Decoding Steve: Microsoft's Ballmer Not Hard To Read

There's a scene in The Godfather II when Michael Corleone explains to his brother Fredo why Hyman Roth wants to kill him: "He acts like I'm his son, his successor, but he thinks he's gonna live forever. He wants me out."Steve Ballmer is Hyman Roth; he thinks he -- and, by extension, Microsoft -- is going to live forever. And he wants Google, Apple, and Oracle out.

A lot of folks seemed to have gotten the wrong impression from Ballmer during his little chat with analysts yesterday morning. Some found him lacking in effervescence or ambition.

Yeah, he didn't scream, "developers, developers, developers!"

But that was probably just because he realized it would be unseemly to gloat about the fantastic opportunity the recession affords his company.

But the word "opportunity" came up over and over in his remarks.

The downturn couldn't have come at a better time for Microsoft; Ballmer freely admitted that Microsoft was starting to lose momentum in some key areas, like browsers, smartphones, and Windows. Now the recession will freeze everyone else in their tracks, giving Microsoft an opportunity to overcome gaps or re-establish dominance.

The closest Ballmer came to actually giggling was when he noted that the downturn was an opportunity to lay people off in some divisions so he could staff up in others. (Ballmer gets to increase headcount where he needs it without pissing off investors by, you know, increasing headcount when they want to see cuts. It's a little accounting trick that hurts no one except the people who get laid off.)

The rest of his remarks weren't very complicated, so I don't quite understand why few people (other than Liz Montalbano) copped to the scope of his ambitions.

By the end of the downturn, Ballmer expects Microsoft to have stopped its erosion in browser market share, taken back momentum in operating systems, grabbed the smartphone market by the throat, and even thrown a scare into Oracle.

Ballmer is willing to spend marketing dollars -- at a time when few are willing to do so -- to recover market share in browsers because, "browsers are not a commodity... it's one of the key features of the operating system," he said.

Sure, the company is losing sales of Windows and Office because PC sales are suffering due to the recession. But the recession is also fueling sales of less-expensive netbooks, where he wants Windows 7 to play.

Ballmer is following a trend here. PCs were on their way to being eclipsed by laptops anyway. By the time the recession is over, netbooks will be so ubiquitous even your spellchecker will recognize the word.

And not only does Windows 7 function on netbooks without restrictions (unlike XP), but Microsoft will offer customers lots of "opportunities" to trade up "from a lower-price offering to higher-price offering."

Talk about an "opportunity." Microsoft can afford to wait out the recession like no one else.

While we're talking about operating systems, Ballmer also sees convergence between PC and mobile device operating systems at the technology level. He admits that the "mojo" among users is with the iPhone and RIM, but believes handset makers and operators prefer the terms Microsoft can offer.

The recession will keep depressing cell phone sales, but Ballmer doesn't care, because the market is moving toward smartphones, which is where Microsoft can benefit most as it improves synergies between its mobile OS and Windows and Office products.

"The move in the phone market from feature phones to smartphones will be more important to us than contraction," he said.

Ballmer also sees an opportunity to parlay his huge installed base in the enterprise to unseat Oracle. He admits it won't be easy because of Oracle's site license strategy, but boasted that Microsoft has some ideas up its sleeve.

You see, Oracle may have more market share in terms of revenue, but Microsoft has more in terms of units. Ballmer believes you can't control revenue during a down economy, which puts Oracle at a disadvantage.

Because Microsoft can buy share.

"The opportunity to take share from Oracle has never been better," he gloated.

All of this is backed up by Microsoft's huge ongoing bet in terms of operating expenses, which will amount to $27.5 billion this year.

How many companies can go that high at any time, let alone in a recession?

What Ballmer didn't say, but clearly wanted his audience to understand, is that Microsoft has a lot of cash and the willingness to use it to buy market share. He noted that there are things you can't control during a recession -- like sales and margins -- but you can definitely control share.

And gaining market share is now the marching order at Microsoft. "You can always take share -- especially in a down economy, that's the time to take share," he said.

Share, he said later, "is the one thing we can absolutely control."

Sounds like a man who thinks he's going to live forever.