Leaky Strategy: Gates Memo Plugs Services Threat

The blogoshpere was abuzz today about leaked memos from Microsoft Chief Architect Bill Gates discussing the urgency the company faces with its strategy to deliver software over the Internet.

The methods behind the Gates memo also became part of the discussion after it became clear the memos hit media outlets such as the Associated Press, Wall Street Journal and New York Times around the same time Tuesday.

The internal memos were also later posted on tech blogger and RSS innovator David Winer’s HyperCamp blog Tuesday night.

The Oct. 30 memo from Gates to his senior staff, which internetnews.com also obtained, said Redmond needs to utilize Web-based technologies and must “act quickly and decisively” or “this coming ‘services-wave’ will be very disruptive.” In many ways, he hinted, it already is.

“Today, the opportunity is to utilize the Internet to make software far more powerful by incorporating a services model which will simplify the work that IT departments and developers have to do while providing new capabilities,” Gates wrote.

The memo urged upper management to exploit the Web services strategy. “The next sea change is upon us,” Gates added.

Gates compared the company’s current position to other pivotal moments in the company’s history, notably ten years ago when he wrote about “the Internet Tidal Wave.” Five years ago, he discussed the more recent shift five years ago to Internet-focused software development. “Today, the opportunity is to utilize the Internet to make software far more powerful by incorporating a services model which will simplify the work that IT departments and developers have to do while providing new capabilities.”

And it’s not like Microsoft hasn’t been deploying software and services over the Web. For example, Gates continued, “the Watson service we have built into Windows and Office allows us and our partners to understand where our users are running into problems and lets us improve their experience.

“Products from MSN like Messenger and Hotmail are updated with new features many times throughout the year, allowing them to deliver innovations rapidly. Our Mappoint service was a pioneer in letting corporations connect up to a web based API on a subscription basis.”

But the effort needs to go farther, he noted. “Advertising has emerged as a powerful new means by which to directly and indirectly fund the creation and delivery of software and services along with subscriptions and license fees. Services designed to scale to tens or hundreds of millions will dramatically change the nature and cost of solutions deliverable to enterprises or small businesses,” Gates wrote.

“We will build our strategies around Internet services and we will provide a broad set of service APIs and use them in all of our key applications.”

In the memo, which urged senior managers to act quickly and decisively, Gates included a memo dated Oct. 28, 2005 by Ray Ozzie, Microsoft’s chief technology officer. The networking tech visionary was hired earlier this year to help Microsoft build out Web-based business and services, among other goals.

Ozzie’s memo said: “We knew search would be important, but through Google’s focus they’ve gained a tremendously strong position.”

He also noted a “tension” that has emerged between the company’s products designed for the enterprise and those for the Internet. Exchange/Hotmail, AD/Passport, and Messenger/Communicator are but three examples. “All our enterprise clients and servers must interoperate with and complement our internet services,” Ozzie’s memo said. “Our functional aspirations are generally “server/service symmetry,” but architectural considerations dictate that different implementations may be required to economically reach internet scale.”

The memos were released a week after Microsoft announced Windows Live and Office Live, its shift to offer Internet-based software and services.

The latest memo is seen as helping to keep Microsoft’s shift in strategy a top item of discussion across the technology industry — and certainly within Microsoft and its partner companies.

Ozzie’s memo discussed Microsoft’s effort in 2001 to launch its software-as-a-service strategy, which was known as HailStorm. But noted that the time was right for the SaaS model, thanks to the growth of broadband and the strength of the online advertising model.

“I believe at this juncture it’s generally very clear to each of us why we need to transform -– the competitors, the challenges, and the opportunities.”

As much as the contents were splattered across the Web today, so too were the leak methods. Winer’s HyperCamp blog called the leak “Old School” before noting the irony of Microsoft “talking about getting in the loop on the Web” but feeding the story to the print people, referring to the Wall Street Journal, New York Times and AP. “That’s something I expect Google to do, not Microsoft,” he wrote.