Microsoft On Demand?

REDMOND, WASH. — Microsoft is thinking outside the box — the software box.

The company already has begun building out and testing an infrastructure that will let it deliver a hybrid of the on-demand model that connects full-featured Windows clients with additional information and functionality from free or subscription-based services.

At Microsoft’s annual Financial Analysts Meeting on Thursday, Chairman and Chief Software Architect Bill Gates and CEO Steve Ballmer said new revenue opportunities will come through adding services to software.

“We’re moving from a world where we deliver bits to one where we deliver bits and services across the Internet,” Ballmer said.

In a demonstration of Windows Vista, executives showed an application for physicians that pulled down information from diagnostic equipment connected via Web services to create 3D charts and analysis tools. The rich application ran locally on the client while including data from other systems.

This software-and-services strategy is permeating many Microsoft initiatives, from MSN’s consumer services like Hotmail and MSN Spaces to Office, SharePoint and InfoPath. Execs are calling these “cloud-based services.”

“Think of our architecture as deliverable in two forms, as a piece of software and as a service we offer to [customers],” Gates told financial analysts at the meeting. “We’ll have storage in the cloud, so you can connect with different devices. Instead of syncing devices, you connect to the cloud storage we’ve created and sync there”

Gates said combining what Microsoft has learned from running the Web-based Hotmail e-mail service for consumers with its experience in providing software for hosted Exchange e-mail will let Microsoft offer a hosted enterprise e-mail product that could be “pretty neat. Customers should have rich e-mail services whether they run the servers or we do,” he said.

Ballmer told that Microsoft will build off its MSN infrastructure to deliver these new kinds of online services for the enterprise as well as for consumers.

Microsoft’s March 2005 acquisition of Groove Networks will play a key role in this vision, Gates said.

Ray Ozzie, founder of Groove and now Microsoft CTO, said that while Groove was seen as a peer-to-peer software maker, its core is its service infrastructure.

“These mesh scenarios require mediation of service,” he said. “There’s a service underlying the Groove infrastructure. So, a lot of the product software we see and use can come alive by bringing the benefits of having a service infrastructure out on the Internet together with rich user interface capabilities [of the Windows client].”

For example, while mostly large enterprises today use software systems to track their compliance with government regulations, such as Sarbanes-Oxley, Ozzie said, Microsoft has an opportunity to bring the same capabilities in the form of services to organizations that don’t have the expertise to build their own systems.

Another possibility would be for Microsoft to offer “virtual servers,” Gates said, for companies that find the process of setting up servers too complex. “We can say the virtual equivalent of that server is available for a yearly fee.”

Microsoft execs said the company has an advantage in the Web-based services sector because of the wide variety of platforms and software products that it makes.

While industry standards such as RSS and Web services provide vendor-neutral ways for connecting with information, Gates said that when it comes to all the “messy details” on end users’ machines, “We’ll be able to test the user experience across all the different devices in a deep way.”

Added Ozzie, “Hardware, software and services woven together will give Microsoft a competitive advantage.”

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