For the past few Februaries, Microsoft CEO Steve Ballmer makes the trek to Wall Street to provide analysts with an annual “Strategic Update” overview, in which he covers the areas where Microsoft plans to invest and why.

This year, during his February 24 update, Ballmer was more about circling the wagons than staking out new, far-flung territories Microsoft planned to conquer in the next 10 years.

(Here is the list of Ballmer’s strategic bets he outlined in 2007; here’s Ballmer’s list from 2008.)

On Tuesday during his hour-plus presentation (which I listened to via a Webcast), Ballmer outlined seven areas “where we invest serious money.” He told Wall Streeters that Microsoft planned to engage in careful cash management; to maintain “right-size enterprise overhead”; and to put about three percent of its spending into research and incubation projects in the coming year.

Ballmer emphasized that he believed “the economy will be relatively weak for a relatively long period of time” and was adjusting his investment priorities to reflect this fact.

Ballmer’s list of seven investment areas for the coming year:

1. Windows — Netbooks are the lone bright spot in the PC market. Microsoft needs to think through how it will handle SKU pricing with Windows 7 for netbooks, Ballmer acknowledged. While business PC sales are “the most impacted” part of the business due to the economy, it’s still where Microsoft is having a lot of success upselling customers and convincing them to “attach” other Microsoft products. Ballmer called out Internet Explorer as an area where the company is losing market to its competitors, specifically Firefox. “Browsers are not commodities,” Ballmer said. “There’s a lot of work we need to do” to gain market share, he acknowledged. (Microsoft is expected to release IE 8 to the Web in March.)

2. Mobile — Windows Mobile operating systems and gaming/Zune entertainment services — not a combined hardware/software platform like the iPhone — is where Microsoft is investing, Ballmer reiterated.

3. Desktop productivity — This is Microsoft’s most profitable business — Office, SharePoint and ERP/CRM products and services — area at present. No Office 14 until 2010, but higher-priced client-access licenses and strong “attach sales” of other Microsoft products are keeping the business strong.


4. Server and tools — Ballmer cited the high percentage of annuity licensing deals as insulating the S&T business a bit from the IT spending slowdown. Ballmer cited new growth areas as its “Online” family of Microsoft-hosted services (like Exchange Online and SharePoint Online); the still-unrealized goal of getting more server customers to attach systems-management software; and new, soon-to-be-released Microsoft wares in the security-management, authentication, conferencing and collaboration space.

5. Enterprise software — This is the segment that includes Microsoft’s SQL Server database and middleware. Oracle is Microsoft’s biggest competitor here and Microsoft’s primary strategy is to take market share by finding a way to beat Oracle’s higher prices and contract lock-ins, Ballmer said.

6. Search and advertising — No new hints about what Microsoft is going to do, other than not throw in the towel. Ballmer talked up Cash Back; new deals with search distributors like Dell and Verizon Wireless; and better search and advertising algorithms as the keys to its strategy. Ballmer said he’d still like to figure out some way for Microsoft and Yahoo to “pool their resources” to take on Google, but pooh-poohed (for the umpteenth time) any talk of an acquisition. He admitted Microsoft still has about 3 to 4 percent of the global search share and that share is “the leading indicator” of progress in this market. “I don’t want to be a Jerry Yang in this market,” Ballmer quipped, referring to Yahoo’s former CEO. I know “how shareholders can get frustrate by leaders who aren’t serious about performance,” Ballmer added.

7. Entertainment and TV — It’s not just about Xbox here, Ballmer told analysts. “The real opportunity is a device next to or in every TV set,” whether that device is a PC, a gaming console, a set-top box, or a new appliance device. Microsoft’s strategy is to bring its gaming, entertainment and other servics to the PC, phone and TV.

In previous years, these Strategic Updates weren’t so much a reiteration of where Microsoft is putting its money today as where it planned to invest over the coming 10 years. It’s clear — and not surprising — that the economic downturn is definitely putting a damper on Microsoft’s blue-sky spending plans. Ballmer’s acknowledgment, made multiple times today, that many investors want Microsoft to get out of search and advertising, was interesting — as was his justification that “once you get out you can’t get back in” for not abandoning the market owned by Google.

LAS VEGAS--As he takes the stage Wednesday, Steve Ballmer has a mighty big task ahead of him.

Not only is he taking over Consumer Electronics Show keynote duties from Bill Gates, he is also aiming to convince the tech world that Microsoft is serious about defending its turf on the PC as well as making headway on the Web, television and phone. Oh yeah, and then there's that whole economy-melting-down thing.

