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Krishnan Thiagarajan

Bill Gates has given his call of a `sea change' in the software landscape - and the rest of the industry has got busy with its own strategies to grab market share from the monoliths. This time around, it looks like a disruptive wave in the making.

WHEN the legendary Bill Gates of Microsoft asks his commanders and foot soldiers to brace for a massive and disruptive "sea of change", reminiscent of his famed 1995 "The Internet Tidal Wave" memo, it represents an opportune moment to re-examine the software landscape.

In a recent internal memo, Gates has declared that "the broad and rich foundation of the Internet will unleash a `services wave' of applications and experiences available instantly over the Internet to millions of users."

Microsoft, which threw its hat into the `services' ring with the launch of its Windows Live and Office Live initiatives, thinks that this business will be driven by substantial economies of scale in future.

This time around, unlike a decade ago, Microsoft will have to fight the latest services battle on completely different lines.

Just take the business model of three potential competitors of Microsoft that are entrenched in the online marketplace: Google and Yahoo have made online advertising as their key revenue engine for growth while eBay derives its revenues from a transaction fee-based approach, levied on suppliers and buyers.

Once services such as Windows Live and Office Live are offered free of cost or at deeply discounted rates to the users, innovation and value-add alone count in the marketplace.

Microsoft's war chest of $40 billion matters for making the big acquisitions (such as the one of America Online, which is said to be in the works), but for attracting potential users in a services play, it will have to play in line with market demands.

Second, the power seems to be steadily shifting away from the "desktop" to the "web browser" for most applications and services, and the long-held vision of "the network is the computer" is beginning to come alive.

In this backdrop, Microsoft's dominance in desktop operating systems will matter less as the networks operate based on standards.

And to top it all, Microsoft's services growth will result, sooner or later, in cannibalising on the revenue growth of its Windows operating system and Office suite.

The only variables that will matter will be Microsoft's investment in the Internet Explorer browser and its extensive .NET strategy (a development environment using a set of platforms and tools built around managed code) that has been in operation since the year 2000.

Third, the tonnes of innovations that are thriving in the online marketplace are "grassroot" or "bottoms up" innovation driven by user participation, over which little control can be exercised.

Web sites such as Flickr (for managing content such as photos online), Spurl! (bookmark management), Digg (for technical content), LinkedIn (for social networking), GoToMeetings (for online meetings), Wikipedia (online community-written and maintained encyclopaedia), have sprung up all over the Web.

Some of these experimental efforts have the potential to take the Web to the next level.

Slowly, even as innovation multiplies the bigger players are acquiring some of these Web sites.

For instance, Yahoo has bought out Flickr and Upcoming.org (a collaborative event calendar), eBay has taken a minority interest in craigslist and Microsoft has notched a string of acquisitions recently such as FolderShare, a file synchronisation technology provider across multiple devices, Teleo, a VoIP company, and Groove Networks, which is into collaboration software.

Google's acquisitions include Picasa (photo management), Keyhole (online maps), and Blogger (weblog service provider and network).

Since the valuation of these players is high, all of them can take a shot at acquisitions to fill the strategic gaps in their portfolio of offerings.

With inputs from N. Nagaraj

maverick@thehindu.co.in

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