Right now, I can go out and get a free alternative to just about every product Microsoft sells. Why do people keep paying you for something they could get free?
And that's just the first question! No need to beat around the bush. It's the type of softball one comes to expect, unfortunately. He could have phrased the question as, "Open source software continues to make inroads into more than one of your key markets. What are you doing to thwart this advance?" But then, that would have required more than two firing neurons.
The only thing funnier than Lyons' questions were Ballmer's answers:
You know, IBM doesn't stand behind Linux. They promote Linux, but if there's a bug in Linux, IBM is not the responsible party to fix that. It's whoever in the community. And you know, let's say that person has a death in the family.
This is just silly, and I don't know whom Ballmer is trying to kid. Of course IBM fixes Linux bugs. Of course there are IBM engineers whose job is to fix bugs in Linux (and Apache and a bunch of other free software tools). Notice his distinction between IBM and "whoever in the community" - as if to say that IBM engineers and researchers are not in the Linux community, when they very much are. The part about "death in the family" is just eery.
Later on, Ballmer goes on to say that he's not as worried about open source as he used to be, because it's become more commercialized, and MS knows how to win that game. But wait, isn't that in direct contradiction to his "whoever in the community" quote above? That was a complete gaffe on his part - he could not have possibly tried to paint free software with the community brush and then argue that it's commercialized so thus nothing to fear. That has to be a mistake.
Not one to be outdone, Lyons comes back with this gem:
"What's going on in terms of Microsoft IP showing up in Linux? And what are you going to do about it?"
Never has there ever been any evidence of any code in Linux having come from Microsoft. Gosh, would it be too much to ask for a citation? There is, however, plenty of evidence of Microsoft code being lifted from Open Source projects. BSD's TCP/IP stack, anyone? Of course, the BSD license allows that, but the point is that it's much easier for Microsoft to use code from open source projects than the other way around.
Furthermore, it's almost guaranteed that some proprietary Microsoft code lurks in other companies' proprietary software and possibly vice-versa. Unfortunately, we cannot know for sure due to the nature of proprietary software.
The funny thing about Microsoft is that they still don't understand what they're facing. They still think that if they can kill the "community spirit" of free software, that they'll win. Witness the open source commercialization comments from the article in question. Little does Ballmer understand that open source is just the result of the same process from which Microsoft benefited in the 80's and 90's - the incessant downward price pressure on software, particularly general use software. Back in the 80's, Microsoft made waves because they made good enough software for cheaper.
Well, in this century, the way you leverage economies of scale to produce good enough software at a lower price is by building a large user base of free software customers or tapping into those that already exist. You can read all about that in my article on O'ReillyNet.