Microsoft Head Ballmer Defends Need to Invest, Innovate

Microsoft Corp. Chief Executive Steve Ballmer told investors Wednesday to be patient as the world's largest software company spends time and money developing new products and entering new markets.

Echoing comments made earlier, Ballmer said Microsoft must invest heavily in the opportunities it sees. Even an established product like its flagship Windows operating system, which includes the Internet Explorer browser, "has to be watered periodically," Ballmer said.

"There's a lot of innovation still coming in Internet browsing and hardware," Ballmer told investors at a conference organized by Sanford C. Bernstein and Co. LLC. "If we don't keep Windows fresh, Windows will not continue to flourish."

Microsoft is currently working on new versions of its browser, Internet Explorer 7, and operating system, Windows Vista. The consumer version of Vista is expected to hit retail shelves in January.

Ballmer said the company also must enter new markets that "require big investments."

He cited the Xbox game console as one, adding that even if Microsoft incurred $4 billion in losses before starting to see gains, that's still cheaper than buying an existing game company like Nintendo Co. outright.

Other areas requiring investment, he said, include search and the delivery of software as a service over the Internet, rather than in more traditional ways such as a CD in a retail box. Both are areas in which rival Google Inc. excels.

Microsoft shares tumbled in April to a new 52-week low after the company said it planned to significantly beef up investments in many areas where it is not dominant. Analysts worried that while such investments may pay off in the long term, it could hurt more immediate financial results.

Ballmer said Wednesday the company must invest enough to be No. 1 in areas in which it is not the current leader.

"If you win, the returns come," he said. "If you are very successful, the business model works in almost all of these things."

Microsoft spent about a decade developing and fine-tuning Windows before starting to see payoffs, he said, and no investor should question that investment today.

Microsoft shares dropped 2 cents to $23.14 in morning trading Wednesday on the Nasdaq Stock Market.