Microsoft's Ballmer outlines his seven big bets for 2009

Microsoft's Ballmer outlines his seven big bets for 2009

Summary: For the past few Februaries, Microsoft CEO Steve Ballmer makes the trek to Wall Street to provide analysts with an annual "Strategic Update" overview, in which he covers the areas where Microsoft plans to invest and why.This year, during his February 24 update, Ballmer was more about circling the wagons than staking out new, far-flung territories Microsoft planned to conquer in the next 10 years.

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For the past few Februaries, Microsoft CEO Steve Ballmer makes the trek to Wall Street to provide analysts with an annual "Strategic Update" overview, in which he covers the areas where Microsoft plans to invest and why.

This year, during his February 24 update, Ballmer was more about circling the wagons than staking out new, far-flung territories Microsoft planned to conquer in the next 10 years.

(Here is the list of Ballmer's strategic bets he outlined in 2007; here's Ballmer's  list from 2008.)

On Tuesday during his hour-plus presentation (which I listened to via a Webcast), Ballmer outlined seven areas "where we invest serious money." He told Wall Streeters that Microsoft planned to engage in careful cash management; to maintain "right-size enterprise overhead"; and to put about three percent of its spending into research and incubation projects in the coming year.

Ballmer emphasized that he believed "the economy will be relatively weak for a relatively long period of time" and was adjusting his investment priorities to reflect this fact.

Ballmer's list of seven investment areas for the coming year:

1. Windows -- Netbooks are the lone bright spot in the PC market. Microsoft needs to think through how it will handle SKU pricing with Windows 7 for netbooks, Ballmer acknowledged. While business PC sales are "the most impacted" part of the business due to the economy, it's still where Microsoft is having a lot of success upselling customers and convincing them to "attach" other Microsoft products. Ballmer called out Internet Explorer as an area where the company is losing market to its competitors, specifically Firefox. "Browsers are not commodities," Ballmer said. "There's a lot of work we need to do" to gain market share, he acknowledged. (Microsoft is expected to release IE 8 to the Web in March.)

2. Mobile -- Windows Mobile operating systems and gaming/Zune entertainment services -- not a combined hardware/software platform like the iPhone -- is where Microsoft is investing, Ballmer reiterated.

3. Desktop productivity -- This is Microsoft's most profitable business -- Office, SharePoint and ERP/CRM products and services -- area at present. No Office 14 until 2010, but higher-priced client-access licenses and strong "attach sales" of other Microsoft products are keeping the business strong.

4. Server and tools -- Ballmer cited the high percentage of annuity licensing deals as insulating the S&T business a bit from the IT spending slowdown. Ballmer cited new growth areas as its "Online" family of Microsoft-hosted services (like Exchange Online and SharePoint Online); the still-unrealized goal of getting more server customers to attach systems-management software; and new, soon-to-be-released Microsoft wares in the security-management, authentication, conferencing and collaboration space.

5. Enterprise software -- This is the segment that includes Microsoft's SQL Server database and middleware. Oracle is Microsoft's biggest competitor here and Microsoft's primary strategy is to take market share by finding a way to beat Oracle's higher prices and contract lock-ins, Ballmer said.

6. Search and advertising -- No new hints about what Microsoft is going to do, other than not throw in the towel. Ballmer talked up Cash Back; new deals with search distributors like Dell and Verizon Wireless; and better search and advertising algorithms as the keys to its strategy. Ballmer said he'd still like to figure out some way for Microsoft and Yahoo to "pool their resources" to take on Google, but pooh-poohed (for the umpteenth time) any talk of an acquisition. He admitted Microsoft still has about 3 to 4 percent of the global search share and that share is "the leading indicator" of progress in this market. "I don't want to be a Jerry Yang in this market," Ballmer quipped, referring to Yahoo's former CEO. I know "how shareholders can get frustrate by leaders who aren't serious about performance," Ballmer added.

7. Entertainment and TV -- It's not just about Xbox here, Ballmer told analysts. "The real opportunity is a device next to or in every TV set," whether that device is a PC, a gaming console, a set-top box, or a new appliance device. Microsoft's strategy is to bring its gaming, entertainment and other servics to the PC, phone and TV.

In previous years, these Strategic Updates weren't so much a reiteration of where Microsoft is putting its money today as where it planned to invest over the coming 10 years. It's clear -- and not surprising -- that the economic downturn is definitely putting a damper on Microsoft's blue-sky spending plans. Ballmer's acknowledgment, made multiple times today, that many investors want Microsoft to get out of search and advertising, was interesting -- as was his justification that "once you get out you can't get back in" for not abandoning the market owned by Google.

Do you think Ballmer has his priorities in line? Or is he leading Microsoft astray in one (or more) areas?

Topics: Software, Enterprise Software, Hardware, Microsoft

About

Mary Jo has covered the tech industry for 30 years for a variety of publications and Web sites, and is a frequent guest on radio, TV and podcasts, speaking about all things Microsoft-related. She is the author of Microsoft 2.0: How Microsoft plans to stay relevant in the post-Gates era (John Wiley & Sons, 2008).

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  • What I see is another executive who

    doesn't get the fact that sometimes you simply have to accept a situation where there is no growth, but simply maintenance of market share.

    CEOs and their ilk need to learn that a balance must be struck between shareholder profit and customer backlask from problems these overzealous companies incur.
    chrome_slinky@...
  • my bet...

    is that M$ will go belly up in 2009 unless it receives bailout money.
    Linux Geek
    • I'm adding that post to my IE favorites...

