UPDATE: Microsoft COO: ‘We Are Going To Lead With the Cloud’

SAN FRANCISCO (Dow Jones)–Cloud computing tops a four-point plan Microsoft Corp. (MSFT) has developed for maintaining its position in the business-software market, Kevin Turner, the company’s chief operating officer, said Thursday.

“We are going to lead with the cloud,” Turner said at the Redmond, Wash. software giant’s analyst day. “It helps position Microsoft to sell more on-premise products.”

Microsoft plans to drive sales of its two key franchises, the Windows 7 operating system and the Office 2010 suite of business software, and hopes to improve customer satisfaction and expand market share.

Turner said that Dow Chemical Co. (DOW) and Hyatt Hotels & Resorts, part of Hyatt Hotels Corp. (H), are new customer wins for Microsoft’s cloud products.

“Both of those were very competitive bids against Google (GOOG) and IBM (IBM),” Turner said, calling out a slew of cloud competitors including Salesforce.com Inc. (CRM), VMware Inc. (VMW) and Amazon.com Inc. (AMZN). “Seventy percent of the wins in the cloud that we had in Q4 were new Microsoft customers.”

“Two years ago we were nowhere [in competition with VMware,] Turner added. “What’s Microsoft been able to do in just two years in this space? A 15.2% share gain per [International Data Corp.].”

Officials at VMware weren’t immediately available for comment.

Microsoft’s cloud customers include 13 of the top 20 global telecom firms, the company said, along with 15 of the top 20 global banks and 16 of the top 20 global pharmaceutical companies.

“The sweet spot we have for this company is right in the heart of providing IT as a service for customers,” Turner said. “Some of the biggest companies in the world are choosing Microsoft.”

A lot is expected from Thursday’s meeting as Microsoft struggles to redefine itself.

In recent months, Microsoft killed a high-profile mobile phone project less than two months after its launch, reorganized its entertainment division and saw its market capitalization slip below that of Apple Inc. (AAPL).

For investors, those events seem to have overshadowed that Microsoft is making lots of money and that Windows 7 has sold well. Turner said the latest iteration of the operating system was selling nearly eight copies every second. The company’s fiscal fourth-quarter profit climbed 48% to $4.5 billion.

But while Windows 7 is a big hit, all of Microsoft’s operating systems, as a group, have lost market share in recent years. According to an April estimate from market-watcher Gartner Inc., non-Windows operating systems, such as Linux and Apple’s Macintosh OS, have grown from 3.3% of the market in 2003 to 5.9% of the market currently.

Microsoft shares have dropped 15% so far this year. In early afternoon trading, Microsoft was up 0.3% at $26.21.

-By Jeanette Borzo, Dow Jones Newswires; 415-765-8230; jeanette.borzo@dowjones.com

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