The services push has been brewing for some time. At July's financial analyst meeting, several of Microsoft's individual business unit leaders discussed opportunities for services in their areas.
Eric Rudder, then head of Microsoft's server and tools business, pointed to the company's acquisition of FrontBridge as an example of how the company can sell services that are built on top of existing software--in that case Exchange. With FrontBridge, corporate e-mail is delivered to an intermediate server, which can strip out viruses, archive messages, and manage compliance issues.
"So the opportunity to add value with services--not necessarily replacing the server, but complementary value streams--is quite significant, and I think you'll see us first grow in that area with Exchange," Rudder said. "But we're looking at how to complement hosted services to all of the server businesses."
Jeff Raikes, who leads the information-worker business, which includes Office, did not go into detail, but said services would be increasingly important as Microsoft attacks a bigger part of the business software market.
"Those show very little revenue now as a percentage of the overall IW business, but we see them as big opportunities," he said.
Even Windows is gaining a services component, of sorts. As part of its effort to combat piracy, Microsoft last year kicked off the Windows Genuine Advantage program, in which the company requires that any customer who wants access to most Windows downloads to prove that copy of Windows is legitimate. As part of that effort, the company has slightly expanded the range of online freebies that one can get as part of a Windows purchase.
The company also has looked at services for new markets, such as antivirus software, where the company is testing its OneCare program. The program is expected to become a paid service for keeping Windows machines healthy and virus-free.
One of the many questions that surround Microsoft's move is whether the company will offer more of these services on its own or if such products will continue to come mostly from outside partners.
Today, for example, Microsoft partners offer hosted Exchange, but the company does not offer the product directly. Ozzie said last week that he sees the strategy as "a mix" between Microsoft-provided services and those offered through partners. Ozzie noted that choosing to use partners would be more likely for products that require customization, such as for a particular region or industry.
Another question is: Will Microsoft offer services mainly as new tools that sit on top of its existing products or as packaged software that offers a new way to get things that companies and individuals have gotten in the past?
Bittman noted that in the areas Microsoft has chosen to enter, it has been able to hit the ground running.
"Microsoft has proven the ability to grab market share in the Web space as quickly as they enter," Bittman said. "Look at MSN Spaces and how quickly it became very, very strong."
Bittman thinks Microsoft could eventually outflank Google but, ironically, find itself worse off. "I think Microsoft can win, but in the end it means Microsoft loses, unless there is some other magic there we don't see."
Bittman pointed to the difference between winning market share and making a good business.
"There's a lot of money to be made in Windows and Office," he said. "Is there a lot of money to be made in an MSN platform? I think that's a real question."
Play video
There are currently no comments for this post.