November 9, 2005 11:47 AM PST

Ozzie memo: 'Internet services disruption'

Last week, Microsoft announced its plans for two new online services: Windows Live and Office Live. However, it is clear that Microsoft sees more work ahead as it tries to catch up with rivals offering free, ad-supported products. Chief Technical Officer Ray Ozzie, who is leading the services push, outlined the challenge in a memo he penned late last month.

Ray Ozzie
Ray Ozzie,
chief technical
officer, Microsoft

From: Ray Ozzie
Sent: Friday, October 28, 2005
To: Executive Staff and direct reports
Subject: The Internet Services Disruption

It is an exciting time, as we're at the beginning of the biggest product cycle in the company's history. In a week we ship new versions of Visual Studio, SQL Server and BizTalk Server. Later this month we ship Xbox 360. Next year we have a double barreled release of our two largest products with Windows Vista and Office "12". It's a great time for customers, our partners, and for those at Microsoft who have put so much of themselves into these products.

But we bring these innovations to market at a time of great turbulence and potential change in the industry. This isn't the first time of such great change: we've needed to reflect upon our core strategy and direction just about every five years. Such changes are inevitable because of the progressive and dramatic evolution of computing and communications technology, because of resultant changes in how our customers use and apply that technology, and because of the continuous emergence of competitors with new approaches and perspectives.

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In 1990, there was actually a question about whether the graphical user interface had merit. Apple amongst others valiantly tried to convince the market of the GUI's broad benefits, but the non-GUI Lotus 1-2-3 and WordPerfect had significant momentum. But Microsoft recognized the GUI's transformative potential, and committed the organization to pursuit of the dream ? through investment in applications, platform and tools ? based on a belief that the GUI would dramatically expand and democratize computing.

When we reflected upon our dreams just five years later in 1995, the impetus for our new center of gravity came from the then-nascent web. With a clear view upon the challenges and opportunities it presented, the entire company pivoted to focus on the internet to pursue that 'fully connected' dream with support for internet standards throughout our product line: a web browser, server and development tools, and a service in MSN that was transformed into a web portal. Many things we developed in that era continue to fuel the growth of today's internet: the technologies of AJAX ? DHTML and XMLHTTP ? were created in 1998 and used in products such as OWA.

In 2000, in the waning days of the dot com bubble, we yet again reflected on our strategy and refined our direction. After taking a more deliberative look at the internet and its implications for software, we came to the conclusion that the internet would go beyond browsing and should support programmability on a global scale. We observed that certain aspects of our most fundamental platform ? the tools and services that developers use when building their software ? would not likely satisfy the emerging security and interoperability requirements of the internet. So we embarked upon .NET, a transformative new generation of the platform and tools built around managed code, the XML format and web services programming model. At the time, it was a risky bet to build natively around XML, but this bet paid off handsomely and .NET has become the most popular development environment in the world.

It is now 2005, and the environment has changed yet again ? this time around services. Computing and communications technologies have dramatically and progressively improved to enable the viability of a services-based model. The ubiquity of broadband and wireless networking has changed the nature of how people interact, and they're increasingly drawn toward the simplicity of services and service-enabled software that 'just works'. Businesses are increasingly considering what services-based economics of scale might do to help them reduce infrastructure costs or deploy solutions as-needed and on subscription basis.

Most challenging and promising to our business, though, is that a new business model has emerged in the form of advertising-supported services and software. This model has the potential to fundamentally impact how we and other developers build, deliver, and monetize innovations. No one yet knows what kind of software and in which markets this model will be embraced, and there is tremendous revenue potential in those where it ultimately is.

Just as in the past, we must reflect upon what's going on around us, and reflect upon our strengths, weaknesses and industry leadership responsibilities, and respond. As much as ever, it's clear that if we fail to do so, our business as we know it is at risk. We must respond quickly and decisively.

The Landscape
Since 1995, inexpensive computing and communications technologies have advanced at a rapid rate that even exceeded our expectations. It's so very difficult now for us to imagine a world without the PC, the web and the cell phone. In the US, there are more than 100MM broadband users, 190MM mobile phone subscribers, and WiFi networks blanket the urban landscape. This pattern is mirrored in much of the developed world. Computing has become linked to the communications network; when a PC is purchased, it's assumed that the PC will have high-speed internet connectivity. At work, at home, in a hotel, at school or in a coffee shop, the networked laptop has become our 'virtual office' where we file our information and interact with others. The broad accessibility and rapid pace of innovation in hardware, networks, software and services has catalyzed a virtuous cycle whose pace isn't slowing. There has never been a more exciting time to be a developer or a user of technology.

Our products have embraced the internet in many amazing ways. We've transformed the desktop into a rich platform for interactive internet browsing, media and communications-centric applications. We've transformed Windows into best-of-breed infrastructure for internet applications and services. We've created, in .NET, the most popular development platform in the world. We've got amazing products in Office and our other IW offerings, having fully embraced standards such as XML, HTML, RSS and SIP. Our MSN team has demonstrated great innovation and has held its own in a highly competitive and rapidly changing environment ? particularly with Spaces and in growing a base of 180M active Messenger users worldwide. The Xbox team has also built a huge user community and has demonstrated that internet-based "Live" interaction is a high-value, strong differentiator.

But for all our great progress, our efforts have not always led to the degree that perhaps they could have. We should've been leaders with all our web properties in harnessing the potential of AJAX, following our pioneering work in OWA. We knew search would be important, but through Google's focus they've gained a tremendously strong position. RSS is the internet's answer to the notification scenarios we've discussed and worked on for some time, and is filling a role as 'the UNIX pipe of the internet' as people use it to connect data and systems in unanticipated ways. For all its tremendous innovation and its embracing of HTML and XML, Office is not yet the source of key web data formats ? surely not to the level of PDF. While we've led with great capabilities in Messenger & Communicator, it was Skype, not us, who made VoIP broadly popular and created a new category. We have long understood the importance of mobile messaging scenarios and have made significant investment in device software, yet only now are we surpassing the Blackberry.

And while we continue to make good progress on these many fronts, a set of very strong and determined competitors is laser-focused on internet services and service-enabled software. Google is obviously the most visible here, although given the hype level it is difficult to ascertain which of their myriad initiatives are simply adjuncts intended to drive scale for their advertising business, or which might ultimately grow to substantively challenge our offerings. Although Yahoo also has significant communications assets that combine software and services, they are more of a media company and ? with the notable exception of their advertising platform ? they seem to be utilizing their platform capabilities largely as an internal asset. The same is true of Apple, which has done an enviable job

CONTINUED: Emerging trends become mainstream…
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2 comments

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Federal Department of Computing
No other copmpany in the world is able to brag so loudly about what they're going to do than Microsoft. It's like these memos have to be made public so that their partners and customers etc know that they really aren't asleep.

Does Google make such self-seeking and self-important pronouncements public knowledge? Not on your life.

It really is as if Microsoft is the FDC and these "policy" announcements are meant to reassure everybody that everything's on track and Google will be squashed by a billion-pound turkey that can barely waddle out its own yard ...
Posted by paulie_shanna (5 comments )
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Google is the giant of computing services
Pride goes before a fall.

I would much prefer that Google be the 100 pound gorilla of IT as they are definately better at benefitting others while benefitting themselves.

MS is far to greedy and fat to be of any use to the average Joe blogs, and they have no problem ripping people off as well. Google on the other hand are open and give their stuff away. They are the good guys of IT.

Google is also more in touch with what is happening and you don't see Google saying we are going to crush these guys and we are the best, even though they are the best in my opinion.
Posted by t8 (3716 comments )
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