• Sidebar: What Happens to MSN?
• Illustration: Live.com Sample Page

As part of an ongoing effort to earn more revenue from online services, Microsoft announced Windows Live, a collection of services for consumers that consists mainly of rebranded MSN services, and Office Live, a set of small business services, such as Web site hosting and online collaboration. Both will offer some free services supported by advertising, which will impact competitors that rely on online advertising, particularly Google and Yahoo. In addition, some of the services compete directly with offerings from Microsoft partners and customers, particularly ISPs, application service providers, and utility software vendors.

At first glance, the announcement looks like a mere rebranding of Microsoft's online services business, which has had only moderate success, with the names of its two most popular products, Windows and Office. Neither set of services requires or is particularly well-integrated with its namesake software, and both sets of services will be sold separately or offered for free. In the long run, however, Microsoft promises tighter integration between these services and its desktop software, as well as published APIs that third-party developers can build on—a key tactic in the success of Windows and (to a lesser degree) Office.

First Steps Toward a New Strategy

Unveiled on Nov. 1, 2005, by Chief Software Architect Bill Gates and Chief Technical Officer Ray Ozzie, Windows Live and Office Live are the first steps in a revamped strategy to capture more revenue from online services, which the company announced as a goal in summer 2005. This is not the company's first effort in this regard, but past efforts, harking back to 1995, have failed to capitalize on the company's strengths in other areas, such as consumer desktop software.

Despite the seemingly rushed nature of the announcement—most of the services are not scheduled for beta availability until 2006, and others are incomplete or buggy—the announcement did provide some insight into Microsoft's new online strategy.

Advertising

The vast majority of Windows Live services and the lowest tier of Office Live services will be free and supported by online advertising. These advertisements will rely on MSN's forthcoming adCenter platform, which was originally positioned as a tool through which businesses can bid on keywords to have their advertisements appear within MSN Search results. Now it appears that adCenter will in fact have a much broader scope.

With adCenter, Microsoft hopes to capture some of the spectacular growth in online advertising that has propelled Google and Yahoo for the last several years, particularly advertising dollars from the huge number of smaller businesses that cannot afford MSN's package advertising deals. At the very least, Microsoft hopes to convince businesses to split their online advertising spending among three major players rather than only two. This could stem the growth of Google (which today captures nearly half of all online advertising revenue) and Yahoo before these Web-based companies develop products that compete with Microsoft's core businesses—for instance, Google is rumored to be working on a hosted version of OpenOffice, which could reduce business demand for upgrades to Microsoft's Office suite.

Online Innovation

In the last few years, Google has gotten a lot of attention by releasing cutting-edge services on the Web. For example, Google's Gmail Web-based mail service (introduced in spring 2004) offered more than 500 times the storage space of the free version of Hotmail, while Google Maps (introduced in spring 2005) offered a more interactive and cleaner interface than MSN Maps or any other competitor. Moreover, Google has published royalty-free APIs for most of its services, enabling developers to begin building applications on top of them—a long-term threat not only to MSN but to Microsoft's server platforms and development tools businesses.

Microsoft hopes the Live services will demonstrate its ability to innovate on the Web and capture some attention from Google. From a business perspective, more attractive Microsoft online services could translate into more traffic, higher online advertising revenues, and interest in subscription-based online services.

Microsoft intends its Live services to demonstrate innovation in the following areas:

Integration between online services and desktop software. For example, the contact list provided by Windows Live Messenger (formerly MSN Messenger) will appear in many other services and Microsoft applications, and the Live.com Web page will be able to contain elements not only from online services but also from Microsoft software (such as links to Recent Documents in Windows).

Platform development. Microsoft will release free APIs for developers to build on top of Live services—a key factor in the past success of Windows.

User interface. The Live services will have a more "software-like" user interface than most Web sites. For example, Windows Live Mail will offer application-specific right-click menu options, which are common in Windows but still rare online.

Equal access. Somewhat surprisingly, given their names, the Live services will not be exclusive to Microsoft platform products but will be available from third-party browsers, such as Firefox and Safari (although this support was not offered at launch); competing OSs, such as the Mac and Linux; and non-Windows mobile clients, such as cell phones with Wireless Access Protocol (WAP) browsers.

