Microsoft's .Net efforts may redefine software and services at a time when its business would otherwise be vulnerable. Much of the company's revenue comes from sales of applications, with Microsoft Office generating over half of its income. In today's maturing software market, where customers may be slower to purchase upgrades, this threatens to pinch revenue.
In fact, Office sales did decline a couple of percentage points in the second fiscal quarter of 2001, compared to the same period in 2000. Microsoft doesn't need that hint. It already knows revenue from applications is at risk, and that's why it's sketching out drastic changes.
Repeat: Software is service
Microsoft is exploring many initiatives, with much overlap among them and lots of integration. In fact, the current linking of applications and services is reminiscent of the way Microsoft joined functions across what had been independent applications (word processors, spreadsheets, databases), creating the office "suite" as we know it. Microsoft's current goal is to pull a range of products and services under the .Net umbrella.
Microsoft is also trying to cross-pollinate features in its operating system, applications, MSN Web portal, MSN Messenger Service (a form of instant messaging), and Passport sign-in and authentication (recently reintroduced as part of the HailStorm Web-services initiative).
Microsoft is promoting software as a service, sold by subscriptionstarting with Office XP. This next-generation version of Office is scheduled to ship this summer, but before that, Microsoft made a 30-day trial version available for $9.95. What could be more natural than going from the trial product to a subscription-based Office XP, complete with free upgrades to newer versions?
As it shifts toward software-by-subscription, Microsoft will also develop a pay-as-you-go Internet business model for additional services, having concluded that the ad-revenue model doesn't cut it on the Web. In fact, HailStorm will offer no advertising.
Necessary components of the subscription model are reliable authentication and strong copy protection, what Microsoft refers to as "digital-rights management." Only if your identity can be proven online will vendors confidently provide you with proprietary products. Only if your personal data is secure will you trust it to some remote server. And only if copyrighted music, movies, books, and images can be protected will you be willing to pay for them.
If authentication and copy protection are reliable and convenient, a vast market opens for software, services, and content. For users, one side benefit could be easier access to services, without the endless hassles of passwords and logins: The system would manage that for you. Such services exist, but none is yet truly convenient.
Microsoft is intent on making this shift (and reaping the advantage of doing so) not only on PCs, but also cell phones, notebooks, wireless PDAs, Internet applianceseven kitchen appliances, factory machinery, and car stereos.
Of course, Microsoft isn't alone in these efforts. Sun Microsystems has long promoted standards such as XML and Java, even coining the phrase "The network is the computer." Similarly, AOL has pushed "AOL Anywhere" for years, more recently touting Web-based services like those Microsoft is building.
Without doubt, Microsoft's edge in operating systems and office suites is powerful, and the company will use it. In fact, its next-generation Windows XP will integrate instant messaging (also available with Microsoft Hotmail and MSN). Microsoft thus hopes to eclipse AOL's own ubiquitous Instant Messenger.
Say what you will about the folks from Redmond, they are unafraid. What other company has had the vision and the will to alter its goals to the extent that Microsoft has? Certainly, one company can't dominate the Internet, but for better or worse, Microsoft is helping build the products and standards at its core.