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Microsoft's Ballmer defends his decision to spend

Eileen Kennedy, News Writer

Microsoft CEO Steve Ballmer said the company will invest lots of money in developing innovative products, although it isn't clear how those products will bring in additional revenue for the beleaguered software giant.

Ballmer was addressing investors Wednesday morning at the Sanford C. Bernstein & Co. Strategic Decisions Conference in New York. In his presentation, the chief executive said that Bill Gates, Microsoft CTO Ray Ozzie and other technology executives compiled a laundry list of roughly 70 product areas that they plan to tackle over the next 10 years with an R&D budget of $7 billion. @21806

Saying he was optimistic about the future of both technology and Microsoft, Ballmer said it would take "big bold bets" to take market advantage of coming technologies. Software as a service is mandatory, he said, but the company must also keep its signature products -- such as Windows -- fresh. "If we don't, then it will fail to flourish," Ballmer said.

Microsoft also wants to be the winner in a variety of different markets, he said, whether it is entertainment, communications or operating systems. The company would also like to break into high-end enterprise computing, he added.

The company of late has taken criticism for its failure to deliver on some of its most high-profile products, such as the well-publicized slip of Vista. The next version of Windows, Vista will be available for business customers in November, but

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in January for everyone else.

Ballmer pointed out that although Microsoft unveiled Windows in 1983, it really didn't start making money for the company until 1993 or 1994. He told investors that he expects to be explaining for quite a few years that it is spending a lot of its cash on research and development.

As for the future, Ballmer said that server technology is where the action is. "We've got big opportunities with the right R&D focus and marketing focus to grow share, particularly on the server," he said. "In Web servers, in what we call high-performance or technical computing, in Unix app migrations, we are not the market leader today at the server level. We can take share, take share from Linux, take share from mini-computers. We have a real opportunity," he said. @21807

Ballmer said that with the wave of products coming next year, Microsoft will make a big splash in the areas of security software, management software, storage management, development tools, portals, workflow and document management software, enterprise search, business intelligence, CRM, unified communications -- including voice and conferencing -- and phones. "These are all areas that we will essentially enter in the course of the next 12 months in a much more serious way, he said.

At least one expert thinks most big companies have a wide focus, particularly at the top and, of course, Microsoft is no exception. "I think they're very widely stretched, perhaps too widely stretched," said Jonathan Eunice, founder and principal IT advisor at Illuminata Inc. in Nashua, N.H. Despite a number of reorganizations, Microsoft has not been able to staunch slipping deliverables and nagging security exposures, which shows that the focus is just too broad, he said.

Microsoft's view that it must take on all comers and dominate them makes it difficult to do other things, such as innovate nimbly and focus on quality throughout its products. "Maintaining an empire is exhausting. It means you can never really slow down," Eunice said.

Ballmer said critics don't realize just how many great products the company has.

Eunice said that may be true, but he added that inconsistent quality levels, even within the same product, "dilute your enthusiasm for them."


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