Windows Live

Windows Live is the new brand name for many of Microsoft's consumer-oriented Web sites and services. Although a handful of the Windows Live services announced in November are new, the majority are revisions of existing MSN services, such as Hotmail and MSN Messenger. (For information on the future of the MSN brand, see the sidebar "What Happens to MSN?".) Also, despite the "Windows" brand, most Windows Live services are Web-based and can run on platforms other than Windows, and none are packaged or bundled with Windows XP, although there might be some as-yet-unspecified packaging or marketing ties to Windows Vista (due in late 2006).

The following Windows Live services have been announced. All are in beta unless otherwise noted. Some services work only with Internet Explorer today, but Microsoft intends to add support for other browsers, including Firefox, in the near future.

Live.com is a user-customizable Web page, similar to the MyMSN portal that was first introduced in 2002, but with a wider range of available content. (For a screen shot of a Live.com page, see the illustration "Live.com Sample Page".) It will let users incorporate Really Simple Syndication (RSS) feeds from any Web site, enabling users to get automatic alerts of Web site updates, such as new blog entries or news stories. Users can also incorporate headlines from preselected sites and snapshots of information from other Live services, such as a preview of their Windows Live Mail inbox. Live.com will also be able to incorporate Gadgets, small JavaScript applications that third-party developers can make available via the site. (Gadgets were announced as a feature of Windows Vista at the Professional Developers Conference in Sept. 2005.) Dozens of Gadgets were available at launch, including traffic maps, a currency exchange calculator, and a nested version of the Windows Media Player.

Windows Live Mail is a previously announced Hotmail redesign (code-named Kahuna) with an Outlook-like interface, including a preview pane, drag-and-drop organization, right-click menu options (e.g., delete, forward), and 2GB of storage.

Windows Live Messenger, available in beta by early 2006, is the next version of MSN Messenger, Microsoft's consumer instant messaging client and associated service. The most notable new feature will be the ability for Messenger users to share files or folders with their contacts simply by dragging the appropriate icon to their contact list. All changes to shared files and folders will be synchronized automatically, and updates will be noted by a small red "gleam" on the appropriate contact. This functionality is likely being provided via Microsoft's Nov. 2005 acquisition of FolderShare, a file synchronization service previously owned and operated by a small privately held company called ByteTaxi; this acquisition was announced shortly after the Windows Live announcement. Technology from Microsoft's Mar. 2005 of Groove Networks may also be used for this feature.

Windows Live Call is a PC-to-phone service that will be available through the Windows Live Messenger client. It will not be free, but Microsoft has not announced pricing nor how it will be sold (e.g., subscription, per call, per minute). This functionality will probably leverage Microsoft's Sept. 2005 acquisition of Teleo.

Windows Live Favorites allows users to store their Internet Explorer Favorites list online so it can be accessed from any device with Web connectivity.

Windows OneCare Live is the new brand name for Windows OneCare, Microsoft's forthcoming PC security and maintenance software and accompanying online services, such as frequently updated virus signatures. Users will have to pay a subscription fee for OneCare Live, but Microsoft has not yet announced pricing. (For other recent news on this service, see "Antimalware Tools Roadmap".)

Windows Live Safety Center is a free, online-only service that allows users to find and remove viruses and unnecessary files (such as temporary files) that may be slowing their PC's performance. It can also find vulnerabilities (such as a disabled firewall) and suggest that users should defragment their hard drive. It does not scan for spyware, although it might be integrated with Windows Defender (formerly known as Microsoft Antispyware) at a later date.

Windows Live Search, available in beta in the first quarter of 2006, will consolidate various current MSN Search services, including Web search, local search (which helps users find businesses in a particular area), and Desktop Search, as well as MSN's Virtual Earth mapping service. Microsoft is currently demonstrating a beta version of Live Search for mobile devices, which features one-click phone dialing of search results; this beta works on any phone with a WAP browser or Web browser capable of reading HTML pages.

Windows Live Spaces is the new brand for MSN Spaces, MSN's blogging service, which has been live since Apr. 2005.

