STEVE BALLMER: (Remarks in French.) And now I switch to English. (Laughter.) Ladies and gentlemen, thank you so much for giving me the opportunity to be here today. I’d like to especially thank Minister Lagarde, who had to rearrange a very busy schedule in order to join us today and I’d certainly like to thank President Boroso. He couldn’t be here in person, but he did send the video that Marc mentioned earlier that we’ll have a chance to see.

It’s great to be here in Paris as part of a visit throughout Europe this week. I’m here in Europe because Europe is an important and exciting market for technology and for Microsoft. Microsoft employs more than 13,000 people in Europe. We have over 200,000 local businesses that are partners that employ more than three million people throughout Europe.

Last year, Europe accounted for approximately one-third of Microsoft’s total revenue. It’s exciting for me to travel across the continent to meet with customers, partners, government officials and employees. I love the chance I get to talk about new opportunities in the region and to explore ways that Microsoft can be a great business partner.

This week, though, I’m also here because Europe is important to Microsoft for another reason. Microsoft is fundamentally an innovation company. Our success is built on our ability to turn new ideas into products and services that enable people to be more productive, more creative, more connected. We’re also deeply committed to the idea that our innovation can help people address big, global issues like climate change, access to health care and education. That’s the essence of who we are and of what we do, and it’s the reason we invest billions every year on research and development, more than $8 billion last year alone.

To compete in the global, innovation-driven economy, we need to draw on the talent and skills of the world’s smartest, most creative minds. That’s why we have more than 30,000 people working on R&D across the world.

Today, more and more of those people are working in Europe. With 2,000 scientists, engineers, and software developers working in 19 European Union nations, Europe does have the largest concentration of R&D staff for Microsoft outside of the United States. The single largest region. Every year, Microsoft invests over (US) $600 million in R&D in Europe alone, and that investment is growing, and that’s why we’re here today.

The work we do in Europe ranges from research to integrated computing and biology at the Microsoft Research Lab in Cambridge, England, to advanced voice recognition research at our language development center in Portugal. We have joint research centers with universities in Italy, here in France, and in Spain. At the Microsoft Development Center in Copenhagen, more than 600 engineers are creating a new generation of business solutions.

Why a focus on Europe? A lot of discussion tends to focus on China, on Asia and India, but we focus today on Europe because Europe has really become a global center for innovation. Across the region, there’s great talent and great universities. Governments throughout Europe are investing to create the conditions that enable new ideas and new businesses to flourish. Companies are investing in new technologies and new opportunities.

From my point of view, there’s no stronger proof that innovation is flourishing in Europe than the companies that Microsoft has acquired in the last couple of years. We’ve purchased leading-edge innovators like Fast Search and Transfer in Norway, Multi-Map in the UK, MusiWave and ScreenTonic here in France, and MobiComp in Portugal. We’re also in the process of completing the acquisition of a company named Ciao that’s in both Germany and Poland.

These are just a few examples of the thousands of successful companies in Europe started by extremely smart people with a deep passion for technology innovation and a deep understanding of business success. Because there is so much great talent in Europe, we will continue to expand our investments in innovation here. Earlier this summer, we disclosed our intention to establish a research center in Europe that would focus specifically on search technology innovation, an area that’s very prominent on my mind.

Today, I’m pleased to announce that the locations have been set and leadership for our new search technology center in Europe has been established. The search technology center will have three centers of excellence: one in Paris, one in London, and one in Munich. The search technology center will be led by general manager Dr. Jordi Ribas — Jordi, if you’d just stand, Jordi Ribas who is here with us.

Jordi is originally from Barcelona. He’s the former director of strategy for the Microsoft Windows digital media business group. He’s got his PhD from a university in the United States, has worked for us for a long time, and now is returning to open these search technology centers in Europe. Over the next few years, we expect to employ several hundred people, developers, software developers, in these centers across Europe.

Today’s announcement is a big step forward in a long-term strategy to invest in local development of search technology in Europe and around the world. Developers at the three search technology centers in Europe will focus on creating locally relevant search products for consumers in Europe and they will play an important role in developing our capabilities globally for search and online services.

This investment comes at a key time for Microsoft. For consumers, search really is the gateway to everything the Internet offers, news, information, entertainment, product, services, healthcare. For companies like Microsoft, search is the key to unlocking huge new opportunities in advertising. And today, while we have a successful consumer online business built on great communications and portal products like Windows Live and MSN, we are the challenger, not the leader, in search. But we believe strongly that search is in its infancy, and there’s so much room for innovation.

