An image of Microsoft's future -- delivering software-as-a-service to corporate customers -- finally is starting to develop, although the company and observers agree there are many challenges ahead.
That picture, while not ready to be hung on a wall, is being brought into focus by Microsoft's development of Windows Live consumer services; Office Live, which is targeted at small and midsize businesses (SMB); search technologies that meld locally stored and Internet-based data; and the recently introduced Dynamics CRM Live enterprise application service set to debut in 2007.
When they ship, the company plans to paint Vista and Office 2007 into the portrait, integrating Office SharePoint Server 2007 and Windows Vista with desktop and online search technologies, for example.
But beyond that, Microsoft is heavy on the strategy and vision.
"Today, Microsoft is doing a lot of marketing, and customers are certainly looking over their shoulders to see when Microsoft realistically will enter the [software-as-a-service] market," says Rebecca Wetteman, vice president of research at Nucleus Research. "Microsoft is a little behind the ball in the on-demand space. Having some hosted applications is not necessarily going to cut it."
For now, Microsoft plans to use its platform of applications and infrastructure software to enter into the world of services, and the company has earmarked an additional US$500 million in its fiscal 2007 budget for R&D on Internet-based services, including software and advertising-based services like those made popular by Google.
"By embracing services in most everything we do, the potential for this company to positively impact . . . the operation of business has never been greater," Chief Software Architect Ray Ozzie said at the company's annual meeting for financial analysts last month.
Ozzie, who is replacing Bill Gates as he moves out of his day-to-day company duties over the next 24 months, is leading the charge toward what he calls the services transformation, a change fostered by powerful edge devices and centralized services -- and high-bandwidth pipes to connect the two.
That transformation includes going toe to toe with Google, Yahoo and others to provide consumer and corporate online services, but Ozzie says those are only a start of a stepwise process that will see first SMBs, then large corporations adopting Internet-based services, which Ozzie says will be defined by integrating desktop-based software and server applications with online services anchored by Windows Live. Users would access those services through browsers, mobile devices or rich clients, where local applications and data are augmented by one or multiple services.
Critics say before Microsoft can make that vision a reality, it has to surmount challenges that include integrating its portfolio of corporate software into its services model, explaining differences between hosted and on-demand versions of software, avoiding a cannibalization of its vast partner community, and outsmarting a growing collection of vendors offering online alternatives to traditional software.