The truly inside story of starting the Xbox and Zune businesses at Microsoft was shared in a remarkable lecture Friday by Robbie Bach, the retired president of the company's entertainment and devices business.

Bach shared his unique perspective on why the Xbox was a success and the Zune was not during a presentation on intrapreneurship, or how to operate like a startup and launch new ventures within a large, existing business.

The lecture included advice for companies looking to foster entrepreneurial culture, and for all sorts of entrepreneurs entering competitive new markets. It was a breakfast event held by the Northwest Entrepreneur Network in South Lake Union.

Bach described the corporate retreats where the Xbox business was hatched and how Sony fumbled its lead and gave Microsoft the opportunity to get ahead in the console business.

"When the luck happens, you take advantage of it and run with it," he said.

It also helped that Bach's startup had $5 billion to $7 billion in funding available, he joked.

That wasn't enough to help the Zune, though. Bach admitted that Microsoft quickly realized it was too late to prevail in the portable media player business and in hindsight he would have built a music service rather than devices. Apple executed well and didn't give Microsoft the sort of breaks it had in the console business, he noted.

Bach's now focused on philanthropic organizations, serving on the board of audio gear company Sonos and looking to buy a mid-size family business like the food-service supplies distributor that his father operated in retirement.

Here's a raw video of the event. Apologies for the quality; it was taken with a new smartphone that was supposed to capture high-def video ...:

Curious timing: Goldman Sachs issues another report saying the iPad and tablets are hammering Microsoft, then anonymous sources tell the New York Times that Windows 7 tablets are part of Steve Ballmer's CES keynote.

The Times piece says Ballmer will show Dell and Samsung tablets running Windows 7 and may even give a peek at a device running Windows 8.

A Microsoft spokesman declined to comment, saying "we are not talking at all about CES."

Ballmer already said these devices are coming. He told analysts in July that Microsoft's big push into tablets will come in early 2011 with the release of new Intel hardware for mobile devices.

One of the analysts he was talking to was Goldman's Sarah Friar, who is unlikely to be convinced by a whispery blog entry saying "wait until January!"

Still unanswered are key questions about the next generation of Windows tablets: When exactly will they go on sale, and how much will they cost?

If they're $1,000, they'll die the same quick death as Microsoft's ultra-mobile PC concept, which debuted on Samsung hardware in 2006. The device Ballmer will show in January is "similar in size and shape to the Apple iPad, although it is not as thin," according to "people familiar with the device" who spoke to the NYT.

An appearance at CES doesn't mean the devices will go on sale in January. The show is really for retailers to see products that they'll carry later in 2011.

Hewlett-Packard, for instance, waited until late October to finally, and quietly, take orders for the Win7 Slate PC that Ballmer showed last January. HP was a special case, though, as it's trying to build consumer tablets on its own operating system now.

I'm curious to see whether the "Windows 7" operating system on the tablets will be the full-blown version or stripped-down versions designed for consumer-electronics and portable devices.

(Here's today's column, about why Microsoft should go private. I may have buried the news, that people in Microsoft's treasury group have run the numbers ...)

With interest rates at historic lows, maybe it's time for Microsoft to refinance.

Seriously, the company is unable to convince investors that its business is doing well. So why not say to hell with Wall Street and take the company private?

Microsoft has management challenges and seems less nimble and adventurous, but it's steadily grown the business through the downturn.

The company is now so big that its stock will never perform the way it did in the 1990s.

It's also getting harder to explain all the different things it's building, especially when analysts and the media are more interested in the gadget du jour. Executives seem tired of telling their story over and over, only to be asked about the iPad and mocked for the Kin.

With the stock stuck under $30, investors no longer have the patience to wait the decade or so it takes Microsoft to build humongous new businesses, as it did with servers and is doing with Xbox.

Breaking the company apart or raising the dividend further may give investors a quick hit, but they'd soon be begging for more.

They've already forgotten that last month Microsoft reported 51 percent profit growth, and that it gave shareholders more than $1 billion a month over the past year through dividends and stock buybacks.

Instead of throwing free cash into that black hole, Microsoft could use it to cover refinancing costs and share the rest with employees. It would be a better incentive than middling stock awards and could even start churning out Microsoft millionaires again.

Going private isn't that far-fetched. Dell's been thinking about this and will reportedly discuss it again during a board meeting next month.

Public offerings get all the attention, but 1,199 companies went private over the past decade, including 92 with a combined value of $60 billion so far this year, according to Thomson Reuters.

As of Friday, Microsoft's market cap was $219.8 billion.

To get your mind around this, pretend that's a mortgage (it's easier if you lop off six zeros).

First, deduct the $24 billion in equity still held by Steve Ballmer and Bill Gates.

Make it a cash-out refi - take out 15 percent to sweeten the deal for shareholders. Use the cash on hand if they need more.

You're looking to borrow about $225.5 billion.

If Microsoft refinances at 5 percent - roughly what it sold 30-year bonds for last year - its monthly payment would be about $1.21 billion. Last year the company had profit of about $2 billion a month before taxes.

