Digital Conference, Armstrong explained how he's rebuilding the Web company and pushing to build local news portals in more than 65 cities. Earlier in his career he was a marketing executive at Starwave in Bellevue.

"I think it's bringing together journalism and technology," he said.

The company is going into towns and "digitizing" them by assembling a collection of local Web sites and assigning a full-time reporter to add local coverage. It's also offering new systems for local advertisers, he said.

"We're more focused on journalism in general, which is how do you figure out what people's needs are," he said.

When he first joined AOL he found it was "managed on gross revenue and page views." Chasing page views affected decisions the company made, such as "photo galleries with 80 photos" and the ill-fated acquisition of social networking site Bebo for $850 million in 2008.

Armstrong said Bebo's now going to be sold or shut down.

Although AOL and Armstrong have history with Google, AO i's reviewing which search engine to use when its search partnership with Google expires later this year.

"I think there's probably more than two potential partners," he said.

Swisher asked if AOL is still relevant and whether Armstrong can revive the brand, which is suffering the same sort of fate as MySpace.

"There is a warm fuzzy feeling about AOL for the vast majority of people who don't work in our industry," Armstrong said.

That brand is worth reviving, which the 4,700-person company has to do by showing people better services and products, he said.

"I believe AOL will be a very successful company in the future," he said.

RANCHO PALOS VERDES, Calif. -- A few weeks ahead of its launch, the OnLive online gaming service was demonstrated at the All Things Digital conference by founder Steve Perlman.

Using a new compression technology, the service delivers console-type games that run on the company's datacenter and are played through a small software client downloaded to a PC by players. Perlman demonstrated the service running the game "Borderlands" on an iPad and iPhone, but it didn't work on the phone.

Later in the year it will sell a adapter about the size of an iPod for displaying and playing games on a TV. It may eventually be used for streaming movies as well.

"This is cloud computing in the purest sense of the world ... it's the thinnest of clients," Perlman said.

You could say that OnLive's seed capital came from Microsoft. Perlman earlier sold WebTV to Microsoft and Moxi to Paul Allen.

OnLive was unveiled in March 2009 and is launching its service June 17 at the E3 gaming conference in Los Angeles. Prices will be disclosed then, but Perlman said the service will cost less than $14 per month.

Perlman said the games can be played without lag by people who live within 1,000 miles of OnLive's servers, which so far are located in Silicon Valley, Dallas and the Washington, D.C. area.

RANCHO PALOS VERDES, Calif. -- Walt Mossberg is interviewing Microsoft Chief Executive Steve Ballmer and Chief Software Architect Ray Ozzie here at the All Things Digital conference. Mossberg started it off asking Ballmer about the economy, but the conversation heated up when they came around to competition with Apple and Google.

Mossberg also elicited a bit of news from Ozzie, who confirmed that Microsoft is considering letting other companies integrate applications into its Bing search engine.

"That's something we'd like to experiment with. We're doing it in maps right now," Ozzie said.

Facing a room full of iPad users who heard Steve Jobs on Tuesday predict a fading PC market, Ballmer said "the real question is, what's a PC?"

Is the iPad a PC? Mossberg asked.

"Sure, of course, it is. It's a different form factor of PC," Ballmer said.

The PC business will continue to grow but the design, size and weight of the devices will change, Ballmer said.

"I think people are going to be using PCs in greater and greater number for years to come," he said. "I think PCs are going to continue to shift in form factor .... They'll get smaller and lighter, some of them will have a keyboard, some of them won't have a keyboard."

Ballmer said the iPad is "a flat device where you can buy a docking station -- you can dock it and start turning it back into a PC," he said.

PCs can also be flat, he continued.

"Are these really separate categories? No these are one category where you've got a different cut at the form factor."

Looking ahead, Ballmer said the discussion "won't be about Mac and PC anymore. It will be about the thing that replaced the Mac."

It's not clear that there will be one general purpose computing device, Ballmer said. Nor does he think "the whole world will be able to afford five devices per person. Maybe in the bubble of Terranea," he said, referring to the swanky resort where the conference is taking place.

Ballmer also fired back at Jobs' characterization of PCs becoming the equivalent of trucks, saying Windows computers will continue to appeal to the masses.

"There may be a reason why they call them Mac trucks, but Windows machines are not going to be trucks," he said.

Asked about Google developing new operating systems, Ballmer said he's perplexed about Google's decision to create both the Android and Chrome operating systems simultaneously.

"The other guy's trying to start incoherent. Talk to them," he said.

Ballmer was candid about how Microsoft fumbled its strong position in the phone business, which he's now directly overseeing, saying it was the result of poor execution. He told Mossberg that Microsoft's phone business has been overhauled, similar to the way its Windows business was sorted after the Vista debacle, and is better positioned with the new version of the phone platform going on sale this fall.

"What do you mean about learning the value of excellent execution?" Mossberg said.

"We missed a whole cycle," Ballmer said.

"We had to do a little cleanup, change things around a little bit in big Windows," he explained. "We've done a little bit of the same in mobile. You can't just say innovation is all about going off into the ivory tower. It's also about good, consistent engineering."

Ballmer said Microsoft may benefit from the "dynamic" phone market, in which market leadership has shifted several times over the last five or six years.

Mossberg began the conversation by asking Ballmer about the state of the economy and Ozzie about cloud computing.

"I would say developed world, things have come off the lows for sure," Ballmer said. "I think our industry is even more revved up about how good the economy is than maybe some others but we've all been in a good product cycle." He added that "we've started to see some comeback in business spending."

Ozzie said the new environment, with sharing material online, connected devices and common standards for sharing, is prompting changes in the way products are developed at Microsoft. He's going to different product groups and asking them to "re-pivot around specifically what people are using that product for."

"In essence I think the real opportunity is for us to say for all the different solutions .... how do we re-pivot to the cloud and think about this centralized view to the solution," he said.

Although there is different rhetoric around cloud computing, Ballmer said companies are actually pursuing a pretty similar vision of computing with "smart" devices like PCs and phones still handling a lot of processing and storage.

