Never one to let an opportunity pass to tweak a competitor, Microsoft CEO Steve Ballmer got off a few zingers at long-time rival Apple at the software giant’s analyst meeting on Thursday.

“Share versus Apple, you know, we think we may have ticked up a little tick, but when you get right down to it, it’s a rounding error,” he said. “Apple’s share change, plus or minus from ours, they took a little share a couple quarters, we took share back a couple quarters. But Apple’s share globally cost us nothing. Now, hopefully, we will take share back from Apple, but you know, Apple still only sells about 10 million PCs, so it is a limited opportunity.”

Shipments of Apple’s Mac PCs rose 4 percent in the June quarter, while the global PC market shrank 5 percent, according to Gartner.

Ballmer also touched on the advertising war that has blossomed between Microsoft and Apple, and said the Windows ads have proven to be “quite effective”:

“Starting about two years ago, I started to get the question, what’s up with the Apple ads? It was one of the few places where I had a lot of investors pushing me to spend money as opposed to constrain the spend of money. Well, those folks ultimately won.”

Microsoft, of course, also plans to open its own chain of branded branded stores, some right next door to Apple’s outlets.

Google is moving to steal Microsoft’s lunch with its plan to release a PC operating system that competes with Windows. But when Eric Schmidt and Bill Gates crossed paths in Sun Valley on Thursday, lunchtime was all pleasantries.

As Gates was walking out from one of the morning conference panels for lunch, reporters naturally surrounded him to ask for his thoughts about the new Chrome OS announced by Google this week.

Before Gates had a chance to answer though, Schmidt appeared from behind and joked “it would be better if you don’t make that comment,” provoking laughter all around.

The pair shook hands and walked off together in conversation towards the garden where lunch was being served. Since reporters weren’t allowed in, the rest of the conversation is anyone’s guess.

(Photo: Eric Schmidt and Bill Gates talk outside the Sun Valley Inn on July 9, 2009. REUTERS/Rick Wilking) 

– Eric Auchard is a Reuters columnist. The opinions expressed are his own – 
   
By Eric Auchard 

Sergey Brin eyes fellow Google co-founder Larry Page at launch of Google Chrome in Mountain View California on Sept. 2, 2008.

LONDON, July 8 (Reuters) - Google has entered the very lair of Microsoft by launching its own computer operating software.

And its strategy cleverly goes with the grain of the changes that the web is making to the way consumers use software. Time for Bill Gates and Steve Ballmer to worry. 

The web search and advertising leader is not offering a copycat product to Microsoft’s desktop workhorse. Indeed it is upending the notion of what an operating system is. Microsoft’s vision is of a self-contained system that manages every action that your computer undertakes. Google takes a minimalist view. It argues that operating software only needs to do what can’t be done externally on the web. 

By stripping the components to a minimum, Google has designed the system to be fast. It is promising that users will be able to fire up their computers and get on the web in a few seconds. 

Google’s products run on a variant of Linux operating software. The guts of Linux provide many of the classic functions of a hardware operating system, leaving Google free to focus on new features. 

Google argues that web software such as Chrome, Firefox, Apple Inc’s Safari and Opera’s eponymously named browser, can carry out many of the functions of operating software. Meanwhile active computer users spend more and more of their time using programs that either run or rely on the Web. That means they spend less and less time using programs that reside locally on the user’s own machine — the way that applications that depend on Microsoft Windows typically do. 

Of course, Microsoft software works on and with the Web as well. The difference is that its dominance, its historic franchise, stems from the deskbound nature of Windows, which is optimized for routing data between chips, storage and software. Essentially Google’s gamble is that applications that could once only run on local computers will reliably work on the web. 

The risk? Well the Web is not always reliable. Network connections can be slow, or nonexistent, and any functions that require frequent connections will let you down. Google has tried to work round this by allowing users to store functions offline. But it remains to be seen whether this will satisfy the busy executive needing to keep track of business performance in a spreadsheet on a long flight. 

That said, Google has little to lose and a lot to gain from making the Web work as an operating system. Its core business of selling web search advertising tends to benefit from any increase in Internet activity. And this is where Microsoft must mount its defence by offering customers hybrid software that works on both desktops and on the web. This is something it has to date stumbled to do. If this was because it didn’t want to cannibalize Windows, that time is past. 

The initial target market Google sees for the software is in netbooks, the emerging class of mini-notebook computers with built-in Internet connections. But over time, Google aims to make its operating system run full-size desktops — in direct competition to Microsoft’s core product. 

The logic that powered Microsoft to the top of the software industry is slowly, but surely, exhausting itself as the market shifts away from PC boxes where Windows holds sway and onto the Web. It is also moving beyond just PCs to web-connected mini computers known as netbooks, and to cellphones, TVs and other devices that are also being redesigned to work on the Web.

There may be some sleepless nights ahead in Seattle.

 – At the time of publication Eric Auchard did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. You can read some of Eric’s recent columns here –

(Editing by Martin Langfield )

Microsoft — ruffled by constant ridicule by Apple — launched its latest counter-punch last night with an explicit jab at its cool but expensive archrival in a prime-time ad featuring one thrifty young woman’s quest to find a 17-inch laptop for under four figures.

