Services will be make or break for Microsoft

To hear Bill Gates enthuse about software as a service, you'd think that the company had invented computing anew. Richness and choice is the mantra: the richness of Microsoft's applications combined with the choice of whether you buy them as software or subscribe to them as services.

It's good to have the option, Bill. Tell us, how can you do this? "Software as a service has been moving along. We needed the Internet. We needed low-cost connectivity. We needed some data standards like XML; that helps a lot. The scale economics of doing big server farms so you can do [hosting] well and at a low cost, that helps. You'll see the services thing increase."

So what you're saying, Bill, is that you needed all of the advantages that true open standards have brought the industry in hardware and software. And in return you'll provide open access with things like OpenDocument compatibility in Office 12 and unhindered use of your Web Services, on the same basis as you consume the open standards others provide? Bill?

We'll see whether that is the case when we find out whether Microsoft's services are as available to people running Safari on OSX or Firefox on Linux as they are to those running IE6 on Windows — and for the record, we expect to see the All Hades Ice-Dancing Championship first.

For Microsoft, services mean even more lock-in at even less expense to it: why bother developing IE6 if it's the only way people have to access their data? Or why make your back-end services engine more efficient if replacing it means ripping out the desktops as well? Put it another way: how can you maintain a 70-plus percent profit margin if you give your users true freedom of choice?

Software as a service is an excellent idea. As Google, Amazon and eBay have demonstrated, it may well be the primary engine for growth and innovation over the next ten years. And as Bill Gates tacitly admits, it in turn is driven by precisely the sort of open standards that Microsoft fears most. This intrinsic paradox cannot be ignored. In no other area will the difference between what Microsoft says and what it does be so clearly defined — so pay close attention. Computing is being invented anew, but this time it may not be on Microsoft's terms.