Microsoft Chief's Battle Plan: Vaporize Google's Cloud

The ad-supported versions of the Office Web Apps will undoubtedly appeal to consumers who are considering free Office competitors, such as Google Docs, Zoho, and OpenOffice.org. In addition, customers will no longer need to purchase the full Office suite if they only occasionally open, print, or make small changes to Office documents that contain complex formatting. That should particularly please Linux users, who until now could only run -- with difficulty -- older versions of the Office suite with the assistance of the Wine Project.

Microsoft's move to offer subscription-based, hosted versions of SharePoint and other server software should also meet approval. Small and midsize businesses that worry about their ability to manage and maintain servers for back-office functions should be particularly intrigued, but according to a recent IDC study, usage-based pricing models are increasingly attractive to many enterprises.

But perhaps the most significant aspect of Microsoft's new strategy may be how it changes the nature of the software giant's relationship with its customers. Rather than the annual sales cycle of yesterday's software industry, Microsoft plans to capture revenue from its customers on an ongoing, 24/7 basis -- whether from software sales, usage-based subscription payments, or ad impressions.

That idea is sure to make some customers nervous, but Microsoft's strategic shift could also have unintended positive consequences. For one, the need to reach a wide audience with its online services to increase ad revenue could encourage support for open Web standards at Microsoft, which could lead to better standards compliance in future versions of Internet Explorer.

More fancifully, revenue from subscriptions, advertising, and the Azure platform could reduce Microsoft's dependence on its software cash cows. Freed from the need to guard its proprietary software portfolio jealously, Microsoft could then pursue improved relationships with the open source and open standards communities. Microsoft claims to be "committed to building bridges to other software providers, including open source technologies and products," and the company has made a few conciliatory gestures toward the open source world as of late, such as funding the CodePlex Foundation. But a more genuine, less patronizing effort would be welcomed (even if past sins will not soon be forgotten).

Microsoft: Too Big to Succeed?

Critics argue, however, that such a rosy picture of Microsoft's future is unlikely. Before Ozzie can beat Google, they say, he must first confront an even scarier foe: Microsoft's own lumbering, bellicose corporate culture. Direct competition of Google's magnitude has been a rarity in Steve Ballmer's 10-year tenure as CEO, and some analysts fear Microsoft's competitive spirit has irreparably atrophied.

Insiders warn that Microsoft's ability to innovate is hampered by infighting and bureaucratic mismanagement. In an editorial for the New York Times, former Microsoft exec Dick Brass described the company as "a dysfunctional corporate culture in which the big established groups are allowed to prey upon emerging teams, belittle their efforts, compete unfairly against them for resources, and over time hector them out of existence."

That description will sound familiar to Microsoft's competitors, who have long bemoaned the company's tendency to rely more on undisclosed file formats, hidden APIs, product tying, backroom deals, negative marketing campaigns, and other anticompetitive tactics than on innovation. There is reason to hope Ozzie will not follow Bill Gates' lead in this regard; in his 2005 memo, Ozzie urged Microsoft product groups to "compete energetically but also responsibly" -- for example, by allowing outside developers full and equal access to Windows APIs. But old habits die hard, and Microsoft is a big company.

If Ozzie cannot foster a culture of innovation at Microsoft, however, some battles may already be lost. Arguably the most critical challenge for the software giant is regaining a competitive position in the smartphone market. Steve Ballmer himself admits his company "screwed up" with the underfeatured Windows Mobile 6.5. Among the stated goals of Office 2010 is to deliver "the best productivity experience across the PC, phone, and browser," but if Windows Mobile 7 disappoints again, that goal will be stillborn.

Microsoft cannot afford such missteps. If the software giant's legendary intransigence prevents it from realigning itself with Ozzie's vision, there will be tough times ahead in Redmond. With its sky-high revenues -- Microsoft earned $20 billion in operating income in 2009 -- the danger is not that Microsoft will disappear, but that it will drift into irrelevancy, leaving competitors such as Google to dictate the direction of the computing market. As the man with the job of reversing that drift, it can't be easy being Ray Ozzie -- but it must be exciting.

Neil McAllister is a freelance writer based in San Francisco. He also writes InfoWorld'sFatal Exceptionblog.

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