To hear CEO Steve Ballmer tell it, the biggest challenges facing Microsoft Corp. next year wont come from headline-grabbing issues such as improving security or meeting the rash of "Longhorn" product deadlines.
What keeps the Redmond, Wash., software makers charismatic leader up at night is, he says, a growing resolve to compete with search specialists such as Google Inc. and Yahoo Inc.
"I dont underestimate that [it] is going to be very hard, and we are very focused," said Ballmer, who added that the search technology leaders are helping shape the future of the tech industry. "The thing that is going to be the hardest to make progress on will be to take market share from Google and Yahoo."
In a wide-ranging interview with eWEEK at Microsofts Worldwide Partner Conference here earlier this month, Ballmer suggested that his company has lagged in rolling out state-of-the-art search technology and is now having to play catch-up.
The effort could prove even more difficult than competing with IBM or taking market share from Microsofts chief Linux competitors, such as Red Hat Inc. and Novell Inc., over the next 12 months, he said.
"When you talk about our greatest competitors, you have to look at those companies doing things to change the future," Ballmer said. "We just launched our own search product with our own search technologies some months ago, and we are in the game."
While the push to compete in the search arena could occupy much of Microsofts attention over the next 12 months, the potential benefit justifies the effort, according to partners and customers.
Doing nothing, they say, could jeopardize Microsofts dominant position in other areas.
"Google owns search. They have turned it into a real cash cow. Microsoft has not found the formula to beat Google yet. It would be my guess that Google is looking to go after Microsofts underbelly," said an enterprise sales manager at a Microsoft partner, who requested anonymity.
"Google [could] attempt to provide Microsoft Office services over the Web, starting with e-mail. Googles strategy will be to kill Microsofts crown jewel. Would enterprises be willing to farm out e-mail to Google? I think there is a real market for that. Will Google succeed? That depends on the strength of the services and business models," the manager said.
Microsoft is committed to a few unifying technologies that "we all get behind," Ballmer said. "Were all behind our SharePoint technology. Were all trying to get programmability based around .Net and ASP .Net, so thats an important unifying technology; and were trying to make Office the universal front end to data. These are core unifying technologies across the product line," he added.
Innovation and execution aside, the company will be vigorous about improving its agility, he added. "I dont know that a big company is less agile than a small one, but you do probably have to work harder to keep a big company agile," he said.
In addition to Google and Yahoo, Ballmer still counts the open-source Linux operating system among the most significant challengers Microsoft faces.
The Microsoft chief executive said he believes that the religious war between Linux and Windows is over and the battle now is about which offers customers the best technology solution.
Conceding that Linux holds the upper hand in areas such as Web hosting, Ballmer stressed that Microsoft is doing all it can to change that.
"I think we have better solutions for most workloads than Linux. Were not the leader in Web hosting, and so that is one area we are after hard, and we have our best innovators and thinkers and sales and marketing people really working on it," he said.
Asked if he is concerned about the gains that Linux has made, especially in the enterprise, Ballmer said Linux has not gained much share in the enterprise other than for Web hosting and HPC (high-performance computing). "They certainly havent gained at our expense. I am not worrying; Im focusing," he said.
David Robert, a systems manager for a global consulting and engineering company in Cambridge, Mass., agreed that while Web hosting and HPC are "the two hot spots for Linux right now," Linux may also have an edge in specialized hardware devices, where the Linux microkernel is being used for device control. "Some folks also use Linux for file storage, DNS [Domain Name System], a firewall or basic router," Robert said.
Microsoft also does not lead the market for Transaction Processing Performance Council workloads, virtualized servers, scripting platforms, open document formats, heterogeneous computing or technical workstations.
"If Linux hadnt made an appearance, many firms would have shifted to Windows on x86 to shave costs," said Con Zymaris, CEO of Cybersource Pty. Ltd., a Linux and open-source solutions company in Melbourne, Australia. "The most dramatic impact has been that Linux has limited the growth of Windows Server ."