Next Monday at 6:30pm PT, Steve Ballmer will give what Microsoft says is the company’s final keynote at CES. I don’t know whether he’ll acknowledge that fact, in either a serious manner or a lighthearted one. But it’s a safe bet that he’ll talk about Windows 8, ultrabooks, Xbox, and Windows phone. And I’ll be in the audience, along with TIME’s Doug Aamoth. We’ll liveblog the event as it happens at technologizer.com/ces12. Join us, won’t you? (And if you need a reminder, head there now: You can get an e-mailed notification when the event begins.)

One of the most prominent successes of his tenure — the Xbox 360 — is credited to somebody else, who was rumored to have left the company over his questionable business decisions.

He’s often derided for his bombastic personality, and has technology pundits calling his tenure “The Reign of Error.” Now its come to a whole other level — investors and analysts asking for his pink slip.

Is the increasing chorus against Ballmer fair, or do others share in Microsoft’s failure? Or is this symptomatic of a larger shift among the company’s key customers, where Microsoft as a whole has fallen out of favor? You could make a case for any any of these scenarios.

Microsoft’s biggest problem right now is stagnancy. In the Ballmer era, the company has become reactive rather than proactive. Rather than seeking new markets to expand into, it follows its competitors — and often misses the mark in doing so, or makes them overly complex.

Zune, Windows Phone 7, Windows Vista, Ultra-Mobile PCs. All great examples of ideas that either came too late or were so unnecessarily overthought that consumers saw right through it or skimmed over them altogether. These mistakes have cost the company both time, and more importantly money.

Speaking of wasting money — how about Skype? Just about everyone seems to agree that $8.5 billion was a price too high for the company. I doubt the company will see a benefit equal to the price they paid for that company. Ever.

There are some out there that are calling for Bill Gates to return to the company’s helm, but that isn’t the answer either. Gates’ time is long past — his own vision is dated. Microsoft needs somebody who understands modern computing. Even he admits that people like Jobs have far more of a knack for “thoughtful product design” then he does.

Thus, Microsoft might find itself looking to the outside for the man (or woman) to guide it out of the wilderness. While it may be great to put on a public face of support for your embattled leader, at the same time the company has a responsibility to think about what life will be like beyond Ballmer.

Thus, we’re left with a small network of nine stores (with another on the way), all but three of which are on the west coast. There’s a good chance a majority of consumers don’t even know Microsoft even has a retail strategy.

Microsoft is in somewhat of a quandary though when it comes to retail. Unlike Apple, the products sold in the Redmond company stores are readily available through many other stores. This gives consumers little reason to purchase something from the Microsoft Store above any other.

That shouldn’t hold the company back, though. Yes, these retail locations are expensive to build — Apple’s were too — but those retail stores are probably the single biggest driver to Apple’s overall success. Here’s why.

1.) The store is a showroom. Nowhere else can people experience the products Apple has to offer like an Apple Store. Add this to the fact that there are salespeople on the floor directly knowledgable about the products there, and it adds up to a net positive even if the product isn’t sold that day. Microsoft could benefit from this exposure: the company wants to get its products out in front of consumers, so why not ensure the best experience by doing it in a controlled environment such as this?

2.) You can’t beat personalized customer service. Apple skeptics love to talk about the Apple Tax. Up until the Apple Stores opened, I would have agreed. I look at it differently now though, and that’s because of the customer service you get when you walk through the door. Have a question on how to do something on your Mac? Sign up for a free class. Computer on the fritz? The Genius Bar can probably help. There’s a bit of solace in the fact the company you buy from will be there after the sale.

Why can’t Microsoft do something similar? Yes it may hurt the mom-and-pop repair shops as well as those “learn-Excel-in-a-weekend” establishments, but again no one can provide better service than the company that builds the product. That’s why every Microsoft Store has an “Answer Desk.” This is one retail idea that Microsoft was very smart to copy Apple on.

3.) A store network will make the retail idea more relevant. Right now the Microsoft Store is a niche idea. There isn’t enough reason to go to these locations over somewhere else, like Best Buy. With a network of stores this could change. Redmond could launch exclusives, say the newest Final Fantasy Xbox title, at its stores first. This gives the consumer a reason to come — and buy — from Microsoft.

