Microsoft 2.0: Combining software and services

During an evening panel, Web 2.0 conference hosts John Battelle and Tim O'Reilly peppered three of Microsoft's top executives with tough questions about Microsoft's future strategy for MSN, Windows and Office.

During an evening panel, Web 2.0 conference hosts John Battelle and Tim O'Reilly peppered three of Microsoft's top executives with tough questions about Microsoft's future strategy for MSN, Windows and Office. Microsoft has significant investments in Web 2.0 technologies, but the Microsoft execs stuck to mostly high-level overviews and statements of direction during the discussion.

When asked about buying or making a deal with AOL to gain traffic for its new adCenter network (launching in the US next month), MSN head Yusef Mehdi said no comment, but his body language seemed to say something is up. That's just my interpretation.


On the hot seat, from left: Gary Flake, Technical Fellow at MSN; Yusef Mehdi, senior VP at MSN; and Ray Ozzie, Microsoft CTO.

Later, I asked Gary Flake, a Technical Fellow at MSN who joined from Yahoo in April and was chief scientist at Overture, how Microsoft planned to get enough momentum to grab share from Google and Yahoo in the very lucrative paid search arena. He said MSN could go the syndication route and perhaps have more privileged partnerships (as in the current AOL/Google deal in which AOL got an equity stake in Google and very comfortable margins), as well as low keyword pricing to bring in advertisers. For MSN's adCenter to get traction with advertisers, however, the company needs to get a much bigger audience footprint, and replacing Google in AOL's search looks like a very direct route to that goal. 

When asked about how the Internet was turning existing business models upside down, the Microsoft executives gave generalized answers about melding software and services. "Almost every aspect is changing in some way, shape or form," Microsoft CTO Ray Ozzie said. "It can be a threat or an opportunity depending on how we respond." The future for Microsoft will be a blend of software and services, "more often than not weaving together the user experience enabled by hardware, software and services," Ozzie said.  

Mehdi added that the recent company reorganization, which combined MSN with the Windows client, server and tools group, was recognition that Web services and parts of MSN are essential to all of Microsoft's software. "Where software meets up with services is a profound thing and it is changing the company," Mehdi said.  So, Microsoft has gotten the message and is now turning its prodigious resources on winning the Web (code for defeating Google and other major players born in the dotcom bubble), as CEO Steve Ballmer said in a BusinessWeek interview.

Whether Microsoft can compete over time with Google's growing ambitions and products was a big question hovering in the room, but the three Microsoft amigos didn't light up the imaginations of the Web 2.0 crowd. When asked about a Web-based Office, Ozzie said that he doesn't expect applications like PhotoShop to be purely browser based, but said that because of the Internet and other capabilities Office will change progressively, with a goal of seamless weaving together of software and services. "I'm not a big believer it will go one way [pure Web] or all the way the other way," Ozzie said. He attributed the long delays between upgrades to a function of the complexity of the internal complexity code base being released. "MSN is on a six-month release cycle, Office on a several year cycle, and Vista is Vista," Ozzie said. He added that as companies with rapid release cycles, such as, have more complex code bases, their release cycles will lengthen. True, but updating Office every few years isn't going to fly in a service-oriented world where competitors are taking real time data on usage, as Microsoft does today, and integrating rapidly to meet customer needs.

Ozzie went on to say that the rules of the game have changed, and when asked what assets Microsoft has to work with in the new playing field, he talked about the company's scenarios that make PC, mobile devices and services work together better, reducing the complexity of people working together across consumer and business users. Flake talked about how in working with data, breakthroughs, such as parameter optimization, could come "moment to moment." 

Microsoft thinks in terms of often complex usage scenarios that require months or years of research and then field testing, while the fleet Web competitors let it fly with a steady stream of beta product releases. Microsoft is held to a higher standard by many customers, but as Ozzie said, the rules have changed. 

In response to a question about open document formats, Ozzie said that Office 12  has a significantly enhanced new user experience and open XML formats that can be transformed to what users want, and that the formats are documented and have a "pretty liberal license." Sounds like the party line.

When I spoke to Flake, he admitted that Microsoft has to get better clarity on the communications front internally and externally.  Sharing a common language with the audience can help, he said. "It's not a hobby for Microsoft," Flake said. "There is a major sea change and we will be a part of it." If so, Microsoft needs to trade in some of its aircraft carriers for lots of little speed boats... 

Photo Gallery: Web 2.0 Conference 2005


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