Microsoft Corp. said Tuesday that its next operating system will be made for touch-screen applications, an alternative to the computer mouse.

Microsoft Chief Executive Officer Steve Ballmer unveiled the iPhone-like touch-screen feature at The Wall Street Journal's "D: All Things Digital" conference, calling it "just the smallest snippet" of the Windows 7 operating system slated for release in late 2009.

A Microsoft employee showed possible applications like enlarging and shrinking photos and navigating a map of San Diego by stroking the screen.

Microsoft Chairman Bill Gates framed the new feature as an evolution away from the mouse.

"Today almost all the interaction is keyboard-mouse," Gates said. "Over years to come, the role of speech, vision, ink - all of those - will be huge."

The software company's top two executives defended its last operating system, Vista, while acknowledging missteps. Gates said he has never been 100 percent satisfied with any Microsoft product, and that the company prides itself on fixing shortcomings in later versions.

"Vista has given more opportunity to exercise our culture than some products," he deadpanned.

The former Harvard University classmates fielded a range of questions for more than an hour, sharing the stage as Gates prepares to relinquish daily responsibilities at the company in July to focus more on philanthropic work.

Ballmer said Microsoft remained in discussions to team up with Yahoo Inc. after Microsoft's $47.5 billion bid for the company was spurned earlier this month. He said Microsoft wasn't planning to buy Yahoo but offered only the barest details of what he has in mind.

"We are not rebidding for the company. We reserve the right to do so. That's not on the docket," he said.

Microsoft said May 18 that it revived talks with Yahoo, without providing specifics. Ballmer declined to say much more, even when pressed.

"All I'll say is we're in ongoing discussions with them around a partnership," he said.

Gates let Ballmer take the questions about Yahoo. When asked for his thoughts, Gates said, "I've been supportive of everything Steve has done. ... Totally supportive."

Ballmer, responding to an audience question, denied that the bid tarnished Microsoft's reputation.

"If anything, I think people know we're very serious about our online business," he replied.

Microsoft has divulged little about its Widows 7 operating system - even after introducing the touch-screen feature Tuesday - a contrast to the much-hyped release of Vista.

Chris Flores, a director on Microsoft's Windows client communications team, said in a posting on a company blog Tuesday that the more circumspect tack was deliberate and intended to avoid announcing plans that may change.

"With Windows 7, we're trying to more carefully plan how we share information with our customers and partners," he wrote.

The executives regaled the audience with tales of how they met and Microsoft's early days.

Ballmer, who was best man at Gates' wedding, remembered Gates at Harvard as quiet and shy but with "a certain kind of spark, particularly later in the day."

Gates remembered Ballmer for his energy, a reputation that persists today.

"Steve was signed up for more things than anybody else. He was very, very busy," Gates said.

Ballmer said he had to plead to grow Microsoft's payroll from 30 employees and that he had to assume the duties of the company bookkeeper, who left on Ballmer's first day. Gates was rightfully worried about bankruptcy.

When Ballmer began to question why he left business school at Stanford, Gates laid out his vision of a computer at every desk. Ballmer stayed put, leading to a 28-year partnership at the company helm.

"I was forced to be particularly articulate that night," Gates recalled.

Ballmer, known as marketing guru, said he has been Gates' "junior partner" for the last eight years, when Gates left the CEO job. He said he has never been uncomfortable with Gates' much bigger fame, though he admitted struggling to adapt to his new relationship with Gates during his first year as CEO.

"I was not sure how much rope to give," he said.

Ballmer said he doesn't anticipate similar transition struggles when Gates steps down from daily responsibilities.