"When people say 'I love HTML5 .... They're saying they actually like a pretty rich processing storage, graphics engine that runs down on the client," Ballmer said.

"At the end of the day, I think actually the worlds we're talking about is driven from the cloud out but it's smart cloud talking to mostly smart devices - phones, PCs, TVs - and apps that execute locally but are controlled and kind of seamlessly integrate with the cloud," he said.

RANCHO PALOS VERDES, Calif. -- Walt Mossberg and Kara Swisher didn't beat around the bush with Facebook founder and Chief Executive Mark Zuckerberg, starting their All Things Digital interview by asking him about the social networking site's controversial approaches to privacy.

Zuckerberg said the settings grew too complex as the site added numerous features, each with its own privacy controls. But he said some have overblown the situation.

"There have been misperceptions that say we're trying to make all the information open or something like that," he said. "That's competely false.''

Zuckerberg explained that Facebook recommends a tiered approach, sharing sensitive information only with friends, photos and video with friends of friends and the least sensitive information with the general public.

"You seem to have taken some steps to make more public my information as a Facebook member, on your own," Mossberg said.

Zuckerberg responded by noting that more than half of Facebook users have changed a privacy setting, evidence that people are aware of the controls the site offers.

"People are using them," he said, adding that "the majority of people who go through this aren't changing most of the settings."

"How do you explain the hubbub around it?" Swisher asked.

Zuckerberg responded by telling about how the company went from something started in a college dorm room to a major phenomenon.

"I can't go back and change the past," he said. "I can only do what we think is the right thing going forward."

Zuckerberg sweated heavily during the interview, prompting Swisher to suggest he take off his hoodie sweatshirt. When he did she held it up to show the Facebook mission statement printed inside, adding some levity to the situation.

Mossberg pressed on why Facebook didn't provide more notification and opt-in choices when it linked users to different services. Shouldn't people make the decision themselves? he asked.

Zuckerberg said it's a balancing act when making products and services that people can share.

"Opt-in vs. opt-out is one part of that balance," he said, explaining that an opt-in approach wouldn't have enabled Facebook's core news feed feature to have worked. That apparently influenced Facebook's thinking as it adds additional services that it believes will enhance users' experience.

"I think it's a balance on all these things. I don't know if we always get it right and want to listen to feedback," he said.

Zuckerberg's answers revealed as much about the generational and philosophical gap between the 26-year-old and the interviewers as it did about Facebook's plans and decision-making. At times it seemed like the conversation was taking place on two different planes.

Looking forward, Zuckerberg said he expects all sorts of Web sites and services will soon be linked and tailored to consumers' Web profiles and preferences. He describes this as "personalization" and it's at the heart of privacy concerns that Mossberg and Swisher were highlighting.

"My prediction would be that a few years from now we'll look back and wonder why there ever was this time when all these web sites .... weren't personalized," he said.

"I just think the world is moving in this direction, where things are going to be designed more around people, and that's going to be a really powerful direction," he said.

Swisher asked if Zuckerberg plans to be chief executive after Facebook goes public.

"Yeah," he said, smiling at the tricky question. "I don't think about going public ... much."

The first question from the audience came from RealNetworks founder Rob Glaser, who asked how Zuckerberg deals with the world looking at him differently after the phenomenal success he's had, having built one of the five most important Internet companies at such a young age..

"Maybe I'm in denial. I think our goals haven't really changed much at all. Inside the company we don't think of ourselves as a company that successful," he said.

Facebook is "a lot closer to the beginning than the end," he said.

"I guess as you get bigger people expect you to slow down and do less crazy stuff," he said. "I guess I hope we never do that."

Zuckerberg said he personally relies on advice from a core group of people he trusts and has worked with for a long time, "four or five years," he said, drawing guffaws from the audience of older chief executives.

"Whether it's them or my friends, that's what I care about. They're peole who share my values and the values of the company and think making the world more open and connected is a good thing," he said.

"There are going to be some people who think what we're doing is cool and some who don't," he added.

Going forward, Facebook will take feedback "and tweak from there."

RANCHO PALOS VERDES, Calif. -- Another interesting bit of tech history that surfaced at the D8 conference: AOL co-founder Steve Case said his company considered buying Apple and putting Steve Jobs in charge, to help sort out its troubled merger with Time Warner.

At the time Apple's market value was only about $1 billion.

It was during an AOL board meeting in 2002, where "one suggestion was we acquire Apple and put Steve in charge," Case said during an interview with co-host Kara Swisher.

"There wasn't a lot of support for the idea," he said, explaining that at the time people had different perceptions of Jobs' company.

"Apple was this Mac operating system company with a 2 percent market share."

RANCHO PALOS VERDES, Calif. -- Kno, a Santa Clara, Calif. startup, unveiled a dual screen tablet for students at the All Things Digital conference.

The Kno tablet weighs 5.5 pounds, has dual 14-inch color touchscreens and pairs with an online platform that's supported by higher education publishers, the founders said in their demonstration.

The device looks like an Apple laptop without a keyboard, and it will function in laptop mode by using one of its screens as a touch keyboard. The two screens are connected by a fabric material similar to what's used for seatbelts, instead of a hinge.

It also has an iPad-like interface, displaying thumbnail-sized icons for applications and books on the device. It has Wi-Fi and Bluetooth radios but not 3G cell coverage, and the battery life is expected to be at least six hours.

Kno expects to begin selling its tablets this fall. It's not yet disclosing a price but it will be less than $1,000.

RANCHO PALOS VERDES, Calif. -- NPR Chief Executive Vivian Schiller shared details of how her organization is extending to new platforms.

The radio network has 34 million listeners who spend an average of six hours a week with NPR, she told Kara Swisher at the All Things Digital conference.

"It's very important for us to be on every platform," Schiller said.

