Microsoft Expansion on Horizon

Microsoft is changing, CEO Steve Ballmer said Thursday, with new frontiers opening in the areas of advertising, hardware and electronics.

Ballmer spoke at Microsoft's annual financial analyst meeting at company headquarters in Redmond, Wash. He started off by announcing that Windows' installed base in the next year will reach 1 billion. "There will be more PCs than automobiles."

That speaks to the strength of one of Microsoft's core businesses, Ballmer said, but to maintain that position, it needs to expand. "Our core competency is the development of software, but to grow [Microsoft] needs to build multiple business competencies," Ballmer added.

To that end, he said "we're going to be an advertising company and a devices company. ... We're going to try to have multiple business models and business competencies and being world-class in each of them."

Microsoft has put its money where its mouth is regarding its desire to wade more deeply into the Internet advertising end of the pool. In May, the company announced the acquisition of ad agency aQuantive for $6 billion.

With purchases like aQuantive, Ballmer emphasized, "We are determined to allocate the talent, resources and money to absolutely become a powerhouse in the advertising business."

Microsoft is currently looking up at two rivals for Internet advertising revenue -- Google and Yahoo -- and being behind in the competition chafes at Ballmer. "We're the number three advertiser on Internet. It's better than number four, but not as good as number two and number one," he said.

Ballmer also outlined Microsoft's strategy for devices like mobile phones and hardware devices like the Xbox. When it comes to consumer electronics, he said, Microsoft will often move beyond just supplying software. "Sometimes we'll do hardware, software and service, sometimes we'll just do software and service, and leave the hardware to partners."

Ballmer elaborated on how he views Microsoft's partners in the emerging multiple business competency framework. It won't be the traditional role, he said, because it's not Microsoft's traditional products.

"Probably we'll partner differently," he said. "We'll have partnerships, but I'm not sure the partnerships ... will work as well" on the lower-margin consumer electronic-type products. He didn't go into further detail on the partner impacts of the new vision.

Ballmer then moved on to Microsoft's competition. He said the company had four primary competitors, and talked about Microsoft's approach to each:

  • Commercial software. "We know very well how to win" in that space, Ballmer said, noting that Microsoft is the biggest software developer in the world.
  • Open source software. Ballmer said Microsoft won't play on that field. "Open source is not a business model we can embrace," he stated. "It's inconsistent with shareholder value."
  • Advertising. Microsoft, Ballmer said, is "looking to redefine the way online advertising gets done." He admitted, however, that it has a "much smaller footprint than the two leaders."
  • Consumer electronics. Microsoft still has a lot of work to do to rival companies like "Apple and Sony," Ballmer said. He made a brief mention of the loss Microsoft recently took because of Xbox-related problems.

Finally, Ballmer listed the businesses that Microsoft sees as the best potential growth areas, which he defined as those with revenue-generating ability in excess of $500 million. He included Windows sales through OEMs; corporate desktop products like OSes and productivity suites like Office; server products like Windows Server 2008 and SQL Server 2008, both scheduled for release next February; advertising; hardware, like the Xbox; and Windows Mobile.

About the Author

Keith Ward is editor of Virtualization Review magazine. You can contact Keith at [email protected].