"We're smarter about that," said Ballmer, in an interview with InformationWeek at Microsoft's Redmond, Wash., campus. "I don't think we want the seam between hardware and software to be an innovation barrier for us."
The Xbox is a unique part of Microsoft's product portfolio in that it's the only offering in which the company packages and sells all of the hardware, software, and processor components. Its other products, such as the Windows operating system and Office productivity suite, are designed to run on a wide variety of PCs and other devices over which Microsoft has little control.
The company has long relied on that so-called OEM model to get its software into the largest possible number of homes and businesses. But recent changes in the computing industry landscape, such as Hewlett-Packard's decision to develop its own WebOS PC and phone operating system, has Microsoft looking at alternative strategies.
Indeed, Ballmer said the fact that the Xbox, along with the hands-free Kinect control system, has become one of the fastest selling gadgets in tech industry history shows the value of maintaining a tighter grip over the product ecosystem.
"It doesn't mean we have to make any particular class of device, but thinking through, end-to-end, how the hardware and software comes together, as opposed to artificially boxing the way we think about systems design, I think the Xbox and Kinect are good reminders of that," Ballmer said.
Microsoft has already started to bring a more integrated approach to the phone market. The development of Windows Phone 7 saw the company release a tight set of specifications that OEMs had to follow in order to gain permission to manufacture the devices. The specs governed everything from how the camera operated to support for real-time data updates to Windows Phone's Live Tiles interface.
Ballmer wouldn't comment on reports that Microsoft is taking the same approach with tablets by issuing strict design directives to would-be Windows 8 slate manufacturers, but he did say the Windows Phone experience has reinforced the notion that a more unified approach to hardware and software development can yield significant benefits.
"Some OEMs would prefer to do things a little differently, but we decided that that led to a better kind of integrated experience and allowed us to think about our innovation in a different way," Ballmer said.
So is the company set to take a page from Apple's playbook and offer PCs, phones, and tablets that are all-Microsoft, through and through? That may be a tempting option, particularly in light of HP's WebOS plans. And Microsoft could add graphics chips to its portfolio if it decides to exercise its option to buy out Nvidia, which makes ARM-based processors for phones and tablets. But Ballmer said Microsoft is most likely to continue with a hybrid approach to product development going forward.
"We have three different models. The chassis spec model for Windows Phone that works, that is starting to work. We've got an Xbox model where we do hardware and software ourselves and sell it, and we've got a licensing model, a pure licensing model that's pretty open in terms of hardware design for Windows. And each of them has worked pretty well in some ways," he said.
Mango, the the latest version of Windows Phone 7, is expected to ship later this year. Windows 8 for PCs and tablets will most likely debut some time in 2012.