NPR is at the forefront of media companies straddling old and new mediums, but it's a non-profit organization dedicated to sharing its content for free. That's in contrast to media companies that are exploring new ways to charge for digital content after their experiments with free online content failed to offset paid subscription declines.

For NPR, at least, the new digital platforms have been additive.

"Weve seen no evidence there's been any cannibalization going on," she said.

NPR extends content through APIs it developed primarily to support its non-profit member stations. But having the APIs built helped NPR develop its iPad application in only a few weeks. The app has been downloaded more than 300,000 times, she said.

The APIs were also tapped by a Google developer who decided to build an NPR app for the Android mobile platform during his 20 percent project time at the company.

Schiller, a former manager of the New York Times digital operation, said she's enthusiastic about the proliferation of local, non-profit news organizations spawned by the downsizing of the traditional media industry. She's interested in NPR partnering with those organizations.

During the question and answer session, Seattle entrepreneur Dan Shapiro said he's a lifelong fan, but he would prefer to support the national organization over his local affiliate. Schiller said NPR does encourage philanthropic support but generally prefers listeners to support local stations.

Another person asked what role local affiliates play, with new technologies making it easier for people to go directly to NPR.

Schiller said it's important to continue supporting local coverage.

"One of the biggest risk factors in journalism today is coverage at the state and local level," she said. "Bad things happen when people aren't watching. So it is critical to have local reporting coverage."

Another Seattleite also weighed in during questions.

Scott Moore, executive producer of Microsoft's MSN, said he's a fan, but he's more pessimistic about the long-term survival of the new wave of non-profit local news organizations.

Then Moore asked Schiller what she thought about NPR partnering with a for-profit venture.

"Are you trying to make an MSN deal here?" Swisher asked, and Moore just smiled.

RANCHO PALOS VERDES, Calif. -- The outrageous rise in movie ticket prices is easing, according to DreamWorks Chief Executive Jeff Katzenberg.

During an interview with All Things Digital co-host Walt Mossberg, Katzenberg said prices are leveling off at an average of $7.50 nationally and a $3.50 premium for 3D.

"It's probably hit a level that's going to plateau for awhile," he said.

Katzenberg also defended what Mossberg called "3-D fatigue," saying "we're at the beginning" of a new opportunity, but 3-D is "probably the most powerful new creative tool put in the hands of filmmakers since color."

Meanwhile, DreamWorks is working with Intel on new workstations using supercomputing processors that draw on its Larrabee graphics technology. The computing power will enable animation artists to render in real time, rather than sending individual frames to a datacenter for processing -- a step that takes at least eight hours.

"What it does is it changes the entire process of how we actually create and make our product and it's going to affect many many thousands of industries that rely on high-end computing," he said, adding that "we're going to be a lighthouse for this."

The first movie using these new tools from start to finish will come to theaters in 2012.

RANCHO PALOS VERDES, Calif. -- As the nation's biggest cable company and Internet service provider, Comcast is in a position to help the movie industry transition from its declining DVD business to selling movies online, said Steve Burke, chief operating officer and president of its cable business.

"So as the supplier of so many people's video service and Internet service we think we would be in a very unique position to craft that evolution," Burke said in an interview with Kara Swisher, co-host of the D8: All Things Digital Conference organized by the Wall Street Journal.

Burke said Comcast plans to invest in NBC after its acquisition of the media company is completed toward the end of this year. He said network television is a challenging business but the cable channels it's acquiring are profitable.

Those cable channel businesses tend to be the best part of the media landscape now," he said. "If you talk about Disney or Fox or Time Warner, the majority of the cash .... comes from cable."

Asked about the Universal movie studio that's also part of the deal, Burke said Universal has 4,000 movies that Comcast can be distributed electronically. He said the company doesn't plan to sell the studio or other pieces.

"Those are all businesses that belong in a well-rounded media company," he said.

Google and others are working on TV delivery systems that use the Internet to deliver content and bypass cable companies, Swisher noted.

Burke said people subscribe to cable largely because they want particular channels that are available on cable, such as ESPN.

What about ending bundles and offering a la carte channels? Burke said that's not the way programming contracts between cable and content companies work.

"The ecosystem has evolved so that people pay $50 or $60 and get 200 channels," he said, adding later that "It's been pretty successful for both sides of the equation."

Looking ahead, as new devices and services appear, it will still be in content providers best interest to have deals with distribution companies such as Comcast, Burke said.

As the bundling discussion continued, Burke poked back at Swisher, saying that he'd "like to buy the first section of the Wall Street Journal and not the next three sections."

Asked about 3-D TV, Burke said it's clearly coming but he's not enthusiastic about wearing special glasses and some material may not be ideal for the medium, such as overhead shots of a football game.

"I think it remains to be seen what percent of your viewing will be in 3-D, what type of viewing you'll do," he said.

Although Comcast is trying to sell more movies online, Burke's still a fan of movie theaters for a movie's initial release.

"The best place for bringing a movie to the general public is a movie theater," he said.

Burke said technology has been seen as a threat to content businesses but he believes new devices and distribution systems will make professionally produced content even more valuable 10 or 20 years from now.

"The reality is these things tend to be additive and the pie grows," he said.

During a Q&A session at the end, Burke was asked about Comcast's stance toward an open Internet, developing apps for the Comcast platform and customer service.

Burke said he and Comcast CEO Brian Roberts had been to visit Steve Jobs five times in the past decade, asking for help creating a better interface. Jobs response, Burke said, was "Of courses I can but you have to use our hardware."

With $10 billion invested by Comcast in various set-top boxes, that's just too complicated.

"It's harder than we wish it was. I actually think it would be a wonderful thing if we had the open application environment that you see on an iPad for television," he said.

"The fact of the matter is the software platform is balkanized, and it's a hard thing to do."

Burke said Comcast believes in an open Internet but the company has to make sure its network is running well and providing protectdions against spam and copyright violations.

"You walk this fine line between making sure the highway is not jammed with cars but also people rightly concerned access to that highway is as open as possible," he said.

