Ballmer said its strategy in pursuing a whole or partial merger with Yahoo Inc over the past year reflected the importance that Web search has become as the starting point for computer users and Microsoft's need to create a more formidable rival to Google in the Web search advertising field.

"A lot of our discussion around Yahoo centers as much on this issue as any other issue," he said, adding later, "This is a two-horse race. It is about Microsoft and Google."

Ballmer was left to describe Microsoft's Internet strategy after the company announced one day before the analyst meeting that the head of that business, Kevin Johnson, was leaving to become chief executive of Juniper Networks.