Microsoft wants customers yet to upgrade to its latest software versions to 'understand' why they need to do so, and plans to dispel the perception that older versions of its software are 'good enough'.

In a wide-ranging 'state of the nation' email sent to Microsoft employees, chief executive Steve Ballmer said: "So many customers have yet to deploy our most recent advances, so we must not only help them understand why to deploy, but demonstrate the benefits of deploying before we reach the Longhorn generation."

He said the company needed to change customers' perceptions, including the view that "older versions of Office and Windows are good enough and that Microsoft is not sufficiently focused on security".

This, he said, would be achieved by emphasising "key positive perceptions of the strong manageability, and developer and information worker preference, for our platform".

Ballmer said customers were still feeling pain over security issues, but added that products were now being built "in a way that significantly reduces vulnerabilities and customers' exposure to attack".

Acknowledging that there was still a lot of work to be done on Longhorn - the company's next major operating system release - Ballmer said Microsoft had decided to release a number of products first "to get it right, and to prioritise the important security features of [Windows] XP SP2".

"Longhorn will be another major step forward on which we can add value to customers through integration," he added.

In the same email Microsoft reveals a plan to save nearly $1bn per annum after a three-year period of expenses growing faster than revenues.

"This year, we are targeting nearly $1bn in efficiency improvement and cost reduction across the company, primarily by rethinking how we do things," said Ballmer.

He was also cautious about growing competition from Linux, acknowledging that Linux and Windows had both gained server market share.

"We know how to compete with Linux through innovation, quality support execution and facts-based customer education," said Ballmer.