Tuesdays announcements do not have Microsoft replacing the Office Suite with online applications. However, in an offline discussion after the presentations, Microsoft CTO Ray Ozzie said the concept was possible and could happen as Microsoft learns more about what its customers want from its experiences with the new Live services.Although Microsoft will now be competing more directly with Google, Yahoo and others for advertising revenue, the company will be better positioned than its competitors to weather a drop in such revenue.Indeed, an advertising price war could do far more to hurt Google and Yahoo than it would Microsoft, for whom advertising will be a minor revenue source for the foreseeable future. This is a fight Microsoft is wise to be picking right now. While many of the services are being pitched to small business or individuals, the lines arent sharp. Small groups in large organizations will benefit as well. And individual users will carry the services with them between their work, home and mobile lives. Yes, there are paid services that will be offered atop the free ones. Did I hear Microsoft talking about a hosted full-bore CRM service (that would compete with Salesforce.com?), Im pretty sure I did. Earlier, I mentioned that this was Microsofts third "big bet" presentation in the past 10 years. Ive attended all of them and must report that Tuesdays had the lightest attendance (90 compared to hundreds in 1995), the worse system crashes (almost all the demos lost network connections), and was, frankly, the least exciting. But, thats largely because what Microsoft showed Tuesday was almost totally evolutionary, though bringing it together and giving in a mostly-free pricing model approaches a revolution. The big deal Tuesday is that Microsoft is embracing a new services model, though not totally. Microsoft is still wedded to an old, packaged software business model that the services model threatens. Today, Microsoft is linking services to software, making the Office Live apps integrate with the Office desktop apps. Over time, I expect to see more online software and less packaged software, although the line between the two will blur considerably over the next few years. I dont think anybody walked away from the presentations too wildly excited. But, I did see services I already use presented in a new way; I saw some new services that look interesting; and I saw Microsoft lining itself up to compete with Google and compete with them hard. The competition will be fun to watch and should offer exciting new products to users. Its going to be a while before I can completely explain what Microsoft presented Tuesday. Theres Windows Live and Microsoft Office Live, two collections ofat least in the beginninglargely ad-supported services for users and small businesses, respectively. Check out eWEEK.coms for Microsoft and Windows news, views and analysis.