Ballmer Defends Microsoft Spending - 01 Jun 2006

Yesterday, in response to complaints from shareholders, Microsoft CEO Steve Ballmer said that the company's investors should be patient. He said Microsoft needs time to invest in the next generation products and technologies that will ensure the company's financial future.

"There's a lot of innovation still coming," Ballmer said at an investors conference on Wednesday. "If we don't keep Windows fresh, Windows won't continue to flourish." Beating the metaphor to death, Ballmer noted that Windows technologies, such as Internet Explorer (IE), had to be "watered periodically."

The investors' concerns stem from a recent revelation that Microsoft will spend an additional $2 billion on research and development in the next year to remain competitive. Some investors have complained that the company has too much cash on hand--some $35 billion--and should return some of that money to shareholders, as it has in the past with yearly dividend payments. Although Ballmer agreed that the cash belongs to shareholders, he said the company needs to invest in new businesses now.

He used the Xbox as an example of a good investment. If Microsoft hadn't created its own video game unit, the company would have had to buy its way into that market by purchasing an established company. For example, purchasing Nintendo would have cost more than the $4 billion Microsoft has spent on the Xbox.

Microsoft is also investing in new ways to deliver software. The traditional method of selling software in retail stores is quickly being eclipsed by digital software distribution. Microsoft competitors such as Mozilla and Google deliver their products and services almost exclusively online, bypassing the expensive retail channel that Microsoft currently wrestles with.

Ballmer also reminded investors that Windows required a decade-long investment before the company saw any returns. That same type of investment is required today to ensure the company's long-term growth, he said. "We don't want to miss big opportunities," he added. "So being a little bit more generous in research and development... is a smart thing."

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