'Software Plus Services' Strategy Explained

In a significant business transition, Microsoft is rolling out new online services that augment existing Microsoft products, as well as services that stand alone and services that customers could use in place of Microsoft software. The company is taking this measured risk—particularly the risk of cannibalizing existing products—to meet unserved markets, stave off possible threats from pure-play online competitors, and reduce its development and marketing costs. Although Microsoft is moving cautiously, partners may still find that their traditional business opportunities, such as deployment, integration, and support, become less relevant as more functions move online.

Why Online Services Matter to Microsoft

Online services can offer many features of traditional packaged software at a lower cost.

For consumers, new forms of online advertising have financed an explosion of free Web sites and services. The two biggest beneficiaries have been Google and Yahoo, which have used some of this revenue to acquire some of the more promising Web startups, such as the fast-growing (but unprofitable) video-sharing site YouTube, acquired by Google for US$1.6 billion in Nov. 2006.