The Meaning of ‘MemoGates’

“Oh, no! I forgot about the Web!”

This is a nightmare Bill Gates has had before. As he acknowledged in a memo, distributed to news organizations on Wednesday, Microsoft was blindsided ten years ago by the rise of the Web and Netscape. Now, it’s time to play catch-up again.

In that decade, Google grew from an interesting technology project into a media giant. With software licensing in danger of slowing, Gates now seems ready to bet the farm on the online, ad-supported model.

In an e-mail sent to top executives last week, Gates wrote, “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.”

The memo was sent to top Microsoft executives before last week’s launch of Windows Live and Office Live. The ad-supported Windows Live offers an updated version of Hotmail, now called Windows Live Mail, and Windows Live Messaging.

Microsoft competes with Google for share of the Web search market, as well as for the pay-per-click advertising revenue it brings.

In his own memo, also provided to media outlets, Microsoft CTO Ray Ozzie outlined three tenets for future development: an ad-supported business model; using the Web for delivery of software with a variety of options including free trials, adware and subscription-based use; and services accessible from a variety of devices and platforms.

Ozzie, the founder of Groove Networks, sold the company to Microsoft in March. The Web-based Groove collaboration application was to be rolled into the next version of Office.

Ozzie is considered the leader of Redmond’s charge toward delivering Web-based services, a concept introduced by CEO Steve Ballmer at the company’s financial analyst meeting in July.

In his memo, Ozzie promised by December to designate a group of “scenario owners” who will lead product groups; beginning in January, product groups will begin following the new services doctrine.

The internal change is already under way, said Robert Scoble, Microsoft technical evangelist and blogger. He said that some teams already are engaged in the services push, and “the leading edge is already arriving.”

That leading edge includes Windows Live and Office Live. A beta version of Windows Live is up and running.

Jupiter Research analyst Joe Wilcox said that Microsoft had been working on the “live software” concept for some time, but that, in many ways, they’re reactionary initiatives to Google’s offerings. “Microsoft perceived a problem it believes could threaten its two cash cows — Windows and Office — and it wants to strike preemptively to protect them,” Wilcox said. But it’s not a new problem. “Since the Web launched, it’s been a problem for Microsoft,” he said, “because Windows isn’t necessarily required.”

Wilcox added, “Whether [Windows Live] is an answer, or even necessary, remains to be seen.”

Scoble said that Microsoft doesn’t plan to ape Google’s Web-based services, although ad-supported software will be a tougher thing to figure out than search advertising.

With productivity software, there are advantages to Web access but also to having the application loaded on a computer. “And that’s where we have our play,” he said. “Microsoft understands that, and that’s where we’re going to have some fun playing back [against] the Web-only model. I think we’re going to figure out how to do services that are both Web and Windows together.”

Scoble said it might take a year or two before Redmond’s new direction begins to bear fruit. “To see a massive movement, like Office doing something really crazy, is probably three or four years away,” he said. “They have to ship Office 12 first.”

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