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Microsoft: Web Services No Threat to Traditional Software Model

Web services, delivered alongside classic software, will complement rather than replace the existing software industry, Microsoft Corp.'s (MSFT) chief technologist said on Thursday.

Chief Software Architect Ray Ozzie told investors and reporters attending the annual financial analyst meeting at Microsoft's headquarters that the company is looking to convert its existing software franchises into Web-delivered services.

"The overall services opportunity is largely additive, increasing revenue opportunities for both our existing software licensing model as well as our services business model," Ozzie said.

Microsoft's strategy is to connect a wide range of devices onto various networks to allow consumers to enjoy the same information and entertainment not only on their computers but also via mobile phones, TVs and gaming systems.

"It's not unreasonable to think we'll catalyze some level of additional PC and device purchases," he said.

Last month, Ozzie stepped into the top technical post at Microsoft, replacing co-founder Bill Gates and spearheading an important transition for the $44 billion company to extend its reach beyond the computer desktop.

Gates remains chairman, but Ozzie is the up-and-coming visionary with a track record of ground-breaking software including Lotus Notes and wide respect among industry rivals.

Ozzie took issue with technology purists who say Web-delivered services will completely replace traditional computer-installed software.

"Software as service" advocates include Microsoft competitors in business and consumer markets, including Salesforce.com (CRM), Google Inc. (GOOG) and thousands of Web start-ups who are focused on market niches.

Instead, Ozzie and other Microsoft executives see the emerging industry model as "software plus services."

Windows Live, Microsoft's newly introduced Internet services platform, will act as the centralized services center, linking its portfolio of business software, consumer services and entertainment systems, he said.

"Our 'Live' efforts will have a natural side effect of increasing the use of genuine software," Ozzie said of how the security and personalization features built into Windows Live can act as a gateway to Microsoft's existing businesses.

Far-larger rivals such as IBM (IBM), Oracle Corp. (ORCL) and SAP AG (SAP) are racing along with Microsoft to allow many of their existing businesses to be delivered over networks as services rather than as products.

"A fundamental transformational shift toward services is a necessary move for all technology companies now," Ozzie said.

IBM, the world's largest technology company, has been perhaps the most aggressive in this transformation, reducing its focus on building its own hardware and software to the point where it now depends on services for most of its revenue.

In response to a question, Ozzie declined to say how much revenue per user could come from new Web services or how these might compare to license revenue streams from Windows and Office software that generate the bulk of Microsoft revenue.