What does Ballmer worry about? "Google, Google, Google"

Microsoft CEO Steve Ballmer arrived at the Consumer Electronics Show with his usual optimism but he also brought a sense of reality: The tech industry is in for some rough times.

Ballmer sat down with silicon.com's sister site CNET News.com to talk about the lessons learned from Vista, Microsoft's move to put Office on the web, and the current economic situation.

CNET News.com: Obviously, Microsoft didn't necessarily get everything it might have hoped for in terms of the critical response for Vista. What are you planning to do differently with Windows 7?
Ballmer: Well, I think we made some choices in Vista to improve security at the kind of expense, if you will, of compatibility. With Windows 7, we're able to build compatibly off of Vista and really tune the user interface, the performance, and at the end of the day, it'll be what the users think of the product that we're building, and we'll start getting beta feedback this week.

How hard are you pushing the team to get Windows 7 out this year?
I'm not pushing the team hard, the team is pushing itself. They set some goals and objectives and of course we'll ship the product when it's both right and ready and when we know when that is, we'll share that.

One of the biggest parts of the PC business that's really taken off amid a challenging time overall is the netbook segment. What has that meant for Microsoft both in terms of the technology but also from a business standpoint? How does that impact you?
Well, we've done very well on netbooks. When they first came out, I'm not sure if people knew whether they were PCs or something else, and I think everybody kind of understands now that a netbook is a small-form-factor, low-cost personal computer. And we're doing very well with Windows XP, which fits. Vista does not fit, and we're working hard to make sure Windows 7 fits very well on the netbooks.

You know, from a business perspective, low-cost machine means a little less revenue per unit to Microsoft but I think it gives us an opportunity to see expansion of the overall PC market.

Obviously, everything that you're talking about at [the Consumer Electronics Show] comes against the backdrop of a very challenging economy. What does that economy mean to Microsoft and its plans?
Well, I think there's two ways to take a look at it: First, what's going to happen to revenue in our industry? Revenue will be lower in aggregate in our industry than it would have been, and that will [affect] Microsoft, Cisco - you name the company - Intel. We'll all be affected by that.

With that said, the pace of innovation in our business will not change. The opportunity there won't change. And so the key is: how do we right-size a little bit as an industry, and that means different things to different companies to adjust to the fact that revenues will be lower. And yet at the same time, keep a strong push on the R&D that's going to power the future. And each company will discuss its plans. We're kind of in a quiet period, so I don't have much to say about that.