When Microsoft Corp. (NASDAQ: MSFT) CEO Steve Ballmer speaks, dissecting his words can sometimes take a while. The brash but successful CEO sometimes says things that demonstrate arrogance or a misunderstanding of certain markets, but generally he's right on target. Ballmer recently stated that Microsoft's mantra is "staying ahead" in the constantly changing disruptions in the software business.

Now, the "software business" can be defined differently than it was even six years ago. Companies like salesforce.com, inc. (NYSE: CRM) and Google Inc. (NASDAQ: GOOG) have taken software applications out of computers and put them on the web. All that is needed is an Internet connection and a web browser -- no software updates or service packs needed -- ever. Is that what Ballmer is talking about? Perhaps. The handpicked successor to Bill Gates -- Ray Ozzie -- will have a plate higher than almost anyone in the world soon (like, now) as Microsoft tries to catch up in the world where "software" is increasingly being deployed via the Internet.

Do IT departments embrace change? Ballmer doesn't think so, as he sees them building non-disruptive competencies around what business needs are (and will be). If this enough? In a world full of change, this can be a disaster waiting to happen. With Microsoft spending around $6 billion per fiscal year in the R&D field, what can the software giant do to unplug that kind of thinking? Ballmer says that, "there is a view that innovation happens overnight and that's simply not the case. It took us eight to 10 years to get Windows popular, and many years to get databases popular." This is true -- but it's a different world now where CDs aren't used for software distribution and database development happens way, way outside the customer facility. Innovation happening overnight? That is the new ballgame, Steve.

If you follow Microsoft's (NASDAQ: MSFT) Ray Ozzie, you know that the guy is secretive, soft-spoken and is a master of getting things done behind the scenes without drawing too much competitive oversight from the industry. What has he delivered for the world's largest software maker? So far, Ozzie has been long on vision and planning, but the fruits of all that labor are still in the middling stage.

Don't expect that stage to remain the same forever, though. Ozzie appears to have the wherewithal to ensure Microsoft morphs from a software company to an Internet services company (in some form) as the days of locally-installed software decline and the days of network-based computing rise. The first sign of this is Google (NASDAQ: GOOG), which lives entirely (for the most part) inside a web browser -- no software needed. There are outsiders like Google Earth and Google Desktop, sure. But, Google's entire revenue base comes from customers "inside the browser", not working on installed desktop software.

It's true that Microsoft is not yet an advertising-supported business (like Google), and its strides to get there are taking baby steps in my opinion. It's far behind the competition here, but it will get better most likely. Meanwhile, Ozzie's belief that the industry is changing from software to services is already being exemplified by companies like Amazon (NASDAQ: AMZN) and eBay (NASDAQ: EBAY). Microsoft's sluggishness in moving toward an ad-supported business model (for consumers, anyway) can be attributed to its fixation on its massive on-premises software business.

Can Microsoft successfully make the transition from software company to "software services" company along with receiving a portion of its revenue from advertising? The company has a long way to go and massive changes are needed in its business model. Ozzie, though, is probably the best person to transform the software giant.

Disclosure: I own MSFT shares as of 5-2-07

Here we are waiting for Microsoft's second quarter earnings webcast/conference call to start. To get a primer, visit the preview post from last week to see what the analysts are expecting to this afternoon's results.

All times below are in Eastern Standard Time (EST). Remember to hit the "Refresh" button on your browser every few minutes, since I'll be updating this post every few minutes or so.

Here we go!

5:31pm -- on hold waiting for the call to start. Diddle dee, diddle dum...

5:32pm -- here we go -- $12.54 billion in revenue for the quarter ended 12-31-06. This is a record for Microsoft for a quarter. I wonder if the xbox 360 had anything to do with this (heh). Let's press forward...

Microsoft CEO Steve Ballmer can't get no love. His famous "monkey boy" performance is crazy-popular among those who thrive on poking fun at (and re-mixing) Ballmer's sweaty antics. He's being marginalized as Ray Ozzie and Craig Mundie are groomed to replace Gates (and, we imagine, Ballmer as well) -- and reporters and analysts are jostling to get past him and talk to Ozzie, who everyone seems to adore.

Now the worst possible judgment, from Business 2.0 Magazine. He just doesn't matter. And what's more: he matters less than anyone in business. Ouch.

In conjunction with the mag's "50 Who Matter Now" list (featuring Ray Ozzie and competitive leaders Steve Jobs, Larry Page and Sergey Brin, and worst of all for Ballmer's ego, Bill Gates himself), Ballmer headlines the "10 People Who Don't Matter" segment. "Let's face it: The head of the world's biggest software company is a lame duck," the judgment begins.

A lame duck who decides what happens with billions of investors' -- of your -- cash. Somehow, that's not very comforting.

I predict that, for the rest of the summer, all news of Microsoft, Inc. will be tinged by the impending departure of Bill Gates from day-to-day operations. Who will take his mantle? Who else will leave? And, grandly, what will be his legacy?

Steve Hamm of BusinessWeek wonders, will Gates be remembered for his innovations and good works, or for his anti-competitive "bare-knuckle tactics"? Hamm's conclusion seems to be that Gates deserves the Carnegie legacy (as opposed to Rockefeller) thanks to the thousands of millionaires he minted and the great works he's already begun to do with his foundation.

Evidently, the legacy didn't look great to investors (or maybe they're just still smarting over Google's success in capturing Adobe's heart, an obvious snub of Microsoft in favor of the company's oogly rival), as the stock was down 20 cents to $22.88.

Evidently, investors were feeling good about Microsoft's future today, after concerns late last week. Maybe it was the new version of Messenger released today. Maybe it was general warm-and-fuzzies over the prospects of leaders like Ray Ozzie, who will inherit much of Bill Gates' technology leadership (and, if Ray's listening to Steve Gillmor's advice, he will "seize control of the company alongside Steve Ballmer, not as a greater of equals with Craig Mundie"). Either way the stock was up over 2%, or 45 cents, to $22.55.

MSN Messenger has been renamed along with so many other properties under the "MSN" moniker, to "Windows Live Messenger." While I don't love this focus on the "live"-ness of everything Microsoft (as opposed to the dead messenger? We all know that instant messenger programs do get people in the flesh, it seems so redundant to have to mention that), people seem excited about the new product.

Oddly, though, the "live" debut seems to have hit a snafu ... users are reporting a "coming soon" page where the press release points to a download.

What is Microsoft's largest challenge these days? Google? Yahoo!? Open-source software? Its own fumblings? All of those partially contribute to the equation. But the larger picture says that Microsoft's ability to grow, using any and all methods that can sustain the company long-term, is its biggest challenge. So, how does old Softie go about growing? That is the billion-dollar question.

Does Bill Gates' recent decision to leave day-to-day responsibilities at Microsoft reflect that he knows growth from a well-planned changing of the guard is needed? Probably so. Blogging Stocks' Peter Cohan's post paints a good view of what is coming to Microsoft if it wants to reward itself and shareholders by ensuring growth and the most cohesive corporate strategy comes to fruition -- perhaps it can survive better and compete at the needed pace by divesting itself into separate entities.

It's odd that a seemingly-simple information conduit like the web browser could turn out to be Microsoft's greatest fear -- how can it grow to bypass the need for equitable and freely-accessible information and applications that live on the web and not on the PC? Sun Microsystems' former CEO Scott McNealy, although chided constantly at the company he founded for not growing at a rapid pace like the competition, was quite prophetic years ago by proclaiming that "the network is the computer."

This is a mantra that current CEO Jonathan Schwartz still trumpets to this day. Perhaps McNealy will get the last laugh over Bill Gates after all -- or maybe not. Microsoft doesn't want this network computing consumer trajectory just yet. That is, not until it can develop and deliver an infrastructure to compete on that layer -- something Google just can't stop doing. Ray Ozzie has a monumental task ahead.

Microsoft's stock price hasn't moved much since 2002 and Bill Gates signaled he's ready for a leadership makeover. The winner for that challenge is Ray Ozzie, who joined Microsoft just a year ago after his company, Groove Networks, was bought by Microsoft.  In just one year's time he's proved his value to Microsoft and is slated to lead Microsoft's strategic thinking efforts for new software development.

Ozzie will webify everything -- finding ways to weave Microsoft's entire product line into the power of the Internet.  "Everything we do should have a presence on the Web," Ozzie told Fortune magazine.

Microsoft started its march to the Web last November when it launched Windows Live, which includes a search service, news and e-mail to compete directly with Google and Yahoo.