Microsoft's spending spree signals move to software services

Microsoft has been on an investment binge of more than $US5.5 million a day since January, collecting the bandwidth, vendors and Web services it will need to transform itself from a provider of packaged software to a supplier of Web-based software services.

In one stretch, between January 11 and March 1, the company made investments totalling $US250 million in seven companies and had investments of undisclosed value in another three. Most of those investments were in e-commerce Web sites and represent Microsoft's most aggressive move into the business-to-business market.

That market is expected to generate $US2 trillion in 2003, according to the Boston Consulting Group.

The spending spree follows a whopping $US10 billion in telecommunications investments Microsoft, which has $US18 billion in cash, made from November 1998 to December 1999.

Microsoft made the investments to stimulate wireline, wireless and cable TV broadband services and adoption of the company's platform and client software, such as Windows CE and Mobile Explorer.

According to CEO Steve Ballmer, Microsoft envisions a world where "applications will be Web sites, and Web sites will be applications. Every Web site, we believe, becomes essentially a programmable source of information to other applications."

Investments in broadband suppliers guarantee the bandwidth needed to expose such a world to any device connected to the Internet.

"We don't plan to become a telco in the traditional sense," Thomas Koll, vice president of the network solutions group at Microsoft, said. "But we need to support the fat pipes to deliver services."

Koll said that's critical because "in three to five years, delivery of applications over the Internet may be a majority of our software revenue."

To that end, the pattern of investments in application service providers (ASP), such as Digex ($US50 million) and Corio ($US10 million), will ensure adoption of Microsoft's platforms, applications and services.

But the key element, Web-based software services, is just now being assembled.

Microsoft already has a small set of "mega services", including an authentication service called Passport, which is offered on the company's bCentral Web site. Its Office applications and Exchange messaging server are already being tested online by ASPs.

The big push, however, will come in May when Microsoft launches its software services model, dubbed Next Generation Windows Services (NGWS). Microsoft has provided few details about NGWS and how it fits with the Web-based development platform called Windows DNA 2000 introduced in September.

Behind the scenes, Microsoft is hard at work.

In January, it made a $US100 million investment in VerticalNet, a Web site that links buyers and suppliers in some 56 industries ranging from chemicals to health care.

It was also part of a group that recently pumped $US60 million into Keen.com, a Web service that matches users with questions and users with answers over traditional phone lines.

Undisclosed investments in Radiant Systems, which develops Web-based management and supply-chain services for retailers, and in Honeywell's MyPlanet.com, a Web-based hub for the manufacturing industry, have also been made.

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