September 3, 2007

Software via the Internet: Microsoft in ‘Cloud’ Computing

By JOHN MARKOFF

SAN FRANCISCO, Sept. 2 — The empire is preparing to strike back — again.

In 1995, Microsoft added a free Web browser to its operating system in an attempt to fend off new rivals, an effort ultimately blocked by the courts.

This week, it plans to turn that strategy upside down, making available free software that connects its Windows operating system to software services delivered on the Internet, a practice increasingly referred to as “cloud” computing. The initiative is part of an effort to connect Windows more seamlessly to a growing array of Internet services.

The strategy is a major departure for Microsoft, which primarily sells packaged software for personal computers. With this new approach, Microsoft hopes to shield its hundreds of millions of software customers from competitors like Google and Salesforce.com, which already offer software applications through the Internet.

Microsoft’s new Windows Live software suite includes an updated electronic mail program, a photo-sharing application and a writing tool designed for people who keep Web logs.

The new service is an indication that Microsoft plans to compete head-on against archrival Google and others, and not only in the search-engine business where it is at a significant disadvantage. Instead, Microsoft will try to outmaneuver its challengers by becoming the dominant digital curator of all a user’s information, whether it is stored on a PC, a mobile device or on the Internet, industry executives and analysts said.

Millions of PC users already rely on Web applications that either provide a service or store data. For instance, Yahoo and Google do their own forms of cloud computing, offering popular e-mail programs and photo-sharing sites that are accessible through a Web browser. The photos or the e-mail messages are stored on those companies’ servers. The data is accessible from any PC anywhere.

Hundreds of companies in Silicon Valley are offering every imaginable service, from writing tools to elaborate dating and social networking systems, all of which require only a Web browser and each potentially undermining Microsoft’s desktop monopoly.

Google, the most visible example, took cloud computing a step further last October and directly challenged Microsoft by offering a suite of free word-processing and spreadsheet software over a browser.

“To the extent that the industry is moving toward an on-demand business model, it poses a threat to Microsoft,” said Kenneth Wasch, president of the Software and Information Industry Association and a longtime Microsoft adversary.

Microsoft is a late entrant to a set of businesses that are largely defined as Web 2.0, but the company is counting on its ability to exploit its vast installed base of more than one billion Windows-based personal computers. It plans to give away some of its services, like photo-sharing and disk storage, while charging for others like its computer security service and a series of business-oriented services aimed at small and medium-size organizations.

“I think Microsoft is going beyond search to a more sophisticated set of services,” said Shane Robison, executive vice president and chief strategy and technology officer at Hewlett-Packard. “It will be a race, and who knows who will get there first?”

Brian Hall, general manager for Microsoft’s Windows Live services, said, “We’re taking the communications and sharing components and creating a set of services that become what we believe is the one suite of services and applications for personal and community use across the PC, the Web and the phone.”

He said the software would be the first full release of Windows Live that is intended to produce a “relatively seamless” experience between the different services and applications.

The Windows Live service — which will be found at www.live.com — includes new versions of the company’s Hotmail and Messenger communications services as well as Internet storage components. Microsoft executives said there were roughly 300 million active users each on the Hotmail and Messenger services, with some overlap.

The software release will offer PC users the option of downloading a set of the services with a single Unified Installer program, or as separate components. The individual services are Windows Live Photo Gallery, Windows Live Mail, Windows Live Messenger 8.5 and Windows Live OneCare Family Safety, a computer security program.

The release, though it includes the Windows Live Writer blogging application, carefully avoids cannibalizing two of Microsoft’s mainstays, the Word and Excel programs.

Windows Live services also underscore Microsoft’s desire to become the manager for a user’s data wherever it is located. Although they will not be included in the initial test release, the company’s recently announced SkyDrive online data storage service and its FolderShare service are being folded into Windows Live. SkyDrive currently gives test users 500 megabytes of free Internet storage, while FolderShare makes it possible to synchronize between multiple computers — including Apple’s Macintosh computers.

“When you think storage, think Windows Live,” Bill Gates said in an interview this summer. Microsoft is moving to create an experience that will divorce a user’s information from the particular device the person is working with at any moment, he said.

Microsoft’s new approach is in many ways a mirror image of the strategy used during the 1990s in defeating Netscape Communications when the start-up threatened Microsoft’s desktop dominance. Microsoft tried to tie the Internet to Windows by bundling its Internet Explorer Web browser as an integral part of its desktop operating system. The company lost an antitrust lawsuit in 2000 brought by the Justice Department in response to this bundling strategy.

Today, that strategy has been flipped with the growing array of Web services that are connected to Windows. But the new approach, which the company refers to as “software plus services,” is once again beginning to draw industry charges of unfair competition from competitors.

To head off that challenge, Microsoft has been participating in various international organizations that are setting standards over a wide range of services: from those aimed at consumers, like blog-editing and photo-sharing applications, to automated business processes like Web-based customer relationship management systems for sales staff and automatic ordering and logistics applications.

Last week, for example, Microsoft executives were put on the defensive after the company’s efforts to gain international adoption for a Microsoft-designed document format known as Open Office XML, led to charges of vote-buying in an international standards vote in Sweden.

After the charges received international publicity during the week, the Swedish Standards Institute reversed its position and decided to abstain on the issue, and a Microsoft executive apologized publicly for the gaffe.

On Wednesday, Jason Matusow, Microsoft’s senior director for intellectual property and interoperability, wrote on his Web site: “I understand the concern raised by this error in judgment by an MS employee. The only thing I can say is that the right things were done as the issue was identified. The process and vote at S.I.S. were not affected.” Microsoft did not specify what actually had transpired.

While the industry dispute over document formats was visible last week, several Microsoft competitors were quietly pointing to another standards issue that may prove to be a significant advantage for software giant in the future.

A set of Web services standards that have emerged from the World Wide Web Consortium might give Microsoft a performance advantage, according to industry executives at three companies, who declined to be identified because they are Microsoft business partners.

Microsoft’s standards efforts have angered its competitors because four years ago the software publisher argued publicly against adding compression features that are designed to improve performance to industry Web services standards. Now, however, Microsoft has developed its own compression standards that will potentially make its versions of Web services perform better than those of their competitors.

“They’re playing the game right,” said a rival. “The idea is to offer a solution that works better in an all-Microsoft environment.”

On Friday, a spokesman for Microsoft said that services that take advantage of the Web standards effort like Silverlight, a new system for displaying multimedia content via a Web browser that competes with Adobe’s Flash media player, would not be included in the first release of Windows Live, but would be added in the future.