Microsoft Memos Raise Questions

Road map for new on-demand services strategy is unclear.

Memos made public last week detailing Microsoft Corp. executives thoughts on how the company must change its method of building software are raising more questions than they answered.

Both Bill Gates, Microsoft chairman and chief software architect, and Ray Ozzie, the companys chief technology officer, wrote memos detailing the companys emerging services strategy and the shift away from traditional licensed software.

Microsoft CEO Steve Ballmer told eWEEK in an interview that the Redmond, Wash., company plans to have a variety of pricing models going forward.

"I think youre going to have all three models [sales of software licenses, subscriptions and software as a service]. Youre going to have the transaction model, where you sell something. Therell be a subscription model, where you pay for something as you use it. And therell be some things thatll be funded via advertising or essentially part of a bigger idea," Ballmer said. "What are we doing with our Express editions? The fact that theyre available for free downloads doesnt mean weve given up being a profit-making company, but we do recognize theres just a budget limitation that students have. So I think youre going to see a variety of business models, and were embracing all of them."

On Nov. 1, Gates and Ozzie outlined Microsofts services strategy, christened At a recent launch event in San Francisco, Gates and Ozzie detailed two of the main components of that strategy: Windows Live and Office Live.

A week after the unveiling, Microsoft made public memos that further detailed Microsofts services plans. Those memos, penned by Gates and Ozzie, went to Microsofts top managers.

Ozzie wrote that his memo was "intended to get all of us roughly on the same page, and to get you thinking." As part of his 5,000-word missive, Ozzie outlined what Microsofts planned next steps in the services area will be. He said that by Dec. 15 he will have appointed a number of "scenario owners" who will lead each of Microsofts business units in creating a plan to develop, deploy and market services that are pertinent to their lines of business. These services will be either advertising-based or subscription-based, according to Ozzie.

"I thought the e-mail was right on target. But I do not see evidence in Ozzies memo of any plan of attack," said Eric Newcomer, CTO at Iona Technologies Inc., in Waltham, Mass. "The description of the problem seems pretty good, but theres nothing about a solution or how exactly he expects Microsoft folks to go about implementing the proposed change. We all know the problem—what we are looking for is what Microsoft will do about it, and theres nothing here about that."

In addition to the technical hurdles, the current strategic shift is a cultural challenge, since Microsoft has built up its entire business around the shrink-wrapped license, as Ballmer admitted.

"We already sell almost $2 billion a year in advertising, so I cant tell you its small," Ballmer said. "And depending on how you look at some of our enterprise agreements, a number of those are kind of subscription-based, so its hard for me to tell you thats small. Do I actually think ad funding is going to be the primary source of revenue for mission-critical applications in the enterprise? No, I dont think so. I think thats still going to be either transaction- or, perhaps sometime in the future, more subscription-oriented revenue."

Microsoft needs to get its teams on the same page to execute on this strategy, Newcomer said. "I think the recent reorg into divisions will work against this proposed change to services," Newcomer said. "Ozzie is asking each of the divisions to come up with plans and proposals to address the problems he outlines, but they are as likely to compete with each other as cooperate."