More than just a technical shift
In a nutshell, Ozzie's strategy is to offer customers the benefits of Google's cloud computing approach without forcing them to give up the processes, practices, or software they use now. It's an intriguing message, and while some might argue that Microsoft's efforts to tie its desktop software more closely to its online services is reminiscent of the company's longstanding practice of integrating product lines to encourage cross-selling (and thus lock-in), the benefits of "software plus services" may prove too compelling for customers to ignore.
The ad-supported versions of the Office Web Apps will undoubtedly appeal to consumers who are considering free Office competitors, such as Google Docs, Zoho, and OpenOffice.org. In addition, customers will no longer need to purchase the full Office suite if they only occasionally open, print, or make small changes to Office documents that contain complex formatting. That should particularly please Linux users, who until now could only run -- with difficulty -- older versions of the Office suite with the assistance of the Wine Project.
Microsoft's move to offer subscription-based, hosted versions of SharePoint and other server software should also meet approval. Small and midsize businesses that worry about their ability to manage and maintain servers for back-office functions should be particularly intrigued, but according to a recent IDC study, usage-based pricing models are increasingly attractive to many enterprises.
But perhaps the most significant aspect of Microsoft's new strategy may be how it changes the nature of the software giant's relationship with its customers. Rather than the annual sales cycle of yesterday's software industry, Microsoft plans to capture revenue from its customers on an ongoing, 24/7 basis -- whether from software sales, usage-based subscription payments, or ad impressions.
That idea is sure to make some customers nervous, but Microsoft's strategic shift could also have unintended positive consequences. For one, the need to reach a wide audience with its online services to increase ad revenue could encourage support for open Web standards at Microsoft, which could lead to better standards compliance in future versions of Internet Explorer.
More fancifully, revenue from subscriptions, advertising, and the Azure platform could reduce Microsoft's dependence on its software cash cows. Freed from the need to guard its proprietary software portfolio jealously, Microsoft could then pursue improved relationships with the open source and open standards communities. Microsoft claims to be "committed to building bridges to other software providers, including open source technologies and products," and the company has made a few conciliatory gestures toward the open source world as of late, such as funding the CodePlex Foundation. But a more genuine, less patronizing effort would be welcomed (even if past sins will not soon be forgotten).
Microsoft: Too big to succeed?
Critics argue, however, that such a rosy picture of Microsoft's future is unlikely. Before Ozzie can beat Google, they say, he must first confront an even scarier foe: Microsoft's own lumbering, bellicose corporate culture. Direct competition of Google's magnitude has been a rarity in Steve Ballmer's 10-year tenure as CEO, and some analysts fear Microsoft's competitive spirit has irreparably atrophied.
Insiders warn that Microsoft's ability to innovate is hampered by infighting and bureaucratic mismanagement. In an editorial for the New York Times, former Microsoft exec Dick Brass described the company as "a dysfunctional corporate culture in which the big established groups are allowed to prey upon emerging teams, belittle their efforts, compete unfairly against them for resources, and over time hector them out of existence."