'Attacks threaten innovation' - Ballmer

In response, the software giant plans to develop new means for thwarting such attackers and aims to shut down the invasions before they wreak the havoc seen with recent viruses such as MSBlast.

"The most important technology area we are focused on is shield technology," Ballmer said in a speech to the Churchill Club, which is a gathering of Silicon Valley business people. "We know bad guys keep writing viruses. The goal is to block them before they get on PCs. "

Such technology has traditionally been the domain of antivirus software makers, but Ballmer stressed that he wants to work more closely with companies such as Symantec and Network Associates.

"This is an industry-wide problem that must be fought not only by Microsoft," Ballmer said, noting that it is not just the software giant's operating system that is threatened, but also other areas of network infrastructure that are at risk, including routers, databases and Internet service provider connections. In June, Microsoft purchased GeCad Software, a Romanian maker of antivirus software.

Ballmer said he understands that customers expect more from his company.

"Many of our customers are feeling the pain," he said. "We have to raise the bar on the quality of products when it comes to security."

In particular, Ballmer said Microsoft must improve the way it distributes and manages the software patches that it uses to update its operating system and other programs. The software maker also is looking for ways to involve other companies in what it calls the "post processing" of its code -- that is, looking through existing programs for vulnerabilities and using the latest viruses to see if they point to other flaws.

"There is still a lot of work ahead of us," he said.

The one thing Microsoft can't do, Ballmer said, is stop innovating. "In the old West, the banks didn't shut down when there were robberies. They improved the banks. They improved the law enforcement."

In a sense, though, Microsoft already has tried that tactic. Early last year, the company halted development of its key products while it went line by line through its latest code to look for security bugs. That effort, which pulled more than 8,500 programmers from their usual task of developing new versions of Windows, has met with only mixed success.

"There is some evidence of progress," Ballmer said. "Not enough, but there is some evidence."

Last week, Microsoft revealed three serious vulnerabilities. Such disclosures are a routine occurrence.

Talking up tech
In his speech, Ballmer addressed a range of other topics, including several Asian countries' efforts to develop a Windows competitor. "I don't think it's likely to prove useful," Ballmer said. "I don't think it's going to wind up being the big competitor we see -- even in those markets."

He also touched on Apple Computer's position in the marketplace. "Apple is doing some good, innovative work," he said.

In particular, Ballmer cited the work that Apple and Lucent Technologies did in 1999 to make wireless networking broadly available with Apple's Airport. "It's easy to forget how truly groundbreaking this technology was." At the same time, Ballmer noted that Apple doesn't appear to be stealing much of the computer market from Windows-based rivals. "I don't see their basic position in the market changing."

Ballmer took the opportunity to praise other Silicon Valley tech companies, including search king Google and graphics software maker Adobe Systems. "Its work on typefaces was one of the most significant advances in printing," he said of Adobe.

He commented briefly on how long Microsoft will wait for investments in mobile devices, Xbox and MSN to pay off.

"All of best things we have done from a financial perspective have taken a long, long time," he said. "We're going to be patient."

As for MSN, Ballmer noted that it is well on its way from transforming from a dial-up ISP to a seller of other paid services. Today's paid offerings focus on email and storage, but Ballmer promised more to come. "You'll see us extend the range of services we offer on MSN."