Gates: MS 'Must Act' on Web Services

Microsoft is not about to take the Web 2.0 revolution sitting down, says Bill Gates. In an internal e-mail sent out October 30 and obtained by BetaNews on Wednesday, Gates writes that Microsoft must change to take advantage of the evolution of computing from a software-based to a Web-based model.

The venerable leader of the Redmond company harkened back to his Internet Tidal Wave memo in December 1995. In that missive, he correctly argued that the Internet was about to change everything about computing, and Microsoft risked being left behind if it didn't adapt.

Nearly ten years later, Gates again called for a similar switch in the company's business model.

"This coming 'services wave' will be very disruptive," he wrote. The company is being attacked on all sides, and non-Microsoft products are increasingly becoming the tools of choice among consumers on the Internet: Skype, Flickr and Google for example.

Gates wrote that he feels Microsoft has the "vision, assets, experience, and aspirations" to take the lead in the services arena, but acknowledged time is of the essence. "As we've done before we must act quickly and decisively," he wrote.

The memos detailing the change in strategy at Microsoft could be seen as a clearer reason why the company underwent a massive reorganization in September. Each of the three divisions is participating in the effort and would be creating some kind of Web service to enhance Microsoft's product lines.

Also, it seems that Ray Ozzie, Redmond's new chief technical officer, is playing a large role in coordinating and overseeing this change, while ensuring the company maintains it's dominance on the Internet.

A copy of a note from Ozzie was attached to Gates' memo, and in it, the former Groove Networks executive laments Microsoft's sometimes slow response to its competitors' offerings.

Ozzie outlined a list of opportunities where Microsoft may have missed the boat, including AJAX, search, RSS, Office's failure to become a de facto source of Web data formats compared to PDF, and Skype's success in harnessing VoIP to make it a viable consumer communications service.

"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," Ozzie warned. "As much as ever, it's clear that if we fail to do so, our business as we know it is at risk."

With the increasingly widespread use of broadband, and the return of Internet advertising, Ozzie said now is a good time for Microsoft to be focusing on Web services. He even harkened back to the Hailstorm project -- the company's first attempt at a Web services architecture -- saying "the effort would certainly have benefited from having a known-viable services business model for which to design."

Some industry watchers have said that Microsoft's Windows Live and Office Live products are basically repackaged versions of idea and services proposed in Hailstorm.

Google, Yahoo and Apple all received mentions for their work in the services arena in Ozzie's missive, but he seemed to criticize their approach to the business.

"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," he said.

Ozzie also said that Yahoo has considerable communications strength that is combines their software with their service, however the company seems to be using it as an "internal asset."

"The same is true of Apple, which has done an enviable job integrating hardware, software and services into a seamless experience with dotMac, iPod and iTunes, but seems less focused on enabling developers to build substantial products and businesses," he continued.

Analysts say the leaks of the Web strategy memos were intentional, as stories appeared nearly simultaneously late last night on the Web sites of several tech publications, the New York Times, and the Wall Street Journal.

"Microsoft is embarking on a major, new strategy with almost no products to show," Jupiter Research senior analyst Joe Wilcox explained to BetaNews. He added that competitors like Google, salesforce.com and Yahoo have gotten a jumpstart on Microsoft.

"The memos signal Microsoft's intention to shift course and that the other boats had better get out of the way," Wilcox continued. "Similarly, the strategy leak is meant to tell passengers of competitor boats that they might want to wait for Microsoft's ship to sail."

Both Gates and Ozzie feel that Microsoft is ready to move in a new direction. "The next sea change is upon us," Gates wrote.

"We are just now completing a wave of innovation that has never been seen in this company," Ozzie said. "2006 is going to be an amazing year for shipping products, and many across the company will be ready to take on a new mission."