Bill Gates called it “a dramatic sea change” and a “revolution in how we think about software.”

According to Steve Ballmer it is “as big a day as we’ve ever had in terms of describing a key part of the future path of the company.”

The “it” they referred to was the Nov. 1 unveiling of Windows Live and Office Live. Speaking to journalists and industry and financial analysts, Gates and chief technology officer Ray Ozzie provided a first look at the two new software-based service offerings. Designed to deliver rich and seamless experiences to consumers and small businesses, Windows Live and Office Live represent Microsoft’s latest commitment to create, market and deliver offerings that combine software and Internet-based services.

"It's a revolution in how we think about software," Bill Gates said Nov. 1. "This is a big change for ... every part of the ecosystem."
"It's a revolution in how we think about software," Bill Gates said Nov. 1. "This is a big change for ... every part of the ecosystem."

The change will affect everyone at Microsoft, Ballmer told employees during a virtual company meeting in Redmond a few hours after Gates and Ozzie demoed Windows Live and Office Live in San Francisco.

“The truth of the matter is this is a central direction for the company,” he said. “No matter where you work in software development, software as a service is a relevant phenomenon and Windows Live as a platform is something you need to understand. No matter where you work in terms of sales and marketing and communicating our vision ... Windows Live and Office Live are important to understand and to be able to communicate.”

In addition, he added, it is critical to the way Microsoft will pursue new opportunities for growth.

“This is an important part of understanding how our company will grow, as a company that not only sells software but also that lets people subscribe to software and increasingly monetizes software experiences through advertising,” he said. “Particularly in the consumer market where people, frankly, embrace advertising-usage models.”

Windows Live: Personalization, agility, ad revenue

Windows Live is a set of Internet services and software designed to bring together in one place all of the relationships, information and interests people care about most, with more security features across their PC, devices and the Web., the starting point for the Windows Live experience, lets consumers personalize a home page that automatically delivers the news they want, no matter who publishes it. It also will be an ideal place to access Windows Live Search, scheduled for release in 2006. Windows Live will primarily be a free service supported by ads. Some Windows Live services are available in beta form.

Among the new Windows Live offerings shown in San Francisco were Windows Live Mail, a global e-mail service built to be faster, safer and simple, and Windows Live Messenger, which will build on MSN Messenger to improve instant messaging, file- and photo-sharing, PC-based calling and more. Gates and Ozzie also discussed the Windows Live Safety Center, an on-demand Web site where users can scan for and remove viruses from their PC, and Window OneCare Live, a subscription service that helps maintain PCs’ health.

Windows Live has important implications for the company’s ability to deliver new software innovations quickly, said Kevin Johnson co-president, Platform Products and Services Division, during the virtual meeting.

“This is an opportunity to get innovation to market faster,” he explained. “With Windows Live as a release vehicle, we can deliver value to Windows users in essentially real time. We will still have major releases … two or three times a year, but if there is innovation that we have to get there quickly, we have that release vehicle.”

Equally important, he said, Windows Live offers Microsoft new opportunities to tap into the fast-growing online ad market, currently at $17 billion and expected to reach $30 billion in 2008 and then climb as high as $150 billion by 2015. Today, Microsoft has about a 10 percent share of online ad revenue.

“Software licensing is not going away, it’s a very healthy and good business to be in,” he said. “However there is also another growing market opportunity to pursue – not at the expense of software licensing but to complement [it]. ... Growth is really focusing on this new online marketplace for advertising, and this is core to our strategy. Windows Live is an ad-supported biz model so it is about getting reach and building critical mass.”

Office Live: Small businesses, hosted solutions

Office Live also will offer free ad-supported services and include a broad range of subscription services, too. Initially, Office Live will target the 28 million global small businesses with fewer than 10 employees by providing an affordable set of Internet-based services hosted by Microsoft. Among the Office Live services sighted for the first beta release in 2006 are Office Live Basics, an ad-supported service that provides what small businesses need to establish a digital identity, including a domain name, hosted Web site, five e-mail accounts and more – all free.

The subscription-based Office Live Essentials will include additional services such as Web analytics and more than 20 hosted applications for automating daily business tasks. Office Live Collaboration will provide hosted, cost-effective business-management tools managed and maintained by Microsoft. Built on Windows SharePoint Services, Office Live Collaboration will deliver customer-, project- and document-management capabilities along with a private Web site to streamline collaboration among employees, customers, suppliers and contractors.

In the future, Office Live also will provide offerings aimed at midsize and enterprise customers.

“In the next 10 years there are many things enterprises do for themselves that they will not do,” said Ballmer. “I see no reason in the next 10 years that any enterprise will run its own desktop infrastructure. We have talked about having some incubations … to see what it would look like to run even enterprise desktops as a managed service.” and will work together

Work on Windows Live and Office Live has been under way for more than a year. And while the new emphasis on software and services will affect the company broadly in coming years, impact will likely be felt most immediately at MSN, which will support both and services including With the launch of, will continue to be a programmed content experience, while will target users who want to customize their home page and choose content from the entire Web.

