Gates says services are the future for computers -- and Microsoft

Taken from DetNews.com

Company makes plans to move away from prepackaged software and into web-based applications

written by Charles Piller / Los Angeles Times
As the Internet transforms the way people use computers, Microsoft Corp. founder Bill Gates has a message for the world's biggest software maker: adapt or die.

"We must act quickly and decisively," Gates wrote in an Oct. 30 memo to Microsoft executives. "The next sea change is upon us."

In the four months since Gates put his company on notice, the maker of the Windows operating system and Office productivity suite has embarked on a restructuring no less significant than its adoption of the graphical, mouse-based user interface 20 years ago or its embrace of the Internet a decade later.

This time, Microsoft wants to diversify away from pre-packaged software and toward Web-based services that provide steadier, faster-growing income streams. In this vision, users would lease access to online software or use services in exchange for putting up with on-screen ads.

Gates warned his lieutenants that every part of the company would have to embrace the new market realities: "This coming 'services wave' will be very disruptive."

The pressure is on. Microsoft's sales grew 8 percent last year, a precipitous slide from the 49 percent annual growth rates of a decade ago. Wall Street has greeted its vast profit -- $3.65 billion last quarter alone -- with a yawn. The company's stock has stagnated for three years.

By contrast, rivals such as Google Inc. pull in billions of dollars for ads on free Web-search pages. Salesforce.com's leased sales-and-marketing software has given it revenue and profit growth above 65 percent . Apple Computer Inc. recently announced that it had sold the billionth download for the iPod, which has become the company's biggest revenue source.

"Microsoft hates the services business," said Jeffrey Tarter, executive director of the Association of Support Professionals. "If they can't solve the services problem, they'll gradually begin to see themselves drifting into a backwater."

But to embrace the next big thing, Microsoft risks further slowing the most prolific cash machine in software history and forcing product managers to take huge risks that could alienate customers.

"You have to mobilize everybody and get them to give up their private interests," said a longtime competitor who asked not to be identified. "It's like when a nation goes to war."

Not even Gates knows whether his company -- with 60,000 employees in more than 100 countries and $40 billion in annual revenue -- is still nimble and aggressive enough to reinvent itself.

A generation of investors has gotten rich betting that Microsoft would steamroll competitors despite constantly playing catch-up on key technologies. The company that touches nearly everyone on the planet who uses a computer knows how to move trends in its favor.

In the late 1980s, the old command-line interface on which Microsoft built its initial fortune was waning. Windows was regarded as a clunky joke compared with the graphical interface pioneered by Apple's Macintosh computer. Gates marshaled his forces. Microsoft powers more than 90 percent of the world's computers; Apple, less than 3 percent.

In 1995, Microsoft was caught off-guard when Netscape Communications' Navigator browser became the instant leader on the nascent Web. Gates and company countered with Internet Explorer. A few years and antitrust trials later, Netscape was out of business.

Gates has now set his sights on Web services..

more @ DetNews.com

This is VERY interesting... I would read the full article.

Andrew