Office Live

Office Live is a set of services for small businesses, which will enter beta testing in the first quarter of 2006. Some of these services, such as Web site hosting and domain name registration, are currently available through Microsoft's Small Business Center site, while others resemble services formerly offered through bCentral, which was folded into Small Business Center in summer 2004. The key difference is that Office Live will offer a free, advertising-supported tier of services.

While many pricing and feature details have not been announced, Microsoft announced that Office Live will be available in three tiers.

Office Live Basics, the free tier, will offer domain name registration, a hosted Web site with 30MB of storage, WYSIWYG tools for designing that site, basic tools to analyze Web traffic, and five business e-mail accounts that will use the Windows Live Mail back-end and interface.

Office Live Essentials, a fee-based service, will expand on the basic service with up to 50 e-mail accounts, support for Web sites designed in FrontPage, more advanced Web analytics tools, and hosted applications for managing customer relationships (e.g., accounts, business contacts, and opportunities), projects, sales campaigns, employees (e.g., an employee directory, expense tracker, hiring and training templates), and documents.

Office Live Collaboration will be the most comprehensive and expensive offering and will include all the features of Essentials plus a hosted portal, based on SharePoint Portal Server, for collaborating with employees, customers, and partners.

Microsoft emphasizes that businesses will not need to use Office applications or other Office-branded services (such as Live Meeting) to use Office Live. The company also promises integration among Office Live and its other Office products, but until the beta is released, it will be difficult to evaluate this claim.

Overcoming the Past?

Although Windows Live and Office Live are partly a response to online competitors, particularly Google, most of the services and underlying concepts are not new for Microsoft: Windows Live consists primarily of redesigned MSN services, Office Live resembles bCentral, and some aspects of the company's overall online services plan (particularly the effort to create platform services on which third parties can build) resemble .NET My Services (also known by its code name, HailStorm), Microsoft's last major effort to increase its revenue from online services, which the company abandoned in 2002.

However, many of Microsoft's past online efforts lacked a solid business model—Microsoft couldn't get enough revenue from small businesses to cover the costs of running the bCentral services, and the idea of charging consumers and partners to pay for data stored in .NET My Services never made sense to many customers or potential partners. Similarly, MSN has always relied on advertising for some revenue, but with a focus on generic advertisements purchased by large companies and displayed to all users. In the last several years, however, Google and Yahoo have greatly refined the business of online advertising by focusing on simple text-based advertisements that are affordable to small businesses, then displaying these advertisements contextually (e.g., advertisements for florists appear when a user searches for "flowers"). These companies have seen their revenue explode as a result. If executed properly, the Live services and adCenter platform will allow Microsoft to leverage this proven business model. In addition, broadband Internet access is cheaper, more widely available, and more reliable than before, meaning that consumers and businesses might be more willing to trust complex functionality to an online service rather than locally installed software.

Nonetheless, Microsoft faces many new challenges as it moves forward with the Live services, such as reliance on an advertising platform that's still being built and the fact that businesses expect and require a higher degree of reliability for online services than consumers expect from free services such as Hotmail. In addition, the Live businesses won't be fully developed for at least six months, giving Google and other online competitors a significant head start and allowing them to set (and raise) the standards for online services.

The largest challenge for Microsoft, however, will be building and promoting the new Live services without compromising the company's larger and more profitable business of selling software—if Microsoft offers too much useful functionality online for free, it will have a difficult time convincing consumers and businesses that they need to buy a new computer (with a new OS) or upgrade their software. Google and other online competitors do not face this limitation.

Resources

The Windows Live beta site is at ideas.live.com

Users and developers can learn more about Gadgets at microsoftgadgets.com.

Kahuna, the planned Hotmail redesign, was covered in "New UI and Possible Rebrand for Hotmail" on page 22 of the Sept. 2005 Update.

The Teleo acquisition was discussed in "Voice over IP Startup Acquired" on page 28 of the Oct. 2005 Update.

The beta of Windows Live Safety Center is at safety.live.com.

Sign up for the Office Live beta at www.microsoft.com/office/officelive.

The movement of bCentral into Small Business Center was described in "Small Business Center Replaces bCentral" on page 23 of the May 2004 Update.