Microsoft is in the early stages of its most significant product cycle in years, but misfires and delays, most notably with Vista, have investors echoing partners' concerns about Microsoft's execution. Ballmer's speech in New York at Sanford C. Bernstein & Co.'s Strategic Decisions Conference, the kickoff to several days of behind-the-scenes meetings with local financial analysts, was aimed at buttressing Wall Street's faith in Microsoft.
Ballmer's strategy for Microsoft boils down to one word: win. Enumerating the dozens of technology markets in which the company competes and anticipates dramatic innovation--entertainment, office productivity, consumer products, enterprise applications, infrastructure, etc.--Ballmer optimistically forecast that rising technology demand will lift all boats, especially the biggest.
"The paybacks almost always work if you win," Ballmer said. "If you don't win, the paybacks don't work."
Asked about Microsoft's plans for fending off competitors, especially Google, Ballmer said that the challenge is less about any particular rival than it is about effectively handling the industry's changing business models.
"The issue is, do we get on top of and really drive business-model transformation in a way that lets us succeed--do we make that mandatory transformation well?" Ballmer said. "Open-source was a new business model effectively, and it took us a few years to really understand what it takes to compete."
Ballmer steered clear of much discussion about Vista, though his answer to the inevitable question about ship dates was not a ringing endorsement of those currently scheduled.
"We're prioritizing quality," he said. "We have said what we have to say about when the thing will be delivered, but I've got to tell you, at the end of the day, the priority will be quality."
Vista is still a long way from completion, Ballmer implied. Asked about early feedback on beta versions, he responded that it's too early to report on it. "We've still got a lot of work to do," he said.
As Microsoft pours billions into R&D across its extremely broad portfolio, the company is getting better at managing product development, according to Ballmer. Integration is now as much a focus as innovation--a change from where Microsoft was when it first began conceptualizing Vista (then code-named Longhorn) and set out to cram "too much technology" into the update, he said.
While speaking optimistically about Microsoft's opportunities and packed product pipeline, Ballmer offered few specifics to quell nervous investors. Operating expenses will continue rising in coming years as Microsoft looks to grow revenue, which Ballmer cast as the most significant indicator of his company's success. Microsoft generated revenue of $39.8 billion last year, up 8 percent.
Innovate and win, and the operational issues will fade over the long run, Ballmer counseled. As an example, he cited Microsoft's work on adopting the software-as-a-service business model.
"Look at our Office Live system in beta," he said. "I don't know how exactly we're going to make our money--we have an advertising model and a subscription model on top of it, but I do know that it delivers incredibly value to people. Both to customers and to shareholders."