The Hindu Business Line : Opening strategic windows

MICROSOFT LAUNCHING A live version on-line of its popular operating system, Windows, and a suite of office applications is an interesting strategic initiative in the marketing of software products and should be beneficial to retail consumers and small businesses. The development is a confirmation of the perception that software ought to be vended like any other utility good, such as electricity, where customers are charged by the quantum of usage. Given Microsoft's dominance of the operating system — the basic software that powers a computer — and the user applications software market, this strategic shift by Microsoft has implications for the IT industry as a whole. For, if the move captures public imagination as a means of accessing software and as a payment model, it is safe to assume that this mechanism could well become the standard. Since multiple equipment, from mobiles to sophisticated hand-held devices, would be used to access the Web in future, this move could also help the company enter other areas.

Microsoft's move underscores its recognition of the shifting focus of consumers from the `desktop as a platform' with its office productivity suite to the `browser' for most applications. Windows/Office Live is bound to cannibalise Microsoft's revenues from licensed versions. However, Microsoft's willingness to play along the unlicensed flank is from the realisation that the entire software industry is headed in that direction. If the software giant can use hosted applications to prise open the small and medium business market in terms of volumes, its revenue generation capacity will become considerable.

In a sense, Microsoft has also fired a salvo in the gathering war of the Web portals (representing the gateway to the Internet). With Microsoft emerging a front-runner in the acquisition of, or tie-up with, America Online, the battle for web portals will be keenly fought among Microsoft, Google and Yahoo. The personalisation of content for social networking and online e-commerce opportunities will be the fulcrum for this battle that will be fought the next few years. All the innovations, partnerships and acquisitions happening in the industry, whether they relate to e-mail, instant messaging, search or phone services, revolve around the Web portal. Recent moves that reflect the changing rules of the game include Internet auction site eBay's acquisition of Skype, an Internet phone company for a mind-boggling valuation of $2.6 billion; Yahoo's strategic partnership with Alibaba.com; China's e-commerce company; and Sun's partnership with Google for distribution of Google Toolbar and Openoffice desktop. With Microsoft throwing its hat into this ring, the equation will change decisively.

Finally, in a sharp shift in its thinking, Microsoft also hopes to stake a significant claim on the online advertising market, of which Google has so far been the undisputed leader. Considering that the online advertising market is just gaining momentum, Microsoft is jockeying itself into position with Yahoo to wrest the initiative from Google. In itself, this represents possibly the biggest challenge for Microsoft.

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