Gruber is right about Microsoft failing at phones and that there is not much they can do about it. However, I don't think Ballmer is in denial about that.

It was and is obvious that at some point all phones will be what we call smartphones now. I think Ballmer's point is that even when that happens, the iPhone will not be able to sustain its 16%. It will still have insignificant market share.

Android will not, though. It might get "60 percent or 70 percent or 80 percent", and that's the share that Ballmer would have preferred run Windows.

So yes, I think Ballmer asked the right question and got the right answer. He just doesn't have any way to respond to Android.