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In the 1980's, Mr. Ozzie applied that perspective to the new technology of the day: personal computers. At the time, PC's were mainly stand-alone machines for word processing, spreadsheet calculations and desktop publishing. Mr. Ozzie recognized that PC's could also be powerful tools for communications and collaboration. He led the team that created Lotus Notes, an early program for corporate e-mail and sharing information in digital workspaces, anticipating the kind of computing that would become commonplace only later with the rise of the Internet and the Web. In 1995, I.B.M. paid $3.5 billion for Lotus Development Corporation and the prize was Lotus Notes. |
In 1997, Mr. Ozzie founded Groove Networks to make advanced collaboration software using Internet peer-to-peer technology, well before the arrival of Napster and peer-to-peer networks for sharing music. Groove was a technological triumph, but not a big commercial success. Microsoft bought Groove this year to pick up its technology - and Mr. Ozzie.
Years ago, when Mr. Ozzie was a Microsoft competitor, Mr. Gates called him one of the world's great programmers. So, in Microsoft's engineering culture, Mr. Ozzie brings a lot of clout to his job.
He hit the ground quickly after he arrived in April. At first, he said, some executives told him that it was a big company and that he should get to know it for a year or so before deciding what to focus on. "That lasted about two weeks," he said.
In meetings of senior executives, the subject of how to cope with the Internet services shift in computing, how to turn it into an opportunity for Microsoft, was a constant theme - and one that deeply interested Mr. Ozzie. "Within a month, Ray was putting his thoughts on software-as-services on paper," noted Jeff Raikes, president of Microsoft's business division, which includes the Office products and corporate software.
Mr. Ozzie then spent the next few months meeting with people across the company to see what work was being done in product groups. Simultaneously, he was devising a plan to help Microsoft capitalize on Internet services by blending the new technology - and economic models - with Microsoft's traditional software business.
In late October, Mr. Ozzie presented his ideas in a seven-page, 5,000-word memo, "The Internet Services Disruption." At first, it was e-mailed to fewer than 100 senior managers and engineers at Microsoft. But they passed it along to colleagues, and by early November it had leaked out to the press; copies are now posted on the Web. Microsoft has used such memos over the years to educate its corporate troops and to stir them up to combat major competitive challenges.
In a two-page note that accompanied the Ozzie memo, Mr. Gates compared it to one he wrote in 1995, "The Internet Tidal Wave," which assessed the Internet challenge of a decade ago. Microsoft, he wrote in the introduction to the Ozzie memo, was at similar crossroads. "This coming 'services wave' will be very disruptive," Mr. Gates wrote, and later emphasized, "The next sea change is upon us."
The Ozzie memo analyzes the Internet services trend, the competition and Microsoft's strengths and shortcomings, and it suggests how the company must change. The document is also a call to action: "It's clear that if we fail to do so, our business as we know it is at risk," Mr. Ozzie wrote. "We must respond quickly and decisively."
The memo is peppered with technical acronyms, and rivals are named. While Microsoft is progressing on several fronts, Mr. Ozzie wrote, "a set of very strong and determined competitors is laser-focused on Internet services and service-enabled software."
"Google is obviously the most visible here," he added.
There is an implicit critique of Microsoft's software-building practice of relying so much on product cycles measured in years. The last major release of Windows - XP - was in 2001, while the next one, Vista, has been scheduled for next year after repeated delays. The memo chastises no product by name, but it extols the virtues of speed and simplicity in software design.
"Complexity kills," Mr. Ozzie wrote. "It sucks the life out of developers, it makes products difficult to plan, build and test, it introduces security challenges, and it causes end-user and administrator frustration."
HIS comments all but echo those of some estranged engineers who have left Microsoft recently. Mark Lucovsky, a former senior engineer at Microsoft who joined Google, wrote in his blog earlier this year, "Microsoft used to know how to ship software, but the world has changed." The companies to watch, Mr. Lucovsky wrote, have "embraced the network, deeply understand the concept of 'software as a service' and know how to deliver incredible value to their customers efficiently and quickly."
