Microsoft (MSFT) Chairman Bill Gates and Google (GOOG) CEO Eric Schmidt had an awkward encounter this morning at the Sun Valley mogulfest this morning — and after Google detailed plans Tuesday to create software it hopes will challenge Microsoft’s dominant Windows operating system.

Mr. Gates and his former lieutenant Nathan Myhrvold were walking out of the morning session when two reporters, including this one, asked Mr. Gates for a comment on the new Google operating system.

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Last week, PCMag.com’s Sascha Segan pointed out something unusual about former Vice President Al Gore’s keynote speech at next week’s CTIA Wireless phone trade show in Las Vegas: It wasn’t going to be open to the press, apparently at the request of Gore or his staff. It was a truly jarring bit of news. I’ve been attending tech trade shows for a couple of decades, and can’t remember a single other keynote that the media wasn’t invited to attend.

But it’s not just as a courtesy that we press people are normally let into such speeches–media coverage is one of the primary reasons why they exist. It’s impossible, for instance, to imagine a scenario in which Steve Jobs keynotes at Macworld Expo or Bill Gates ones at CES were anything but publicity extravaganzas designed to attract as much media attention as possible.

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The numbers are startling; one technology IPO last quarter, only six in 2008. Is innovation dead? Did Google/Microsoft/Cisco consume all the promising start-ups? Did Sarbanes-Oxley render IPOs too hard and costly? Yes, if you believe columnists, conferences and collective wisdom.

They’re wrong. IPOs aren’t popular because they are perilous. Choosing extra risk now is like stocking up on peanut butter energy bars during a salmonella outbreak. The downside is ugly. New “unseasoned” issues are like new car models, rife with unknown quirks. We know their lineage and plans, but the future is mostly hope and speculation. Hindsight shows that newly public companies are prone to err when first under the marketplace spotlight.

The question isn’t “why aren’t investors buying IPOs now?” but rather “why do investors ever buy IPOs?” The answer is that institutional investors, the principal IPO buyers, exist to take calculated risks. If convinced potential reward overcompensates for added risk, fund managers will belly up to the IPO bar and order a double. Conversely, when offered safer, appealing choices, investors will skip the umbrella drinks and opt for the single malts. These days, risk reminds us of Jagermeister shots: something that used to be fun.

However, unless entrepreneurs now dream of Hondas–not Ferraris–and unless these “damn the torpedoes” folks checked their aspirations in the umbrella stand, the IPO market will be back.

The process of going public is tougher than it used to be but it’s still an entrepreneur’s crowning achievement. Need proof? Name four famous tech company founders. How about Sergey, Larry, Steve and Bill? Now name four tech legends who sold out to Cisco (CSCO), Microsoft (MSFT) or IBM (IBM). OK, name one.

IPOs are proof that ideas and hard work create recognizable value. No other exit affords founders both the glory and the independence. More tangible reasons to go include the start-up promise to employees; “Work long hours for low pay today, and tomorrow you too can afford a Tesla.” There’s no guarantee of success, but if it’s realized, there is an agreement that it will be shared by all. An IPO is the deliverable on that deal.

Secondly, acquisitive growth companies often prefer shopping with stock over cash, but agreeing on private-stock value is difficult. Public equity is a better currency because of its undeniable, third-party valuation. Finally, Silicon Valley’s history proves that yesterdays’ IPOs fund seed capital for tomorrow’s innovators.

A healthy economy needs a robust IPO market, begging the question: With so few of late, are we up the creek? To the contrary, five pointers suggest when we emerge from the current mess; our IPO market may be healthier than it has been in a decade.

1. Sarbanes Oxley is good for IPOs. According to Morgan Stanley Research, over a 20-year period, north of 60 percent of technology IPOs trade below their offer price. High on the list of reasons why newly public companies flounder is their failure to heed the wisdom of Paul Masson; they sell before their time.

The distractions are enormous and expensive. It’s genuinely difficult to lay the rails while driving a bullet train. Natural business challenges are compounded by the Sarbanes Oxley albatross. Fine-point accountability requirements force order on the chaos inherent in rapidly growing companies, but unquestionably slow the journey to market.

