Ray Ozzie Speaks 'Live'

"There is some subset of Small Business Server customers that will switch over to Office Live," he explained. "The partners who would have sold SBS are now building Office Live applications. But I really believe ... we've found as an industry that whenever there's a big tech shift, it tends to be more additive to the business rather than significantly deleterious."

Paul DeGroot, analyst with Directions on Microsoft, did not hear the conference, but said Ozzie's look-on-the-bright side world view is typical of Microsoft positioning.

"Microsoft will see its search market share fall from 12 percent to 8 percent and say they've opened up 4 percent more upside," he noted.

DeGroot also said Microsoft execs do a good job looking back at what's happened in services and illustrating how some of their offerings fit in in retrospect but "what I haven't heard so far is any kind of coherent strategy going forward."

Ozzie gave Google search credit for fueling software services but said many users want more from search. Search statistics show that roughly half the people who conduct Web searches use more than one search engine, he noted.

"That really says that while people are amazed by search, they are not completely satisfied by the results and are looking to other means," Ozzie said.

Although Ozzie said many view search as the "command line of the Internet," there are customer segments with different entry points to the Web. For example, many business users use Outlook, and game players may use their portal. The goal is to find "the best way to weave search into their places," he said.

He cited Microsoft's recently announced plans to buy Medstory, a health information search engine. Microsoft will roll that capability into its MSN Health site and ultimately into mainline search, he said.

Some industry observers say structural issues at Microsoft could hamper its services effort. While Ozzie is tasked with getting each product group to assess and develop services around their core businesses, none of the operational group heads report to him. Ozzie proponents, however, say his powers of persuasion and long tenure in the industry will help him overcome any such internal hurdles.

Also at the event, Ozzie said innovation is alive and well at Microsoft. He mentioned PhotoSynth software, which grew out of his Live Labs group.

The software "takes a large collection of photos of a place or an object, analyzes them for similarities, and then displays the photos in a reconstructed, three-dimensional space, showing you how each one relates to the next," according to Microsoft. "In our collections, you can access gigabytes of photos in seconds, view a scene from nearly any angle, find similar photos with a single click and zoom in to make the smallest detail as big as your monitor," the company said.