According to Mark Kroese, general manager of Information Services at MSN, the distinction between and reflects MSN’s research into how people use the Internet. The research showed that while almost everyone does a core set of things such as search for information and communicate through e-mail, two distinct types of content-consumption exist: Some users prefer programmed content, and others would rather customize their experience to meet needs and preferences.

"We fully intend to grow [online ad market] share and as the market itself grows through innovation and partnership," said CTO Ray Ozzie.
"We fully intend to grow [online ad market] share and as the market itself grows through innovation and partnership," said CTO Ray Ozzie.

“ will be a content brand where information is delivered in a programmed way, while will be about user choice where consumers can customize their home page to get content from anyone, anywhere,” Kroese said. “We have a strong business with, and plan to continue to invest in that business. But we were losing advanced users, the ones who want to customize their experience, to Google.

“Windows Live addresses the needs of these users by unifying and personalizing their online world. This isn’t a shift in strategy so much as a broadening of our offering to take advantage of this huge market opportunity.”

The combination of the and is expected to expand the large base of users who rely on Microsoft to provide their main Internet portal experience as well as Internet services. Today, 440 million people visit MSN each month. There are more than 215 million active MSN Hotmail accounts, more than 185 million active MSN Messenger accounts and more than 25 million MSN Spaces. In addition, MSN took in $1.7 billion in ad revenue last year.

By delivering offerings that appeal to both types of Internet users and helping the company place a stronger emphasis on software as a service, and Windows Live also will play a key role in Microsoft’s efforts to capture a greater share of online ad revenue and improve its ability to compete in the marketplace for online services.

“Google and Yahoo are huge competitors and we have to be serious about competing in this space and being the No. 1 provider of services,” said Bill Shaughnessy, general manager of Communication Services at MSN. “Services, in general, are an increasingly large share of our business as people spend more time online. This is a critically important part of our vision – not just for users, but also in terms of creating the technology and building and operating a massive scale infrastructure that will be the underpinning for other company efforts.”

To achieve these goals, the company will continue to invest heavily in MSN, both to support Windows Live and strengthen and expand During the company meeting Q&A, Yusuf Mehdi, senior vice president of MSN Information Services, reinforced the commitment to continued investment in, which has added hundreds of new employees during the last year and will continue to grow aggressively.

“We are going to continue to offer and in fact we are going to invest more in as a distinct end-user experience,” he said. “We’ve been working on Internet services and consumer experiences for the last five-plus years and we’ve had this feeling that it is becoming more and more central to what we’re doing as a company. This is a great opportunity to make that happen both across the brand and to build a new, clean-slate experience.”

First impressions

With much of the press coverage emphasizing the importance of Windows Live and Office Live in positioning Microsoft to compete more effectively against Google, Ballmer was asked if the day’s announcement was largely a reaction to Google.

“Bill’s been talking about subscription revenue and new forms of revenue and new ways of delivering software experience for years,” he said “Now we’re able to embrace that. But does this help us competitively versus Google? Sure it does.”

From left, Yusuf Mehdi, Jeff Raikes, Steve Ballmer, Kevin Johnson and Robbie Bach provided announcement details and context at a virtual company meeting.
From left, Yusuf Mehdi, Jeff Raikes, Steve Ballmer, Kevin Johnson and Robbie Bach provided announcement details and context at a virtual company meeting.

He was also asked how the announcement would raise Microsoft’s stock price.

“If you want to grow, we need new revenue streams, new business models, and new forms of monetization,” he said. “Today once we sell a copy of Windows we don’t make a lot of additional money. Ad funding in software and services is the single most powerful growth engine we can have in terms of monetizing software against the consumer market. Software and services is the single most powerful growth opportunity that we have in small business.”

For many of the employees who attended the virtual meeting, the announcement provided welcome clarity on the company’s approach to online services.

“I feel that I have a much better sense for the direction not only for where the company is headed, but the technology industry as a whole in the next decade or so,” said Ben Ahroni, who works on the Office PLEX Deployment Test team. “I see the potential for us in Web and service-based content that’s maintained and serviceable server-side. The ability to update what’s running on a server and have 100 percent of a product’s users instantly experiencing the new version is definitely exciting.”

At the same time, the announcement raised a number of new questions.

“As a member of the Office team, it makes me wonder what the version of Office after “Office 12” is going to look like,” continued Ahroni. “Is it possible that the Office applications as we know them are going to get stripped of their content and become more of a client that allows business professionals to do their word processing, spreadsheet editing, and e-mail checking through a central server running the Office services?”

For others at the meeting, the announcement was largely positive.

“It’s time for us to get into services in a big way,” said Joseph Sexton from the Information Worker group. “With us finishing Vista and “Office 12,” now is the time to plan for next versions. Google has growth path, and we can cut them off at the pass. We already have Xbox Live and Office Online, now we can tie together our online services as we evolve.”

“This makes sense,” added Steven Lees from the Server & Tools team. “I think it’s the right way to go. I think we have a lot of cool internal services available through Microsoft IT. I’d like to see that made available to everyone. I think our customers would like that.”