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Welcome to Microsoft Pri0: That's Microspeak for top priority, and that's the news and observations you'll find here from Seattle Times reporter Sharon Chan.

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April 17, 2008 11:47 AM

Microsoft's Ballmer gives unvarnished take on Windows, online businesses

Posted by Benjamin J. Romano

Microsoft CEO Steve Ballmer spoke in Seattle this morning to one of the friendliest, but also most knowledgeable and critical audiences he faces: Microsoft's Most Valuable Professionals. In a jocular, hourlong speech and conversation, Ballmer gave some unguarded assessments of his company's position in online search; its bid for Yahoo; the success of Windows Vista; and its market acceptance vs its predecessor. Here are some of the highlights:

Ballmer touched on many of his usual talking points about the company's history, core strengths and the four big areas of its business: desktop software, enterprise software, entertainment and devices, and online.

"In the online area we've got a lot of users. We've got some big competitors. We've got some big whatevers -- competitors or acquisition targets, whatever you want to call them. We've got a little bit of everything out there," Ballmer said, referring to Yahoo.

The Wall Street Journal reported today that Yahoo is looking to deepen an advertising deal with Google that it began testing last week. The move is viewed as a way for the company to evade Microsoft's efforts to acquire it.

Ballmer said Microsoft is the global leader in e-mail and instant messaging, but in Internet search -- the most important application category and the biggest source of online revenue -- "we are the clear No. 3 in the market."

He sought feedback from the crowd of IT pros, many of whom have dedicated their careers to becoming expert in Microsoft's products, on which Internet search engine they use.

"How many of you use Live Search as your default?" Ballmer asked.

A smattering of hands went up. Tepid applause.

"How many of you use Yahoo search as your default?"

Far fewer hands went up and the room was relative quiet, until it filled with laughter.

Ballmer, trying again, louder this time, "How many of you use Yahoo search as your default?"

The same response.

"Wow, we offered 31 bucks a share," he said, to more laughter.

"How many of you use Google as your default?" Ballmer asked.

The vast majority in the audience raised their hands, cheering and hooting.

Ballmer looked around. Smiled. Scratched his cheek. Rubbed his face with his hand.

Ballmer acknowledged that the desktop software business, a deep well of revenue for much of the company's history, is changing.

"Things are kind of in a state of flux in some ways," he said. "It's this age of transition."

Ballmer gave a muted report on Windows Vista -- the company's flagship operating system product -- which, according to some analysts, faces a make-or-break year in 2008.

"Windows Vista," he said, pausing for a moment, "A work in progress."

The crowd laughed and applauded.

"A very important piece of work and I think we did a lot of things right and I think we have a lot of things we need to learn from," Ballmer continued. "Certainly, you never want to let five years go between releases and we just sort of kiss that stone and move on. Because, it turns out, many things become problematic when you have those long release cycles. The design point, what you should be targeting. We can't ever let that happen again. We have some things that we can't just set the dial back, but I think people wish we could."

He then launched into a comparison of Windows Vista and its predecessor, Windows XP, which some users and businesses are favoring and even petitioning Microsoft to continue selling the operating system after June 30, when most sales are scheduled to stop.

He acknowledged that Vista is bigger than XP and said the company has to make sure it doesn't get bigger still.

"And believe me, top of mind for me, for [Chief Software Architect] Ray [Ozzie], for the senior team here is making sure that we continue to drive forward and take the good work that we did in Vista, take the chance for improvement and progress and drive forward," Ballmer said.

Ballmer seemed to open the door to a conversation with customers and partners about extending the life of Windows XP, even though the company has previously stuck to the June 30 end-of-sales date:

"In the mean time, we have some customers, a lot of customers using Vista. A lot of customers. And we have a lot customers that are choosing to say with Windows XP and as long as those are both important options, we will be sensitive and we will listen and we will hear that. I got a piece of mail from a customer the other day ... about not being able to get XP anymore. We responded, XP is still available, and I know we're going to continue to get feedback from people about how long XP should be available. We've got some opinions on that. We've expressed our views, but certainly to this crowd ... I'm always interested in hearing from you on these and other issues."

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