Microsoft vows to pour resources into online services

Carrie Kirby, Chronicle Staff Writer

Friday, July 29, 2005

Microsoft is setting its sights squarely on Silicon Valley`s Yahoo and Google as it strives to grow by expanding its Internet presence, chief executive Steve Ballmer told financial analysts Thursday.

Even though it is coming from behind in this area, Microsoft is ``serious and committed`` about expanding its Internet presence in Web searching as well as online services including music, an exuberant Ballmer said during the company`s annual analyst day presentation at its headquarters in Redmond, Wash.

``It is a Job 1 priority for our company, this transformation to services and the competition that it brings with Yahoo and Google and everybody else,`` he said. Microsoft, the world`s largest software company, will pour money into research, marketing and other investments for as long as it takes to beat the competitors, he vowed.

Microsoft is also interested in selling software as a service to businesses, said Bill Gates, chairman and chief software architect. For example, Microsoft recently bought FrontBridge Technologies, a company that provides e-mail security services to corporations.

This is not the first time Microsoft has pinned its future to delivering digital services. In the late 1990s, the company promised that it would make computing pervasive on cellular phones and other devices through its .Net platform, but that vision failed to have the impact the company predicted.

The company sees growth potential in its newer product areas, such as software for cellular phones, and even believes it can expand its market share in its core products such as the Windows desktop and server operating systems and the Office programs, Ballmer said.

The company`s bold ambitions impressed Rob Horwitz, co-founder of research firm Directions on Microsoft in Kirkland, Wash.

``If they were NASA, they`re doing the manned mission to Mars, not the little unmanned cheap mission,`` Horwitz said.

The biggest challenge standing in the way of these big plans is the size and complexity of the $40 billion company, Horwitz said, especially because Ballmer vowed to make the company`s many new products work together seamlessly.

``It`s a really difficult challenge to have such a large organization and have such massive coordination among their different initiatives,`` Horwitz said.

Ballmer offered little detail about the new version of Microsoft`s Windows operating system, due out in the middle of next year. The product has been code-named Longhorn, but Microsoft revealed last week that the software will be called Vista and this week sent early test versions out to developers.

He did say that Microsoft plans to offer a premium version of the operating system at a higher price, with added features that would be attractive to businesses, a tactic that has proved profitable for Microsoft in the past. A premium edition of the Office programs is also envisioned, he said.

Microsoft is stepping up its acquisitions, not looking for ``blockbuster`` buys but spending $1 billion to $2 billion a year on buying companies, Ballmer said.

E-mail Carrie Kirby at ckirby@sfchronicle