Microsoft is in the process of a major transition, as it moves from a software-first company to a company that makes the entire stack: software and hardware, all developed together in one house. Apple has proven that this model, when done well and combined with a viable ecosystem, can be huge in both profit and in creating a great product.
Ballmer, who should be in a position to know, seems to think that his company should ship more software to “exploit” areas of innovation:
…it is absolutely clear that there is an innovation opportunity on the scene between hardware and software and that is a scene that must not go unexploited at all by Microsoft
This is a significanly different approach by Microsoft, who has historically been about software as the main focus. While they have shipped various pieces of hardware (mice, keyboards, and most recently the Xbox gaming consoles), they had never launched all-in on hardware. This changed with the announcement of the Surface tablet line. With rumors of an Xbox tablet swirling about, it’s easy to see a future Microsoft that more closely resembles Apple than what Microsoft was under Bill Gates. And, if that offers increased competition to Apple (and Google, and Samsung, and everyone else), that can only be a good thing for consumers.