In response to a question from a person saying that "many of your customers hate you," Burke said Comcast has about 24 million customers and 100,000 employees and "you don't get it right all the time."

But the company is investing hundreds of millions of dollars to improve service. "We are clearly getting better," he said.

Cable networks were created for analog products and are now used for digital phone, TV and Internet service, he noted.

"We are an industry that cobbled itself together and are now catching up to how complicated these networks are," he said.

RANCHO PALOS VERDES, Calif. -- Walt Mossberg and Kara Swisher opened today's session with a collection of "prototypes" found in various bars, including a sieve that Mossberg described as a prototype of Facebook's new privacy policy. They demonstrated it by pour a bottle of water through the device.

Others included a button for bleeping out the Yahoo chief executive's cursing and an empty photo frame representing Flash on the iPad.

But the most interesting gadget was a real product sitting naked on the stage behind them, waiting for a demo in about an hour - an Xbox Project Natal controller, in a post-prototype white case:

RANCHO PALOS VERDES, Calif. -- Apple Chief Executive Steve Jobs may look frail nowadays but he showed plenty of fight - and humor - in a wide-ranging discussion Tuesday night at the All Things Digital conference hosted by the Wall Street Journal.

For nearly two hours, Jobs jousted with hosts Walt Mossberg and Kara Swisher, who pressed the Apple co-founder on his company's strained relationship with Google and Adobe, competition with Microsoft and Apple's push into the ad business.

Even at a conference full of celebrity chief executives, Jobs received rock star treatment. A crowd was waiting behind velvet ropes outside the ballroom at the Terranea Resort and surged when the doors opened at 5:45, jockeying for the best seats.

Swisher jumped right into the interview with Jobs, asking for his thoughts on Apple surpassing Microsoft's market capitalization last week.

"For those of us who have been in the industry a long time it's surreal," Jobs said. "But it doesn't matter very much, it's not what's important ... it's not why any of our customers buy our products. So I think it's good for us to keep that in mind."

Walt Mossberg kept up the pressure, asking Jobs about his controversial decision not to support Adobe's Flash technology on mobile devicies and how it's affecting consumers and developers.

Jobs said Apple's makes technical decisions to support what it sees as emerging technologies such as its early decision to support the 3.5-inch computer disc over the 5-inch floppy disc and to drop serial ports on the Mac. He said Apple believes Flash is on the "wane" and HTML5 is in its spring phase.

"Sometimes when we get rid of things like the floppy disc drive in the first iMac people call us crazy," Jobs said.

"Or at least premature," Walt said.

"No they call us crazy," Jobs said.

Mossberg said consumers may not agree it was the best choice when their iPads show Web sites with holes where Flash items should be displayed.

"What if people say the iPad is crippled in this respect," he asked, drawing a heated reaction from Jobs.

"Things are packages of emphasis," Jobs said. "Some things are emphasized in a products, some things are not done as well in a product ... so different poeple make different choices."

Jobs said Apple has "the courage of our convictions."

"We're going to take the heat because we want to make the best product for customers. .... they're paying us to make those choices. That's what a lot of customers pay us to do - to try to make the best products we can. If we succeed, they'll but them. If we don't, they won't. I.... so far I have to say that people seem to be liking iPads. We've sold one every three seconds since launching it."

Swisher and Mossberg also pressed Jobs to discuss the more tense relationship Apple now has with Google. They also tried to pin him down on whether Apple will replace Google as the search service on its mobile devices - some have speculated Microsoft's Bing may take its place - but Jobs sidestepped the question.

What changed in the relationship between Apple and Google?

"They decided to compete with us and so they are," Jobs said.

How about PC operating systems with Google's Chrome O.S.?

"Chrome is not really baked yet so we'll see," Jobs said.

Asked about Apple's long platform war with Microsoft, Jobs said he never thought about the competition that way.

"We never saw ourselves in a platform war with Microsoft," Jobs said. "Maybe that's why we lost - we saw ourselves buiding the best computers we could build."

Jobs also drew laughs talking about why he prefers the consumer market over the business enterprise market.

"What I love about the consumer market and I always hated about the enterprise market is we come up with a product, we try to tell everybody about it and every person votes for it themselves. They vote yes or no," Jobs said.

"The enterprise market, it's not so simple - the people that use the product don't decide for themselves. The people that make those decisions sometimes are confused."

Their conversion elicited an interesting story about the genesis of the iPad. Jobs said he'd asked his team to develop some kind of display he could type on early in the decade and they produced an amazing touchscreeen system. Scrolling and other features made him think, "my god, we can build a phone out of this."

Phones were a more important market so the tablet was shelved while the iPhone was created.

"When we got our wind back and thought we could take on something next, (we) pulled the tablet off the shelf, took everything we learned from the phone and went to work on the tablet."

Jobs predicted that PCs going to be used less and less as new computing devices emerge. PCs - including Macs and Windows systems - "are going to be like trucks but they're going to be used by one out of x people."

What the dominant computing device will be is unclear.

"Is it the iPad? Who knows. Will it happen five years or seven years from now, who knows?" Jobs said. "But I think we're headed that direction."

Swisher asked Jobs about future plans for the iPad and how it could help the struggling news industry. Jobs said he hopes that he's helping newspapers "find new ways of expression so they can afford to get paid, so they can keep their news gathering organizations intact."

"Even more than magazines, some of these newspapers - the news gathering and editorial organizations are really important," Jobs said. "I don't want to see us descend into a nation of bloggers myself. I think we need editorial more than ever right now."

Apple's also going to enter the advertising business itself, but Jobs said the company won't make a lot of money with the new venture. He said the objective is to help developers make money so they can keep providing free or low-cost apps.

"We're not going to make much money in the ad business," he said. "We're doing it for our developers."

During questions from the audience, Jobs told an iPhone owner frustrated by poor network service in Houston that improvements are on the way. Jobs said he's been told that the network is being upgraded with faster connections and switches and improvements should be there by the end of summer.

