Microsoft moves to turn .Net into a reality

Bill Gates will shortly announce a blitzkrieg campaign to transform Microsoft Corp. (MSFT) 's much-ballyhooed .Net Web services initiative from an abstract technical notion into a concrete business idea.

According to a source familiar with the project - code-named Hailstorm - it is enormously ambitious, aiming to build a community of Web service users that dwarfs AOL's 32 million strong membership base. The Redmond-based software giant will deliver a suite of basic Web services that will run not only on Windows-based Web sites, but on the Unix platform. This opens the possibility that .Net could take hold on some of the largest Web sites currently running on non-Microsoft software.

Until now, .Net has been dismissed by Microsoft's competitors as a far-off vision. But, according to the source, Microsoft will announce a business plan with timelines and a revenue model Monday.

During the next six months, Microsoft will offer a free suite of end-user Web services that it believes will draw a global Internet membership numbering as many as 100 million within a year. The prospect of this massive audience - not mere passive Web surfers but users of services, and not only consumers but also corporate users - will be the bait to draw developers and Web site operators to the platform. A Microsoft evangelism team led by 35-year-old VP Sanjay Parthasarathy is targeting high-profile Web site operators and enterprises to buy into the plan. EBay has already joined and other partners will be announced Monday.

"We're not targeting just high-profile Web sites, but high-profile companies," Parthasarathy confirmed via e-mail Sunday. "Some of them are Web sites, others enterprises, others traditional economy companies."

While the .Net business model aims to quickly attract a big user base for free services, it will also offer enticements for free users to become fee users. The .Net foundation Web services - including identification and authentication on Web sites, e-mail, instant messaging, automated alerts, calendars, address books and storage - will be free only up to a certain usage quota. Beyond that, members of this giant Internet club will have to pay monthly subscription fees. "Premium" services with higher fees will be introduced later. Billing will be made through credit cards directly to Microsoft.

At an event at the Redmond campus set for 10 a.m. Monday, US Pacific time, Gates is expected to pitch the plan to two constituencies: developers and Web site operators. For both, the lure will be the prospect of an enormous consumer community ready for their products. Developers will be able to get a software development kit that will allow them to build XML-based Web services on top of Microsoft's base. Web site operators, such as Amazon, Dell or eBay (EBAY) , will be able to license the foundation services for their Web sites.

The attraction will be that Microsoft will have already done the heavy lifting on basic coding, while third-party developers can customize or add features. For example, instant messaging could be a component of all types of elaborate business applications. Microsoft has been working on integrating it with its Internet-based video-conferencing software, called Net Meeting. If a Web site wants customer service instant messaging and a Microsoft service is available to plug in, why re-invent the wheel? The .Net foundation services thus become a Web application platform.

In its effort to build a critical mass of users quickly, Microsoft holds three of the strongest cards imaginable: Windows, which dominates the desktop computer market; Office, the ubiquitous business suite; and MSN, now the most-used Web portal worldwide. Even though it may raise antitrust concerns, Microsoft will play those cards. According to the source familiar with the plans, Microsoft intends to make the .Net foundation services available free to consumers through the MSN Web portal and the upcoming XP versions of Windows and Office. Windows XP, expected to be released in September, and Office XP, which should ship sooner, will come pre-loaded on hundreds of millions of computers. Last month, Microsoft had more than 230 million unique visitors to MSN worldwide.

Microsoft executives have increasingly hinted at the imminent convergence of the Windows desktop and Web services in recent speeches. In mid-February, on the day he was appointed president and COO of Microsoft, Rick Belluzzo gave a presentation at the Goldman Sachs Technology Symposium in San Francisco that suggested the future strategy. In a demonstration onstage, one of Belluzzo's marketing lieutenants, Steve Guggenheimer, offered a sneak peak at Windows XP. After pointing to the striking similarities between the interfaces of XP and MSN, Guggenheimer referred to the "natural tie" between what's on the operating system and what's on MSN.

"We've done a lot of things all on the Web before with MSN and we've done a lot of things all on the PC before," Guggenheimer said. "You start to see these two worlds coming together."

"If you look at Windows," Belluzzo added, "in new releases going forward you will see a services component and that will just grow over time."

On Sunday, Parthasarathy confirmed via e-mail that "coincident with Windows XP, there will be other services made available."

But if Gates faces accusations Monday of extending the Microsoft desktop franchise onto the Internet, he will have a defense ready: .Net will not be limited to the Windows platform. The .Net foundation services will be offered under license to Web site operators irrespective of whether their sites run Windows or Unix. Last week, speaking at the Churchill Club dinner in Silicon Valley, CEO Steve Ballmer stressed this interoperability when he dropped a few hints about the coming announcement.

"We'll have ways for non-Windows Web sites to formally support .Net services," said Ballmer, promising "more next week" on interoperability.

This makes clearer than ever that .Net is indeed Microsoft's answer to Sun Microsystem's Java platform. The fact that these .Net services will run on platforms other than Windows will potentially serve to make the proposed Microsoft consumer Web services club much bigger and to rope in major consumer Web sites as partners. Ironically, given the fact that many .Net critics have feared that it would be inextricably tied to Windows, the upshot of that interoperability could be a significant extension of the Microsoft franchise onto the Internet.

The plan's biggest obstacle, besides the potential interest of the Justice Department, could be .Net's scope. It aims to reach millions of people in ways that may trigger distrust. One central Web foundation service is Passport, an authentication service that allows users to sign on when they switch on their computers and then to be recognized wherever they go on the Web. Microsoft will spend millions of dollars to set up data centers to handle billing, as well as power the .Net foundation services, including Passport. Those data centers, if .Net succeeds, will hold the personal information -names, addresses, credit card numbers - as well as the private correspondence and computer files of tens of millions of people.

Many people may be uncomfortable giving such information to Microsoft. Many more will be worried about the security risk given the well-publicized hacks on Microsoft sites in recent months.

Microsoft hopes that consumers will try the new services, like them, trust them over time, and buy in.

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