Going after Google

In November, Microsoft announced a major strategic shift designed to help it compete in the online services arena, currently dominated by Google.

Calling the move a "sea change," Microsoft chairman Bill Gates took aim at the exploding market for Internet-based software and services. He mentioned that the company would need to rethink the way it does business. At present, Microsoft is primarily concerned with software that runs on individual computers.

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The online services market was built around companies that were born as search engines, such as Yahoo and Google. Both companies have diversified well beyond their original offerings, with services such as Web-based e-mail, instant messaging and online comparison shopping.

A few months ago, Google announced an alliance with Sun Microsystems to develop an online equivalent to Microsoft's flagship Office software suite. Google also continues to expand the range of search-based tools that run on users' desktops.

Although Microsoft has had some success in the consumer Web services space with its MSN Web portal, it's clear that the company is now focusing on the small- to midsize business market, as evidenced by its announcement of two new services.

The first, called "Windows Live" (www.live.com), is essentially a repackaged version of MSN. Although few details were available at the time of writing this column, the central idea behind Windows Live - which is not an online version of the Windows operating system, as you might expect - is to enable a user to create and store an online profile. Doing so will ensure that the user will always have access to the same group of services, whether it's accessed from a home or office computer, a cyber caf�, or even a Web-enabled cell phone. Proposed services include Web-based e-mail and a "Windows Live Safety Center," where users can monitor and diagnose security problems on their PCs.

While it's probably too early to judge the final outcome, it does seem like there's nothing revolutionary hiding under the Windows Live and Office Live umbrellas. In fact, most other online services companies don't seem to be too worried, as Microsoft is focusing on a very small slice of the online pie. It's also going to be difficult for a company that has built an empire by producing "boxed" software to reinvent itself and offer a broad spectrum of online services.

However, there are other companies that are doing extremely well carving out niches in the relatively young online services market. The best way for Microsoft to move quickly into this space would be to acquire them. That's a skill the software giant definitely has at its disposal.