Jobs said he's been told that "things - when they start to fix them - get worse before they get better. If you believe that, things should be getting a lot better soon."

News Corp. Chief Executive Rupert Murdoch opened the event, recalling how Steve Jobs appeared at the first D conference eight years ago. Jobs talked then about misunderstandings between technology and content creators, a gap that Murdoch believes has since narrowed.

The worlds of technology and content have moved much closer since our first gathering," Murdoch said. "In fact sometimes the line between them has been completely erased."

Content is also key to technology products such as music players and e-readers, Murdoch said.

"You need content too - after all, what is an iPod without music?"

Murdoch used his introduction to assert the need for content to be paid for online, and noted that the Wall Street Journal is growing circulation despite it's subscription approach. He also noted that the paper already has more than 10,000 iPad subscribers.

"We need a fair price for our content," he said. "There's no great secret here. In response to skeptics who say technology is killing the news business, I believe technology is ushering in a new golden age for those willing to embrace it."

RANCHO PALOS VERDES, Calif. -- They aren't scheduled to be on stage together, but Steve Jobs and Steve Ballmer are both appearing this week at the D8: All Things Digital conference, organized by the Wall Street Journal's Walt Mossberg and Kara Swisher.

I'll be blogging from the event starting with the Jobs appearance at 6 p.m. today. As if Jobs wasn't interesting enough, the session also includes News Corp. Chief Executive Rupert Murdoch.

Jobs could shake it up by demonstrating the upcoming version of the iPhone. I'll also keep an eye on barstools at the Terranea Resort just in case.

Microsoft's show begins Wednesday morning when Mossberg and Swisher will demonstrate the Project Natal controller that's coming to the Xbox this holiday season. It's a relatively public appearance for the motion/voice controller, which Microsoft's been showing behind closed doors for more than a year and will formally launch on June 13 and 14 at the E3 game conference up the road in Los Angeles.

The Natal demo follows appearances by Comcast President Steve Burke, DreamWorks CEO Jeffrey Katzenberg and Dow Jones CEO Les Hinton.

Others appearing Wednesday include FCC Chairman Julius Genachowski, Facebook founder Mark Zuckerberg, Qualcomm CEO Paul Jacobs and movie director James Cameron.

Ballmer is highlighting a session Thursday with Ray Ozzie, Microsoft's chief software architect, before sessions with Microsoft allies, HTC Chief Executive Peter Chou and Ford CEO Alan Mulally.

Also appearing at the event are the chief executives of eBay, NPR and AOL (plus AOL co-founder Steve Case).

Tech companies doing formal demos at the event include Kno, a company making a tablet computer for students; Dell, which is apparently going to show its upcoming Streak tablets that I saw in Belltown recently; OnLive, a new on-demand game service; and Wordnik, an online dictionary.

A spokeswoman for Dow Jones, publisher of the Wall Street Journal, said the company won't sue me for copyright violations after today's column on the Journal's "D: All Things Digital" conference.

Phew.

If you still want more from the conference, David Geller, chief executive of Seattle's Eyejot, has a nice gallery of photos at Flickr. The set includes a few candidates for the next Fake Steve Jobs caption contest.

CARLSBAD, Calif. -- Speaking to Google Chief Executive Eric Schmidt today, Walt Mossberg recalled that Steve Ballmer said the day before that the search interface has stagnated.

Schmidt disagreed, noting that Google recently added a "universal search" capability so search results include a blend of video, news and other previously specialized searches.

But Mossberg was talking about the interface, not the results. Schmidt defended Google's minimalist look and said it's not likely to change, although the company is experimenting in places like South Korea with pop-ups and other changes.

"I don't think we're going to go very far from the single search box," Schmidt said.

Mossberg and Schmidt also dove into the particulars of Viacom's lawsuit over YouTube hosting unauthorized Viacom content. Schmidt said Viacom should have waited for Google to develop tools to filter copyrighted material.

Why should they wait? Mossberg pressed.

"Because we follow the law. The law does not require us to build tools," Schmidt replied.

No wonder they ended up in court. But the situation may change before they get a ruling. Schmidt said he's expecting the online video phenomenon to lead to changes in copyright protection. The result will be a "complex mix" of user authentication, content creator authentication and user choice, which I think means everything will be tracked and tagged more closely online.

Mossberg also asked Schmidt about growing concerns that Google is amasssing too much power over digital advertising.

Schmidt said "I understand the concern" but implied that Google won't be like Microsoft because users aren't locked in to using its services.

"Ultimately we're different from some of the previous incarnations of monopoly power ... because we are one click away from losing the user."

But the concern isn't about search as much as control over the backend systems for placing digital ads, Mossberg said.

Schmidt said advertisers have choice there, especially now that Microsoft acquired aQuantive, a competitor to DoubleClick, the ad placing company that Google acquired this spring.

"The easiest answer to understand is the publisher of the content gets to make that decision,'' he said.

As for the competition with Microsoft, the former Novell and Sun Microsystems executive said "you always worry about a company that has that percentage of the platform business in terms of Windows; that's been true for many years certianly in my professional careeer."

But he welcomed the challenge from his longtime nemesis.

"The competition is in fact good" for users and advertisers, he said.

CARLSBAD, Calif. -- The second big Seattle product launch at the D conference was today's unveiling of the new RealPlayer software jukebox, the 11th version so far.

(The first was Microsoft's Surface tabletop computer).

Real highlighted a new feature that lets users download video clips from the Web with a click and save them in a playlist for viewing later. Users can create folders with collections of videos on a particular topic, such as "political speeches" or "best YouTube flatulence ignitions."

When the player is running and you come across an online video -- even ads -- a small button appears above the frame and gives you the option of clicking to start the download.

Downloads aren't particularly fast, but they take place in the background and continue after you've moved on to another site.

The software works with all sorts of video formats, but not if the content has rights-management attached that prevents copying.

I was given a demonstration Wednesday by Harold Zeitz, Real's senior vice president of games and media software and services.

