The early part of the discussion focused on Microsoft’s views on web based software offerings from companies like Google and Salesforce. Ballmer says apps don’t really belong solely on the client or in the cloud, but rather a “software plus services” approach that distributes processing and storage across the cloud and the local machine or device. This hybrid approach, known as Windows Live Wave 3, is being rolled out now and major announcements will be made at the upcoming Microsoft PDC conference in Los Angeles. Windows 7 will also be available for the first time at the PDC.

Ballmer also talked about Microsoft’s only money-losing business unit - online. He admits the company is a distant third in search, but claims second in “advertising software.” He says he remains committed to finding a way to win in search, and in fact says that Microsoft is the only company in a position today to compete with Google in search. He reiterated that they would continue to commit 5-10% of total operating cash flow for the foreseeable future to try to gain search share.