Mr. Ozzie is understandably careful in what he writes and says; his role at Microsoft is mainly to lead and encourage rather than to criticize. He emphasizes the importance of Microsoft's big desktop products like Windows and Office, and he says that Internet services should be seen primarily as a way to continually update and improve its offerings. Those updates and improvements, he said, should make Microsoft software teams happier by moving their work into the marketplace faster.
"People like to have fun doing what they're doing, and people who build software have fun by having people use their stuff," Mr. Ozzie said in the interview.
Yet Microsoft will also selectively offer Web services that do over the Internet some of what Office and Windows do on the desktop. The company took measured steps in that direction last month, when it introduced Windows Live and Office Live. Windows Live lets consumers manage their e-mail, instant messaging, blogs, photos and podcasts in one site. Office Live enables small businesses to set up Web sites and e-mail systems, and to provide collaboration sites for teams. Both will be supported by advertising and perhaps some subscription fees.
In the future, Mr. Ozzie suggests, Microsoft will go further, offering parts of Office - like Word, Excel or PowerPoint - as Web services. "I think there are potentially different or enhanced ways that we can take things that have traditionally been done with the Office suite and offer that to customers," Mr. Ozzie said. "That's absolutely what we're focused on."
The new approach, it seems, is a striking departure from Microsoft's longtime practice of bundling more and more software features into its big integrated products. The bundling has not been merely a design preference, but also a business strategy. With more than 90 percent of the desktop PC market for operating systems and office productivity applications, Microsoft has bundled outstanding programs with mediocre ones, and all of them typically became the industry standards.
But Internet services represent a more open, competitive model. "Software itself is going to be free, and you get paid for services that are supported either by ads or by subscription charges," said Mitchell Kapor, the founder of Lotus Development who is president of the Open Source Applications Foundation, which develops free software for personal information like calendars and contacts. "For Microsoft, this is a bigger challenge than the rise of the Internet itself in 1995."
RECENT innovations have enabled Web-based software to look and respond more like desktop applications. Offering Internet alternatives to traditional PC programs are a new breed of start-ups, including Writely.com, for word processing; NumSum, for spreadsheets; and Zimbra and Scalix, both e-mail. I.B.M. has Web-based software called WorkPlace that is used by millions of workers. And Salesforce.com has built a fast-growing business by supplying customer relationship management software as an Internet service.
"No piece of software will replace Microsoft's Outlook, Word or Excel, but Web services will eat away at core areas of its Office suite over the next couple of years," said Marc Benioff, chief executive of Salesforce.com.
If that happens, Microsoft's business could be battered. Mr. Colony of Forrester Research predicts that Microsoft's profit margins, under pressure from Internet services, could fall by 40 percent or so over the next four years. A wild card is the hand that Google will play beyond search and how successful it may be. Mr. Colony, for example, says he thinks that Google will make a big difference. "I believe Google will revolutionize the software business," he wrote in a recent report.
Google has desktop search software and a Web-based e-mail service, two offerings aimed at parts of Microsoft's stronghold. How much further it plans to go in providing alternatives to Microsoft's software is uncertain, though it certainly looks interested.
Google was among the companies that attended a meeting last month at I.B.M.'s headquarters in Armonk, N.Y., of the Open Document Foundation, a group formed to agree on freely available formats for word processing, spreadsheets and other office documents; the idea is to come up with alternatives to Microsoft's proprietary Office formats. And for the last few months, Google has talked with Wyse Technology, a maker of so-called thin-client computers (without hard drives).
The discussions are focused on a $200 Google-branded machine that would likely be marketed in cooperation with telecommunications companies in markets like China and India, where home PC's are less common, said John Kish, chief executive of Wyse. "Google is on a path to developing a stack of software in competition with the Microsoft desktop, and one that is much more network-centric, more an Internet service," Mr. Kish said. "And this fits right into that."