Can Microsoft connect the Web pieces?

LAS VEGAS--Microsoft this week unleashed a host of Web tools aimed at boosting its position as a serious Internet player. But, the software giant faces a challenging climb, industry analysts say, noting that Yahoo could very well be the answer to Microsoft's Web ambition.

At its MIX 2008 Web developer conference this week in Las Vegas, United States, Microsoft heralded a Web strategy encompassing its next-generation product offerings that include beta releases of its browser plug-in Silverlight 2, Web browser Internet Explorer 8 and Web design tool Expression Studio 2.

Microsoft is hoping this jolt of new releases will put the company foremost as the development platform-of-choice for enabling a seamless Web experience, connecting various user devices, content and services.

However, it faces a steep climb.

According to John Byrne, analyst with Technology Business Research (TBR), Microsoft clearly lags in terms of uptake of its Internet platform. He noted that Google, Yahoo and even U.S. Internet service provider AOL, have "superior" advertising customer bases compared to Microsoft.

"With 2007 acquisitions, Microsoft has a much stronger platform and better customer accounts, but it is still an uphill battle," Byrne said in an e-mail interview.

"Currently, Microsoft lacks customers and momentum," he explained. "Google dominates the search advertising space and the market for graphical ads is crowded, with Yahoo a leader and Google likely to become a strong player after its DoubleClick acquisition is completed."

He noted that Web developers do play an important role in driving Microsoft's Internet strategy, but the software vendor must focus on areas that are important to customers.

"Google draws large amounts of Web traffic to its site with a very simple overall Web design," he said. "So, in some respects, complexity of the site is not always better. Bringing in the customers' perspective is more important than having legions of talented developers working on the wrong projects."

Recognizing the competition Microsoft faces, chief software architect Ray Ozzie made this appeal to Web developers during his MIX 2008 keynote address Wednesday: "I know today you have many amazing technology choices available to you, but I'd like you to bet on us because I think together, we can create extraordinary experiences that combine the power of the Internet with the magic of software across a world of devices."

"The Web is at the center of everything Microsoft is doing," Ozzie said. He added that it is the innovation and experience of the Web that fuel advertising, which he described as "the economic engine" that powers the Web and monetizes services offered on the Web.

Byrne noted that Microsoft's push for Silverlight to gain acceptance as a Web tool among its developer community, will produce add-on modules and enhancements that help meet customer needs.

"The greater number of developers using Silverlight for Web development will translate into a larger number of applications to drive volume and subscriptions for Microsoft's [Windows] Live initiative," he said.

Yahoo has part to play
Will a successful Yahoo merger change things around for Microsoft? Market analysts certainly think so.

Michael Barnes, vice president of software and Asia-Pacific research, Springboard Research, said the proposed Yahoo acquisition is vital as it allows Microsoft to compete against Google in more flexible ways that do not necessarily require the software giant's Windows infrastructure.

"The reality facing Microsoft is that, despite its best efforts, the company is unable to control, mandate or even assume the presence of Windows in a Web-centric world," Barnes told ZDNet Asia, in an e-mail interview. "Acquiring Yahoo means that Microsoft can potentially become more agile in the Web market, specifically, in the area of online advertising and search engines, by de-coupling at least part of its offerings from a reliance on only one [Windows] platform."

Microsoft, he said, sells software and has vested interest in linking its Web strategy to its Windows platform, especially since Windows is, after all, where the company makes its profits and enormous margins.

"Google sells advertising. The platform and software are simply the delivery mechanism and not a source of revenue [for Google]," he explained. "Hence, Google is free to focus on the services it delivers. The software underlying those services is purely a means to an end."

"In contrast, at Microsoft, selling software is an end in itself."

Barnes noted that Microsoft's real competitor is not Google per se, but rather, what Google represents: "an inevitable consolidation and commoditization of software infrastructure".

He noted that Google emerged at an opportune time to take advantage of a combination of trends, all of which represent threats to the status quo as driven and supported in part by Microsoft. These trends include open source, software as a service (SaaS), virtualization and Web 2.0 tools, he added. "One of the traits that all these trends share is an independence from Windows, and in some cases, an alternative," Barnes said.

"In terms of economies of scale, the combination of Microsoft and Yahoo certainly has the size to compete with Google in the Web market and be attractive to advertisers," he noted.

"However, Microsoft has still not adequately explained its vision for effectively slowing Google's momentum," he said. "In particular, Microsoft has not identified the services and products that the combined entity would deliver to ensure growth among new customers, while also being attractive to existing Google users."

And while Yahoo could prove to be a key acquisition, TBR's Byrne said Microsoft has also made it clear that it will push forward with its online strategy, with or without Yahoo. He added that Microsoft's acquisitions last year would improve its advertising platform to better compete with Google and Yahoo.

Eileen Yu of ZDNet Asia reported from Microsoft's MIX 2008 Web conference in Las Vegas, United States.