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November 04, 2005

Microsoft’s “Live” strategy is a good and smart move

By Charlene Li

I was at the launch event for Windows Live and Office Live on Tuesday morning and have been running ever since, so apologies for not posting this sooner. I wrote a Forrester piece on this (subscription required). Here’s the executive summary:

Microsoft has embraced a new way to do business — a mindset that is based on software-as-a service, open platforms, and continuous innovation; a model previously mastered by Google. Ad-supported software for consumers and very small businesses is only the beginning. Microsoft's real aim is to build and host a service platform that will attract the investment of developers looking for a way to reach these market sectors. It is also a foray into offering its traditional client/server software to customers on a hosted or on-demand basis. Forrester believes that these "Live" services won't cannibalize Microsoft's existing software revenues and instead will drive significant upside as Microsoft develops new advertising and subscription revenues. However, it has tried this before and failed. The strategy will be successful only if Microsoft offers its partners a ready market, a fair revenue sharing scheme, and a strong support system that develops trust.

I’m going to tackle what I think about this development in a Q&A format to reflect the many questions I’ve been asked over the past few days.

Q: Is MSN being sidelined, with popular services like Hotmail, Messenger, and the personal home page moving to Windows Live?

A: Just the opposite, I see MSN becoming more focused. MSN has long suffered an identity crisis, mixing communication services and content together. By removing the communications portion, MSN can focus on a great user experience that brings together great content. And they have great content – MSN Autos is one of the best and biggest in the industry, Zone is an addictive gaming site that attracts loads of women (be sure to check out Bejeweled 2). In fact, the rumors of MSN and AOL working together make a lot more sense if MSN is focused primarily on the content experience. Moreover, MSN is extremely important to the strategy as its core advertiser base will be the primary revenue source for the Live products. Think of them creating an ad network for both display and search/text ads across their various networks.

Q: Are ad supported services going to work? Will they be enough to support this strategy?

A: One of the biggest challenges – and unanswered questions -- to the whole Live strategy will what kind of ads will appear on Windows Live and Office Live. Microsoft could suffer a Google Gmail-like backlash if the ads are contextually keyed to personal information on Windows Live. Ads that key off of feeds and gadget settings like zip codes are probably OK. But advertising driven by my email or calendar entries will be a no-no. (The alternative view: Gmail users don’t seem phased by it, or at the least, they trust Google – more on that below).

Q: Is this going to cannibalize Microsoft’s core software and enterprise revenues?

A: Not anytime soon. Office Live is targeted at a very different audience – small businesses with less than 10 employees – that today don’t buy Microsoft’s varied enterprise solutions. And they won’t anytime soon because they don’t a) have the IT resources, and b) they don’t need these mission critical solutions. That’s why a hosted solution is ideal for them, and Office Live’s initial 22 applications will address many of them.

Q: Microsoft talked about having an open platform for developers. Is Microsoft really going to be open about this, or are they going to stick it to developers in the future?

A: This is by far the biggest deal in terms of the announcement, and probably the most poorly expressed part too. I believe Microsoft is fully embracing hosted services and supporting developers, and more importantly, now have different mindset in how they approach the market. Sure, they would still love to be central your personal and work life (that IS what Windows and Office Live are about, after all), but they know they can’t do it alone. This is especially true with Google and Yahoo! breathing down their necks. While not yet available, the APIs will allow developers to build on the Live platforms, leveraging all of the communication, payment, and identity systems that have already been built. Let’s take Office Live as an example – it will launch with 22 applications available for a subscription fee, and all of those applications are Microsoft developed. Developers could build a light app directly into Office Live and tap immediately into a broad audience. Moreover, there’s a built in revenue model, with users paying a few months more to get access to the service. Contrast that to a business enterprise software developer today who has to build everything pretty much from scratch – and then build a marketing, sales, and distribution organization on top of it as well. The outcome: we’ll see lots of innovation for a market that historically has seen been given hand-me down technology solutions. We’ll see the inevitable list of complaints from developers who want nothing to do with Microsoft – in fact, Robert Scoble listed 12 reasons why this is the case.

This brings me to the issue of trust, on both the part of developers and end users. Both will have to trust that Microsoft understands their needs and won’t abuse the relationship. What strikes me as ironic is that if you replaced “Microsoft” with “Google”, an announcement like Live would have drawn universal praise. “Google creates home page that puts users at the center of the experience.” “Google will power enterprise apps for small businesses.” “Google builds open platform for developers within new services”.

Key to building that trust will be explaining what the heck Live is to many different constituents. And if you think it’s just Microsoft/MSN catching up on to Google and Yahoo!, you’re not thinking big enough. Think of Live becoming the foundation for a totally different experience, where your information will live in the infamouse “cloud” and where you’ll be completely device and channel agnostic. A former executive at Forrester, Emily Green, was fond of saying, “The Web is my filing cabinet.” Well, I think Live is potentially Microsoft’s manifestation of that experience.

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Comments

Dennis Howlett

I don't go with this at one level and for the UK. Here that means 3.95 million small businesses with <50 employees, which make up 50% GDP - about £50bn ($80 bn.) Are you convinced these people will tolerate a completely different experience at home and office? I don't think so.

All these people need an accounting application, probably payroll as well and that's before we think of the mom 'n' pop shops that are tied to the supply chain. Here that means lock-in to Microsoft's existing technology.

To date, no-one has really cared. But with Live validating OSS - it puts a devleoper cat among the pidgeons. And opens the door for the many SaaS offerings that I see pouring out the woodwork from all sides.

They won't all succeed, many will stumble and fail. But they have a significant 'lead' over MSFT and its developer community.

In that fairly narrow view, I still see switching between browser and desktop as a major potential headache. So much so that over 6-months, I've almost completely moved off MSFT based apps.

The vendors are caught because they can't abandon development on the dekstop. And most have no alternative in the pipe. It also raises questions for the VARs/ISVs, many of whom have no idea about this stuff.

That's an engineering problem for the largest player Sage. It has never (I'm pretty sure, correct me otherwise) built ground up applications of this kind before.

If nothing else, in validating the SaaSmodel, Gates has done these new vendors a massive PR favour.

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