Ballmer on Google, the economy and Windows 7

Microsoft chief executive Steve Ballmer arrived at the Consumer Electronics Show in Las Vegas with his usual optimism, but he also brings a clear sense of reality: the tech industry is in for some rough times. The fact of the matter is, this is not a downturn, this is a bit of a reset. Those are quite different and were trying to really suss through what we think that means for us, Ballmer said in an interview with ZDNet UKs sister site, CNET News.com on Thursday, a day after delivering the keynote address at the conference. Ballmer talked about what the reset will mean for Microsoft, as well as lessons learned from Vista and Microsofts move to put Office on the web. When it comes to what worries him, most days its still Google, although he concedes he has had to spend more time recently on economic issues and making sure Microsoft makes the adjustments it needs to. He wouldnt go into detail on what (and who) Microsoft plans to cut, but it is clear that some changes are coming. Q: Obviously, Microsoft didnt necessarily get everything it might have hoped for in terms of the critical response for Vista. What are you guys planning to do differently with Windows 7? A: Well, I think we made some choices in Vista to improve security at the kind of expense, if you will, of compatibility. With Windows 7, were able to build compatibly off of Vista and really sort of just tune, if you will, the user interface, the performance, and at the end of the day, itll be what the users think of the product that were building, and well start getting beta feedback this week. How hard are you pushing the team to get Windows 7 out this year? Im not pushing the team hard, the team is pushing itself. They set some goals and objectives and of course well ship the product when its as I said last night both right and ready and when we know when that is, well share that. One of the biggest parts of the PC business thats really taken off amid an, obviously, challenging time overall is the netbook segment. What has that meant for Microsoft both in terms of the technology, but also from a business standpoint? How does that impact you? Well, weve done very well on netbooks. When they first came out, Im not sure if people knew whether they were PCs or something else, and I think everybody kind of understands now that a netbook is a small-form-factor, low-cost personal computer. And were doing very well with Windows XP, which fits. Vista does not fit, and were working hard to make sure Windows 7 fits very well on the netbooks. You know, from a business perspective, low-cost machine means a little less revenue per unit to Microsoft, but I think it gives us an opportunity to see expansion of the overall PC market. Obviously, everything that youre talking about here at CES comes against the backdrop of a very challenging economy. What does that economy mean to Microsoft and its plans? Well, I think theres two ways to take a look at it: first, whats going to happen to lets call it revenue in our industry? Revenue will be lower in aggregate in our industry than it would have been, and that will [affect] Microsoft, Cisco you name the company Intel. Well all be affected by that. With that said, the pace of innovation in our business will not change. The opportunity there wont change. And so the key is: how do we right-size a little bit as an industry? And that means different things to different companies to adjust to the fact that revenues will be lower. And yet at the same time, keep a strong push on the R&D thats going to power the future. And each company will discuss its plans. Were kind of in a quiet period, so I dont have much to say about that. Turning to search, thats obviously a key area for Microsoft. You announced a couple of partnership deals that will get you some more distribution, but clearly there arent enough distribution deals out there to make the kind of headway you need to make against Google. What else does Microsoft need to really be a serious competitor to Google? Just keep working. I mean, look, this is not something that changes overnight. Everybody wants us to snap our fingers. We have a good competitor, and yet at the same time, we see real opportunities to improve the search experience, to differentiate, but its not going to happen overnight. Were going to have to keep working and working; innovating product-wise, marketing, branding, distribution, and were going to have to be patient about it. I like our new release. Were making two releases a year. We continue to attract great talent, which lets us do interesting things. Our cash-back programme has some early promise in terms of what I call business model differentiation versus Google, but well continue to work. Fair to say four years in, though, you would have hoped youd made more progress in market share?