Microsoft Corp, the world’s largest software maker, 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 and Yahoo.
The two new ad-supported Web products, Windows Live and Office Live — will deliver services to businesses and consumers directly on the Web, in many cases, without the need to download the applications to a computer.
It was seen as an important step in extending Microsoft’s reach beyond the desktop PC to smart phones and other Internet-connected devices, The New York Times reported.
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.
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.
Microsoft executives said that the company intended to take on both Google and Yahoo! by making advertising-supported services the core of a broad new Web-based software applications business.
Mr. Gates said that new Internet-based technologies were creating an era of live software that will change the software industry and transcend the boundaries of any particular computer or mobile device.
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 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.
Carmi Levy of the research firm Info-Tech said Microsoft’s announcement means "the end of shrink-wrapped software in a box and the start of the Internet-based services era. It marks a turning point in the industry."
Levy added that Microsoft could not afford to sit by and do nothing while Google and Yahoo established themselves in that market as leaders in Web services and advertising.
Although Microsoft’s Windows operating system is used on more than 90 percent of the world’s personal computers, the company has to fear efforts to circumvent Windows by going directly to the Internet. This system would allow customers to use word processors or other applications on the Internet and store documents on a secure website instead of on a PC drive.
Jason Maynard, an analyst at Credit Suisse First Boston, said: With this event, it is apparent that Microsoft understands the reality of the Web as a platform for user-centric computing and advertising-based business models.
Maynard added: While much work needs to be done, we were impressed with the thoughtfulness and broadness of the offering. This event marks the real start of the ‘on-demand‘ battles.
The move revived an attempt made several years ago by Microsoft to expand its Internet services in a program known as .NET, or "Hailstorm," that floundered amid privacy concerns about its authentication process, called Passport.
Joe Wilcox at Jupiter Research was more skeptical about the latest Microsoft strategy.
Advertisers looking to extend their brands might think twice about being associated with products that could create disgruntled customers, Wilcox said. He noted that consumers "may not be as forgiving" about glitches in the services.
In the offline world, there are huge expectations about services like water, electricity and telephony working right, he said. People get mad when the lights go out. If the online services do not deliver, switching brand affiliation would be as easy as switching services, and there are
plenty of places offering the kind of stuff Microsoft plans for Live.
Analysts are divided on the new approach by Microsoft, which will initially support the services through advertising but may eventually go to subscription models.