At an average small company cost of $3.0m, SOX implementation takes a major bite out of profits. However, while this expense initially reduces calculable company valuable for those using current earnings to set the IPO price, over time, accountability reduces corporate risk and therefore should increase returns. In fact, if a company can’t afford the expense and hasn’t endured the hardship of thoroughly documenting its systems, is it really ready for the teachers’ retirement fund, corporate pension plan or other public investors? It was easier to go public before SOX but, for investors or issuers, was it better?

2. The demise of investment banks is good for IPOs. Today, we lambast investment banks because they earned it. Formerly sure-footed firms ran full speed into a bog they didn’t understand. Those whom Tom Wolfe once christened “Masters of the Universe” and “BSDs” have morphed into LSWs (little shriveled walnuts).

How does this help the IPO market? In the heyday, technology IPOs were shepherded by boutique investment banks focused on, and economically aligned with emerging growth companies. Those banks didn’t invent, sell or swap CDOs or SIVs. Rather, in the 1990s, following the wisdom of the day, they sold out to diversified, theoretically better-capitalized, larger banks. Those acquiring banks emulated Audrey, the man-eating plant from “Little Shop of Horrors,” demanding ever larger revenues to sustain their mass, leaving new issuers who generate small fees with little IPOs, an acronym of their own; SOL.

Now, with large investment banks hanging with the pterodactyls, there’s an opportunity for boutiques to rise again, a turn that could be very good for the IPO market.

3. The implosion of hedge funds is good for IPOs. Hedge funds vary in size and style but until recently, the market movers who mattered were the fast-money behemoths. These players often care about IPOs only on day one. In a whiplash market, even longer term investors had little opportunity to amass measurable holdings of new issues. With the fast money players sidelined, patient “investment” (versus speculative) funds may again have time to develop confidence in management, a prerequisite for accumulating big positions in newly public stocks.

4. The new administration is good for IPOs: “It has not been the path for the faint-hearted, for those who prefer leisure over work, or seek only the pleasures of riches and fame. Rather, it has been the risk-takers, the doers, the makers of things…who have carried us up the long rugged path towards prosperity and freedom.”

Public recognition of the entrepreneurial spirit, and its critical role in our economy, by President Obama in his Inaugural Address. Enough said.

5. Constrained venture capital is good for IPOs. Comfortable start-ups, with logo-emblazoned, fleece-clad employees sometimes grow flabby. Conversely, start-ups scraping by to pay bills must focus on building and profitably selling products. While some genuinely need millions for development, others require only cheap computers and smart people willing to work like politicians during primary season. Eventually, outside investment fuels expansion, but examples from Apple (AAPL) to Intuit (INTU) to Google (GOOG) prove that, as the lottery once advertised, all it takes (at first) is a dollar (or a credit card) and a dream. Less venture money sloshing around today will likely mean fewer but stronger start-ups tomorrow.

It isn’t broken, please don’t “fix” it. Today’s IPO market is not healthy, but it is rational. Government’s role should be to insure that observant, active, on-the-ball regulators have the tools and backing to seek out and slam down financial cheats, thereby restoring confidence in the markets. If government can find a way to restrict extortionist lawsuits filed whenever a stock drops, that would help too. Otherwise, well-meaning administrators should stand clear.

When the markets settle and when the blue plate specials on blue chip securities abate, when the investment merits of an IPO are self-evident, a better and stronger market will be ready.

Well, take a deep breath: the tech sector starts off the new year with a bang this week, with the Steve Jobs-less Macworld in San Francisco and the Bill Gates-less CES coming up in Las Vegas. I’ll be at Moscone West for the Macworld keynote by Apple (AAPL) marketing exec Phil Schiller Tuesday morning; later in the week, Tiernan Ray and I will be covering all the news from CES. Meanwhile, here are some tidbits from the weekend’s papers:

The U.S. government is running out of cash for its program to subsidize the costs of digital television boxes, according to an AP story in Saturday’s San Francisco Chronicle.

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Bill Gates and several of Microsoft’s top technologists are credited as inventors in eight newly disclosed U.S. patent applications. That isn’t a surprise. But here’s where it starts to get unusual: The applications weren’t made on Microsoft’s behalf. Why are Gates and others from Microsoft doing their “inventing” outside the realm of the company? Microsoft has an explanation, and the company says it’s not as unorthodox as it might seem.