Ballmer hasn't arrived in Sin City empty handed, however. In perhaps the biggest announcement of the night, he will announce Microsoft is ready with a beta version of Windows 7 and he will show off some of its key consumer features.

Microsoft will also announce new deals for Windows Live that will see Microsoft's search engine become the default on PCs from Dell as well as touting a deal with Verizon Wireless that leaked earlier in the day. The company is also counting on two Halo game releases this year to help keep the Xbox 360 going in the right direction.

But Microsoft faces considerable competition in each of the areas Ballmer is discussing. On the PC front, a resurgent Apple has increased its share. In search, Google continues to dominate. In the phone market, Apple's iPhone has grabbed much of the spotlight, not to mention significant market share. Google also has joined the fray, while longtime competitors such as Research in Motion and Palm are trying to maintain their slices of the pie as well.

And then, of course, there's the substantial financial headwind. Ballmer is expected to express his usual optimism--despite the global financial outlook--and discuss the company's commitment to research and development in both good times and bad. That said, Microsoft is clearly not immune from the problems that led Intel Wednesday to announce that fourth-quarter revenues were down 23 percent from the same quarter a year ago.

On the PC side, Microsoft is looking to turn the page from Vista to its successor, Windows 7. Microsoft isn't talking about any new features of Windows 7, saying it talked about all of the key features at the Professional Developer Conference last year. Instead, it will attempt to demonstrate what features like improved home networking really mean for the average household.

As for the beta of Windows 7, Microsoft said it will be immediately available for technical beta testers and those in Microsoft's TechNet and MSDN developer programs and will be made publicly available on Friday. The company still isn't officially committing to a final release in time for this year's holiday season, although the company is clearly still aiming for that.

Ballmer will also discuss Windows Live. In addition to the global PC deal with Dell and the five year U.S. deal with Verizon Wireless, Microsoft has expanded its relationship with Facebook to allow users to see within their Windows Live homepage certain of their buddies' Facebook updates. The company is also stripping the beta tag off many of its Web-based and downloadable Windows Live products.

On the phone side, Ballmer is expected to talk about the improved mobile browser Microsoft released at the end of last year, but the company is not talking yet about when to expect a serious upgrade to the Windows Mobile operating system, which has grown rather long in the tooth. Microsoft has made reference to an interim Windows 6.5 release that could serve as a bridge until the more significant overhaul of the operating system--Windows Mobile 7--makes its delayed debut.

On the automotive side, Microsoft is announcing a new version of its Ford Sync entertainment system that uses voice recognition software from its Tellme acquisition.

While that's the main news of the show, check out our live blog to get some live quotes, our commentary, as well as updates on any celebrity guests or funny videos that are often the hallmark of Microsoft's keynotes.

in case there was still any doubt, the beta version of Windows 7 will be available by next week.

From this Microsoft blog: "Breaking News! Attend an upcoming MSDN Developer Conference and you will receive a Windows 7 Beta 1 DVD."

When's the next upcoming MSDN Developer Conference? Tuesday, Jan. 13 in Chicago.

During his keynote speech at the Consumer Electronics Show tomorrow, Ballmer is widely expected to announce the release of the beta version of the new operating system.

On Wednesday night, Microsoft CEO Steve Ballmer is going to step on stage at the Venetian Hotel’s Palazzo Ballroom to give the keynote address that kicks off the Consumer Electronics Show. It’s the first time for Ballmer, who’s taking the slot that his predecessor Bill Gates has had for years.

It’s widely expected that Ballmer will publicly unveil Windows 7 Beta 1, just as Gates used the stage to announce previous Windows versions. He’ll no doubt have an entourage of product managers to help him do the actual demos, hopefully inspiring a wow or two from the assembled throngs.

I’m looking forward to the demo, even though I don’t expect any surprises. Mostly, I’m going to be listening between the lines, paying attention to the things that Microsoft chooses not to talk about. In the spirit of the occasion, I offer up the following predictions of things that Ballmer will take great pains to avoid saying.

1. “Some of you are going to hate our new OS, no matter what we do.”

Building software is part art, part science, and all compromise. Every design decision involves tradeoffs in performance, in ease of use for novices versus raw power for experts, even in esthetics. I addressed some of these issues in a post I wrote last year, How do you benchmark real-world work? I fully expect each succeeding wave of Windows 7 reviews to include plenty of “Microsoft sucks” commentary. Especially from InfoWorld.

The back and forth between my ZDNet colleague Jason Perlow and me last week illustrates this principle perfectly. Jason (and the commenters who agree with his point of view) want Microsoft to offer an option that allows them to use their system using the Windows interface they mastered in 1998. I think pursuing that backward-looking strategy would be a massive waste of limited development resources.

