"Its top priority for us to be an innovative company," Ballmer said in a keynote address at the Gartner Symposium/ITxpo here.
"If we dont innovate, we dont have new versions. Nobody needs to upgrade. Nobody needs to buy. We have to have a variety of ways to innovate…Were at the beginning of 12 months of the greatest innovation pipeline that our company has ever had."
To wit, Ballmer mentioned several upcoming releases, including version 12 of Microsoft Office and a version of Windows called Vista, both of which are due in the second half of 2006.
"I think Office 12 will be the most exciting Office release weve had since Office 4," Ballmer said.
As for Vista, Microsoft decided to retool the development of the product 14 months ago to make it more "agile," he said.
The move has sparked security concerns among Microsoft customers, according to Tom Bittman, a Gartner analyst who shared the stage with Ballmer in order to pepper him with questions.
Ballmer said that many of changes in Vistas development were designed to catch security problems early on, but he acknowledged IT managers tendency to be wary of new releases.
"Im gonna trust Vista day one, and Im assuming most of the members of the audience will trust it day one—on their home computer," he joked. "And then theyll decide."
Regarding Microsofts efforts to compete against search engine giant Google, Ballmer reiterated plans to innovate.
"How are we going to go after the search market? The good old fashioned way, with innovation," Ballmer said.
"Is there anyone who believes that the search experience isnt going to be dramatically different 10 years from now than it is today?"
Ballmer didnt spell out the companys plan for its search engine, but said the company was looking at ways to personalize a search for individual users without unduly invading their privacy.
He acknowledged that his company has its work cut out for it in the search engine market, especially in the United States.
"If you read the newspapers today, youll believe that other than curing cancer, Google will do everything," he said.
At the same time, Microsoft continues to compete against the Linux software market.
"Were coming out with a compute cluster edition of Windows server," he said. "Were seeing a lot of interest in the cluster work were doing."
That said, "The day I come to the Gartner audience and say we have a better Unix than Linux will be a very interesting day," he said. "Were not there yet. We are not winning more than were losing. And yet, were winning maybe 25 percent of the deals we engage in. We still have work to do."
Microsoft also is working to keep up with the virtualization software market, he said.
Within the next few months, the company will extend the capabilities of its virtual server platform, then extend it for the client with Vista, and then eventually include hypervisor capabilities in the Windows operating system, he said.
Ballmer said the company plans to implement a three-pronged timing strategy across most of its product lines, noting that to date, Microsoft "has not been building all its muscles evenly."
"The key is that for every business we have is to offer the things that pop every six to nine months, things that pop every couple of years, and things that pop longer than that."
As part of the keynote address, Gartner analysts played a video of attendee questions for Gartner.
The audience burst into applause when a pre-taped attendee asked how Microsoft plans to simplify its licensing processes.
The company is working on ways to streamline connections among multiple licensing agreements, he said, but he didnt expound.
He did defend the current licensing process, saying that at least its better than it used to be.
"It used to take two years of post-graduate education to understand our licensing agreements," he said. "Thats now down to ninth grade."