Microsoft chief optimistic despite US meltdown

September 26, 2008
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, SANTA CLARA, September 26 – Microsoft chief executive Steve Ballmer says he is confident the technology industry is buffered from the US economic crisis.

Ballmer shared his optimism Thursday as he outlined the software giant\’s plans to adapt to new trends in computing and go it alone in a battle to wrest Internet search share from arch rival Google.

"Our industry is not immune to what goes on in the global economy… yet given the current circumstances people still see a buoyancy in the market," Ballmer said at a Churchill Club event in Silicon Valley.

"At least for now, people that I talk to in our business are feeling better than you would feel if all you did was watch (US business news network) CNBC all day."

Ballmer said that the global nature of the technology market seems to be insulating it from the devastation in the US economy.

He noted that he has yet to figure out whether the 700-billion-dollar (478-billion-euro) financial industry bailout plan pitched by the White House will work.
"I don\’t think anyone can predict where the crisis, so to speak, goes next," Ballmer said.

"I don\’t know what the bailout plan means for the economy. But if the economy stays in a reasonable state it speaks well for technology products."

Microsoft is positioning itself to capitalize on trends in "digital lifestyle" and software being offered as online services instead of packaged goods to be installed on home computers, according to Ballmer.

While rival Google has become a threat by offering ad-supported applications people can use for free online, Microsoft is taking a "software plus service" tack blending the "cloud computing" approach with its traditional model.

Ballmer conceded that Microsoft has a lot of work to do to catch up to Internet search advertising king Google, which commands about 70 percent of the US market compared to Microsoft\’s nine percent share.

The executive downplayed Microsoft\’s failed effort to buy Yahoo earlier this year in order to combine online resources to better battle Google. He said Microsoft plans to find its own way to dethrone Google in the Internet search realm.

"We need to fundamentally reinvent the search and search business model," Ballmer said.

"If anybody is going to provide any real competition in search and advertisings to Google, I think it is going to be Microsoft. It will be a long haul, yet I think the opportunity is great."

Ballmer has told Microsoft investors that he is willing to spend five to 10 percent of the US company\’s operating income on research and development.

"The guy who is not the winner is going to spend money," Ballmer said. "If you are the Number Two guy you are going to have to at least ante up."

Microsoft expects to spend about 8.5 billion dollars on research this fiscal year and more than that much buying companies.

Ballmer said Microsoft buys about 20 companies a year, and "if you buy a few big ones you can get to nine billion dollars pretty quick."

Those acquisitions are increasingly occurring outside of renowned Silicon Valley. Microsoft has bought about 10 firms in Israel and five in France, according to Ballmer.

"Not all the great work gets done in Silicon Valley," Ballmer said to an audience of 550 industry insiders. "I know that is kind of a tough message for people in this crowd."

Microsoft is also working to make sure that while rival Apple is gaining ground in the personal computer market with its Macintosh models, the iconic Northern California firm remains a "blip on the radar" in the business computer arena.

"If we do our jobs right there is no reason Apple should get a real footprint in the enterprise side," Ballmer said, referring to business computers.

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