4.) It’s all about image control. Microsoft’s always suffered from an image problem,. It’s seen as a big bad company, always a step behind, or responsible for that latest security flaw. With a network of stores, the company would have a direct connection to its consumers and would be able to use this to convey the public image it wants, rather than one driven by the headlines.

It could be argued that the single biggest reason why Windows Phone 7 hasn’t caught fire is due to Microsoft’s reputation, notwithstanding the fact that WP7 is actually a fairly good mobile OS.

5.)  It’s the economy, stupid. This may seem irrelevant to the subject but it’s not. Having experience in municipal government, and being in the midst of a revitalization project in my municipality, I can tell you the time to build is now. Contractors and property owners are hungry for business, and great deals are to be had out there. If Microsoft is going to make a move, now is the time. While it’s still going to be expensive, it’ll be much cheaper than it will be in a few years.

Microsoft could miss a golden opportunity to solidify its retail strategy by waiting too long. The rest of the company should listen to Mr. Ballmer. He’s right.

What say you? Let us know in the comments, and we may use your thoughts in a future followup to this story.

(Note: Here’s an opposing viewpoint in the form of “Save Your Money, Steve: Five Reasons Why We Don’t Need  More Microsoft Stores.”)

Speaking of teasing, here’s a little shameless self-promotion for our coverage tomorrow…

I’ll be covering the show all week, and will liveblog the Ballmer keynote as it happens. You can join me at www.technologizer.com/ces2011–and if you head there right now, you can even sign up to get a reminder by e-mail.

Steve Ballmer at the Windows Phone 7 launch on Monday, October 11th, 2010

Sad news: Microsoft CEO Steve Ballmer has been found to be completely insane. The expert doing the declaring is my fictional friend Robert X. Cringely of InfoWorld, and he bases his diagnosis on a Ballmer quote in a recent CNNMoney.com story.

Ballmer is speaking of Windows Phone 7, which shipped internationally last month and hit the US this week:

“We’re early; there’s no question we’re early,” Ballmer said at Microsoft’s Professional Developers Conference. “I think we kind of nailed it. When you see it, you just go ‘ooooh.’”

Cringe thinks that Microsoft is anything but “early” to the smartphone game, and that if Ballmer thinks otherwise he’s delusional:

I suppose if we’re talking geological time, then Ballmer’s right, Microsoft is on the cusp of the smartphone epoch, and the dinosaurs just went for a dip in the tar pits. But in a market where a three-month-old device needs to be checked for liver spots and signs of dementia, spotting the competition three-plus years and then coming up with something that almost meets the smartphone standards set in 2007 is not exactly being early. It’s certainly not “nailing” it — unless we’re talking about a coffin.

Now, yanking Steve Ballmer’s chain is always fun, and I know of few tech pundits who can resist an opportunity to bring up the “Monkey Boy” video. (Cringe makes the obligatory reference in his piece, and–whoops!–I just did, too.) The period from the announcement of the iPhone in January of 2007 until Windows Phone 7′s release was an astonishingly long dead zone for Microsoft in the phone business, during which it had no credible offering. And while Windows Phone 7 is impressive in multiple ways, Microsoft has still plenty more catching up to do before anyone at Apple or Google breaks into a sweat.

Here’s the thing, though. If what Ballmer is saying is that we’re still early in the smartphone era–as usual with his pronouncements, definitive interpretations are tricky–he’s absolutely right. This is a revolution that’s still just getting underway, and there’s plenty of time left for new entrants to join the game in progress. And maybe even win it.

If smartphones were a mature market that weren’t subject to lots more change, just about all of the Americans who might own a smartphone would own a smartphone. Instead, smartphones remain less common than you’d tend to think if you read tech blogs and/or live in a major metropolitan area near a large ocean. How many of us own a smartphone? Depending on who you believe, it’s over half or 28 percent or possibly 17 percent. But nobody says it’s 100 percent or anywhere close.

No, the smartphone is like the PC was in the 1980s and early 1990s–a gadget that’s on its way to near-universal adoption, but which isn’t there yet. It’s a young product category, and plenty of smart people haven’t yet bought into it.

