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Microsoft plan promises advertising opportunities

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Responding to ongoing competition from companies such as Google and Yahoo!, Microsoft Corp. two weeks ago announced the launch of two Internet-based software services: Windows Live and Microsoft Office Live. The company described the services as enhancements to its Windows and Office products, but industry watchers saw the announcement as signaling a radical shift of the company from software to a Web-based services model.

Bill Gates, Microsoft chairman-chief software architect, and Ray Ozzie, chief technical officer, made the announcement and demonstrated the services at a briefing for analysts and the media in San Francisco.

Forrester Analyst Charlene Li attended the event and endorsed the view that Microsoft is a changed company.

"The whole organization has been geared around really big products like Windows and enterprise solutions like Outlook and Office," Li said. "Now they realize they need to have open platforms to allow them to innovate much faster. It's an ecosystem of users, advertisers and developers to develop new applications on that platform. It's about being more nimble and more open. It will be driven by marketers paying for ads [that target] people using their services."

Li also noted that while Microsoft is competing with Google and Yahoo!, "it's fundamentally more than that. Google is only selling advertising. They don't have a product. [Microsoft has] gone one step further than Google; they have a product."

Office Live is a set of Internet-based services for managing small businesses online. These include domain name services, Web sites and e-mail accounts, as well as subscription-based services with multiple business applications that can be customized.

Windows Live is a set of personal Internet services and software that includes e-mail, instant messaging, antivirus tools and cutting-edge technologies such as RSS and Asynchronous JavaScript and XML (AJAX).

At the briefing, Ozzie also outlined Microsoft's vision for an advertising network that he said "will be open to partners over time so advertisers can connect with a broader audience through traditional media as well as new scenarios such as Internet Protocol television and mobile communications products."

Reliance on vendors remains

Judy Van Der Linden, marketing manager at InterDyn-Artis, which markets back-end Microsoft Dynamics software such as accounting and CRM software for mid-market companies, said she didn't think Microsoft's new approach would affect her company. She said Microsoft will continue to rely on value-added resellers and independent software vendors to construct customized software solutions around Microsoft products.

"ISVs are needed in order to create complete turnkey solution for clients," she said.

Li said Forrester agrees the Live services won't cannibalize Microsoft's existing software revenue, as some have suggested. Instead, they will generate additional revenue through new advertising and subscriptions. However, Li cautioned that Microsoft needs to play well with others, namely, software developers, with whom it has had a generally contentious relationship in the past.

"It has tried this before and failed," Li wrote in her blog. "The strategy will be successful only if Microsoft offers its partners a ready market, a fair revenue-sharing scheme and a strong support system that develops trust." 

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