Microsoft Rolls Out Web Services Linked to Windows

Microsoft Corp. released on Tuesday a suite of free Web services that connect to its Windows operating system, delivering a major element of its strategy to maintain the dominance of its software while extending its reach on the Internet.

The package of “Windows Live” services, which was first released in a test version in September, makes available in a single download updated versions of e-mail, instant messaging, photo gallery, blogging and event planning applications.

As part of the new software suite, users can access their free Web e-mail through a downloaded desktop application — similar to Office Outlook used by many businesses — instead of using an Internet browser to check, reply or write e-mails.

Similarly, Windows PC users with a single click can either save photos to the computer’s hard drive or publish and store the pictures on the Web using Windows Live Photo Gallery.

Up against competitors looking to replace traditional Microsoft software that runs on a computer’s hard drive with software run over the Internet as a service, the company faces a dilemma that strikes at the core of its business.

Does it dive headfirst into Web services at the expense of its dominant Windows and Office franchises? Or does it ignore the shift to Web services and risk outdating its bread-and-butter businesses?

Microsoft’s solution is to straddle the line between the two with a strategy called “software plus services.” The idea is to develop new Web services that complement, but not replace, its traditional software.

“Microsoft can’t take a brand new approach with services on the Internet because it has to protect Windows and Office,” said Morningstar analyst Toan Tran.

Web and desktop meet

To understand the company’s strategy, look no further than the executive pushing its Windows Live agenda.

Chris Jones, a Microsoft corporate vice president, is well versed in both the Web and desktop worlds. Jones worked on developing new versions of its Windows operating system after guiding Microsoft’s early Internet Explorer initiatives.

Now he’s responsible for leading a team of Web developers who will try to weave the company’s software that runs for free on the Internet like its free Hotmail e-mail, rebranded as Windows Live, together with license-generating desktop software like Windows.

Those links must also extend to cell phones, so users can access services from mobile devices.

“Most people connect to the Internet using a Windows PC, most people use Internet Explorer, many people use Office. We have lots of Hotmail users and lots of (instant) messenger users,” Jones said in an embargoed interview this week.

“If we just stitch it together and remove the seams, what an opportunity we have.”

By fostering loyalty to its Web services, Microsoft can create a valuable audience to sell to advertisers. Microsoft and its Web rivals like Google Inc. and Yahoo Inc. are all jockeying to capitalize on the surge of advertising money flowing to the Web.

Redmond, Wash.-based Microsoft sees the market for online advertising doubling in size to $80 billion in two or three years from its current $40 billion.

Microsoft plans a marketing campaign that will highlight the potential benefits of downloading its new Web services suite to work with its new Windows Vista operating system.

Morningstar’s Tran said the company has been hindered by a fragmented message to consumers about its Web services.

In the Web business, Microsoft has two umbrella brands in MSN and Windows Live, while individual applications sometimes share branding like Hotmail and Windows Live Mail.

“It’s important to get a cohesive message to consumers,” said Tran.

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