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AS OF 11/22/2008 2:05AM EST

Microsoft Leaders Talk Competition
By Michelle Savage

July 25, 2008 — Competition, healthy or otherwise, was at the forefront of Microsoft’s meeting with financial analysts yesterday, as companies such as Amazon, Apple, Google and VMware vie with the software giant in the cloud, on the desktop and in the data center.

Microsoft's CEO Steve Ballmer told hundreds of analysts in Redmond that Microsoft will continue to innovate to succeed in what he called an environment of change and growth. "We love to compete," he said, adding that the company would develop real products that have real impact on people’s and companies’ lives.

Ballmer addressed competition from Apple, saying that Microsoft is “being attacked by a single competitor that's much more closed, offering far less choice."

While Ballmer didn’t clarify Microsoft’s plans for competing with Apple, he did acknowledge that Apple is indeed a serious competitor. "And yet, we have to tell our story—and you'll hear more about that versus where Apple is coming from—and make sure that the Windows PC doesn't just offer more choice, but it offers every choice that you can get on a Mac or other machine,” he said.

Ballmer also talked about Microsoft's online initiatives, commenting about how Kevin Johnson, head of the division that houses both Windows and the online business, left on Wednesday to become head of Juniper Networks, a manufacturer of telecoms equipment. “We wish Kevin the best,” he said. “We thought it important to make sure that whoever was going to tell you about the big investment we're making in online would still be here in three weeks, so that would be me."

Ballmer was adamant that Microsoft needs to continue investing in its online business to win share in the rapidly increasing Internet advertising market. He acknowledged that while the online business has not been a moneymaker to date, “I think it's a very good risk to return.”

Ballmer pointed out that the media and communications market worldwide is worth more than US$1 trillion, and that Microsoft is in a good position to "go after it." He said that the company will likely spend at least $1.2 billion per year in order to compete against Google, which spends about $2.5 billion, and growing, on research and development.

While Ballmer declined to comment on exactly how much and how long this online investment would be, he hinted that it would be a significant undertaking. "Our PC muscles are very well developed, our server and enterprise muscles are very well developed,” he said. “Our Internet muscles aren't yet as well developed, but we want to go after it with the same energy."

Ballmer didn’t address VMware but Microsoft’s head of server and tools Bob Muglia took the stage to discuss how Microsoft is taking business from VMware in the short time since its June launch of Hyper-V. “Accounts from VMware are switching to Microsoft,” he said, “and we are seeing that trend begin right now.”

“Our first version is performing as well or better than VMware's ESX thing,” added Muglia. “So we have a very mature solution in the market right now that enables customers to really solve quite a significant percentage of their overall virtualization needs.”

Muglia assured investors that “there is no question we are going to grow share in virtualization this next year, and there's no question that we are going to win customers from VMware.”

When it came time to discuss cloud computing, Microsoft chief software architect Ray Ozzie hinted at a couple of not-yet-announced cloud-developer services, which would meet the needs of open-source companies and provide pay-as-you-go hosting resources on Microsoft infrastructure. While he didn’t call the solutions by name, he described plans for competing with Amazon’s Elastic Cloud Computing service, saying that Microsoft has learned a lot from Amazon.

Ozzie noted that that “the nature of software development is also being transformed in moving toward a world of software plus services.” He predicted that more and more companies will be looking to move their applications and solutions to the cloud, "just like we have."

“For them, like us, this technology shift towards services represents a significant opportunity, a chance for them to deliver to their enterprise customers the power of choice within their own application or solution,” he said. “And so Microsoft's opportunity in this space is perfectly aligned with that of our partners to provide them with the platforms and the tools to make this transition, leveraging our experience as well as our substantial economies of scale in embracing the cloud.”

Ozzie concluded that three principles—going beyond the level of a single device, the power of choice to the enterprise and a new way of delivering solutions for developers—will manifest themselves in all Microsoft offerings.

Related Search Term(s): cloud computing, virtualization, Amazon, Apple, Google, Microsoft, VMware

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