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Microsoft's Ozzie on Web's Promise, Limits

Ray Ozzie, chief software architect of Microsoft, said Google's success has made the software giant recognize the money it's left behind.

Speaking at the Goldman Sachs investor conference, Ozzie said Google's runaway growth helped Microsoft understand the power of advertising as a revenue engine. "It was a wakeup call within Microsoft -- like 'wow, this might actually open new markets we didn't know how to monetize.'"

Ozzie said that he's seen a real shift in the nearly two years since he joined Microsoft in the way the company has explored opportunities related to the online advertising model.

But he was also quick to say that, as more applications move online, advertising shouldn't always follow. "We have no reason to think advertising is for most enterprise applications."

Consumer services, where online advertising is well-established and a hybrid model for small business, is how Ozzie sees the ad model growing. Revenue opportunities in small business would include a choice of free services with advertising and a paid subscription model, as well as storage and support.

Google's  entry into online productivity applications has garnered a lot of attention, but Ozzie noted numerous companies have tried to compete with Microsoft's dominant Office applications suite with online alternatives for years.

He said Microsoft is moving deliberately with its own Office Live and other offerings to address what it sees are specific needs.

"I don't know if it serves our customers to be reactionary and slap some stuff out there on the Web," said Ozzie. "Customers have made a huge investment in Office."

While touting the growth of the Web as a productivity platform, Ozzie said there are tradeoffs in relying on browser-based applications. "There is a lot of promise, particularly if you want to reach every eyeball in the world," said Ozzie.

He specifically mentioned sales-force automation as an application ill-suited for a Web-only implementation. This was likely an indirect jab at Salesforce.com, one of the main proponents of Software-as-a-Service (SaaS).

"Salespeople are mobile. They might fire up a PC at Starbucks or deal with a sketchy or no connection in their car," said Ozzie. "So more and more it's software plus service and hardware" that's needed.

He noted Microsoft's CRM solution is a service, but that also uses Outlook as the client that can operate offline. Microsoft also gives customers the option to buy a server version of its CRM  software they can operate and control on premises.

In response to a question about Microsoft moving too slowly to react to Google and others, Ozzie said the company has to balance the needs of its huge customer base and figure out how to best leverage its considerable investment in research and development.

The company doesn't think the right way to compete is to jump out and do something that is exactly the same, said Ozzie. "I think we go back to what our core strengths are and what we are doing with our existing products and bring that to market in a way that will benefit our customers."

He also made a point of noting Microsoft is hardly a laggard in the online world with its MSN service and 250 million Hotmail users. The lines between consumer and business applications are blurring, he said, and Microsoft's experience with Hotmail and MSN would be very valuable as it enters new markets.

"The boundaries are blurring: We work at home and shop at work."