BOSTON -- Microsoft CEO Steve Ballmer believes the software industry will create more positive change in the next 10 years than it did in the previous 10 -- provided that security threats are effectively handled.

"Security is the one issue that could stand in all our ways," Ballmer said in an address to the Massachusetts Software Council today. "To the degree that people don't feel they can rely on [applications] is a major impediment."

Beset by a wave of recent code flaws, Microsoft has made security its top priority, Ballmer said. It derailed its Longhorn OS development plan to issue Windows XP Service Pack 2 (SP2), shifted some programmers onto other security projects and began analyzing glitch feedback from users to spot trends.

"[Security is] a little thankless," Ballmer said, comparing it to Y2K preparations. "The best anyone is going to say about security is, 'We didn't have a problem.'"

It's as much a business issue as it is a quality-control problem. Ballmer said security comes up "at least twice as much" in discussions with enterprise customers.

Ballmer returned to theme during his litany of reasons why software partners and businesses should develop on Microsoft platforms rather than Linux. (Total-cost-of-ownership and exposure to intellectual property lawsuits were among Ballmer's other swipes at open source operating systems -- claims refuted by Linux devotees).

"We can stand behind our stuff. We are not a distributed group of developers that may in some cases respond well but in some cases respond in their own sweet time," Ballmer said. "That doesn't mean we're doing an acceptable job, it just means we are doing a better job than the other guys."

While security will remain a major source of concern, there are reasons to believe the software industry's best years are ahead of it. For example, the emergence of XML-based Web Services is important, Ballmer said, because it allows developers to build on the work of others and share data.

Ballmer is also sanguine about Microsoft's Longhorn operating system, which is now scheduled for a 2006 launch after its features were scaled back to avoid further delays.

The Redmond, Wash., giant is investing R&D money with an eye toward several opportunities, including: small and medium business; television and phones; the health care industry; and advertising and entertainment.

That last item, inevitably prompted a question about search, where Google recently parlayed strong search functionality and targeted ads into a successful IPO.

Ballmer acknowledged that search was "probably an area where we under-invested," but it's by no means conceding the field to Google and Yahoo . He said the technology has not topped out and can become more effective and intuitive.

It's pulled together fragmented search-related assets and is exploring search technology that spans the Internet, corporate networks, e-mail software and other archives.

"We're pretty hell-bent and determined to be the innovation and market leader in that area," he said. "It should be a lot of fun for you to watch."