Customers are in "a real tight jam" because of the sagging economy, Ballmer said. "But customers still want to do more. The challenge is not just cost reduction. The challenge is for people to be able to do more with less."
Bring in Windows Server 2003, a major new release of Microsoft's operating system software for server computers, launched at many events around the world yesterday (24 April).
"This is one of the most significant pieces of work we have ever done and certainly the most significant piece of work we have done in terms of IT professionals and the datacentre," Ballmer said, speaking in San Francisco.
In his trademark style, Ballmer summed up enhancements to reliability, manageability, scalability, information sharing and collaboration in the new server software. Addressing a key area and a long time Microsoft weakness, Ballmer said, "security is tattooed on our brains".
Windows Server 2003 has undergone code reviews, includes a new software update service and comes with a newly built IIS (Internet Information Server) web server, among other security enhancements. IIS is one of the most vulnerable parts of previous Windows server versions.
"I can't say there will be no [security] issues; there will be fewer issues and we have built better technologies to help you respond to the issues that do in fact come about," Ballmer said.
The Microsoft executive also made a pitch to Windows NT 4 users to upgrade. Windows Server 2003 reduces downtime by a factor of eight over Windows NT 4 and offers double the performance, among other advantages, he said.
More than a third of Microsoft's server installed base still consists of systems running NT 4.0, despite the supplier's efforts to get users to upgrade, research firm IDC said recently.
Windows Server 2003 is "an order of magnitude" more reliable than Windows Server 2002, according to analysis firm the Yankee Group, which calls 2003 a "banner year for Microsoft and its corporate customers" with a raft of major new product introductions.
Later this year the company plans to introduce Office 2003. Microsoft also launched Visual Studio .net 2003 and a 64-bit version of SQL Server Enterprise Edition, its database.
However, with corporate buyers curtailing spending, Microsoft has to make the case that Windows Server 2003 is worth expending funds on, said Rob Helm, research director at Directions on Microsoft, an independent research firm focused on Microsoft strategy and technology. Reliability and security are important parts of that case, he said.
"Windows Server 2003 has gone through a more rigorous development process. And just the fact that some features are turned off out of the box make it a harder product to attack," Helm said.
Combined with Intel processors and computers built by suppliers such as Unisys, Windows Server 2003 presents tough competition for Unix server supplier Sun Microsystems, according to Helm.
"It gives Microsoft a very big stick to beat Sun with," Helm said. "Microsoft and its hardware partners can go after very large scale server deployments. Windows Server 2003 alone does not change the competitive landscape. Along with trends in the hardware market it could have some serious impact on competing server vendors."
Even with all the enhancements, adoption of Windows Server 2003 will not be dramatic, said Chris Le Tocq, an analyst with Guernsey Research.
"This is replacing Windows 2000, which has been shipping in various iterations for about four years. One of the things with adoption especially of a server operating system is that corporations don't change quickly. For a lot of people Windows 2000 is now a known quantity," he said.
Le Tocq expects slow but steady adoption, with most users signing on because they buy new hardware. In the short term between 6% and 7% of newly sold servers will likely come with the Windows operating system.
The Yankee Group in a recent survey of 1,000 current Windows server users found that 34% of current users plan to switch, and of those 37% hope to do so in the coming 12 months.