Microsoft CEO defends need for big Web investments

REDMOND, Washington (Reuters) - Microsoft Corp <MSFT.O> Chief Executive Steve Ballmer on Thursday defended the company's need to make steep investments in its Internet business in order to compete with Google Inc <GOOG.O> and said such moves could boost its value in time.

Speaking to Wall Street analysts at the company's annual analyst meeting at its Redmond headquarters, Ballmer said its online businesses could eventually generate a majority of the economic value created by the world's largest software maker.

"We have the opportunity to create, by pursuing this world in which everything goes digital, is certainly at least 40, 50, 60 percent or more of our total economic value today," Ballmer told analysts.

Ballmer said its strategy in pursuing a whole or partial merger with Yahoo Inc <YHOO.O> 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 <JNPR.O>.

(Reporting by Daisuke Wakabayashi in Redmond and Eric Auchard in San Francisco; Editing by Phil Berlowitz)