Microsoft Pop-Up Stores: Hands-On Look

Microsoft CEO Steve Ballmer described the departure of Steven Sinofsky as the head of Windows 8 development as "amicable" and said that Microsoft is well positioned in tablets, phones and cloud computing to start expanding its business again.

"He's made one of the most amazing contributions anyone could make to a company. We certainly wish him well," Ballmer said of Sinofsky, who until Monday had led the development of Windows 8. He added that Julie Larson-Green, who will take over the Windows product, "has worked with us for 20 years and will provide the leadership needed to continue to advance Windows 8."

Ballmer made the remarks at the Churchill Club of Santa Clara as he paid one of his infrequent visits to Silicon Valley. Surrounded by Intel chip production facilities, major league data centers and technology companies, he was addressing one of his key constituencies two days after the sudden departure of Sinofsky. About 500-600 people attended the sold-out dinner event at the Santa Clara Marriott.

Sinofsky was a key "can-do" executive, and his abrupt exit had sparked speculation that the Windows 8 organization inside Microsoft was in trouble. Ballmer ignored the speculation but tried to quell any doubts about the longevity of the Windows 8 tiled interface in a talk that was part diplomatic overture to partners and venture capitalists and part Barnum and Bailey.

[ For more about Microsoft's latest bid to enter the consumer device market, see Microsoft Windows 8 Surface Tablets: Big Hardware Play. ]

Waving a Windows 8 RT tablet, Ballmer said it was essential that Microsoft demonstrate the capabilities of its software on devices that are positioned on the leading edge of the consumer market.

Microsoft doesn't wish to compete with Dell, HP, Acer or other Windows device makers but, as with the Xbox, it must innovate where a particular hardware form factor is the best example of the capabilities of its new software. He expects Microsoft partners to be the main producers of Windows 8 tablets and wants to see a healthy ecosystem arise around the form factor. Ballmer also held up an Asus ultra-slim laptop running Windows 8 as a sample of how partners will compete based on the use of the Microsoft operating system.

Addressing the struggling Windows Phone 8, Ballmer made a reference to Apple's iPhone: "Our challenge is not to get 60% of the smartphone market. It's to get 10% of that market, then 15%, then 20%." If Microsoft can establish a credible Windows phone, then its Nokia unit -- or other manufacturers, such as HTC -- will incrementally improve upon that base until they are competing more effectively for market share.

Asked by Reid Hoffman, co-founder of LinkedIn and a venture capitalist at Greylock Partners, what had been his biggest surprise as CEO, Ballmer brought the discussion back to Windows 8.

"Touch, touch, touch, touch," he said emphatically. The fact that the most popular user interface could shift to a touch-based interface such as Apple's on the iPad and iPhone, in which finger gestures and soft keyboards control the device, admittedly caught Microsoft by surprise, Ballmer said. It has scrambled to produce a competitive response. Windows 8 features touch-based scrolling similar to that of Apple devices, with the addition of a larger tiled presentation screen with each tile image – several times the size of Apple icons -- representing an application.

Ballmer conceded that the Windows 8 user interface will initially present a learning curve to traditional Windows users, but he said it was easy to "pin" application icons onto a desktop screen and re-establish a familiar setting for users who choose to ignore the properties of the new interface. But, he said, he "likes having a stock price feed and other real-time information going past me on the screen." He also said he had "no trouble" selling the new interface to the head of a major bank last week. "[That bank executive] plans to put Windows 8 machines in all his branches, and they've got a lot of branches."

The strength of Windows applications library, Ballmer said, will continue to see Microsoft through competitive challenges. Tablets and phones that can easily share data among Windows applications enable all of a user's devices to relate to one another.

Microsoft was the world's leading specialist in producing "extensible" applications, he added. In June, Microsoft spent $1.2 billion acquiring Yammer, a social networking firm that Microsoft will use to add social networking services to its applications. "Yammer has an incredible extensibility model. There are all kinds of opportunities for extending this application."

Ballmer said Microsoft is moving ahead in cloud computing as well, with its Windows Azure services and increased cloud-based applications. Asked whether Office 365 software as a service in Azure "was self-cannibalizing" the regular Office suite, Ballmer responded that Microsoft couldn't worry about that -- what's important is to get into cloud computing. "Let's move, let's move," he said, citing a favorite line from the film "Annie Hall" in which Woody Allen explains that relationships are like sharks; they have to keep moving forward.

Microsoft has brought its own advantages to cloud computing, such as allowing users to sign into an enterprise Active Directory server and carry that identification and privilege level with them as they go out into cloud applications.

The Internet, with its worldwide reach, and the cloud, with its low-cost by-the-hour servers, have reduced the barriers to entry into the software business and increased the pace of change, posing new competition to Microsoft.

"The technology business," said Ballmer in a moment of self-revelation, "is not like the brownie mix product that I worked on [at Procter & Gamble.] The pace is just not the same. In technology, you have to re-invent yourself more frequently."

Upgrading isn't the easy decision that Win 7 was. We take a close look at Server 2012, changes to mobility and security, and more in the new Here Comes Windows 8 issue of InformationWeek. Also in this issue: Why you should have the difficult conversations about the value of OS and PC upgrades before discussing Windows 8. (Free registration required.)