The Web presents other problems for Microsoft, as well. Computing is undergoing a shift in which more users are tapping applications and services -- such as e-mail, storage, and even word processing and spreadsheets -- that are hosted on the Internet rather than stored on their hard drives.
One of Windows' key selling points has been that it has the largest ecosystem of compatible desktop applications on the planet. But Web apps are OS agnostic. They'll run on just about anything. If Web computing truly takes off, Microsoft loses a big "lock-in" advantage that has kept many users on Windows even as less expensive alternatives emerged.
Ballmer, as a result, needs to plot a coherent strategy around Microsoft's Web, or "cloud" computing, efforts. To date, the company has adopted a half measure it calls software plus services. It's an architectural vision that sees users accessing some everyday apps from the Web while continuing their use of a fat client (i.e., a Windows PC) for tasks that demand significant processing power and higher security levels.
The problem with that vision is that Google appears to be launching new Web applications almost daily, and in doing so is proving that there isn't much that can't be done from the cloud. It even acquired a Web security specialist, Postini, to offset fears that hosted apps are more vulnerable to hackers.
Microsoft still gets more than half of its revenue from boxed software like Office, so it can't abandon the retail and channel markets overnight. But the future of computing is clearly all about the Web. So Ballmer's fate as Microsoft's unquestioned leader may well hinge on his ability to shepherd the company into Internet computing without damaging revenues.
Ballmer could possibly survive a bungled acquisition attempt, or even another so-so OS launch. But if he manages to shrink Microsoft from a $50 billion company down to a $25 billion concern over the next couple of years, then he’ll join his pal Bill Gates in the ranks of the semiretired sooner than he planned.
Shares of Microsoft were up 1.05%, to $27.29, in late-morning trading Monday.