Ray Ozzie Speaks 'Live'

Asked, in a roundabout way, what investment Microsoft must make to deliver its vision of software plus services, Ozzie demurred. "I have nothing to add that [Microsoft CEO] Steve [Ballmer] hasn't talked about, and we can talk in a more nuanced way about it at the financial analyst meeting in July," Ozzie said. The questioner was longtime Microsoft watcher Rick Sherlund, general partner at Goldman Sachs, which hosted the Las Vegas event.

Last April, Microsoft execs sent financial analysts scrambling when they hinted that the Redmond, Wash., software giant would devote a whopping $2 billion to its high-priority "Live" software-as-a-service (SaaS) push over the next year. But at the Goldman Sachs event, Ozzie didn't want to get into that.

Still, Ozzie put some context around Microsoft's services strategy and did his best to portray the "Google threat" as an opportunity for Microsoft. Whereas onlookers view Google and its expert SaaS and ad-supported free software push as Microsoft's nemesis, he said the challenge sparked new thinking in Redmond.

"Rather than examining the specific mechanism by which Microsoft competed with one competitor, what's fascinating is to see the broader opportunities created inside [the company] as a side effect of the new competitor," Ozzie said.

Case in point: Sony's PlayStation 2 spurred Microsoft's game console push but also led the software company to go beyond gaming and into expanded media scenarios. Similarly, Ozzie said, Linux gave Microsoft's server and tools group a chance to compete beyond the server operating system alone.

"In the Google case, what's fascinating to me is that although you can characterize Google as a search compete, there are two very significant things that happened at Microsoft [as a result]. One was the recognition of advertising as an economic engine," Ozzie said. "And the other was services-based infrastructure. Once the realization was made by different groups that every product would have a services component, you go back to the company's platform roots and figure out what kind of platform treats the services layer as a system."

Microsoft is building out that platform, which underlies its Office Live and Windows Live efforts.

Ozzie portrayed Microsoft's legacy strengths -- in desktop applications, MSN and Hotmail -- as beneficial to the SaaS strategy. Naysayers and competitors in the SaaS world maintain that Microsoft can't afford to push too aggressively into services because the company will cannibalize shrink-wrapped software sales.

Most onlookers see Microsoft attacking Google's search hegemony while Google edges ever nearer to offering an Office rival in Google Apps Premier Edition.

When asked about cannibalization, Ozzie said, "The answer, in most cases, is [services] won't be cannibalistic, but in certain specific cases at the fringes there will be substitution of one thing for another."

NEXT: The "sweet spot" for Office Live