Ballmer says the Sidekick episode was 'not good,' but Microsoft is ensuring that its online services won't make the same error. Ballmer, in a meeting with Network World at the annual SharePoint Conference, said moving between enterprise applications like SharePoint and Exchange deployed internally to versions of that software operated in the cloud by Microsoft will be "seamless."

"Customers are saying give me some credit here, this is more like an upgrade than it is like a new buy, give us a little credit,"he said.

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Users have been questioning whether they can move licenses online without having to take a credit and renegotiate with Microsoft on licensing terms.

"I know it will take them time to get it straight; it is really complicated," said Guy Creese, an analyst with the Burton Group. "They claim software plus services as a mantra and if that is true they need to make it so these two environments [cloud and on-premises] are seamless [from a licensing perspective]."

Ballmer said users need to break it down by separating Internet and intranet deployments from cloud and on-premises.

"Internet stuff we do is all priced basically per application or per server and it will be priced that way whether it is offered in the cloud, as a service or on-premises," he said. "I think that is pretty clean and I think that is the way that people would like to see things licensed." He said intranet applications are essentially priced by the number of users and that fact is true whether it is in the cloud or on-premises. "So one is user-based and one is application based."

But Ballmer said Microsoft will be flexible in the way the company prices cloud versus on-premises.

He said users that want to come to the cloud can buy the service and use the license they own or they can start in the cloud and buy an integrated license that pays for both the service Microsoft operates and the license. "We designed it to be seamless, in a sense it looks more complicated now because you have two choices."

"We have a big enough install base of people that bought licenses that say, 'Hey, when we buy your service we don't want to be re-buying what we have already paid you for in terms of software.' We have to recognize that our customers expect a transition step where we give them credit for the software that they already own," he said.