"I'm not a storage expert. Joe said, trust me"

It was a lovefest Tuesday at the Plaza Hotel where Microsoft and storage company EMC announced that they are extending their strategic partnership another three years.

The software giant and information management company have been working closely together for years, but they didn't formalise their relationship until 2006. Now things are going so well for the companies, they've decided to extend the formal relationship. As part of the extended partnership, the companies say they'll be focusing more on storage and virtualised environments. They'll also concentrate on productivity and security solutions to prevent data breaches.

silicon.com sister site CNET News.com caught up with Microsoft CEO Steve Ballmer and EMC CEO Joe Tucci at an event they hosted for their enterprise customers where the two executives talked about balancing their cooperative and sometimes competitive relationship. They also discussed how the current economic environment is affecting how their large corporate customers are spending money, and how they hope their continued partnership will help them each drive more business.

Below is an edited version of the conversation. CNET's Marguerite Reardon interviewed the CEOs in person in New York and Ina Fried joined the interview via phone from San Francisco.

Q: Who do each of you see as your biggest competitor today in the corporate technology world?
Ballmer: I think if you look on the enterprise side today, there's two primary forces. I would say certainly Oracle is on the list of primary competition and then primarily Linux-based alternatives.

Now, IBM shows up for sure. In certain spots we overlap with Cisco. Google is starting to show up a little bit. But certainly Oracle is a primary competitor as is Linux. But Linux as sponsored by IBM, but it's Linux more than it is any IBM product. That's the big competitive dynamic for us in the enterprise.

What would you say, Joe?
Tucci: It's a little bit harder to answer. We have four business units that address the enterprise: virtualisation, storage, security, and content management archiving. And for each one, different competitors pop up. On the virtualisation side, we have co-opetition with Microsoft a little bit. On the security side, you'll see companies like Symantec. On the storage side, there's no shortage. You'll see IBM, HP, Network Appliance. On the content management side, you'll see IBM.

How does your partnership improve how you each compete against these companies?
Tucci: I'll start with content management. One of the things we've been working on for a while is working closer on integration with SharePoint and Documentum, which we think brings together two important aspects of content management - user experience and real, back-end repository experience - and puts them together.

We also think we can have the best end-to-end solution out there in security. We are taking Microsoft with their rights management software to more end points, which we think will make us stronger against Symantec and others.

Ballmer: And the partnership makes us stronger versus our Linux-based alternatives on the desktop. Part of the way we compete with open source desktop stuff is by having stronger total value-add. We can't beat Linux on initial price. So, the notion of being able to go and say, here's a solution that you can really use to do fantastic security, fantastic data loss prevention from the client through the back-end, that's a powerful part of our proposition. And that's an example of how you get these things to dovetail.

Tucci: Microsoft is making huge forays in the overall operations management space, and we partner together with some technologies there. So, I think together Steve and I both feel we can be more competitive in the marketplace and provide real value for our joint customers.

In the agreement, one of the areas you talked about working more closely in is virtualisation. VMware is affiliated with EMC, which is probably Microsoft's biggest competitor in virtualisation. So how credible is the notion that your companies can work together? And where do you draw the lines of cooperation? And how does that benefit customers?
Ballmer: We're not sitting here pretending we're partnering with VMware. That's more competition.

With EMC, which is a large majority owner in VMware, but is also independent, there's a lot that rides on virtualisation. The fact of the matter is the storage business is being transformed also by virtualisation. And virtualisation is transforming the storage business. We want to do very well in virtualisation. While Joe may own 80 per cent of VMware, he still thinks it's a good idea to sell storage in places where perhaps we'll win as opposed to VMware.

Despite the fact that there's a level of competition with EMC's majority-owned division or entity, there's also a lot of cooperation around how virtualisation affects the rest of our product line and the rest of EMC's product line. Let me just say, we're happy with the state of affairs. Of course, there's going to be competition in the virtualisation space. I think EMC is as good as you're going to get in terms of being able to both - I won't say compete, but own a competing entity, if you will - and partner with us where we want to. We really respect Joe and the EMC team for that.

Tucci: I agree with everything Steve said. I think I'd add a point that says to really serve our customers, you need to form partnerships and alliances. And if you look for that alliance or partnership to be perfect where there's zero areas of overlap, I'm not sure that's physically possible with two powerful companies. So, what you have is this co-opetition.

As long as, like Steve said, you define the rules, you both know what you're doing, and have respect and understanding. For sure there will be many Microsoft applications running under VMware, and that's fine, because it's a win-win. There will