On Thursday, Microsoft CEO Steve Ballmer sat down for an interview with BusinessWeek editor Stephen Adler during McGraw-Hill's media conference. All Things Digital's Peter Kafka live-blogged the event, during which the inevitable Apple vs. Microsoft questions came up.

Asked if he owns any Apple products, Mr. Ballmer responded: "No. I don't. My sons don't. My wife doesn't." Presumably they own Zunes, about which the CEO said: "We're going to keep going with Zune … The question is whether even if we flog them heavily, is their profit upside … I won't say full steam ahead, because that implies acceleration of investment, but we're going to sustain our investment."

Paraphrasing Mr. Ballmer, Mr. Kafka reported that the Zune's future may involve its software and surrounding ecosystem on other devices, implying that Microsoft may give up the hardware side of that business and treat it like the PC world, where it licenses the operating system to an array of OEMs.

When the subject of smartphones came up, Mr. Ballmer predicted that the next few years will see those devices reach 70 to 80 percent of the market. He commented that the iPhone is too expensive and dinged its lack of a physical keyboard. He also claimed that the iPhone costs US$500 to produce, although research firm iSuppli says it actually costs $173, according to their analysis. Mr. Ballmer cited a "sweet spot" for smartphone build costs of $150 to $200, right in line with iSuppli's estimate.

Asked about Apple's touchscreen, Mr. Ballmer said that it was a driver of those high costs. He said that Windows Mobile 6.5, which is expected to be released this summer, will include a more affordable touchscreen, although he didn't elaborate.

Microsoft is also in the process of creating its own retail stores. Asked how they'll be different from Apple's retail chain, Mr. Ballmer said that he expects his stores to offer devices that aren't stocked by many electronics retailers because they offer innovative designs that may be too high risk for a company like Best Buy. Noting that Apple sells roughly half of its Macs through its brick-and-mortar and online stores, Mr. Ballmer said that Microsoft has no plans to attempt something similar with PCs.

The entire entry also includes the CEO's thoughts on reviving the Yahoo! merger, comments about the economy, his plans for tackling search, and more.