Microsoft Follows the Web Money

The company's 'Live' software offerings aim for a bigger chunk of the Internet ad market.
Author:
Publish date:

Updated from Nov. 1

Microsoft

(MSFT) - Get Report

has long envied the fat margins being harvested from the Web at

Google

(GOOG) - Get Report

and

Yahoo!

(YHOO)

.

On Tuesday, Bill Gates & Co. took a step toward narrowing the lead. Microsoft unveiled a new family of software products, "Software Live," that the company plans to offer on the Internet either free with advertising, or on a subscription basis. While nominally a software campaign, the success of competitors in search-based Internet advertising -- and Microsoft's inability to date to catch up to them -- is clearly a big driver behind the new offerings.

"We have 10% share of the online ad market today," said Ray Ozzie, the chief technology officer at Microsoft who is leading the company's software-as-services charge. "We fully intend to grow that share."

Building on its mature flagship products, the world's largest software maker will offer software-based service products called Windows Live to consumers and Office Live to small-business owners, which Microsoft said will be complementary to its desktop franchises.

The products offer many features available online from other companies and even from Microsoft on its MSN site, including Web sites for small businesses and personalized homepages for individual users. But Microsoft is offering at least some of those products for free -- while other firms charge for them -- and adding some unique features that also tap into its desktop products, which command a dominant position in the market.

"This is a big change for everybody -- not just users but businesses, developers, every part of the ecosystem," Microsoft Co-Founder, Chairman and Chief Software Architect Bill Gates told roughly 200 people at San Francisco's Palace Hotel. "It's a new way to look at software."

In fact, pieces of the model have already been pioneered by other companies such as

Salesforce.com

(CRM) - Get Report

,

Google

(GOOG) - Get Report

and

Apple

(AAPL) - Get Report

.

In addition to the attraction of the growing Internet advertising market, Microsoft also could face the threat of Google and Yahoo! going after Microsoft's core businesses by offering, for example, a free online version of Office-type software. Google's foray into desktop search -- ahead of Microsoft -- foreshadowed its power to encroach on Microsoft's turf even more, some analysts and tech observers believe.

Meanwhile, as Microsoft has struggled to catch up in the Internet search market, Office and Windows have become slow-growth businesses. And investors must wait another year before major upgrades to Office and Windows begin to boost the company's growth.

The Live offerings unveiled Tuesday aren't likely to have any meaningful impact on Microsoft's financials any sooner than that either, because many are only coming out in beta versions now and next year.

But if anything, the Live products show that Microsoft at least understands the risks posed by an ad-based model to its own business, analyst Rick Sherlund of Goldman Sachs said after the nearly three-hour briefing by Microsoft with the press and analysts.

"They're taking the first step ... to address the market opportunity," he added. But "this is long-term stuff."

Whether any of the Live offerings could cannibalize some of Microsoft's other business remains unclear. Gates said they will be complementary to Office and Windows desktop products and will not replace them or be required to make them work. Meanwhile, Windows Live will run in parallel to MSN, which Microsoft believes will attract people who prefer to receive packaged Internet content rather than personalizing it.

In a demonstration of Windows Live that suffered numerous technical glitches, Microsoft showed how a user could create a customized homepage online including content from favorite Web sites, email, RSS feeds and a new instant messenger service -- some features that are already available from other companies such as Yahoo!.

But Microsoft goes further by offering a few unique features to add to the homepage, including access to recent documents created in Microsoft Word on a user's desktop computer and a virus-scanning service that checks a user's computer hardware. Windows Live also lets a user create a shared folder on the customized homepage in which he can share stored content with another user. The folder is fully replicated on each user's desktop so that whenever one person updates it, it's automatically updated on the other user's Web site as well.

Microsoft also is letting third-party companies develop services to offer on Windows Live, which is currently available in beta form at Live.com. Other pieces of Windows Live, however, won't be available in beta form for a few more months.

While Microsoft is targeting consumers with Windows Live, the company is going after small businesses with fewer than 10 employees with Office Live. In Office Live, Microsoft is offering a free Web site and Web site designer tools and five email accounts for small businesses to create an online presence.

Microsoft plans to launch Office Live in beta form by invitation only in the first quarter of next year and will look at supporting it with advertising after its launch.

In addition, Microsoft will charge a subscription fee for 22 business applications on Office Live, including applications that are available from other companies such as Salesforce.com. Office Live also will offer a private Web site for collaborating with customers and employees, which is essentially a hosted version of Microsoft's SharePoint software.

Microsoft did not announce any plans to offer a hosted version of its Office suite of products on the Internet. But Ozzie did note that the company already offers many different editions of the software on store shelves and indicated that creating a hosted version online would not be a huge undertaking.