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The move could not have come at a more delicate time, with... Microsoft's longtime business of selling software in a box rapidly being replaced by the sale of applications over the Web. The company is facing competition from rivals, such as Google, offering word processing and spreadsheets online free of charge, and it recently lost its place as the most valuable tech stock to Apple.

Microsoft is now working to transform itself into a one-stop shop for Web-based software and, as part of that strategy, is betting big on the growing popularity of cloud computing, which takes software off the desktop PC and moves it to networks of data centers accessed via the Web.

That's the vision that Microsoft chief executive Steve Ballmer outlined to partners gathered at its annual partners conference in Washington on Monday. "If you don't want to move to the cloud, we're not your folks," Ballmer told an audience of 9,500 partners packed into Verizon Center.

In an interview with The Washington Post after the speech, Ballmer talked in further detail about the company's efforts to establish a firmer foothold in cloud computing and its hopes for smartphones and tablet computers. Here is an edited excerpt:

Seems like a tough time to get people to buy more technology. How does the economy pose a challenge to your cloud strategy?

The economy has a lot to do with a lot of things, but not this. The inevitability of the cloud is absolutely clear. When and how is not 100 percent clear. The preponderance of our partners are moving with us. Some partners may move slowly, and maybe a few won't even move with us. But the new guys jumping into the fray are saying, "Hey this is new opportunity."

What's your pitch to use Microsoft's cloud over Google or Amazon?

There are different parts of the cloud market. We can act like they are one thing, but they are not. There is the app infrastructure in the cloud, hardware infrastructure and applications. At the applications layer is primarily Google, and we are just beating these guys almost every time.

With what, office in the cloud? It seems like consumers love free Google apps.

With the bigger customers, we are doing well. Very very well. Their offer is incomplete, and they haven't factored in a lot of things that are important to customers, like security and compliance. We are just way ahead, which doesn't mean we can get lazy in any sense. 2010 is really important. We have a wave of stuff for cloud that follows. We have a consistent offer on the desk and from the cloud -- that is important. A lot of things working in our favor.

What are your biggest priorities in Washington?