The Next Wave

By John Pallatto  |  Posted 2005-11-11 Print this article Print

In his memo Gates says the "coming services wave will be very disruptive." Microsoft, he said, "must recognize this change as an opportunity to take our offerings to the next level, compete in a manner commensurate with our industry responsibilities, and utilize our assets and our broad reach to reshape our business for the benefit of the users of our products, our customers, our partners and ourselves." Most of all he is determined that it wont be Microsofts business that gets disrupted. But Gates and Ozzie arent specific about how they are going to achieve that requirement.
Both say that advertising-supported services and software are the "most challenging and promising" opportunity in the industry. But we dont know yet how Microsoft would modify its software development and distribution model to take advantage of this.
Read more here about Microsofts "Live" software service offerings. Certainly Microsoft can take greater advantage of advertising in its MSN search, information and marketplace services in the same way that Google, Yahoo, AOL and many other online information sites have done. But it will be interesting to see whether Microsoft can find a way to profitably trade software services for advertising. Another question is whether there are simply enough advertising dollars in the market to support a model in which Internet users would be confronted with a marketing pitch every time they use an online application or information service. Then there is the question of whether Internet users have already reached the saturation point for online advertising. At what point will they simply turn it off and tune it all out? What is clear is that Microsofts recently announced Windows Live and Office Live—suites of Internet-based search, communications, security, information, presence and collaboration services—are just the first tentative steps of what Microsoft intends to offer. This is a relief because industry analysts were surprised that Microsofts first major services announcement was as low key as it turned out to be. It was so low key that Microsoft decided that it had to release those high-level memos to prove that they really do get on-demand services. Click here to read why executives at competing on-demand software companies say Microsoft will have a hard time catching up with the market. I wont believe that they really get it until they show how they are going to deliver major business applications as on-demand services because that is one of those disruptive services that Microsoft seems to be so concerned about. Last week I opined that Microsoft was being short-sighted because it said it would leave it to partners to offer its CRM 3.0 as a hosted service, since ignoring this opportunity in the long run presents a threat to its long-established business model of selling on-premises licenses for business applications. This week Microsoft showed it is thinking deeply about on-demand software services. But it will be months before we learn how Microsoft, in Gates words, will successfully deliver compelling on-demand services that "dramatically change the nature and cost of solutions deliverable to enterprises or small businesses." John Pallatto is a veteran journalist in the field of enterprise software and Internet technology. He can be reached at Check out eWEEK.coms for the latest news, reviews and analysis about productivity and business solutions.

John Pallatto John Pallatto is's Managing Editor News/West Coast. He directs eWEEK's news coverage in Silicon Valley and throughout the West Coast region. He has more than 35 years of experience as a professional journalist, which began as a report with the Hartford Courant daily newspaper in Connecticut. He was also a member of the founding staff of PC Week in March 1984. Pallatto was PC Week's West Coast bureau chief, a senior editor at Ziff Davis' Internet Computing magazine and the West Coast bureau chief at Internet World magazine.

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