Gates, Ballmer and Tech Oh My!

CNBC

All Things Digital

The D: All Things Digital Conference kicked off here in Carlsbad, Calif. with the keynote talk from Bill Gates and Steve Ballmer.

A poignant get-together since Gates will leave the day-to-day job at Microsoft at the end of next month, and timely since Microsoft continues to try to strike some kind of deal with Yahoo to take on rival Google .

The formal talk was great, but the cocktail hour beforehand was almost surreal: Steve Case, Barry Diller, Jeff Bezos, Mark Zuckerberg, Blake Krikorian, Ann Winblad: you name the tech industry luminary and chances are he or she was wandering about.

Gates and Ballmer started with a trip down memory lane, talking about one of the tech industry's most enduring and successful relationships, stretching back 28 years. And it was an opportunity Ballmer almost missed out, thanks to the subtle recruitment strategy by Gates.

"This is a classic," says Ballmer. "I get this phone call. I'm living for like $100 bucks a month in downtown Palo Alto in a flea ridden room, and I pick up the phone, it's Bill, he says 'Hey! Gosh, what are you doing?' I go, I'm still in school. 'Oh God, too bad. Too bad you don' have a twin brother or something, we could really use something.' The guy just didn't come out and say it. 'Well, too bad, too bad.' Hung up. That was the sales call!"

The two obviously did hook up eventually and together created the world's most profitable tech company.

Today, Microsoft faces enormous challenges, not the least of which is trying to come up with a winning strategy against Google, against Apple , against a host of new and nimble competitors. I asked Gates whether he supported Ballmer's initiative to buy Yahoo, and he told me absolutely. Completely. I asked Ballmer whether he was frustrated that talks had fallen apart so close to striking a deal.

He told me no, that it was just business, that he wasn't frustrated at all, and that he continues to seek a partnership with Yahoo instead of a total buy-out.

Though he wouldn't rule out the possibility that a total deal could still get done. And that it was important Microsoft play a role in online advertising so the market isn't at the whim of a monopoly. The audience erupted in laughter over the seeming irony there.

An interesting exchange also included Microsoft's ability to compete with Apple. Ballmer and Gates acknowledged Apple's growth and market penetration in both computers and smart phones, but Ballmer dismissed the company's overall marketshare with a flick of the hand. Apple ships 8 million Macs a year; Microsoft enabled computers will top 290 million units, he says. Same with smart phones: Nokia is number 1, Microsoft is number 2, Research in Motion is number 3 and Apple is still a distant fourth, shipping four times fewer smart phones than Microsoft Mobile enabled devices.

Sure Apple's growth rates are staggering next to Microsoft's, but scale is important, both Gates and Ballmer say, and Apple still has a long, long way to go.

Microsoft did show off a snippet of Windows7, the Vista successor, still 18 months out, but featuring new multi-touch technology. Nifty, but Apple's already made a splash with touch-technology on the iPhone, so it was hard to get excited about that.

I thought it was interesting that both Gates and Ballmer conceded that Vista has suffered its fair share of criticism, that with 20/20 hindsight, the company would have done a few things differently when it comes to compatibility issues.

When co-moderator Walt Mossberg kept pressing this, through the 90 minute presentation, Gates appeared to get a little frustrated, telling Walt that he was repeating himself.

No earth-shattering headlines, but plenty of themes that play big through Microsoft's past, present and just about the entire tech industry's future.

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