You don’t have to analyze Microsoft’s phone strategy very carefully to see that it’s reaching out to these smart late adopters rather than trying to convince iPhone fans and Android aficionados to switch. That’s obvious from the way its entertaining TV ads for Windows Phone 7 show smartphone owners as lame, self-involved nerds. “Don’t be like these people,” is the message. “Buy a Windows Phone 7 handset.”

I’m not saying it’s a winning gameplan, or that Windows Phone 7 is the mobile OS that will finally win smartphone unbelievers over. But this much I’m confident of: A couple of decades from now, we’ll look back at 2010 as being really early in the history of smartphones, before most of the interesting stuff happened. Come 2030, iOS 24 and Android 12.7 “Salt Water Taffy” may be around, but they’re not going to be the whole story.

Or to put it another way: Steve Ballmer may or may not be right about Windows Phone 7, but he’s right about smartphones–and he’s definitely not deranged.

Ballmer, quoted by TG Daily at an Executive’s Club of Chicago event today, said the console will have a “natural interface” with a built-in camera that can detect movement and voice. That sounds like Project Natal, the 3D motion-tracking camera announced at E3, to me.

Ballmer’s comments confirm — in a roundabout way, perhaps, as TG Daily’s report doesn’t mention Project Natal by name – at least a portion of earlier rumors. 1UP had reported that Project Natal will be integrated into Xbox 360 hardware in 2010 as a rebranded console, along with some minor boosts to the hardware. The motion camera will also be sold as a standalone product for existing Xbox 360s, 1UP’s story said.

This week, the Xbox 360′s director of product management, Aaron Greenberg, halfheartedly debunked the rumors, telling Eurogamer that Natal will run on the Xbox 360 and that “no new console investment” will be necessary to enjoy the motion controller. Another anonymous Microsoft source said the company urged people not to believe the “nonsense on the Internet.” Neither of those comments are firm denials of upgraded hardware, and TG Daily had nothing to report on the matter.

I’ve already talked about why a new console with shinier graphics is a bad idea. In short, the headaches for existing console owners and for game developers would outweigh the benefits of more processing power. But it’s perfectly logical for Microsoft to release an Xbox 360 SKU with the motion camera built in. If the company’s looking to attract new gamers, selling an all-in-one bundle is the best way to do it.

Update: Here’s what Microsoft is saying on the matter; it seems very similar to what Eurogamer got this week: “As the Xbox team stated at E3 two weeks ago, we are not even halfway through the current console generation lifecycle and believe Xbox 360 will be the entertainment center in the home for long into the next decade.  Project Natal will be an important part of this platform, but we have not confirmed a launch date at this time.”

We now know that the Ballmer family does not own a single Apple product, and he drives American cars. I don’t know, but that almost seemed a subtle dig in and of itself towards the Apple faithful. What does the stereotypical user drive? Volvos, Volkswagens, BMW’s… in other words, foreign cars.

Yes, Ballmer is outspoken. But sometimes I look at this guy, and am reminded of this video — and I just don’t take some of what he says all too seriously.

Microsoft’s interest in netbooks is an acknowledgment that Windows 7 needs to compete with lower-cost solutions that come preloaded with Linux and even Windows XP. Other potential entrants, including Google’s Android OS, are also threatening Windows’ dominance.

The company’s failure to compete in the low-end market has profoundly impacted its finances. Windows client revenue recently fell 8% as a result of PC “market weakness and a continued shift to lower priced netbooks,” according to Microsoft’s second-quarter earnings release. Even so, Ballmer stated that about 90 percent of netbooks have been shipped with Windows XP, during today’s conference.

And that trend is significant: netbook sales are steadily increasing. This month IDC found that netbooks account for 30% of sales in the Europe, Middle East and Africa (EMEA) market alone.

Outlining Microsoft’s strategy to appeal to netbook buyers, Ballmer said that Microsoft is developing a low-end version of Windows 7 designed specifically for netbooks, and will provide an upgrade path to more powerful versions of the OS. Windows 7 is designed to work well on inexpensive laptops, he said.

Ballmer didn’t talk about what features the Windows designed for netbooks will and won’t offer, but the company has already announced that the bargain-basement Windows 7 Starter Edition will only let users run three programs at once. My take is that Microsoft would be wise not to appreciably limit the functionality of Windows 7 on netbooks, or customers will vote with their feet, and PC manufacturers will choose another operating system that makes the most of what netbooks have to offer.