"The real innovation here is the universality of it and the fact that is enabled in such a simple way,'' he said. "We call it the one-click download.''

From the player, users can also send friends links to the content and burn copies of the videos onto CDs or DVDs that can be played in a DVD player.

Real has also simplified the installation process so people only have to go through three screens to set up the player.

A beta version of the software will be available for Windows users to download for free by the end of June. A Mac version is due by the end of the year.

CARLSBAD, Calif. -- So Viacom won't be buying Facebook, apparently.

Philippe Dauman, the new chief executive of the media giant who made waves by suing YouTube over copyright violations, said during a D session today that he may buy some smaller companies but isn't interested in blockbuster acquisitions.

"We're focusing on creating things within Viacom ... rather than paying an inflated price for an outside company,'' he said.

"I'd rather spend the extra $700 million developing new experiences," such as the virtual worlds built around Viacom franchises such as SpongeBob.

Regarding the ongoing lawsuit, Dauman said Google Chief Executive Eric Schmidt called shortly after he took over Viacom nine months ago and they tried to negotiate a deal. Sticking points included how much control Google would have over Viacom content on YouTube, how Google would sell ads around the content and whether Google could contact Viacom's advertisers, he said.

Dauman spoke at the D conference after YouTube founders Chad Hurley and Steve Chen. They had stressed that they're educating consumers about copyright laws on their site, drawing guffaws from moderator Walt Mossberg.

Dauman said he was glad to hear them talking that way.

"Well, I think maybe they're starting to get the idea. I may have helped provide a graduate education in copyright," he said.

The big disclosure by Hurley and Chen was around YouTube's plans to start inserting ads in videos within a few months. Chen said their testing found that consumers were turned off by 30-second ads that play at the start of videos.

"I don't think we'll ever do 30-second pre-rolls," Chen said. "I think it's going to be somewhere between five and 10 seconds, as well as making it as relevant as we can."

Hurley said content creators would have the option of participating in the system, which would share revenue with them along the lines of Google's AdSense system. The site is already testing the approach.

"Within the next few months we're going to roll out more video-centric advertising," Hurley said.

CARLSBAD, Calif. -- Here's a sample of Wednesday night's chat between the PC pioneers, provided by the D conference organizers.

More videos of their appearance are here, along with the D blog of the event.

One of the new gadgets introduced at the D conference is the Foleo, a little laptop like device from Palm that you're not supposed to call a laptop.

It's a mobile companion, Palm founder Jeff Hawkins insisted as he unveiled the gadget on stage with Walt Mossberg and Kara Swisher.

The columnists noted that the thing looked like a laptop and felt like a laptop, but Hawkins was adamant.

Palm

The Foleo is designed to be a "mobile companion" to smartphones such as the Treo.

The 2-pound device has a laptop-like clamshell design with a 10.2'' diagonal screen and a full-size keyboard. It runs on Linux and solid-state memory, with no hard-drive or optical drive.

It's designed to be an accessory to smartphones, which sync with the device so you can do e-mail and other computing on the Foleo and bring it instead of a laptop on the road. The phone then acts like a modem for the Foleo.

Mossberg and Swisher seemed a little skeptical after Hawkins said it's not powerful enough to do a good job playing video from the Web.

It goes on sale in June for $599, but Palm will offer a $100 rebate so it's basically $499.

If Microsoft and computer makers can get Ultra-Mobile PCs down to $600 it won't stand a chance.

The Foleo does have a cool interface, though. Instead of a mousepad below the keyboard it has a scroll wheel, like a smartphone, and dedicated forward and back buttons for browsing and moving through screens.

I thought they were a little awkward and didn't feel natural when I played with the device, but I'd love to have a built-in scroll wheel and forward and backward keys on my laptop.

Another really cool feature of the Foleo was its power management. The thing runs 5 hours with Wi-Fi on or 6.5 with it off. It also turns on instantly with a button that gives you two choices -- on or off, with no option to hibernate or restart.

CARLSBAD, Calif. -- I forgot to bring toothpaste, so I headed down to buy a tube before breakfast.

Waiting to board the elevator with me was Vinod Khosla, the Sun Microsystems founder turned venture capitalist.

Khosla, whose latest focus is biofuels, was talking on a Bluetooth headset about energy legislation all the way into the lobby. Forget the potential federal subsidies, that saved him from talking to a reporter with awful morning breath.

CARLSBAD, Calif. -- Answering one of the big questions about the iPhone that's arriving in late June, Apple CEO Steve Jobs said the company will allow third-party software developers to write programs for the device later this year, after the company sorts out the balance between securing the phone and opening it up to developers.

"Sometime later this year we will find a way to do that,'' he said.

But in a conversation with Wall Street Journal tech columnist Walt Mossberg, Jobs didn't provide any more specifics about when the phone will be released, other than to reiterate "late June."

The chat also showed off Mossberg's influence. He jokingly said he heard that Apple has a new phone. Jobs said "I'll send you one." "Thanks," the columnist replied.

Later, Mossberg asked if Apple will turn away from building computers as it pushes further into consumer electronics. Jobs said the company remains "totally" committed to its computer business.

Jobs also declined to say anything about when and how Apple will next overhaul the iPod line. His vague comment could have applied to the iPhone -- which Apple considers to be its latest iPod as well as a phone and Internet device:

"All I should really say is that were working on the best iPods that weve ever worked on and they're awesome.''

The phone made a brief appearance when Jobs pulled one out of his pants pocket and held it up for a few seconds, but he didn't turn it on or give a demonstration. Nor did he announce any new features.

Jobs did talk up its three key features, particularly the high-quality browser. That's probably a preview of the marketing theme since it echoed the way AT&T's point man on the iPhone, Glenn Lurie, described the device to me last week.

Jobs also shared his perspective on why AT&T (then Cingular) took a leap of faith with Apple on the phone project and agreed to partner on a device it hadn't seen yet. He thinks the company made the deal for two reasons -- first, "music on phones hasn't been successful so far" and, second, because it wanted to find a way to improve the Internet experience with phones and make better use of its high-speed network.

