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@ McGraw-Hill: Ballmer: Apple Is Too Expensive For This Economy (And That's Why MSFT Will Win)

This story was written by David Kaplan.
The deteriorating economy and cutback in consumer spending will hurt Apple and Microsoft (NSDQ: MSFT)at least that's the way MSFT CEO Steve Ballmer sees it. In a BusinessWeek editor-in-chief Steve Adler">Q&A with BusinessWeek editor-in-chief Steve Adler at the McGraw-Hill (NYSE: MHP) Media Summit, Ballmer took aim at the iPod, iPhone and and Apple's computers in general. "No one's going to pay $500 more for a logo," he said to audience gasps as he alluded to Apple's various offerings.

Asked about the expectations for Windows mobile 6.5, Ballmer said pricing will make a big difference in leveling the playing field between Microsoft and its larger rivals in the smartphone space, Apple and Blackberry. He estimates that smartphones will go from about 10 percent market penetration in the U.S. to 70-, 80 percent. "That's true even in a bad economy." Users want a range of price points, he says. "iPhone is a very expensive phone without a keyboard. Some people can't afford [the device] and they can't afford the data plan. It costs about $500 to make. We want to power a low- to mid-range phone that can work with hardware developers. Unless you assume that Blackberry and iPhone will dominate the smartphone marketwhich I don't that gives us a huge opportunity. A $500 phone is not going to reach all Americans and people in emerging markets. The most popular phones in China and India cost $25 to build. We're at $125, which isn't close to those countries, but a lot cheaper than Apple (NSDQ: AAPL). Plus, we can do touch-screeen cheaper, both high end and at the lower end, than Apple can."

Mrs. Ballmer doesn't want an iPhone: Alluding to Melinda Gates' lament that sometimes she covets friends' iPhones, Ballmer's family seems to have no such desires. And if they do, they'd better not tell the press. "I don't have any Apple products, my kids don't and my wife certainly doesn't." That sparked a humorous back-and-forth. Adler: "I don't buy any of my competitor's products. I just borrow them at the newsstand. Ballmer: "I thought you'd say you just read them online for free."

Keep going with Zune: About half the audience raised their hands when Adler asked how many own iPods. Less than 10 did the same . The big pay off is on phones and PCs, Ballmer says, as opposed to just the one device and "that's where we have to align the Zune. But we'll keep going with it."

By David Kaplan