November 9, 2005 12:12 PM PST

Gates memo: Brace for 'services wave'

A decade after warning staff to brace for the Internet boom, Microsoft Chairman Bill Gates is rallying the troops again to face the challenge from Web-based, ad-supported software. Last week, the company announced its plans for two new online services: Windows Live and Office Live. In a memo sent late last month, Gates gave his view of the realities of online competition.

From: Bill Gates
Sent: Sunday, October 30, 2005 9:56 PM
To: Executive Staff and Direct Reports; Distinguished Engineers
Subject: Internet Software Services

Microsoft has always had to anticipate changes in the software business and seize the opportunity to lead.

Ten years ago this December, I wrote a memo entitled The Internet Tidal Wave which described how the internet was going to forever change the landscape of computing. Our products could either prepare for the magnitude of what was to come or risk being swept away. We dedicated ourselves to innovating rapidly and lead the way much to the surprise of many industry pundits who questioned our ability to reinvent our approach of delivering software breakthroughs.

Related coverage
Gates warns of big changes
Chairman alerts staff about disruption to come.

Five years ago we focused our strategy on .NET making a huge bet on XML and Web services. We were a leader in driving these standards and building them into our products and again this has been key to our success. Today, over 92% of the Fortune 100 are utilizing .Net and our current wave of products have XML and Web services at their core and are gaining share because of the bold bet we made back in the year 2000.

Today, the opportunity is to utilize the Internet to make software far more powerful by incorporating a services model which will simplify the work that IT departments and developers have to do while providing new capabilities.

In many ways this is not completely new. All the way back in 1998 we had a company meeting where we outlined a vision in which software would become more of a service over time. We've been making investments since then ? for example, the Watson service we have built into Windows and Office allows us and our partners to understand where our users are running into problems and lets us improve their experience. Our On-line help work gives us constant feedback about what topics are helping our users and which we need to change. Products from MSN like Messenger and Hotmail are updated with new features many times throughout the year, allowing them to deliver innovations rapidly. Our Mappoint service was a pioneer in letting corporations connect up to a web based API on a subscription basis.

However, to lead we need to do far more. The broad and rich foundation of the internet will unleash a "services wave" of applications and experiences available instantly over the internet to millions of users. 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.

We will build our strategies around Internet services and we will provide a broad set of service APIs and use them in all of our key applications.

This coming "services wave" will be very disruptive. We have competitors who will seize on these approaches and challenge us--still, the opportunity for us to lead is very clear. More than any other company, we have the vision, assets, experience, and aspirations to deliver experiences and solutions across the entire range of digital workstyle & digital lifestyle scenarios, and to do so at scale, reaching users, developers and businesses across all markets.

But in order to execute on this opportunity, as we've done before we must act quickly and decisively. This next generation of the internet is being shaped by its "grassroots" adoption and popularization model, and the cost-effective "seamless experiences" delivered through the intentional fusion of services, software and sometimes hardware. We must reflect upon what and for whom we are building, how best to deliver new functionality given the internet services model, what kind of a platform in this new context might enable partners to build great profitable businesses, and how our applications might be reshaped to create service-enabled experiences uniquely compelling to both users and businesses alike.

Steve and I recently expanded Ray Ozzie's role as CTO to include leading our services strategy across all three divisions. We did this because we believe our services challenges and opportunities will impact most everything we do. Ray has long demonstrated his passion for software, and through his work at Groove he also came to realize the transformative potential for combining software and services. I've attached a memo from Ray which I feel sure we will look back on as being as critical as The Internet Tidal Wave memo was when it came out. Ray outlines the great things we and our partners can do using the Internet Services approach.

The next sea change is upon us. We must recognize this change as an opportunity to take our offerings to the next level, compete in a manner commensurate with our industry responsibilities, and utilize our assets and our broad reach to reshape our business for the benefit of the users of our products, our customers, our partners and ourselves.

Bill

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What is the role of your partners...
Bill,

Great to hear that you have not forgotten about your partners.

We the partners would like to know what will be our role for your web services.

Please let us know&

Thanks,

Mr. Mister
Posted by Panamon (12 comments )
Reply Link Flag
The Coming Web Services Tsunami - Microsoft is ready to surf
Microsoft entering the web based service market is a big change, similar to the Internet Wave change the company made back in 1995. The result of that change was the introduction of Internet Explorer which came from nowhere to market leadership in less than 5 years.

Microsoft is a 30 year old company that can still make dramatic changes quickly. Microsoft seems to do it every 5 years. I wrote a blog a few months ago that got lots of attention inside Microsoft, entitled "The Coming Web Services Tsunami". You can read the whole story here.
<a class="jive-link-external" href="http://dondodge.typepad.com/the_next_big_thing/2005/09/the_coming_web_.html" target="_newWindow">http://dondodge.typepad.com/the_next_big_thing/2005/09/the_coming_web_.html</a>
Posted by Don_Dodge (64 comments )
Reply Link Flag
MS damned near drowned....
... in the Internet Wave, And in the desperate attempt to stay
afloat, we got Internet Explorer welded into Windows, IE was a
defective browser since MS paid little attention to W3C standards
(or to Java standards either) and it was basically unfixable since
it was used to carry key Windows code as well as work the
Internet. After all, MS couldn't allow the WIndows user not to
install IE.

So now there is a 'second tsunami' coming. I wonder just how
hard MS will slam into the bottom this time before they get it
figured out, if they get it figured out correctly.

There's a major risk that this 'service market' is going to be as
much quicksand as real opportunities.
Posted by Earl Benser (4310 comments )
Link Flag
tilting at windmills
Bill Gates' instincts on the future of computing has not been unfailing at all stages. Remember the .NET disaster that accompanied the release of WinXP, where Gates believed Microsoft was going to move into for-pay services? It turned out the for-pay concept was not what the broad public was interested in, and the details of how to provide it were not created with any understanding of what that would look like from the end-user's point of view (or even who the end-user might be). The public's disinterest in online delivery of movies or pay-per-view for cable tv shows indicates a sharp dropoff of interest in anything transactions that are too complex, expensive, or insecure.

I can tell you as an experienced end-user, both at home and in an academic environment, that there will be no "Tsunami" of customers for much of what Gates is envisioning. Here at ground level us home users are pulling back from even simple "live" transactions like banking, buying, and email until security and privacy issues are handled to a high degree of safety. Who is going to start doing networked word processing and document storage in this type of environment? And all PC's in use and on the market already come loaded with those programs. Why risk having your data in the hands of a third party when transmitting or reading from local files is so transparent in the XP OS? The security track record of all current providers of web services such as banking or commerce right now is pathetic.

Bill has a persistent vision of grabbing big bucks for some kind of subscription models of everything Microsoft does, but the public, even including logical constituencies like businesses, has shown little interest in "pay to play live" models. The whole idea, if you'll pardon the pun, is a little "Dodgey"...
Posted by Razzl (1318 comments )
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