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FT: Microsoft’s quest to beat Google

The consumer electronics and technology world is used to starting the year with a landmark presentation from one of the industry’s leading figures.

That role has traditionally fallen to Steve Jobs, co-founder of Apple, whose annual appearances at the Macworld conference have involved new product announcements that set the agenda for much of the discussion in the consumer electronics sector for the rest of the year.
This week, however, with Mr Jobs absent and battling ill health, it fell to Steve Ballmer, chief executive of Microsoft, to step forward.

Appearing for the first time at the opening of the Consumer Electronics Show, and giving a presentation that in former years was delivered by Bill Gates, the Microsoft chief tried to shift the spotlight on to the product that is most likely to help his company’s push for a central position in the digital home: a new version of Windows, which could hit the market before the end of this year.

The news that the next operating system was on track, with a full test version due to be released publicly on Friday, appeared to show that Microsoft had put behind it the sort of delays that bedevilled the development of Windows Vista. However, early feedback from developers this month will indicate how reliable the software is.

PCs running on Windows 7 “will be easier to use, more natural in their user interface,” Mr Ballmer told the Financial Times this week. They will also be “more reliable, easier to connect to phones, to TVs, to the internet cloud.”

Despite this, the Microsoft boss clearly has the competition on his mind. In a wide-ranging interview, he acknowledged the edge that companies such as Apple and Google have gained in important parts of the consumer business.

Apple’s iPhone and BlackBerry have “clear market momentum” in the smartphone market, one of the only consumer technology businesses that is set to resist the economic downturn this year, he said.

And, while generally dismissive of Google’s venture into smartphones, he acknowledged it would be a long time before Microsoft would catch up with regards to search software. “Google’s a great company, they’ve certainly got great market share and a decent product,” he said.

Central to Microsoft’s performance in the short term will be the dent to PC sales from the sliding economy. Mr Ballmer said that, if the state of demand described by chipmaker Intel persisted for the rest of this year, global PC sales would fall by 60m in 2009, to 240m – but he did not give a forecast.

The downturn would not lead Microsoft to delay any new products or long-term investment plans, he added, though it had forced the company to take a close look at costs.

While acknowledging how far Microsoft is behind Apple in the digital music business and Google in search software, the Microsoft chief gave some pointers as to how the company hopes to respond.

Mr Ballmer unveiled two partnerships, with Dell and Verizon Wireless, to increase the distribution of Microsoft’s search engine. While not likely to make a big difference to the company’s market share, the deals carry an important message: Microsoft is fighting back hard against Google. Microsoft’s deal with Dell replaces one that Google reached three years ago, while the Verizon Wireless pact was won in heated competition with the search giant.

In digital music, meanwhile, Mr Ballmer seemed all but ready to throw in the towel on the Zune mobile device, which has failed to gain ground on Apple’s iPod. But he suggested that the focus of competition in digital media was moving onto ground that Microsoft understands well: software.

He said that, with the market for dedicated portable media players in decline, the future lay in more “general purpose” devices – such as Apple’s iPhone and touch.

Asked if Microsoft would counter with a “Zune Phone”, Mr Ballmer said: “You should not anticipate that.” He added that the company would stick to its strategy of developing software to support a range of mobile devices. That suggests that, if there is a future for Zune, it lies in planting the software and online service linked to the player in other devices.

Article by FT.