Ballmer, speaking at the company's annual meeting for financial analysts here, said the combination of Internet technologies, the Java programming language, database-driven application development, and growth in use of the Linux operating system is threatening Microsoft's ability to attract programmers to Windows.
The variety of options available to developers could "suck away" interest in the various forms of Windows, Ballmer said.
The comments by Ballmer are also tacit admission by Microsoft that the computing world is no longer just about PCs. Handhelds, set-top boxes, and other non-PC devices are growing in popularity and represent threats to Microsoft's dominance.
The company has even crafted a new motto to replace the "A computer on every desk and in every home" tag line devised by chairman Bill Gates nearly 25 years ago. The new motto, "Empower people through great software anytime, anyplace and on any device" reflects the depth of Microsoft's concern over new competitive threats.
"Microsoft is good at thinking about its competitors very broadly and very seriously," said Gates in a meeting with reporters here.
The admission comes in the context of the company's ongoing legal woes. Engaged in a high-profile federal antitrust trial, Microsoft's alleged anti-competitive practices are the centerpiece of the government's case, but the company claims that the software industry is rife with formidable foes. "We have more competitive challenges than we ever have before," he insisted.
Regardless, attracting and retaining software developers is vital to any given operating system. An operating system that lacks "third party" software is unlikely to appeal to consumers or corporate buyers.
Various industry trends have made it more likely that a software program which runs on Windows, for instance, may also be developed to run on an alternative operating system, or "platform," according to the company's boisterous executive.
With the growth of the Internet, a new wave of development technologies has expanded the potential options at a programmer's disposal. Though Microsoft has embraced the Internet as a central component of its business, the very nature of the medium and the associated technologies it has wrought means that the company may have less control over its massive stable of Windows developers than in the past, Ballmer noted.
"We do have lots of competition for developers," said Ballmer. "Every one of those things is a legitimate competitor."
The company claims to have 1 million programmers currently signed up for its developer program.
Addressing the growing amount of development done for the Linux operating system, a so-called open source platform that incorporates the work of volunteers developers worldwide, Ballmer termed the phenomenon "scary." The Unix community had previously chosen not to take full advantage of the proliferation of PCs to further its share of the software market, but Linux--a Unix derivative--has pushed into PCs and other devices.
Ballmer also characterized the free-form Linux community as "somewhat crazy," but said Microsoft now has "a real server competitor."
The industry veteran said the last time the company has faced so much competition followed Microsoft's well-known split with IBM in the early 1990s, when Big Blue chose to devote its resources to the development of the OS/2 operating system, while Microsoft decided to focus on what would become Windows NT. Because of that decision, Microsoft scrambled to license its Windows operating system to third parties like Compaq Computer, a turn of events that gave rise to the PC explosion.
Though IBM retains a significant base of customers using OS/2 to this day, it is dwarfed by the wide adoption of Windows, currently installed in nine out of ten PCs shipped by third-party computer makers.
Ballmer said PCs remain "very fundamental" despite the rising popularity of handheld and other non-PC devices, with the company expecting sales of more than 100 million new PCs in fiscal 2000. "No developer will ignore that fact," he said.
The PC will remain a "red-hot platform for developers," he emphasized.
In typical fashion, to combat the expected competition for developers, Microsoft is in the process of hiring armies of personnel to attract developers to Windows. For example, Ballmer said the firm will hire 1,000 people to go after the fast-growing line-of-business developer niche to combat gains made by competitors Oracle and Sun Microsystems.
Earlier this year at a Microsoft-sponsored developer's conference, executive vice president Paul Maritz said the company plans to increase investment "significantly" in development tools and related technologies.
Development tool investments traditionally have not yielded the high-margin profits of other business software for Microsoft or other large software producers, including Oracle and IBM. Microsoft is pouring money into the tools area, however, to spur interest and use of the company's Windows and Back Office software.
News.com's Mike Ricciuti contributed to this report from Boston.