Microsoft Plays Catch-up on Services

Today's Best Tech Deals

Picked by PCWorld's Editors

Top Deals On Great Products

Picked by Techconnect's Editors

SAN FRANCISCO -- Microsoft Chairman and Chief Software Architect Bill Gates touted Microsoft's new Live Software strategy as a "revolution" in how the industry views software. But Microsoft's plan to provide a series of Web-based services branded with the names of popular Microsoft products is more an evolution of Microsoft's software as a service strategy--and an effort to catch up to current industry trends--than a move that will redefine the entire industry, analysts said.

The way it was presented Tuesday here, Live Software is a multifaceted plan that shows Microsoft making several moves. First, the company proved it understands the need to clarify its long-neglected software-as-a-service-strategy as many companies, including rival Google, are backing the trend in an attempt to rival Microsoft's dominance in desktop applications.

With its Windows Live and Office Live offerings, the company is giving its customers a taste of what is to come when it brings all of its software online sometime in the future, even if that plan is 15 years away, said Rob Enderle, principal analyst for the research firm Enderle Group in San Jose.

"This is Microsoft moving toward offering [all of its] software as a service," Enderle said. "Microsoft will ease into it because they don't want to give up the product revenue before the services revenue can ramp up."

Stoking the Portal Wars

Windows Live--which lets users build a personalized Web portal that includes e-mail, a new instant messaging client with collaborative functions and ways to sort and maintain contact information, and enhanced local and Internet search technology--also shows Microsoft playing catch-up to Yahoo. Microsoft's take on a comprehensive portal is reminiscent of MyYahoo, where users can access Web-based services that meet both consumer and business needs. Google also gives its users the option of personalizing its home page with things such as news headlines, weather information and stock quotes.

One thing Microsoft has over its competitors, however, is that Windows Live lets users add local content and Web services from their PCs to their personal start page, which provides more flexibility and value, said Van Baker, a research vice president at Gartner. "That's pretty compelling technology," he said. "That will be harder for Yahoo and Google to do because they don't have access to the innerworkings of the OS like Microsoft."

This kind of tie-in of online services and the OS shows that Microsoft is no longer going to be shy about using its most bankable product, Windows, to promote its online services in an effort to outsmart Google and other Web services companies, said Rob Helm, director of research for Directions on Microsoft.

"Microsoft never used Windows to drive business to online services," he said. "This announcement is a signal that they might be willing to rethink that and hook software more into online services."

Windows Live also calls into question the fate of Microsoft's MSN portal. Microsoft executives said that while MSN will continue to exist as a portal, current users of Hotmail and MSN e-mail services will eventually be required to transition to the e-mail service offered by Windows Live, now available in beta.

Good-Bye, MSN?

Analysts believe the overlap between what Windows Live will offer and what the MSN portal currently offers is great enough that Windows Live eventually will, for all intents and purposes, replace MSN as the portal for Microsoft's Web-based services.

"My sense is that the development and marketing effort [of MSN] will go into Windows Live," Helm said. "The MSN brand will stick around but it seems like the machines, the people and the services will be there, but more and more of them will be called Windows Live."

"MSN starts looking redundant to me as Windows Live starts evolving," Enderle agreed. "I can't see why you'd need both."

In addition to taking on Google with Web-based services, Microsoft also plans to try to beat the search company at its own game by winning more online advertising dollars through Windows Live and Office Live, and by adding its AdCenter advertising sales engine to a host of its products.

Microsoft currently has about 10 percent of the online advertising market. Google has done an impressive job at showing how much money can be made through online advertising, Microsoft Chief Technical Officer Ray Ozzie said at Tuesday's event.

Analyst Helm said Microsoft may not expect to make a ton of revenue itself through online advertising, but by going after those dollars, the software company might keep Google from growing.

"Even if Microsoft can't make money, the plan may well be able to keep Google away from the resources it needs to expand," he said. This may well be a difficult endeavor, however, as even Ozzie acknowledged Tuesday that plenty of money can be made in online advertising, a market that is projected to grow to $150 billion by 2050.

Critical of Debut

Analysts noted that while Microsoft's Live Software plan is ambitious, the company's presentation of its new strategy Tuesday left much to be desired. Microsoft tried to cover too much ground in one event, they said, and the announcement of Live Software seemed hurried, as if the company was trying to quiet critics who wondered what Microsoft had up its sleeve to compete with the wildly successful Google.

Errors also plagued event logistics. The event ran considerably over its planned two hours, and several product demos failed initially, leaving Ozzie to awkwardly fill dead air time while engineers corrected technical difficulties.

"It was Ray Ozzie's coming out party and it wasn't a good one," Enderle said of the performance. "Ray really stumbled a lot. ...It was one of the most poorly executed events I've seen Microsoft do in years."

Microsoft likely won't be as ill-prepared when it comes to executing on its hosted software strategy over the next several years, something that analysts think will pick up in earnest after the launch of Windows Vista at the end of 2006.

But it remains to be seen exactly how far the company will go with its software as a service strategy, analysts said. Another thing made evident by Microsoft's tarnished performance Tuesday is that even company executives may be unsure how long it will take to move customers, and the industry itself, from packaged software to Live Software.

Note: When you purchase something after clicking links in our articles, we may earn a small commission. Read our affiliate link policy for more details.
Shop Tech Products at Amazon