"They along with everyone else in the business have spent or are spending a fortune to build these 3G networks," Jobs said. "So far there ain't a lot to do with them. ... People aren't signing up to use bandwidth."

So that's why AT&T will require iPhone buyers to sign up for unlimited data plans, as Lurie told me last week.

But Sling Media Chief Executive Blake Krikorian called Jobs on his 3G reference. The iPhone actually works on a slower network, AT&T's EDGE, that's considered 2.5G, he pointed out.

Jobs replied by pointing out the phone also has Wi-Fi, which is faster than EDGE, and the phone automatically switches to Wi-Fi when in range. He also noted that there are lots of Wi-Fi networks around, especially in Palo Alto, Calif., where he lives.

"Some of them are people's personal ones you can just take a ride on," Jobs said, adding that "there's like 10 times more Wi-Fi out there than even I thought there was."

Hmmm. I guess that's one option some people may take. (Jobs' other options weren't discussed.)

Mossberg repeatedly joked about delays in Apple's upcoming "Leopard" operating system, but Jobs never took the bait and said anything about the timing or cause of delays.

Indirectly acknowledging Apple TV hasn't caught the world on fire yet, Jobs described the device for streaming media from a computer to a television as a "hobby" instead of a real business for Apple.

"The iPod started this way. The iPod's a really great phenmenon, today it's a great business today, but it started off a lot smaller, it started off feeling like this."

A new feature he announced today was nifty but probably won't have people rushing out to buy Apple TVs. Jobs showed a new "YouTube" menu item that lets people search, select and play videos from the Google-owned video-sharing site.

Mossberg asked why Apple didn't include a video browser so users can play content from other online video sites. Jobs said he thinks "a normal Web browser is not what people want to see in living room."

I wonder if the feature design was influenced by Apple's growing relationship with Google, whose chief executive sits on Apple's board and whose Web applications are among the first non-Apple programs that will run on the iPhone.

The obligatory nasty Microsoft comment came when Mossberg pointed out that the free iTunes jukebox is one of the most widely used applications on the Windows platform.

Jobs reply:

"We've got cards and letters from lots of people saying iTunes is their favorite app on Windows. It's like giving a glass of ice water to somebody in hell."

Mossberg's comeback:

"There's that humility, that Steve Jobs humility."

Offsetting that a little bit was Jobs' acknowledgement that he sometimes reads "The Secret Diary of Steve Jobs," a parody blog that pokes fun at his style and personality.

"I have read a few of the fake Steve Jobs things lately and I thought they were pretty funny,'' he said.

CARLSBAD, Calif. -- Walt Mossberg asked Steve Ballmer a question that a lot of Microsoft watchers have been thinking about lately: Why is the company manufacturing hardware like the Zune and the new Surface computing table, after insisting for years that it made software and left hardware to partners?

Ballmer said "modern consumer electronics" is one of the new "muscles" the company is trying to build, along with digital advertising. He also said people shouldn't write off Microsoft after seeing only its initial forays:

"We're trying to build these two new muscles, one in advertising and one in modern consumer electronics and we're going to keep coming and coming and coming just as we did in enterprise and just as we did in phase one."

Ballmer said the company will pick and choose where it builds hardware in businesses such as media players that are becoming largely software and services businesses. "How much hardware we have to offer is always variable," he said, adding:

"If we're not willing to grow and adapt and build up new business muscle in addition to new technology muscle ,we won't succeed."

Microsoft doesn't plan to build its own mobile phones, however, saying "No, I don't think it will make sense for us to do a phone."

Ballmer said that while RIM and Apple may build "nice smaller positions," he's more interested in the bigger opportunity presented by the overall phone market, where 1.2 billion devices a year are sold.

The broader market is also where Microsoft is getting traction, selling "tens of millions" of copies a year of its mobile software platform to phone manufacturers.

"We would love to have a high share of phones," he said.

Mossberg also asked why Microsoft continues to lose search market share to Google after all its effort.

Ballmer clarified that the company hasn't lost share as much as "we've wallowed around the same spot."

As for the lag, Ballmer said Microsoft had to launch its own search product, enter the market and get experience:

"I can say we're in the game now."

They didn't get specific about the aQuantive acquisition, but Ballmer explained how Microsoft sees all media being delivered via networks within a few years. Much of the software used by consumers will also be ad-funded, he said, in a particularly striking comment.

Microsoft needs to be in the platform layer that's delivering ad-supported services. It needs to be a player in the portal layer, where Web search is done, and it needs to partner with publishers providing the content.

Ballmer was reluctant to use the word "Google" and instead referred to it as "the market leader, because the market might change. With patience and determination and hard work, hopefully it will change sooner than later."

But he did mention Google by name later, around the time that he brought up antitrust concerns about one company dominating digital advertising. He also acknowledged the irony, but didn't mention that Microsoft's complaints about Google's DoubleClick merger are getting traction with an FTC review, which was confirmed Tuesday.

"I think it's important in fact that there be good competition. I've gotten that line thrown at me. I'll throw it back at the market leader here."

Mossberg also pointed out that Microsoft hopes to sell a million Zunes by June, while Apple is selling up to 20 million iPods per quarter. Will Microsoft stick with the Zune?

Ballmer's reply:

"Sure, we don't drop things. There's a very short list of things we have started that we haven't continued. ... We're very committed to Zune."

Ballmer also acknowledged that the Zune hasn't blown away techies. He said the company weighed whether to wait to develop a spectacular device, or get into the market "with a product that's good but not revolutionary compared to Apple." It opted for the latter, but Ballmer told Mossberg to stay tuned.

"We'll have a lineup this Christmas that's more exciting."

CARLSBAD, Calif. -- I'm fighting the paparazzi impulse here at the WSJ's D Conference, but I've got to share a few tidbits.

After some tense policy talk, John McCain and host Kara Swisher cracked up the audience with the obligatory Microsoft joke.

