Hefty investments in online services and consumer electronics will let Microsoft maintain its historically rapid growth rate, CEO Steve Ballmer told financial analysts on Thursday.
The largest software company is hosting its Financial Analysts Day at its Redmond, Wash., headquarters, where Ballmer described Microsoft's strategy as making several big bets on emerging businesses while drawing more revenue from its mature desktop and server software franchises.
Microsoft is transforming its product development and business models around "software plus services," or software complemented with online services, he said. The company has been criticized by financial analysts for being slow to capitalize on advertising revenue as search giant Google has done.
"We are hell-bent and determined to allocate the talent, the resources, the money, the innovation to absolutely become a powerhouse in the ad business," Ballmer said.
Company founder Bill Gates, who made a presentation before Ballmer, announced that Microsoft is opening a dedicated center to research online advertising and search called the Internet Services Research Center. Headed by Harry Shum, the center's research will focus on search relevance, spam prevention and searching scanned images, such as book pages.
Ballmer said that the company is tackling disruptive technology changes head-on, namely the shift to advertising-supported Web services. Its commitment to online services and consumer devices are necessary because they provide avenues for the company's software.
He defended continued investments in two unprofitable divisions: Online Services and its Entertainment and Devices division. Microsoft's multiyear commitment in server software for corporate data centers diversified the company and created a multibillion dollar revenue engine.
"We're bringing the same kind of vision and tenacity that is in our DNA that drove us into the enterprise business into consumer devices and online services," Ballmer said. "We are going to be an advertising company, and we are going to be a devices company."
Even coming off a strong fiscal 2007 performance, Ballmer said he has "never been more optimistic" about Microsoft's prospects, outlining areas for more revenue. Those included stepped-up sales of Windows through PC manufacturers, Xbox game consoles, Windows Mobile phone software, increased market share of server software, office worker productivity software for small and medium-size businesses and advertising from online services.
Giving some upbeat reports on its mature business, Microsoft said it has sold 60 million copies of Windows Vista since its launch earlier this year and that its SharePoint Web portal business has grown to $800 million. Ballmer said that by the end of its fiscal year 2008, there will be over 1 billion copies of Windows installed on PCs.
Furthering its strategy to court Web developers and designers, Microsoft said that by the end of the week it will release Silverlight 1.0 Release Candidate. Silverlight is a download for displaying media and interactive content in Web pages. It competes with Flash and other plug-ins that add interactivity to Web sites.
During Gates' presentation, he described Microsoft's vision for improving users' computing experience with online services; better user interface technology, such as speech and cameras; and a smooth transition among handheld devices, PCs and other devices.
He said that broadband is allowing Microsoft engineers to reconsider the computing paradigm, where resources typically confined to a single machine, like storage, can be done in the Internet "cloud."
Microsoft is building a platform for that new computing paradigm with Chief Software Architect Ray Ozzie "driving the revolutionary new platform that is service centric," Gates said.