By Eric Auchard
Microsoft Corp., the world's largest software maker, on Tuesday said
it is embarking on a major new way of doing business in which it
offers its software as free online services, funded by advertising,
while seeking to fend off rivals like Google Inc.
Outlining what it said was its biggest strategy shift in five years,
the Redmond, Washington company told a meeting of analysts and
reporters that it would deliver many of its key products and services
as online services as well as selling subscriptions or licenses for
software installed on computers.
Windows Live and Office Live will give users some of the basic
features of the software giant's two most-profitable products, but
without the complexity of installing and maintaining the software in
computer hard drives.
"We are trying to put a 'services plus software' mentality into many
of the product groups inside Microsoft," said Bill Gates, Microsoft's
chairman and chief software architect.
Microsoft also said it planned to fold many well-known products in its
MSN division into a new brand called Windows Live. The move will
combine its instant-messaging service, a new online e-mail service
replacing Hotmail, Web security, data storage and other features, all
available via the Internet.
The software giant is looking to defend its mainstay Windows and
Office software franchises by borrowing from ideas used by challengers
such as Google, Salesforce.com, WebEx, Yahoo Inc. and scores of start-ups.
While most of these rival programs have tiny audiences relative to
Microsoft's hundreds of millions of Office users, the simplicity and
power of Web-based software has captured the imagination of many
software developers across the industry.
"(Microsoft) clearly gets where the focus of the competition needs to
be," said Tim O'Reilly, publisher and software design guru, on the
sidelines of the event.
"There are going to be some fabulous new services. But whether they are
built by Microsoft or by Yahoo or Google or Salesforce remains to be seen,"
Three tiers of service will be offered, starting with a free,
ad-supported one, a second tier with more features paid for by a
low-cost subscription fee and a premium price, full-featured tier for
services that users regularly rely on.
Windows Live is a free Web-based service in which individual users can
sign up for a "live" home page that pulls in constantly updating
content from a range of information sources including Web searches,
e-mail, syndicated headlines from other sites and photos and audio
from across the Web.
Office Live will give smaller companies access to many of the features
in Microsoft's collection of programs for business tasks, as well as
the ability to maintain corporate e-mail accounts and data.
The pay-per-click advertising system pioneered in the dot-com era by
Overture and fine-tuned by Google has created a new way of supporting
innovative services and software on the Web, Microsoft executives
"Google has done an amazing job of making that ad engine click on
eight cylinders. We have all learned quite a bit from them," Ray
Ozzie, Microsoft's recently named chief technical officer said. "They
and we have barely scratched the surface."
Microsoft is testing its own adCenter software in France and Singapore
and will begin offering it for use by advertisers and partner Web
sites worldwide over the next year, he said.
"We currently have about a 10 percent share of the online market. We
fully intend to grow this share," Ozzie said.
"This advertising model has emerged as a very important thing," Gates
said. "We want all software developers to tap into these models," he
said of how many start-ups now depend on advertising from rival Google
to fund their new Web projects.
Analysts attending the meeting said Microsoft demonstrated it clearly
grasps how the industry is shifting to deliver software as Web-based
services rather than isolated programs. But these moves are
preliminary and fragmentary, they said.
The new initiative also reflects a recent company-wide reorganization
at Microsoft that put MSN under the Windows division and put Ozzie in
charge of Microsoft's efforts to deliver software services over the
"It shows that they get it," said Goldman Sachs analyst Rick Sherlund,
but added that he had many questions how Web services would meld with
its existing businesses.
(Additional reporting by Reed Stevenson in Seattle)
Copyright 2005 Reuters Limited.
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