Microsoft CEO Steve Ballmer claims that his company is David compared to Google's Goliath. In an interview with the BBC he admitted that Microsoft's delay in grasping the potential of internet search had hit the business hard.

On Microsoft's failure to realise early enough the importance of internet search, Ballmer said: "Do I wish we'd started the investment in search a few years earlier? Yes."

"We may be the David up against Goliath but we're working on it."

He added that the real concern was the lead that Google had built up in online advertising: "We probably missed the power of the advertising model, not so much the technology," he said.

Ballmer was in London for a Microsoft-sponsored conference aimed at IT managers, at which he announced a new Microsoft operating system 'Windows Cloud'.

Vista most successful Windows version

On the company's troubled Windows Vista operating system Ballmer brushed aside criticism by claiming that it is the most popular operating system that Microsoft has ever introduced.

He did admit some problems: "Any time you change something as fundamental as an operating system people will have issues," he said.

Customers love/hate relationship

Asked by the BBC why there was so little passion for Microsoft among consumers, Ballmer said people loved the products even if they did not love the company: "With their Windows PCs people have what I would call a love/hate relationship. There are things they'd like us to do better but if you asked them if they loved what they're able to do with their PC, I think they'd say 'Yes'."

Ballmer dismisses Google Android

Despite his admission that Google was ahead of Microsoft on search, Ballmer was bullish on any potential threat from the Google Android platform.

"You've got to remember Android is version one - and it looks like version one. They've got one handset maker, we've got 55. They're available through one operator, we've got 175," he said.

Ballmer dismissed the open-source solution as unattractive to phone manufacturers, predicting that Windows Mobile phones would stay ahead of Blackberry, Apple's iPhone and Google Android in the smartphone market.