"I don't think you will see some overnight transformation," Ballmer said. "It is going to have to be longer term. It makes sense for us to talk about five years."
Microsoft is making a big push into Web services and has vowed to keep investing in a variety of technologies as it seeks to transform the way both businesses and consumers operate on the Internet.
At the core of this plan is Windows Live, an advertising-funded, one-stop shop for services from e-mail, to instant messaging, to blogs that targets the fast-growing online ad market. Forrester Research projects online advertising will grow to $26 billion in 2009 from a current $15 billion.
Goldman Sachs analyst Rick Sherlund estimates Microsoft plans to spend an additional $2 billion in the year starting in July, with much of that investment going toward building an ad-supported online business in the mold of Google and Yahoo.
Ballmer acknowledged the world's biggest software maker is trailing Google and Yahoo but he said it was not too late for Microsoft to win over more advertisers and consumers.
"We are a little bit late in the game," Ballmer said. "But at the end of the day it is going to be about the ability to create a mass marketplace for buyers and consumers."
Microsoft has said it plans to spend about $6.2 billion in research and development in the current fiscal year ending June 30.
At the same time investors have put pressure on Microsoft shares due to concerns about the lack of details on the company's plans to compete with its online rivals and the potential for more delays to its Windows upgrade, Vista.
Ballmer said Microsoft would seek to create a marketplace where consumers want to spend their time and advertisers want to spend their money. It also plans to leverage the popularity of its MSN, Hotmail and Instant Messaging products, he said.
"We are hard at work on our own core services where at the heart we want the users to be in control," Ballmer said. "There is a whole set of things we are doing to let the user be in control."