Microsoft continues to pour resources and development into its plan to develop Web-based services, a strategy that involves employing new business models -- such as online advertising and content licensing partnerships -- rather than its traditional software licensing to generate new revenue. Some analysts and industry-watchers have mused that this shift in focus to the Web may someday mean an end to packaged software for the world's largest and most lucrative software company. But the man responsible for developing the Windows OS and bringing it to market said that scenario will probably never happen.
In an interview with the IDG News Service last week, Jim Allchin, co-president of Microsoft's Platforms, Products & Services Division, said that offering services will add new business models to Microsoft's repertoire, but even 10 years from now it will not replace software licensing. As Microsoft gears up for the release of Windows Vista at the end of this year, there will be more opportunities for the company to sell services, both as part of the OS and as part of its separate Windows Live strategy, he said. But the industry's overall transition to an era of using the Web as a platform to deliver services does not mean client software will go the way of the dinosaur. Below is an excerpt from the interview:
I know that offering more services on the Web is a big part of Microsoft's strategy How does that strategy tie in to Windows Vista and Longhorn Server and how that will evolve?
There will be subscriptions on top of Windows Vista. One that is in beta right now is something called Windows OneCare, which is a subscription business for software from Microsoft. There also will be non-subscription, ad-based offerings that will be available. There are also things like Office Live which is available. It doesn't depend on Windows Vista, but that's offered and can run on [Vista].
So the way you think about it is, Windows Live is totally separate from Windows, but they have different business models that they may use, whether it be ad-funded search, referral-funded or subscription, whatever. Windows itself is predominantly an OEM (original equipment manufacturer) product that comes on computer manufacturer machines, and it's set up for connecting out to lots of different Web services. It has a tremendous amount of talking that it does today, whether it be with Windows Update -- or the time set on your machine, I'm sure, is from the Internet. We've added things into this product, such as the community work with SpyNet and the community work with antiphishing.
If you look back in five or 10 years, how do you see the breakdown between licensing revenue and services revenue at Microsoft changing from how it is today?
I think there may be a lot of different opinions about this, within Microsoft and outside of Microsoft. There's not one, in my opinion, unified view within Microsoft. I personally believe that just like there are, in the cable business, different packages you can buy -- I said "cable," but I should've said in the TV business for content -- you can have ads, you can have people that don't want ads. You can have all sorts of different types of packages there. That world, I think, will continue. Obviously, Google has a particular business model that they are doing quite well with. We've got business models we've been doing quite well with. I'm a believer, that you can [be] additive and that there are new opportunities. It's not one replacing another, it's more additive.
I believe that people like to take around their stuff. Whether their stuff is personal or work, I believe that's going to continue. There are going to be lots of cool devices. In fact, one of my things that I believe in is there's so much happening at the edge [of the network] -- everyone is so fixated on the Internet. When I look at it, I say the edge is where so much is happening -- cool devices, more processing power, new visualizations. In fact, if you look at where the "Internet" companies spend their time, they spend a lot of time writing client code because they want to get in that user space, because the old HTML stuff is not very cool.
The other thing people forget is the Internet itself -- some people think about it as some destination. I think you'll find more and more it's the pipe going from one node to another. . . . I have a conversation with my mom, a video conversation that I do typically each weekend. I'm just using the Internet as a pipe. I'm not going through some server, I'm trying to establish a relationship with my mom. The more that happens, I think that you'll find that in the devices, whether they be phones, new devices, wristwatches or whatever, are going to have relationships to other devices without necessarily having services. And in as far as a destination, I can imagine you using it as a rendezvous point, a storage point for being able to roam your data. But the point of this is, lots of different computing models are OK, lots of different business models are probably OK, and there's probably a lot of money to be made in all of them.