He's right, Microsoft hasn't had really one innovation, unless you consider stealing, infringing on, and/or using their brute bully lawyers and money bribe their way out of their unethical behaviors and/or buying up little guys who actual create things or simply stealing their ideas or, in a few cases, buying up competition that, at the time, was making vastly superior products and then shutting them down, giving them unemployement slips, and hiding away the better technology from those who'd use it... why, it's the Microsoft way.

They'll probably buy Yahoo out though, calling it a "merger" or some poppycock, many of the innovative things Yahoo! has done will be lost in the shuffle, they'll ruin Yahoo! Instant messenger and EOL it, kill all development on any product that isn't made for Vista (as in, bye to platform apps for OS X or Linux) and turn whatever is left of Yahoo! into what Microsuck already is... a giant champion of crapware, the shiny beacon of championing mediocrity. Oh well, it'll be good for Google as most anyone trying to do anything with Yahoo! would feel that Microsoftian (i.e. craptacularly inept) touch and drive them away to other options in droves.

I think all this is indicative of the trouble that Microsoft is certain to face in the near future. Vista has not had the effect they desired. They simply can not keep viable with their mediocre offerings indefinitely. Even the U.S. auto makers have learned that lesson. I can not believe that Apple Keynote opens Windows PowerPoint files more accurately then OS X version of PowerPoint. Now that is sad, and the only explanation to me is that it's done on purpose to help undermine the Mac as a viable alternative to Windows. Why not simply have the Mac version open the WMF natively instead of translating it to a crappier version of a native Mac Pict format. Even Adobe Illustrator dose a good job of opening and saving WMF file, so it's not that the Mac can't handle it. It's just MS being MS.
The biggest thing that Microsoft has lost in the past few years is the fear it used to instill on it's competitors. Nowhere is it more apparent then on the current Get a Mac campaign. Even Dell is bringing back Windows XP against the wishes of Microsoft. Who would have thought that possible ten years ago.

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Microsoft recognizes that market dynamic. As the company evolves into the software and service model, "we'll also continue to see evolution not only in the way we build our software and deliver it, but in the way ... we monetize it," he said.

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I wish developing great products was as easy as writing a check, Jobs said. If so, then Microsoft would have great products.