Computer users will continue to use the same machines and operating platform for many years unless innovation forces them to upgrade. "People can continue to use their PCs and Windows and Office for another ten, fifteen, twenty years, unless there's something innovative that warrants a change or a migration," Ballmer said.
He said innovation by Microsoft was necessary to persuade customers to regularly upgrade or change their hardware and software, as existing products had a long shelf life and did not necessarily become redundant in line with the company's preferred product cycle.
Although some products may not be well received in the first incarnation, Ballmer said Microsoft invests "a lot of our innovation energy into technologies that let us hear, and listen and respond better to our customers".
"I find at our end customers expect us to show them things that they never thought about. They don't expect us to just listen to them.
"On the other hand, if we don't listen to our customers, if we're not paying attention and being responsive to their needs, we're also way off track," he told more than 550 attendees in Sydney at a Committee for the Economic Development of Australia lunch, which was closed to the media.
Ballmer is understood to have labelled Google the "competitor du jour," noting there was "a lot of innovation in Internet search" but there's more to come as the technology has yet to mature.
However, he noted that the experience remained frustrating -- a search for "Bill Gates" yielded several unrelated results, including the words "Bill" and "Gates" in irrelevant contexts.
He then sounded a warning to the search giant, saying that while he would be surprised to see Google in the operating system arena, Google "shouldn't be surprised" to see Microsoft in search.
Ballmer called on emerging and developed nations to "strongly respect" intellectual property rights, saying IP will be a big issue for the world economy.
As he heads for a two-day tour of Beijing tonight, his discussions with employees, government officials and key customers are likely to be closely watched given the company's recent agreement to censor blogs containing words such as "freedom" and "democracy" on its new Chinese MSN Spaces network.
At the luncheon, he signalled Microsoft's plan to "work actively with the Chinese government on IP enforcement".
Attendees told ZDNet Australia Ballmer noted if a Chinese software company secures reasonable mindshare and has the potential to do business outside the country, then the Chinese government would be more likely to pay more respect to IP.
Meanwhile, Microsoft chairman Bill Gates -- in Tokyo on his regional tour -- unveiled plans by the company to work with Japan's National Policy Agency to fight Internet crime.