Will HailStorm Shower Money on Microsoft?

As with any new business venture, a key question surrounding Microsoft's HailStorm initiative is how the software giant will make money by pushing the Web services strategy.

Bob Muglia, vice president of Microsoft's .Net Services group, says current market conditions indicated that it was time to forego dot-com business strategies in favor of "traditional" models.

To that end, Microsoft will charge end users--both consumers and corporate users--on a subscription basis, a model the Redmond, Washington, company has been eyeing for years.

"We think that users will be willing to pay for those services," Muglia says.

Some base-level Internet services would remain free "even though that business model, by itself, has proven to be troublesome," jokes Microsoft Chair Bill Gates. One such free service will be Passport, the universal sign-on service that has been a staple of MSN and other Web sites run by or partnered with Microsoft.

Other HailStorm services, though, would come with a price, based on the richness of the features or the frequency of use. The cost could rise based on the number of notifications a user receives, says Brian Arbogast, vice president of Microsoft's personal services division.

Also factored in will be subscription-based updates to software such as the Office productivity suite, Muglia says.

One financial analyst, Rick Sherlund, who works at New York-based Goldman Sachs, says Microsoft likely will not see serious revenue from the Web services model until 2003, but unveiling the new direction "will be of strategic interest to investors" concerned about the company's vision.

"I would not be surprised to see some services as low as $3 per month," Sherlund says.

Gates agrees that users are not wary of Internet-based subscription models, noting that most of Microsoft's revenues come from the company's Enterprise agreements with large corporations, which are typically offered in three-year subscriptions.

Potentially more lucrative than end-user subscriptions is exploiting Web services in the business-to-business market--a market Microsoft plans to hit, although to date its .Net strategy has been primarily aimed at consumers.

Muglia says Microsoft could charge partners "a moderate amount" to be Web service operators, with additional charges for support, large volumes, and other factors.

"We think it would be less expensive to use our services than it would be to build their own," Muglia says.