Microsoft CEO Steve Ballmer said Monday future growth for the company hinges on continued investment that matches the company's multi-billion dollar revenue and operating income, and that the company will be very active in pumping money into eight core areas.
Those areas are: Windows on new PCs; corporate desktops; server units; small/midsize business (SMB) and consumer markets; online advertising; Xbox; Windows Mobile; and other opportunities including Zune and Surface computing devices.
Ballmer said each area could return US$750 million or more in real dollars over the next three years.
Ballmer made his comments during Microsoft's annual strategic update to financial analysts in New York and just a few days after Microsoft made a bid to acquire Yahoo for US$44.6 billion.
Ballmer said the Yahoo bid was an effort to build momentum for what he characterized as a gateway to future growth around desktops, enterprise software, online services and entertainment.
"Software is a funny thing," he said. "It does not wear out and it never gets used up. So to drive even flat performance requires innovation and investment, but to drive growth requires even more investment for the long term. We see big opportunities, but we need to make big investments, certainly on the scale of this revenue and this operating income to drive superior results."
Ballmer was referring to Microsoft's doubling of both revenue (US$51.1 billion in fiscal 2007) and operating income (US$19.7 billion, fiscal 2007) over the past five years. Ballmer said long term for him means five to 10 years out, and he contrasted that with the three years he said shareholders consider long term.
He then broke down Microsoft's eight biggest opportunities, outlining the company's strategy, investment areas and the impact from its software-plus-services initiative.
"Each of these opportunities, if we do our job right, has the potential to deliver three-quarters of a billion dollars or more of incremental contribution margin dollars over the next three years," he said. Contribution margin is the percentage of each sale that remains after variable costs are subtracted.
"And when we talk about the transformation to a world of software-plus-services, we talk about everything we do transforming to [that world]," Ballmer said. "What is the future of Windows and corporate desktop value? Each and every one of these businesses on top of a consistent platform transitions to have additional revenue and profit opportunities based on this transformation to the cloud."