Gates memo puts online services at heart of Microsoft

IDG News Service - Bill Gates has backed a sweeping plan to reshape Microsoft Corp.'s development efforts to adapt to the threats and opportunities presented by the rapid growth of new Internet-based services.
In an e-mail to his top lieutenants dated Oct. 30, Microsoft's chairman and chief software architect proclaimed that "the next sea change" in computing has arrived and called on his company to focus more sharply on Internet services as it develops new products and technologies.
"Today the opportunity is to utilize the Internet to make software far more powerful by incorporating a services model," Gates wrote. "However, to lead we need to do far more. ... We will build our strategies around Internet services."
The Gates e-mail was reported today by The Wall Street Journal. A Microsoft spokeswoman in the U.K. confirmed the authenticity of the e-mail and the parts of it quoted by the newspaper.
For businesses and consumers, the push from Gates will lead to more of the company's software applications being offered for use over the Web as services, supported by advertising or subscription fees, said Gary Barnett, a research director at U.K. analyst company Ovum Ltd.
Gates' e-mail draws heavily from an internal memo by Ray Ozzie, Microsoft's recently appointed chief technology officer. In his memo, Ozzie talks of the emergence of a business model in which companies make money from Internet-based services supported by advertising. He also pointed to the success of online services companies such as Google Inc. and Skype Technologies SA.
"The model has the potential to fundamentally impact how we and other developers build, deliver and monetize innovations," Ozzie wrote.
He suggested that businesses can make more money by offering software and services supported by advertising than by the traditional software licensing model.
If Microsoft does not respond to the changes, "our business as we know it is at risk," Ozzie wrote. "We must respond quickly and decisively."
The internal missives suggest the urgency with which Microsoft views the threat posed by emerging Internet-based services and applications. They also throw some light on Microsoft's announcement last week that it will offer some online services to complement its Windows and Office product lines.
The e-mails also highlight Ozzie's growing influence at Microsoft since he joined the company through an acquisition only eight months ago, the Journal noted
In September, Microsoft reorganized itself into three broad business divisions. Ozzie's role as CTO was expanded to include leading Microsoft's services strategy across those three divisions, Gates wrote in his e-mail. "We did this because we believe

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