Microsoft Announces Online Versions of Windows, Office

SAN FRANCISCO – Microsoft Corp. unveiled a new strategy Tuesday to move software and services online, seeking to fend off a growing threat from Google Inc. and other nimble upstarts born on the Internet.

With a new Web site called "Windows Live," Microsoft hopes to create a new platform that will unfasten some of its applications from computer hard drives.

The site, available at http://www.live.com, repackages some of the features Microsoft already offers at its heavily trafficked MSN.com, adds more customization tools and makes it easier to view the same products and services at any time from any place — whether it be a home computer or a mobile phone in a shopping mall.

"It's a revolution in how we think about software," Microsoft Chairman Bill Gates (search) told reporters and industry analysts Tuesday. "This is a big change for ... every part of the ecosystem."

Redmond, Wash.-based Microsoft also provided a preview of "Office Live" — a Web site that will provide online access to nearly two dozen applications designed to appeal to the estimated 28 million small businesses with fewer than 10 employees. That site will be offered on an invitation-only basis early next year.

Likewise, many of the Windows Live services were not yet available on Tuesday.

Microsoft's online push represents its most ambitious attempt yet to adapt to the challenges and opportunities posed by the Internet while protecting its core franchise of licensing software for installation on a single computer — a business that made it one the world's most profitable companies.

But Microsoft's long-running dominance is being threatened by rapidly growing companies like Google and Yahoo Inc., which are offering more Internet-based applications and services for free, blurring what's being hosted on the Web and what's stored on a computer hard drive.

The trend makes a computer's operating system less relevant to consumers.

"This is all about Microsoft really pointing all its resources at Google," said technology industry analyst Rob Enderle (search).

Microsoft brings plenty of muscle to the battle, with $40 billion in cash. The company's flagship Windows operating system, which controls most computers, gives the company a huge foundation on which to build an Internet platform.

But Microsoft's past could haunt the company, particularly if enough people resent its historic efforts to bully potential rivals — a strategy that spurred a high-profile antitrust battle with the federal government.

With Windows Live, Microsoft "is asking people to entrust a lot of their lives in the hands of Microsoft," said Forrester Research analyst Charlene Li (search). "Trust is a loaded word for Microsoft."

Microsoft will also have to prove that it will be able to assure people that data they entrust to its Internet-based servers is always available, Enderle said.

The perils of relying on Internet connections became painstakingly apparent as Microsoft tried to unveil Windows Live Tuesday. The demonstration was delayed several times when the service lost its connection to the Internet.

Industry analysts say Microsoft has little choice but to shift more of its business online because the Internet is steadily becoming the preferred computing platform for households and businesses.

Google and Sun Microsystems Inc. last month provided another reminder of this shift when they announced would work together on online services, including office productivity software. Neither company, however, would discuss any details beyond a vague collaboration deal.

Microsoft was slightly more clear in its announcement.

Gates said its online push is meant to complement — and not replace — Windows and other popular applications that reside on individual hard drives.

Office Live won't offer word processing or spreadsheets, but will include 22 applications that will help automate accounting and project management.

MSN.com will continue to operate, too, although Windows Live offers many of the same features. Microsoft plans to eventually move MSN's e-mail, as well as its free Hotmail service, to Windows Live.

Windows Live will be offered for free and try to make money from the rapidly expanding online advertising market that has been fueling the explosive growth of Google and Yahoo Inc., providing them with the financial and intellectual firepower to mount their challenge.

Microsoft plans to charge monthly fees for some of the Office Live features aimed primarily at small businesses — a subscription model that has been a boon so far for online software pioneers like Salesforce.com Inc., NetSuite Inc. and RightNow Technologies Inc.