It looks even better if Microsoft figures out a way to get the principal down. Perhaps a few big shareholders would be interested in a limited partnership that owned Microsoft outright.

Gates and Ballmer together own about 11 percent of the shares. About two-thirds of the rest is held by about 1,700 institutional investors and mutual funds.

To go private, Microsoft would have to reduce the number of shareholders below 300.

Maybe one could be the Gates Foundation. Imagine what it would do for the company's reputation and morale if people buying Windows knew a portion of the profits would directly benefit the world's poor?

Everyone would love that, except Apple and that person at last week's shareholders meeting who asked Gates to give more to investors and less to sick and impoverished children.

I'm not the only one thinking about taking Microsoft private.

The notion has crossed the minds of a few people in Microsoft's internal treasury department, according to Bill Koefoed, the company's general manager of investor relations.

"Sure, in the back of people's minds. We've thought about it," he said.

But it's apparently not something the chairman of the board is interested in pursuing.

For the deal to work, it would need the two largest shareholders - Chairman Gates and CEO Ballmer - to hang on to their stakes and go for it, and lately they've been selling millions of shares.

It won't be too many years before both billionaires move on, and who wants to refinance when they can taste retirement?

I wonder, though, if Microsoft's next generation of leaders will be as immune to Wall Street sirens.

Going private seems like an opportunity for Gates to develop another vaccine, to keep Microsoft's long-term vision clear and to protect it from infectious greed.

If he takes a little cash out from the refi, he could probably get one of those big TVs, as well.

Santa Ballmer's going to put a Windows tablet under your tree this year, according to a Reuters report on the Microsoft CEO's speech at the London School of Economics.

An excerpt:

"You'll see new slates with Windows on them. You'll see them this Christmas," he told an audience of students, staff and journalists at the London School of Economics.

"Certainly we have done work around the tablet as both a productivity device and a consumption device," he said.

The news follows the bombshell Goldman Sachs report lambasting Microsoft's response to the iPad.

But really the arrival of a Windows tablet this holiday seasons is right on schedule, following Steve Ballmer's unveiling of the Hewlett-Packard Slate at the Consumer Electronics Show last January. HP at the time said it would start selling the Windows 7 device in late 2010.

In recent weeks HP has been letting slip that it's going to be shipping a Windows tablet soon, before it releases one based on the Palm software it acquired.

Meanwhile, analysts are jostling to predict how many iPads Apple has sold so far, ahead of the company's Oct. 18 earnings report. Fortune mag has a roundup of the estimates, which range from 3.8 million to 6 million.

About 350 million PCs are expected to be sold this year globally.

If you think it's going to cost you a lot to retire, consider what it cost Robbie Bach, the outgoing president of Microsoft's entertainment and devices business and head of its Xbox business.

Bach announced in May that he was retiring this fall, but his retirement date is technically Dec. 31, according to Microsoft's new proxy statement.

In his last fiscal year at Microsoft, Bach set records for the business - $8.1 billion in revenue and $679 million in operating income - and was awarded 100 percent of his performance bonus. That's despite struggles of Microsoft's phone business, which was also under his watch.

(Steve Ballmer also received 100 percent of his incentive award)

Bach's bonus was $1.4 million, plus stock awards worth $5.6 million. That's on top of a $645,000 base salary.

But because he's retiring, Microsoft's only giving him 25 percent of his stock award this year - $1.4 million.

In other words, Bach had to give up stock worth $4.2 million to retire.

Still, it doesn't sound like he'll have to become a greeter at Wal-Mart or sling burgers at McDonald's in his golden years.

Stephen Elop, who left the top spot in Microsoft's business software group on Sept. 10 to lead Nokia, is also giving up a few bucks for his move to Finland.

Elop was awarded a performance bonus of $6.72 million - 96 percent of his target - but most of it's staying in Redmond.

He's giving up $5.38 million of it - the portion given in stock. He's also giving up about half of the $1.34 million cash portion "due to the repayment of a portion of his July 2008 signing bonus," Microsoft's proxy said.

Presumably Nokia's going to help him out.

Here are all of the salaries and bonuses for Microsoft's top execs, as listed in the proxy (click for a bigger image):

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. -- 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.

Here's Steve Ballmer's speech at the UW this morning, in a video released by Microsoft. In addition to Ballmer, it has demos of new Bing maps features, a peek at a Windows Mobile 7 phone and a funny video joking about the term "cloud computing."

Cloud computing was the focus of Steve Ballmer's talk at the University of Washington today, but the Microsoft chief executive was also doing a little recruiting.

Ballmer told the packed house at the computer science department's Paul G. Allen Center that Microsoft is the area's biggest local employer and "we'd love to have you."

"Send me a resume if you want to test that proposition,'' he said.

Microsoft hires more than 100 UW graduates a hear, said Mark Emmert, the school's president. But it's not clear how many found work by e-mailing steveb@microsoft.com.

A few pictures I took at the event with my phone, including autographs:

And a fuel truck next to one of Ballmer's show-and-tells: a "cloud in a box" portable data center parked outside Allen Center. The fuel was going into a portable generator: