Microsoft CEO Steve Ballmer last Thursday emphasized the company's ambitions in search and virtualization while offering his perspective on the current nervous US economic situation.

Speaking at a Churchill Club event in California, Ballmer also dished out his perspectives on rival Apple Computer and acknowledged -- but did not detail -- a cloud computing effort dubbed Project Red Dog.

In the search space, Microsoft remains a small player but is a much larger player in software-based advertising market, Ballmer said.

"In search, we [have] got about a 9 percent share in the US" he said. It will take a while for the company to be a larger player, he said. Microsoft offers search via its Live Search site and is competing with search giant Google.

"While we have made a lot of progress, we still have a lot of work we need to do to try to fundamentally reinvent the search experience, the search business model," Ballmer said. The company has improved the core relevance of its search results and differentiated in areas such as image and news search. Microsoft, said Ballmer, may be unique in its ability to compete with Google in search and search-based advertising.

With properties such as MSN and Hotmail, the company is No. 3 in advertising-based software. "We sell over [US]$3 billion a year of advertising," Ballmer said.

Asked if Microsoft's five-year plan in search once included acquiring Yahoo, Ballmer acknowledged that this proposed acquisition, which did not come to fruition earlier this year, was likely part of the plan when he last spoke at the Churchill Club two years ago.

Ballmer also cited the newness of the virtualization market and how Microsoft sees an opportunity to democratize this space. "Numerically, virtualization is in a very early stage," with fewer than 5 percent of servers virtualized, said Ballmer.

Microsoft, he said, has had a tremendous reception to its work on the Hyper-V virtualization technology and the company's systems management platform. "I see real opportunity to bring virtualization to a much higher percentage," of the world's servers, Ballmer said.

Desktop virtualization also is possible in a number of ways to improve the desktop, he said. There could be application-level virtualization streamed to the client or virtualization at the presentation layer, for example, said Ballmer. Also, hypervisors present a technique to boost the desktop experience, he said.

Commenting on the health of the IT economy, Ballmer said the United States is harder hit than other parts of the world and the business side more impacted than the consumer market.

"Our industry is not immune to what goes on in the global economy," Ballmer said. But "people still see a certain buoyancy in the market," he said.

Nobody is quite sure how bad the fallout will be from either the credit crisis or bailouts, said Ballmer. He added that at least for now, people he talks to are feeling better than if all they did was watch CNBC.

Ballmer also noted the migration of users to the cloud. "We have an incredible pipeline of customers moving to cloud-based solutions," he said. In the SaaS space, most enterprises will use SaaS via a subscription model, while for consumers they will have a mix of advertising- and subscription-driven services, he said.

Project Red Dog, meanwhile, will be discussed at the Microsoft Professional Developers Conference in Los Angeles at the end of October, according to Ballmer and a Microsoft representative.

Ballmer cited two opportunities for improvement with certain application development spaces: scientific computing and Web workflow. Forty percent of Web servers run on Windows and 60 percent run on Linux, which means Microsoft has some work to do, said Ballmer.

He also raised questions about how well Apple could do in the enterprise. "Because Apple believes in putting hardware and software together, it doesn't believe in allowing a lot of people to make it," he said. Apple also does not invest in infrastructure to support enterprise scenarios, said Ballmer. If Microsoft does its job right, there is no real reason why Apple should get any real footprint in the enterprise, Ballmer said.

Ballmer also reflected on Microsoft's mission statement that the company had wanted to see a computer on every desktop and in every home." It's still my favorite mission of all time," he said. Now, there many mission statements, such as enabling businesses to realize their full potential, Ballmer said.

He also listed three important decisions Microsoft executives made over the years: co-founder Bill Gates' decision that microprocessors were a new opportunity and that software and hardware were different businesses; co-found Paul Allen's decision to get Microsoft in the applications business; and Gates', Ballmer's, and Microsoft Technical Fellow Dave Cutler's decision to have Microsoft enter the enterprise business.