In addition, Ballmer called for $1 billion in cost cutting and tighter controls on the company's expenses.
Ballmer said that one way to make Microsoft products more useful is to offer more tailored versions of its main products. The company has already expanded the number of versions of Office and is also working to offer more specialized versions of Windows Server, such as a forthcoming version for high-end computing.
"We must also work to change a number of customer perceptions, including the views that older versions of Office and Windows are good enough, and that Microsoft is not sufficiently focused on security," Ballmer wrote in a wide-ranging memo to employees, a missive that has become something of an annual tradition as Microsoft starts its new fiscal year.
In the memo, Ballmer also addressed employee morale, competition with Linux and the long road to Longhorn, the next version of Windows that's now due in 2006.
"We have a lot of hard work yet to do on Longhorn to deliver the right capability," Ballmer wrote in the e-mail, noting that the company has pushed back Longhorn and moved forward other products "so we can take the time to get it right."
"Longhorn is a significant step forward, and between now and then we have Tablet, digital media, security innovations in Windows XP SP2, and new Office capabilities to amaze customers," Ballmer wrote.
"We have a lot of hard work yet to do on Longhorn to deliver the right capability."
The opportunity in the PC market remains strong, Ballmer said, adding that he believes the number of PC users worldwide will reach 1 billion by 2010, up from 600 million, led by growth in emerging markets.
While touting the fact that the company has settled many of its legal issues, Ballmer also called on workers to fight hard in the marketplace.
"We must continue to compete as relentlessly as ever, while also reflecting our industry leadership responsibilities," Ballmer wrote. He said the latest server operating system is capable of taking on the open-source operating system Linux for any task.
"With Windows Server 2003, we can compete for every commercial workload running on Linux or Unix today--even mainframes and high-performance computing--at lower cost, more efficiently and more reliably," he wrote.
Looking for a little more love
Ballmer also pointed to the company's "Get the Facts" campaign, which uses third-party studies to show Windows cost-competitiveness, as a model for the rest of the company.
"We are effectively using independent studies by Forrester Research, the Yankee Group, IDC, Giga, Bearing Point and many others to change perceptions of the advantages of Windows over Linux when it comes to Total Cost of Ownership, functionality and productivity advantages, support and security," Ballmer wrote. "We need to do work like this in every business to get customers to recognize our work and appreciate it fully."
Microsoft's CEO also used the message to address morale issues that had come up, in part, as a result of the company's decision to cut certain benefits, including the discount offered to employees when they purchase Microsoft stock.
"We considered and rejected more substantial changes, based on employee input," Ballmer wrote, adding that the company's cost per employee will still rise 6 percent this year, spurred by skyrocketing health-care costs. Microsoft plans to cut $1 billion in expenses in the current fiscal year, which began last week.
Ballmer did promise that employees would get raises "consistent with inflation" and that as many as a fifth of employees will get promotions this year.
"Some employees have asked why we can’t use some of our $56 billion in cash to avoid making the benefits changes," Ballmer wrote. "Using the cash reduces profits, which reduces the stock price. The cash is shareholders’ money, so we need to either invest in new opportunities or return it to them."
The company has promised to outline a plan for that cash at or before a meeting with financial analysts at the end of this month.
Finally, Ballmer hinted at some other internal efforts, including ways to get more productivity from its sales force and a better method for predicting its revenue. He wrote that the company has had to add structure as it has grown, but added that it is trying to avoid becoming a bureaucracy. That said, he wrote that the company must work to limit the reorganizations that have become common in recent years.
"We need to reduce churn (e.g., org. structure, people and strategy changes) and its impact on productivity, accountability and execution, and do a better job of executing well when change is necessary," he wrote.
