HOWZAT

But Ballmer sees Microsoft’s size as one of its key advantages. “We’re the only player in this market that’s building the future based on the present,” he said. The firm is taking its software online, offering more and more services to businesses and consumers over the net.

Microsoft is often keen to point out that it competes with Google in just 6% of its business. But there is no doubt that Ballmer sees Microsoft’s future online — and the two firms are set to fight it out over more and more of Microsoft’s business.

“Everything you read, everything you watch, everything you want to communicate — all those experiences are going to happen over the internet. Television — the internet. Magazines — the internet. Phone calls — the internet. Video conferencing — the internet. Advertising, shopping — the internet, the internet, the internet. The size and magnitude of that is really unbelievable. We are talking about in aggregate one of the largest parts of the world’s economy,” he said. A trillion-dollar market, Ballmer calculated. “It’s a huge transformation that is as much a software opportunity as anything else.”

For now the gateway to that world is online searching and Google is the gatekeeper. To that end Ballmer was prepared to spend in excess of $44 billion buying Yahoo, the second-biggest player in the market. Microsoft has been working hard to improve its own search programs but as a distant third to Google and Yahoo it lacks the audience to pick up advertisers and users. Yahoo would have delivered that audience, though the focus on the talks obviously annoys Ballmer. “I’ll talk about Yahoo in a moment bleh bleh bleh,” he said. He’s fond of dismissing subjects with blehs and blahs.

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Unfortunately for Ballmer, they don’t make the problem go away and despite stating that a deal was now very unlikely he couldn’t resist leaving the door open. “There is nothing under discussion. Yahoo for us was always a tactic not a strategy,” he said. “We can move on. Does that mean nobody will ever talk to anybody again? I suspect the answer to that is no. It’s a long time and a big world."

Yahoo gave billionaire investor Carl Icahn three seats on its board last week to end a proxy fight before its August 1 annual meeting. Icahn had pressed to replace the Yahoo board and make the sale to Microsoft. For now, Icahn appears to have made peace with Yahoo. Plan B for Microsoft is to spend hundreds of millions of dollars to build up its own services. The company has spent about $9 billion in the past two-and-a-half years building its internet business, according to Directions on Microsoft, a research firm in Kirkland, Washington, and to little good effect so far.

Directions analyst Matt Rosoff said he had some sympathy with Ballmer. The Yahoo deal was a bad idea in the first place, he said, though the intention was good. “Microsoft’s strategy is valid — it’s always been an execution problem.” Microsoft had too many brands. “What’s the home page? It’s been scattered. Maybe if the company focused on fewer things it could do better.”

Online searching is not the only area where Microsoft’s diverse approach is causing problems. Another, far smaller, company cast a big shadow over last week’s meeting: Apple. Apple has long cast itself as the antidote to Microsoft. In its “Get a Mac” ads, Apple is the cool dude of computing and Microsoft’s PC man is the nerdiest guy in the IT department. Despite some of the ads backfiring, with research showing viewers felt more sympathy for the suffering straight man than the hip Apple dude, the damage has been done.

While Apple computers can run Microsoft’s programs, they come with their own operating system and offer the only big rival to Windows. Analysts at Gartner estimate Apple had 8.5% of the American computer market in the second quarter of this year. Small, but up from 5.6% for the same time last year. Gartner is predicting that Apple will double its market share in computers in America and western Europe by 2011.

Then there are all those iPhones — mobile computing devices just waiting for computer services to rain down from the clouds — and the buzz around what Apple will do next. Buzz that is sorely lacking at Microsoft.

Microsoft dwarfs Apple in computing and in the number of mobiles that carry its software. At the meeting its executives were keen to show off some very whizzy technology they have developed for handheld devices. In the not-too-distant future, phones linked to the web will come loaded with technology that can recognise buildings, tell you what’s on the menu at a restaurant, even how many seats are available.

No doubt Apple, too, will be working on similar technology. No points for guessing who will make it look cooler. It’s already happened in another area.

Microsoft has been working on touch-screen technology for years. In a side room at the meeting the company was demonstrating Microsoft Surface — a touch-screen table they claim is so robust that people have danced on the one in the Rio hotel in Las Vegas. But it’s still Apple not Microsoft that gets the accolades for being the first to take the technology mainstream.

In a memo to the troops ahead of the analysts’ meeting, Ballmer wrote: “In the competition between PCs and Macs, we outsell Apple 30 to 1. But there is no doubt that Apple is thriving. Why? Because they are good at providing an experience that is narrow but complete, while our commitment to choice often comes with some compromises to the end-to-end experience.”

Off the record, Microsoft executives are gearing up for a tougher fight with “the fruit company”, as one disparagingly called it. A new advertising campaign is in the works and early signs are that it will cast Apple as a niche player — the indie kid, cool but awkward to hang around with.

As Microsoft enters an awkward middle age, it’s starting to throw its weight around again. Now Ballmer has to convince the world he knows what to do with all that muscle.

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