Our strategy here in the European search technology centers and around the world focuses in on three things: Delivering the best results, simplifying key tasks, and constantly reinventing and innovating in the business model. We’re working hard to redefine search to enable people to use search to create their own customized view of their world that makes it intuitive for them to find answers to their questions. We want to make it easy for them to tap into everything the Web has to offer — video, images, audio, location-based content — and we want them to be able to do that effectively wherever they live in the world, and these European search technology centers will help.

We’re investing heavily to realize this vision, and Europe will play a critical role. That’s why we acquired many of the companies. I want to talk about one I mentioned earlier, which is Fast Search and Transfer, which is now a key part of our enterprise search work in Oslo, but also in Trondheim and Tromso throughout Norway. It’s the reason why we operate 40 R&D and innovation centers across Europe, it’s the reason we’re building a data center in Dublin, and creating the search technology center we’re announcing today.

We’re getting ready to move in, beginning of the year, to new facilities here in Paris, actually in Issy-les-Moulineaux and we’re excited — thank you sir, we have our mayor here with us today, we’re very appreciative, but we’ll also be housing the search technology in Paris in our new facilities.

In many ways, it’s an interesting time, though to be talking about investment at all. I was talking with the minister a little bit about the current economic uncertainties, and investing in anything today I think can be a bit of a hard sell. But I believe that this is the most important time for our company and for our industry to invest in innovation. When economic times are bad, we have to keep faith in the future that technology offers, and key technologies are converging today in a way that will revolutionize the role that computing plays in our lives. Businesses and governments that make the right investments will lay the foundation for future growth and prosperity.

At Microsoft, we definitely believe Europe will be an important center for the innovation of the future, and we look forward to working with all of you to create conditions that enable new ideas to flourish and talented people to realize their full potential. On behalf of the several hundred new Microsoftee engineers coming here in Europe, I thank you. It’s been a pleasure to have a chance to speak today, and I’ll turn the podium over now to Minister Lagarde, thank you very much. (Applause.)

(Comments in French.)

MINISTER LAGARDE: First of all, I would like to say welcome. (Extended comments in French.)

PARTICIPANT: Research and development are central to Europe’s future. That is why we have set the target for R&D spending as part of our Lisbon strategy for growth in jobs. The target made clear that there was a dual responsibility for both public and private sectors, both are essential.

But in difficult economic times, there will be pressure on R&D budgets. I believe it will be very short sighted for governments or companies to turn their backs on research. Research and innovation are the foundations for tomorrow’s prosperity. We in the European Commission are determined to maintain our plans to boost research.

There are many factors which make Europe attractive. Europe’s long scientific tradition, our world-class universities and knowledge, and our well-educated work force. But we should not be complacent. We know that global competition for R&D investment is tough. So we are doing everything we can to make Europe even more attractive. A genuine European research area with real freedom of movement for knowledge and for researchers. New collaboration between universities and industry, better coordination of national programs to use all available resources to best effect. Encouragement to take up innovative products, and some very important, concrete projects. Of course, everything that we are doing in the (inaudible) framework program for science and research, European Research Council, the creation of European Institute of Innovation and Technology, our joint technology platforms, many initiatives to make a reality of this idea, European research and innovation.

The public sector can make a real contribution, but only in partnership with the private sector. That’s why I’m delighted to welcome Microsoft’s decision to open R&D facilities in three members states. For such a key global player as Microsoft to increase its R&D investments so substantially is a real vote of confidence in Europe and in European research excellence. I wish Microsoft every success with its new venture, thank you.

PARTICIPANT: (Comments in French.) So the first question comes from Germany, Raymond Weissmann from the Frankfurter Allgemeine Zeitung: How do new kinds of varieties of search engines play an important role? What is the search experience, for instance, with images? If I have a picture of the Eiffel Tower and I don’t know that it is the Eiffel Tower, how can the search engine help me?

STEVE BALLMER: Yeah. I think there’s going to be far more innovation in search than anybody envisions even over the next ten years. I’ll give you just a couple things to think about. The average search in English, and I’ll use English as the proxy, is 2.2 words, 2.2 words. Why? Because every user has learned that the more information you give a search engine, the worse the answer is. And yet, of course, you would think the more information you’re willing to say about what you’re interested in, the better the answer you get. There’s room for innovation in semantics, in natural language understanding.

There’s opportunity, as you highlight in the question, for innovation in image search. How do you actually take a picture of something and then scan the Internet and pattern match that image against all the images that are out there or the videos to identify something? I like to make a joke. I’m a big golfer. I want to be able to just point my remote control at the TV set some day at the latest golf club that Tiger Woods is playing and have an image search tell me what it is and where to buy it on the Internet. And yet, that is not that far fetched as a scenario for technology in the next ten years.

PARTICIPANT: (Comments in French.)

CHALLENGE MAGAZINE: Hi, my name is Laurent Galix from Challenge Magazine.

