Microsoft: Fighting back

...is a relatively small thing. We're going to have a big subscription business, too.

So we need to have all three muscles or we are vulnerable, but nobody else is even trying to have all three muscles.

How do you grow the advertising business, though?
Ballmer: It takes you awhile. First of all, advertising isn't all about search. Search is a good vehicle for advertising, but there are other good vehicles for advertising. We basically have held share over the last couple of years. Some other guys have gained a little share, but we've basically been relatively flat on share and growing nicely with the market.

How do you grow? You have exciting experiences that people want to participate in, whether those are communication or search or content.

We're going to continue to build out our experiences, and frankly, I think we can get smarter and smarter about how we monetise — smarter in two senses, smarter about picking advertising content that people want to see, as opposed to just the advertiser wants to see. I think there's a lot of work to do there, and I think we can be smarter about making our online experiences even more immersive than they are today, where people want to stay in them for a longer period of time, and the longer they spend, the more opportunity we have to deliver that relevant advertising.

Are there any ideas out there you're thinking of for search to actually make it more interesting and attractive?
Gates: Well, search is bad today. The average search takes five minutes. It doesn't really understand what's local versus what's not local. You know, you type in "pizza" it's going to tell you about someplace 1,000 miles away. It doesn't understand the context of are you trying to get advice for using the product or buying a product — Are you an expert? Do you want the historical data? Do you want the most recent data? — all of these things that can be done.

Ballmer: Half the searches don't give you an answer that you wanted anyway.

Gates: And so search is not personalised right now, and we've been making some advances. We've been driving our relevance up and up and up, and we have this way of really slotting in third-party expertise and letting you do some programmatic things against search.

In the months ahead, we'll be chronicling some of the business model changes, some of the software breakthroughs that we're going to have there.

One of the things you are talking about at CES is music, and obviously you guys for a long time have said choice, big ecosystem will win out eventually. For the time being, Apple has got one family of players and one music store, but they seem to be cranking out stuff pretty fast, and consumers still seem to be going there. What do you think you guys and your partners have to do to change that?
Gates: Oh, we've got to get music in cars, music on phones, music throughout the house.

Ballmer: We do need a more consistent experience. That doesn't mean it's bad to have a variety of devices. I think that's great. But there are some things we need to make sure are more consistently delivered across the portable devices.

Let's face it, when it comes to actually using it on the PC, our stuff is still the most popular stuff out there. It's not true in the portable device space, and I think we have to do some stuff to simplify the experience across the portable device and the PC, and that's an important part of what we need to do. And we give credit — Apple has done some things right, and it's worked for them.

Do you guys need to go further into the hardware? I mean, obviously you don't generally get into the actual making, Xboxes aside, but could you do more reference designs?
Ballmer: We do need to have greater simplicity in the way the devices...

For more, click here...