Gates memo puts services at the heart of Microsoft

Bill Gates has backed a sweeping plan to reshape Microsoft's development efforts to adapt to the threats and opportunities presented by the rapid growth of new Internet-based services.

In an e-mail to his top lieutenants dated Oct. 30, Microsoft's chairman and chief software architect proclaimed that "the next sea change" in computing has arrived and called on his company to focus more sharply on Internet services as it develops new products and technologies, according to a report in Wednesday's Wall Street Journal .

"Today the opportunity is to utilize the Internet to make software far more powerful by incorporating a services model," Gates wrote, according to the Journal. "However, to lead we need to do far more... We will build our strategies around Internet services."

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Bill Gates has backed a sweeping plan to reshape Microsoft's development efforts to adapt to the threats and opportunities presented by the rapid growth of new Internet-based services.

In an e-mail to his top lieutenants dated Oct. 30, Microsoft's chairman and chief software architect proclaimed that "the next sea change" in computing has arrived and called on his company to focus more sharply on Internet services as it develops new products and technologies, according to a report in Wednesday's Wall Street Journal .

"Today the opportunity is to utilize the Internet to make software far more powerful by incorporating a services model," Gates wrote, according to the Journal. "However, to lead we need to do far more... We will build our strategies around Internet services."

Gates e-mail was reported Wednesday by the Journal. A spokeswoman for Microsoft in the U.K. confirmed the authenticity of the e-mail and the parts of it quoted by the Journal .

For businesses and consumers, the push from Gates will lead to more of the company's software applications being offered for use over the Web as services, supported by advertising or subscription fees, said Gary Barnett, a research director at U.K. analyst company Ovum.

Gates' e-mail draws heavily from an internal memo by Ray Ozzie, Microsoft's recently-appointed CTO. In his memo, Ozzie talks of the emergence of a business model in which companies make money from Internet-based services supported by advertising. He also pointed to the success of online services companies such as Google and Skype.

"The model has the potential to fundamentally impact how we and other developers build, deliver and monetize innovations," Ozzie wrote.

He suggests that businesses can make more money by offering software and services supported by advertising than by the traditional software licensing model. If Microsoft does not respond to the changes, "our business as we know it is at risk," Ozzie wrote. "We must respond quickly and decisively."

The internal missives suggest the urgency with which Microsoft views the threat posed by emerging Internet-based services and applications. They also throw some light on Microsoft's announcement last week that it will offer some online services to complement its Windows and Office product lines.

The e-mails also highlight Ozzie's growing influence at Microsoft since he joined the company through an acquisition only eight months ago, the Journal noted.

In September, Microsoft reorganized itself into three broad business divisions. Ozzie's role as CTO was expanded to include leading Microsoft's services strategy across those three divisions, Gates wrote in his e-mail. "We did this because we believe our services challenges and opportunities will impact most everything we do," he wrote.

In his memo, Ozzie called on the three business units to plan out their strategy for developing Internet-based services, and talks of appointing a top executive for each division by Dec. 15. He also called on Microsoft's MSN and Windows divisions to collaborate on a "next-generation Internet services platform" to spur innovation inside and outside the company.

The IDG News Service is a Network World affiliate.