"We are in the midst of an IT rebound in the Europe, Middle East and Africa (EMEA) region," said IDC analyst Thomas Vavra, kicking off Microsoft's Executive Partner Summit in Lisbon this week. "And software is the most dynamic subset of the IT market in EMEA."
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In Europe, Microsoft has set its sights on the lion's share of the small and medium-sized enterprise (SME) market, aiming to sell both Windows OS and new business applications.
The region holds some of the emerging markets where Microsoft sees big potential for growth. "We are focused on emerging markets - in Asia, Russia, Africa we see an explosion [of opportunities]," Microsoft chief executive Steve Ballmer said.
"I want you to know that I'm committed to the partner model and I have a fundamental optimism about the business," Ballmer said.
And Microsoft's success so far in the SME market has apparently made it a necessary partner for some European IT services companies.
Business applications represent a lucrative opportunity for both Microsoft and its partners, Ballmer said.
Microsoft plans to target the market with business intelligence, supply-chain management, customer resource management and enterprise resource management tools, Ballmer said.
While personal productivity was the mantra of the past, business productivity would be the next big boom in software, he added.
Office software will serve as a gateway to other applications, he siad, referring in passing to an upcoming demonstration with Siebel in which a CRM application will be accessed from Outlook.
But while Ballmer highlighted exciting new areas of growth, the company is still clearly concerned about addressing the growing popularity of Linux, especially in Europe's public sector.
Some partners asked Ballmer how to deal with competition from Sun's StarOffice alternative. "Write me - we'll send in the cavalry," he replied.
Microsoft's general manager for platform strategy, Martin Taylor, was working to allay those fears. He said that Microsoft "was really trying to understand the trajectory of Linux", and had set up a Linux research and development lab at its Redmond headquarters.
While the company's initial response to the open source threat was "denial" then "an emotional reaction" he said that the company was now taking a rational approach and trying to better understand Linux and learn from it.
On security matters Microsoft is also trying to take a more measured approach and, according to company executives, it is paying off. Ballmer said he believes the situation is improved.
"I really feel that we've made a year of progress but I know that we are not where we want to be or where you need us to be [on security]," Ballmer told summit partners.
Notably absent from Ballmer's address was any mention of the EC ruling last March that Microsoft had abused its dominance in the PC operating systems market to gain advantage in related markets, such as media player software.
The company has asked for a suspension of the penalties pending an appeal. Ballmer said he had not discussed the possibility of being denied a suspension with partners, and none had asked about it.
Scarlet Pruitt writes for IDG News Service