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Just months after his Microsoft farewell, Bill Gates is quietly creating a new company–complete with high-tech office space, a cryptic name and even its own trademark. Public documents describe the new Gates entity–bgC3 LLC–as a “think tank.” It’s housed within a Kirkland office that the Microsoft co-founder established on his own after leaving his day-to-day executive role at the company this summer. Is this Bill Gates’s next big business? A Gates insider gives an emphatic no–saying it’s not a commercial venture, but rather, a vehicle to coordinate the software mogul’s work on his business and philanthropic endeavors.

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Warren Buffett and Bill Gates met for the first time over the Fourth of July holiday in 1991, when Katharine Graham, chairman of the Washington Post, and her editorial page editor and friend Meg Greenfield had dragged Buffett to Greenfield’s house on Bainbridge Island for a long holiday weekend. To Buffett, a weekend on an island a half-hour ferry ride from Seattle that could be escaped only by boat, seaplane, or hitching a ride over the bridge by car was an “anything for Kay” event.

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I’m at the Hyatt in Santa Clara, Calif., tonight where Microsoft (MSFT) CEO Steve Ballmer is going to be speaking to the Churchill Club in conversation with Hummer Winblad founder Ann Winblad. (Winblad is an inspired choice; among other claims to fame, she legendarily dated Bill Gates for five years.)

The Valley tech press corps is all here, along with what looks 1,000 or so other people. Festivities begin in 30 minutes or so; I’ll be blogging it live. Back soon. [Click on link below for transcript.]

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I’ve been a pretty big fan of Microsoft’s Bill Gates and Jerry Seinfeld ads. No, it’s not because I’m such a Seinfeld fanboy (I am though) or that I enjoy watching Bill Gates perform the robot on cue.

Instead, I look at the Seinfeld ads as a way for Microsoft to turn the company’s poor public image into a positive image that will help it finally fix its Vista PR woes.

But after buckling under the pressure of “what is this about?” articles, Microsoft has shelved the Seinfeld ads (they may or may not come back) and has instead started attacking Apple by explaining exactly what a PC is. (Editor’s note: Microsoft says the move away from the Seinfeld ads was always planned.)

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Chrome is not going to replace Windows. A computer requires an operating system such as Windows, Apple’s OS X or Linux to make the machine work. It does, however, have the potential to do what Mr. Gates feared: make the choice of operating system less important.

So writes John Gapper, the fine columnist for The Financial Times in today’s paper. Chrome, of course, is Google’s new browser, which is pretty explicitly designed to be a Windows killer. As Mr. Gapper notes, that precise fear–that an Internet browser could become such a powerful platform for applications software that it would effectively take over the function of the operating system–is what caused Microsoft to start the browser wars in the 1990s, effectively putting Netscape out of business.

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Bill Gates doesn’t get a lot of credit these days for being a visionary. But when it comes to his relationship with Facebook, he may still be a step ahead of the rest of us. The Sun, a British tabloid, reported this year that Gates had quit his half-hour-a-day Facebook habit, partly because he was getting more than 8,000 “friend” requests daily but also because he was finding “weird fan sites about him.” A Microsoft representative confirms that the boss has gone cold turkey but wouldn’t disclose whether Gates knew of a Facebook group called “Would you have sex with Bill Gates for half of his money?”

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My colleague Mark Ververka is up in Redmond today for the Microsoft (MSFT) Financial Analysts’ Meeting, where the company is trying to convince the Street that it has a viable online strategy. Here’s Mark’s latest update from the scene:

One thing is certain. You can’t say that Microsoft CEO Steve Ballmer isn’t accessible. Not on this day of the year at least.

The CEO has patiently been addressing analysts’ questions in the buffet line, at his lunch table and in the hallways. At lunch, a ring of curious attendees three and four people deep circled his table, listening intently as Ballmer fielded queries about Yahoo (YHOO), Vista, financial processes and life without Bill.”

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Bill Gates has left the building and the question on many people’s lips is: Will Microsoft change as a result? What influence will Steve Ballmer have and how will the company’s strategy alter without Gates? Here are five ideas about what could change at Microsoft now that Gates is no longer at the helm in Redmond. …

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