Update: Windows, Office To Go 'Live'

Unveiling a new strategic vision dubbed “live software,” Gates previewed Microsoft&'s first moves into the space with Windows Live and Office Live on Tuesday at a press conference in San Francisco.

Focused on the individual user, Windows Live is an advertising-supported service that lets users customize their own home pages with search content, RSS feeds, workspaces, applications and a new AJAX-based mail system called Live Mail and Live Messenger, an updated version of Microsoft&'s MSN Messenger. The free service is not designed to replace the company&'s MSN.com, which will continue to feature programmed content.

Office Live, previewed by Microsoft General Manager of Information Worker Services Rajesh Jha, is a set of free and subscription-based services for small businesses with fewer than 10 employees.

The base-level Office Live lets small businesses sign up for a free domain registration and a free web site, plus multiple Live Mail accounts with up to 2 Mbytes of storage, free online collaboration to enable ad hoc file sharing a la Groove Networks, code-named Mojo. The subscription-based service is designed for fuller-function business portals that might enable a company to set up a secure space to communicate with an accountant or for various workgroups.

Microsoft's top worldwide channel executive says the company's upcoming Office Live will jump-start business for a variety of solution providers targeting very small businesses. The service will start rolling out next year.

"This will, for the first time, widely open up a segment of the market that has been underserved by technology, said Allison Watson, vice president of Microsoft's worldwide partner and small business group.

She estimates the potential market to be about 5.2 million businesses that are currently PC-based, not server-based.

While the service emanates from Microsoft, third-party partners--ISVs in particular--can build vertical applications atop the collaboration and mail infrastructure. RE3W, a Santa Ana, Calif.-based ISV specializing in Web-based applications for the real-estate industry, demonstrated its application on stage with Microsoft in San Francisco, although not without glitches.

Watson said most of the Office Live infrastructure would go to beta early next year. Some of the foundational Windows Live services demonstrated are in beta now, she said.

While the services previewed Tuesday did not focus on hosted applications, Gates said applications such as CRM could be added to the Office Live service at a premium subscriber level sometime in the future.

Gates and Ray Ozzie, one of Microsoft's three CTOs, are using the event to outline the company's strategic push into “Live software,” a catchall term covering software, services and software as a service. The Redmond, Wash.-based software giant plans to offer hosted collaboration and business applications such as CRM and ERP via its own hosting services or via partners.

Sources inside and close to Microsoft have likened the company&'s software-as-a-service push to its belated discovery of the Internet after Netscape's Navigator browser threatened to make Windows irrelevant several years ago. Ozzie, who joined Microsoft last year when it acquired Groove Networks, is driving this strategy. Just as Netscape pushed Microsoft when the Internet took root, now Google is pressuring the software behemoth in Web and desktop search and players such as Salesforce.com and NetSuite are doing so in hosted applications, according to industry observers. Solution providers, too, said Microsoft once again has to make up for lost time.

One longtime Microsoft solution provider, who requested anonymity, said the vendor has been quizzing key partners for some time about the demand for software as a service. "They're starting to talk about it, but they're way late. I'm in multiple deals now facing Salesforce.com, but the way [Microsoft Business Solutions] prices its product is not conducive to competing with that model," he said.

With the next release of its CRM product, Microsoft plans to launch Service Provider Licensing Agreements (SPLAs) to ease host licensing. Currently, the only other Microsoft ERP product to be offered via SPLA is Axapta, the longtime Microsoft solution provider said.

Microsoft has told partners to expect a hosted CRM implementation. Plans call for the hosting to be done by Microsoft or by a hosting partner, depending on what the customer wants.

Some solution providers said they&'re pleased that Microsoft is taking an aggressive stance on hosted services since Google partnered with Sun Microsystems.

"Microsoft needs to put more online applications in the market," said Paul Freeman, president of Coast Solutions Group, Irvine, Calif. "They are well-positioned to go after established applications like Salesforce.com and could bring new applications like Office online. This is the kind of thing that SMB buyers need in order to maintain their costs and lower the complexities of IT infrastructure."

Microsoft isn&'t totally new to hosting applications over the Internet. The company has offered Hotmail and LiveMeeting directly to businesses and consumers for several years. It also has experimented and pulled small-business hosting via its bCentral brand and still offers basic Web hosting services.

In 2000, Microsoft was one of the first vendors to outline a software-as-a-service strategy when it unveiled plans for the .Net MyServices platform, code-named Hailstorm, targeted at consumers. At the time, Microsoft also briefed partners on a set of planned Internet services, code-named Blizzard, that would provide business software over the Internet directly to enterprise customers.

Microsoft had intended to launch the first set of XML Web services in 2002 but then pulled the plug on those plans. Though neither project has seen the light of day, Microsoft has had an application hosting service planned for some time. The company also has been a big backer of the ASP model and funded a lot of the original ASPs, many of which ended up closing their doors, being acquired or being renamed when the dot-com bubble burst. Currently, Microsoft is investing in a project code-named Atlas that&'s designed to bring AJAX-style, rich client development to the Internet.

Microsoft's hosting plans will compete against smaller managed services providers, solution providers said, adding that they hope contingency plans for channel partners are in place.

"The hosted service offerings from Microsoft will compete against partners that are focused in the small-business space. I hope that Microsoft can offer incentives to help these partners sell these services," said Simon Chan, director of business development at Iteration2, Irvine, Calif. "There will be plenty of companies, at least initially, that will want to host their own infrastructure and customize for their specific needs. I haven&'t seen an offering that is hosted that can be completely customized for customers."

PAULA ROONEY contributed to this story.