"People ask, 'Are we in the early part of the technology cycle or in the later part?'" Ballmer said. "If you really look at fundamental ease-of-use issues and the availability of broadband, we are still so far from what this industry can realize."
Ballmer's remarks came in a keynote address at the Streaming Media West conference here, where Microsoft and rival streaming companies are showcasing new products this week.
In an hour-long keynote titled "Digital Media...Everywhere," Ballmer offered a peek at Microsoft's streaming media workshop, showing off newly released technology--including a demonstration of the company's upcoming Whistler operating system--and discussing some projects due next year.
Microsoft has targeted multimedia and Internet streaming as key technologies for extending the reach of its Windows family of server and PC operating systems, engaging in a bitter standards battle with market leader RealNetworks.
Ballmer pumps digital media
Steve Ballmer, CEO, Microsoft
RealNetworks responded to the presentation by saying that the company's claims are unproven in real-world applications.
"Their press releases are long on rhetoric touting CD- and DVD-quality playback, but suspiciously short on any independent, third-party substantiation to verify their claims," RealNetworks representative Erika Schaffer wrote in an email.
She added that Microsoft trails RealNetworks in offering infrastructure improvements that are needed to deliver quality audio and video over the Internet. She pointed to RealSystem iQ--a data-delivery network that RealNetworks unveiled Monday--as an example of the kind of technology that is needed to take streaming to the next level.
"Microsoft overlooks the fact that media delivery is not simply about codecs," she said, referring to formulas such as Windows Media that compress audio and video files into a usable size. "It's about end-to-end delivery over a vast and complicated network."
RealNetworks says its new iQ server handles network congestion more effectively and allows content to be beamed into networks via satellite. In addition, RealNetworks' Real Broadcast Network in November unveiled a radio broadcast service that allows terrestrial stations to stream their broadcasts online.
Picture and sound quality remain significant challenges for streaming companies, as many consumers do not have access to the high-speed connections necessary to deliver such rich media.
"Depending on who you ask, it will either take five or 10 years" for streaming media to take off, said Stuart Sheldon, publisher of Streamingmedia.com. "Who's got five to 10 years? We have to make profits now. What we've learned this past year is that simply taking audio and video and putting it on the Internet is not the way to go."
In his speech, Ballmer acknowledged that most people don't experience the same crisp sound and video displayed in the demonstration, mainly because they lack access to high-speed connections.
"I can't get DSL in my neighborhood," he said, drawing a chuckle from the audience. "And I don't live in a rural area...It's a reasonably affluent" region.
Ballmer also had his staff demonstrate multimedia features on its upcoming Whistler operating system, as well as several wireless devices.
A service offered in Japan with NTT DoCoMo uses Microsoft's software to play music and video clips on a cell phone device dubbed Eggy. The flat, silver gadget showed an anchorwoman delivering the latest news on the small screen. A small, rotating video camera on the device also lets people record personal greetings to send to friends.
The demonstrations and announcements seemed to provide an uplifting note for an industry that has suffered some setbacks in the last year.
Companies that were in the business of delivering movies through the Internet using streaming media, such as Pop.com, Pseudo.com and Digital Media Entertainment, flopped before they were able to establish themselves in the market.
After Ballmer's keynote, Streamingmedia.com's Sheldon said he felt "comforted" by the direction streaming media is going.
"We're at ground zero, and we're poised to thrive," he said.
Yahoo co-founder Jerry Yang is expected to speak Wednesday at the trade show at the San Jose Convention Center.