The bottom line is you can’t please everyone, and one size will never fit all. So the big question for Microsoft is whether they can please enough people and generate enough positive buzz to drown out the negative voices.

2. “Good luck finding drivers for all your old XP-only hardware.”

Over the past few months, I’ve installed and used Windows 7 on a dozen separate systems, representing a wide range in hardware capability and all sorts of different form factors. Virtually every one of those systems had also run Windows Vista at some point in its lab lifecycle, which made it easy for me to track down the best drivers for each subsystem and peripheral.

Over the course of the last two years, I’ve discarded or replaced a handful of devices that didn’t work at all with Vista: several network cards, some storage adapters, a scanner, a TV tuner. In every case, I had to replace the unsupported part or do without. The good news is that the driver model for Windows 7 is identical to that of Windows Vista, so all the hardware I now own (and all the drivers I’ve bookmarked and saved) will work on upgraded systems.

So, what happens to people who decided to skip Vista and stick with XP, for whatever reason? They get to face those exact same issues. If your device doesn’t have a driver for Windows Vista, it will not work under Windows 7. Period. Full stop.

3. “We’re still at the mercy of our clueless OEM partners – and so are you.”

Some of the worst complaints about Windows Vista came from users who were subjected to horrible installations from OEMs, with poorly written drivers, inadequate hardware, and great heaping helpings of crapware to slow everything down to a crawl.

I had the chance to see this phenomenon up close and personal last year, when I rebuilt a Sony VAIO whose performance with Windows Vista was so awful that its owner basically wrote it off and bought a new MacBook. After a clean installation, including Vista Service Pack 1, its performance was eye-opening and impressive.

Since that time, Sony, Dell, and other top-tier OEMs have cleaned up their acts impressively. But even if Windows 7 turns out to be an excellent operating system, there’s still the potential for it to be scuttled by sloppy or greedy hardware makers. Microsoft executives are jawboning like crazy with their hardware partners; you know they’ll be holding their breath after the launch to see how those systems perform in the real world.

4. “It might be years before we have a killer application for Vista or Windows 7.”

The myth of the “killer app” has never been stronger than with Windows Vista. The idea refers to some program that performs an absolutely irresistible function and only runs on a particular platform. If you need that program, you have to upgrade to the new OS.

But software developers, including Microsoft, aren’t interested in cutting off customers who still use older platforms, especially in this tight economy. So, as a result, most popular Windows programs these days are written to run on Windows XP, Vista, and (soon) Windows 7. And there’s no sign that’s going to change anytime soon.

If anything, Microsoft is doing its best to avoid any kind of Vista-only software. The new Windows Live Essentials bundle, for example, works on XP and Vista, as does Windows Live Mesh and every member of the Microsoft Office family.

None of those programs are going to drop XP support anytime soon (although it’s remotely possible that the next version of Office will work only on Vista or later). That strategy of wide backward compatibility is the right thing to do for customers, but it bolsters the argument of those who contend that a killer app is the only reason to upgrade.

5. “Our licensing terms are as hopelessly confusing as ever.”

Microsoft hasn’t gotten around to announcing how many editions of Windows 7 it plans to produce or what their prices will be. But one thing is certain: the confusing, multi-layered Windows business model isn’t going to change.

Royalty OEMs (the big PC makers like HP, Dell, Sony, and Toshiba) have one price list and one set of terms. Small system builders have another set of rules. Retail copies are horrendously overpriced.

Enterprise customers have to navigate through a thicket of price lists and volume licensing programs that actually require their own certification programs. And even Microsoft sometimes contradicts itself completely on how licensing terms apply to some customers.

Those are my predictions. Sit back, grab some popcorn, and watch the keynote for yourself, in low (100k), medium (300k) or high quality (750k) streams.

The CES 2009 conference is less than a week away and the world is looking forward to Steve Ballmer’s keynote which is expected to reveal new information about Microsoft’s upcoming operating system Windows 7. Many news sites assume that Steve Ballmer will announce the public release of the Windows 7 Beta in his keynote. While that is not totally clear yet it is generally assumed that the Windows 7 Beta will be released in the beginning of January.

Long posted information about the live streams of the keynote on his Windows 7 blog. It will begin on Wednesday January 7 at 6.30pm PST and three live streams can be accessed to view the keynote from anywhere on the globe:

100K CEO 2009 Live Stream
300K CEO 2009 Live Stream
750K CEO 2009 Live Stream