      I'm also setting an Outlook reminder for 2010-01-01. If your "bet" doesn't come true before then, are you willing to publicly post that you were wrong, here, on ZDNet? Maybe MaryJo can post a followup blog then with a title of "Humble Pie".
      MGP2
      • At last you show some good judgment. I was losing all hope on you.

        You're doing good adding that post to your favorites. I'm so glad to see you're beginning to take reality for what it is.
        InAction Man
        • So, you concur with Linux Geek?

          Does that mean you're willing to step up and post that you were wrong when (not if) that prediction doesn't come true?
          MGP2
          • The only thing wrong is the year

            and perhaps the bailout money too, I don't believe they qualify as bailout receivers.
            InAction Man
          • So then...

            [i]The only thing wrong is the year and perhaps the bailout money too, I don't believe they qualify as bailout receivers.[/i]

            So you basically only agree that MS will go belly up... some year... eventually...

            uh huh
            Badgered
          • Stopping an oil tanker takes a very, very long time, and distance

            Even with the propellers rotating in reverse it will travel many, many miles before coming to a stand still.

            Having accumulated such a huge amount of money m$ acts as an oil tanker. That's the reason it will take long for it to go belly up, even though its propellers are already starting to rotate in reverse.
            InAction Man
          • @Man

            [i]Having accumulated such a huge amount of money m$ acts as an oil tanker. That's the reason it will take long for it to go belly up, even though its propellers are already starting to rotate in reverse.[/i]

            Yes, but having accumulated such a huge amount of money buys them plenty of time to right their course, do some maintenance on their propellers, and be right back on the shipping path to onload more oil. I won't disagree that Ballmer's been a lousy captain. But, sooner or later, the Board will mutiny before the ship comes anywhere close to a full stop.
            MGP2
      • Sure, I'll apologize if I'm wrong...

        as did President Bush when we did not find WMD in Iraq.
        We cold not tolerate M$ tirany.
        Linux Geek
        • How about it, MaryJo?

          Set your calendar for a blog post titled "Eating Crow" on or about 2010-01-01, pertaining to this thread's post 2.0 and 2.1.2?
          MGP2
    • Doubtful.

      Doubtful, unless the entire tech industry collapses and people stop buying electronic devices.
      CobraA1
      • Gee I did not know Microsoft had software....

        in all the electronic devices :)


        However I agree with the fact Microsoft is not going out of business any time soon.
        mrlinux
        • What has that got to do with the price of fish?

          Microsoft doesn't have software in most of the electronic devices sold. They have their software in most PC's and some phone/PDA devices. They also have their software in a fair share of the home entertainment machines (XBox).

          BUT ... and this bit you HAVE to get ... if Microsoft collapses, then you'll see the entire PC industry - hardware vendors, software vendors - the whole thing collapse.

          If Windows disappears overnight, sales of PC's will collapse. If PC sales collapse, so do printers, networking gear, scanners, screens, keyboards, mice, etc. Dell, HP, Lenovo, Acer, Asus, MSI, etc., all hit the wall as they're only-just eeking by on miniscule profits as it is. Intel and AMD both hit the wall too - AMD first of course.

          In many ways, it's accurate to say that *N*X and OSS exists at the mercy of Microsoft's continued success. Without Windows, the per item cost of practically everything you enjoy today at ridiculously low prices will suddenly explode through the affordability ceiling before collapsing without a trace.

          Believe me, you should be VERY careful of what you dream for.
          de-void-21165590650301806002836337787023
          • You seem to forget that Microsoft is not the only player in town.

            If and when Microsoft goes capsizes, the world will not come to an end.
            If anything these other companies you speak of can make their products
            for the other players in town. Apple, various Linux distros, Sun Solaris, it
            would even be nice if IBM were to comeback with BE OS.




            "In a world without walls & fences, who needs windows & gates?"
            Intellihence
          • Uh huh....

            [i]If anything these other companies you speak of can make their products for the other players in town. Apple, various Linux distros, Sun Solaris,...[/i]

            Riiiiiight. Because "these other companies" have so much confidence in those products now, they're flooding the market with them.
            MGP2
          • screech to a halt maybe...

            "if Microsoft collapses, then you'll see the entire PC industry - hardware vendors, software vendors - the whole thing collapse."

            I seriously doubt it would collapse. sure it would hurt a lot of people in the short term, but companies like Apple, Google, AMD, Nvidia, IBM, Sun, Novell etc. would quickly scramble to get options out there. Google and many other companies run their servers on Linux so the damage to them would be minimal.

            You seem to think MS is the only game in town. Guess what? It's not anymore and users would quickly adapt as well. Companies like I just mentioned, hardware and software vendors aren't stupid. They will go where the wind takes them. Sure it would be big hit on their bottom line initially but most will survive.

            I don't think anyone really has to worry too much about MS going belly up anytime soon but given that scenario, the world will not end without MS.
            Dave32265
          • I doubt that

            First off for years MS has been primarily a marketing company. It is what they are best at. The world won't end without them. If anything consumers might benefit with an end to the windows tax. The world wouldn't end and people would quickly discover they don't really need MS anyway. Don't get me wrong I like windows and use it daily. But if it were taken away I'd do just fine. If most people don't already know this they would soon figure it out. The shame would be the collapse of the ecosystem much more so than MS alone.
            DemonX
          • If?

            If by PC industry, you mean desktop computers, I believe we're already seeing a collapse - with or without MS troubles.
            jeverettk
      • Unless?

        And in this economy do you really find that condition to be doubtful?
        jeverettk