McCain had been saying that if he were president, he'd fill key positions with the smartest people in the country, instead of appointing cronies and political hacks.

Asked for examples, he mentioned Cisco Chief Executive John Chambers, who was sitting in the front row, and FedEx founder Fred Smith. Smith could help sort out the defense acquisition system, McCain said.

Then he said Steve Ballmer is another person he'd like to hire to help run the country.

Swisher chimed in:

"I'm curious, Steve Ballmer's secretary of state, right?"

McCain caught the wave of laughter with a comeback:

"How about ambassador to China?"

They schmoozed backstage, according to the D blog, which has a photo.

I wish I'd known about McCain's offer when I saw Ballmer earlier during the pre-dinner cocktail reception.

Ballmer was talking to some investor types and mentioning that his busy summer schedule includes a Harvard reunion. I butted in and asked if he'll still have time to buy Yahoo! He smiled and said he wouldn't comment on that topic, but I think he was smiling to be polite and not to send any kind of message about a deal. What he really wanted to talk about was the Detroit Pistons.

On the way to the evening events, I rode the elevator down with uber investor Roger McNamee, who was questioning the way Washington, D.C., media have been covering McCain.

Just as he got rolling, the elevator door opened and there was Don Graham, chairman and chief executive of The Washington Post Co.

Graham was in a crowd and carrying bags up to his room. We sort of mumbled and glanced toward him as we passed, but the freakish timing of the appearance basically ended the conversation and we wandered off toward the registration desk.

As I said, I don't want to go paparazzi, but every time I write about Charles Simonyi I get a bunch of questions about his friendship with Martha Stewart. Yes, I saw them together tonight at the reception, looking pretty snazzy, at one point talking to Rob Glaser. I thought about asking about the menu she created for his spaceflight last month but held off.

Even though this is a conference hosted by journalists, I felt like I'd be about as welcome in their conversation cluster as a fly in the champagne. I left them alone by the cupcake and fondue line and headed back to blog central, my room with a view of the parking lot, where I'm working through the tin of Swedish fish candy that Glaser's RealNetworks put in the goodie bags. (The tin's lid says "Real it in!").

CARLSBAD, Calif. -- After opening their conference with a moment of silence to recognize American troops, the Wall Street Journal's Walt Mossberg and Kara Swisher turned to politics and grilled presidential hopeful Sen. John McCain about his support for the war in Iraq.

Sorting out the Iraq mess and finding consensus on how to proceed seem more difficult than any of the technological challenges that will be covered during the rest of the conference.

Almost as sticky was the question of what the government should do to help the United States improve broadband service and catch up to the level of service in other developed countries.

On broadband, McCain argued for less regulation and government oversight. He didn't seem to agree with the suggestion, by Mossberg and Swisher, that telecom industry consolidation might be a factor.

Is there a role for government when there's too much concentration of power? Mossberg asked.

McCain's answer:

"I think the trend is in that direction but you known and most everyone in the room knows that when government gets involved there's intended consequences and unintended consequences."

They didn't let him off that easy. Swisher asked if broadband should be considered along the lines of the federal highway system.

Pressed further, McCain said:

"I understand that when you control the pipe you should be able to get profit on your investment, etc. At the same time I do worry about the concentration of it."

Regarding the war, all three agreed that mistakes were made, but the journalists questioned McCain on his opposition to withdrawal.

Noting that it turned out Iraq didn't have weapons of mass destruction or a role in the 9/11 attack, Mossberg asked, "Why on earth do you support staying in there instead of saying this was a tremendous mistake ... let's end it?"

McCain argued that pulling out would further destabilize the region and draw neighboring countries into a bigger conflict, saying, "We will lose more if we leave the country."

"Other nations will be drawn into the conflict," McCain said. "We still are dependent on our energy supplies from that part of the world.''

Both perspectives drew applause now and then from an audience that included the heads of numerous major tech and media companies.

Afterward I asked a few about their impression and several said they were impressed with McCain, whether or not they agreed with him politically. One noted that Al Gore was just as sharp when he spoke during a previous D conference.

A few of McCain's zinger lines made YouTube founders Chad Hurley and Steve Chen chuckle (I was sitting behind them). That's got to be worth something.

Here's a clip of McCain's presentation provided by D.

CARLSBAD, Calif. -- After listening to Sen. John McCain explain how the immigration bill is a compromise reached with securing borders as the first priority, I noted that the tech executives in the next room here at the D conference may see the caps on H1B visas as a barrier to their competitiveness. I also asked if he's concerned about the message the country is sending to the potential employees of those companies abroad.

McCain said he would have written that part of the bill differently. "I have strongly supported increases in H1Bs" he said, during a little press conference for local media before he spoke to the conference.

I'm writing this on an Hewlett-Packard TouchSmart in the lobby. Martha Stewart is standing about 15 feet to my right. Nearby, Steve Ballmer and Steven Sinofsky are yakking by another one of the TouchSmart's that HP has on display.

CARLSBAD, Calif. -- It felt like I was on my way to the Consumer Electronics Show when I boarded an Alaska Airlines flight to San Diego earlier today.

Three Microsoft vice presidents (two senior) and a general manager were on the plane.

Emerging markets boss Will Poole and advertising strategist Yusuf Mehdi were in first class, while Windows engineering czar Steve Sinofsky was in coach near Vivek Varma, a general manager in the online services group.

We were all headed to the "D" conference the Wall Street Journal's Walt Mossberg and Kara Swisher are hosting in Carlsbad, Calif. this week.

Microsoft has a big presence -- Steve Ballmer speaks Wedensday morning and Bill Gates will be on stage with Steve Jobs Wednesday night -- and it's really a who's who of the tech industry.

I'll be blogging and writing items for the paper. First, I've got to finish rooting through the outrageous goodie bags given to guests; so far I've uncovered a 160 gigabyte Maxtor portable hard drive and a pair of white "You Tube" tube socks.

I've already polished off the cheese, rhubarb jam and soda bread left in the room by the Irish trade development organization.