“Lauren”, a feisty, red-haired computer-shopper, is given $1,000 to score a laptop with a 17-inch screen, and told she can keep the change.

First stop: the Apple store. Cue disappointment. The cheapest Macbook laptop, with a 13-inch screen, is $999. Lauren consoles herself that she is “not cool enough to be a Mac person” anyway.

Next stop, Best Buy, where a plethora of Windows-powered machines are excitedly examined. She walks out with a suitable model for $699.99. “I’m a PC and I got just what I wanted,” she exclaims delightedly to the camera.

Microsoft’s reasoning is sound. They can’t acquire Apple’s fashion appeal, and pushing value over coolness will strike a chord in the recession.

But the need to respond to Apple — which still controls only a tiny fraction of the overall PC market — shows just how well the Mac has set the terms of the contest.

And Microsoft’s point is still moot. What if Lauren has to take the laptop back in six months because it goes too slow and has a virus?

Thinking of going straight from your trusted old Windows XP to Microsoft’s new Windows 7 operating system, bypassing the poorly received Vista?

Not so fast, Microsoft warned its corporate customers in a blog today.

“We know some of our customers are considering waiting for Windows 7 instead of deploying Windows Vista today,” says Windows senior product director Gavriella Schuster in the blog. “We want these customers to understand the following considerations, so they are not surprised later on.”

Leapfrogging Vista could mean falling into a hole where applications are no longer supported on XP but not yet supported on Windows 7, she warns.  

And it could be a while before Windows 7 is ready for corporate customers. The beta version of the operating system was made available for public download only last month, and Microsoft won’t commit to any firm roll-out date beyond its broad target of early 2010.

That means corporations, which typically take at least 12-18 months to switch to a new operating system, could be looking at a five-year gap between Vista and Windows 7, and even longer for older operating systems.

Schuster doesn’t say you can’t go straight from XP to Windows 7, but the migration will be easier if you introduce Vista first.

“Our customers who focus efforts in getting their applications to work on Windows Vista will ease future migration to Windows 7 and help accelerate their Windows 7 deployment,” says Shuster.

It will also help lackluster sales of Vista. Don’t say she didn’t warn you.

Google has decided its Chrome Web browser is all grown up-or. Or at least it has outgrown its beta label.

Google launched its fifteenth release of Chrome on Thursday morning, marking the browser’s first step outside the test phase. After absorbing 101 days of user feedback, Google says the latest version is equipped with improved audio and video performance, bookmark features and privacy controls.

Google tests show Chrome runs 1.5 times faster than when the browser first launched in September, according to a Google spokesperson.

Chrome is Google’s head-on challenge to Apple’s Safari, Mozilla’s Firefox and, of course, Microsoft’s juggernaut Internet Explorer, which has over 70 percent of the browser market. Chrome has 10 million active users world wide, according to Google.

If you’re a Mac user, you’ll still have to wait to use Chrome (or snag one of your friends’ Windows-supported laptops in the meantime), which makes it curious that Google took Chrome out of its beta phase so soon. The Internet giant is working hard to release a Mac and Linux version of Chrome as soon as possible, according to the Google spokesperson.

It’s still unclear if Chrome has the heft to overcome its rivals, but the browser is off to a good start as it took 1 percent of the global browser market within a day of its launch, according to Web traffic analysis company StatCounter. Chrome is likely to get a boost in traffic once its Mac version is released.

Now that Chrome is out of its beta phase, do you think it will threaten Microsoft’s dominance in the browser market? And, most importantly, will you switch from your current browser to Chrome?

(Reporting by Jennifer Martinez)

Look out nerdy-cool Apple guy, the empire is striking back. And it’s got Eva Longoria Parker, Tony Parker, Pharrell Williams and Deepak Chopra on its side.

Microsoft is launching (another) new commercial campaign Thursday night. It takes aim at Apple’s “Mac vs. PC” campaign that has portrayed personal computers running Windows as clunky and uncool.

The commercial starts with a real-life Windows engineer who looks eerily similar to John Hodgman (the comedian who plays the role of “PC” in Apple’s commercials), saying “I’m a PC and I’ve been made into a stereotype.” After that is a montage of celebs and normal folk, saying “I’m a PC.”   Microsoft co-founder Bill Gates, along with the aforementioned celebrities, makes an appearance in the ad.

The new commercial is easier to understand than the first series of ads from Microsoft that featured comedian Jerry Seinfeld. Microsoft said the Seinfeld ads were meant to be an “ice breaker” and get people taking about the company and Windows. (Although it could be argued that there was already a conversation about Windows, just not the one the company wanted.)

Microsoft Senior Vice President Mich Matthews , who heads up the company’s marketing efforts, said  the goal of the $300 million advertising push is to “take back the PC brand” and its new commercial is meant as a “bear hug” to the PC stereotype being defined by its competitors.

The television commercials will also be joined by billboard, online and newspaper ads pushing the theme of “Windows vs. Walls” — the concept that Windows allows for a life without walls.

Update: here is the ad.