Microsoft is well known to manage and generate a mountain of cash, so does this cash protect you from the actual crisis we know now? And how are you going to use it to protect yourself against the crisis we have now?

STEVE BALLMER: Well, protection in the sense that we’re not likely to go bankrupt, yes. I’m not trying to be funny, but we have a greater cushion, perhaps, than some other companies might have. The people who manage that cash probably have some of the same problems that everybody else does. We’ve had a pretty good record, but we have to make sure that we, too, don’t own some of these bad loans that everybody else owns. So with the opportunity we also pick up some additional challenges.

I think the thing I would say about our general reaction is anything that affects the global economy will affect our business. Half of our business, roughly, comes from the consumer market, half of our business comes from corporate spending. So we will feel whatever the consequences are. I hope the consequences are more modest than more severe, and certainly no matter what happens, we’re going to continue to grow our investment in R&D.

PARTICIPANT: (Comments in French.)

PARTICIPANT: (Inaudible). We all know that you are a PC guy, but don’t you think that search will be the (inaudible) application for cellular phone?

STEVE BALLMER: Well, I think actually there will be a number of important applications on mobile phones. I do think search is one of the important applications everywhere on the PC and on the phone. I think the kinds of searches people will do from the phone will be interesting. I actually think they’ll be quite different, the nature. I think you’ll be looking for more directions, local information, I think you’ll be doing more extensive, detailed kind of research probably from the PC, but I definitely think search is a very, very important application on the mobile phone, and we are investing actively in specialized technology for mobile search and for mobile advertising. In fact, some of the technologies that we’ve acquired from companies here in France focus specifically on mobile search and ads.

PARTICIPANT: (Comments in French.)

PARTICIPANT: We’ve just heard that you’re going to receive a substantial tax credit for your research and development investments in Europe. I wonder if you could tell us what Europeans are going to receive in return for this tax credit.

STEVE BALLMER: Hopefully two things: Actually, truth is, it’s nice. We would be investing in Europe with or without the tax credit. Not everybody would. There’s a policy, that’s great. But why are we investing? We’re investing so we can deliver to European consumers the best search experience we know how. We think it will be great to provide a little bit of innovation competition in the search area. We need to do that in a way that’s of maximum relevance, and I think it’s also, of course, a good thing that we’ll be employing several hundred additional people throughout Europe, particularly in the high-skill software development field.

PARTICIPANT: (Comments in French.) What is the amount of your investment for the creation of these three centers?

STEVE BALLMER: The three centers themselves, the cost you could say, undoubtedly, there’s some building cost, and that’s not how I think about it. In the R&D arena, I think about how many software developers will we be hiring? And at the end of the day, in R&D, that’s what it’s all about. It’s not about big factories. In the data center business, like the big data center we’re putting in Ireland, but in R&D it’s about how many engineers, how many researchers will we have. And as I said, you know, we have to ramp, Jordie’s moving, he’s kind of hired the first wave and the wave after that, but our goal is to be several hundred over the course of the next few years.

We know from experience that once you get started, if you get a little momentum, it goes very quickly. And if you don’t get momentum, it’ll go slowly until we really hit our rhythm in this kind of hiring, but I’m quite optimistic Jordie will do a great job with that.

PARTICIPANT: (Comments in French.)

TCA PRESS AGENCY: Yes, Eric Hensen from TCA Press Agency.

Well, Mr. Ballmer, could you compare your investment here in Europe to the investment that you’ve made in India?

STEVE BALLMER: Yeah. If you take a look across Europe, as I said in my opening remarks, well have something approximately 2,000 engineers. And that compares software developers. That is roughly equivalent — actually, it’s a little more, frankly, than we have in India, and it’s roughly equivalent to what we have in China. So if you go by sector outside the United States, Europe is number one currently, China is a close number two, and India would be number three. Who knows what that’ll look like over a number of years.

One thing I think that’s important, we all have to appreciate the technology work force is really quite mobile. So if you ask me how many total Indian people work for us, we have many Indian people working for us in Seattle. We have many European engineers, like Jordie Ribas, who’s from Barcelona. He’s been working in Seattle, now he comes and he’ll be working in Europe. So it’s a very mobile work force, if you will, and I’m sure many of the graduating engineers from China and India, which today produce 50 percent of all the computer science graduates in the world, many of those will stay working in their home countries. I’m sure many will come to Europe, but I’m sure many will also come to the United States.

So the talent will flow. We want to make sure we have presence and the ability to attract people. This acquisition we’re completing of this company, Ciao, that would be 150 more engineers in Munich, 50 more in Poland, it’s a global world these days.

PARTICIPANT: Okay. This concludes the conference. Thank you, Steve. (Comments in French.)

STEVE BALLMER: Merci beau coup, thanks. (Applause.)