Microsoft's Software Plus Services Strategy

Steve Ballmer has been repeating himself lately. Hekeeps saying Microsoft "grew up as what people liketo call a desktop company. To this day, I'm not sure I know what a desktop company is, but I know we were adesktop company." Ballmer's uncertainty is disingenuousgiven that Microsoft's mission statement was "A PC on everydesktop and in every home." But his assertion leads his listeners to acknowledge that Microsoft has a track record ofdiversification that proves a desktop company can conquerthe enterprise. Ballmer is neatly laying the foundation forpeople to accept that Microsoft is prepared to change itsbusiness model again and overtake "Web 2.0" competitorssuch as Google and Salesforce.com. Ballmer's term for thisnew competitive model is "Software Plus Services" (myemphasis). But beyond addressing competitors that offerSoftware as a Service (SaaS), Ballmer's term goes directly tothe heart of the real competitive challenge Microsoft faces:how to protect and grow Microsoft's huge software revenuewhile finding a way to monetize Web-based services.

Microsoft vs. Microsoft
How can Microsoft avoid competing with itself as the company takes on SaaS? All indications are that SaaS has galvanized the company around a strategy that amounts to a grand unification of Microsoft's disparate products. The company isn't looking solely at providing services to go along with all of its software—as, for example, with Exchange Server and Outlook Client on the software side, Outlook Web Access (OWA) on the service side, Outlook Mobile as a device form factor, and Outlook Voice Access on the Unified Communications (UC) side. Doing so is a given: Chris Jones, corporate vice president, Windows Live Experience Program Management, has said, "Looking ahead five years we believe every piece of software could come with a service and that customers will come to expect that." Nor do I think Microsoft is simply creating a business model for subscription services such as Windows Live and Microsoft Dynamics, or just getting serious about advertising revenue, or even hosting business-critical technologiessuch as Exchange.

Rather, I think the key to Microsoft's "grand unification" is indicated by the four pillars of Software Plus Services that Ballmer has been touting in such remarks as, "[T]he only model that will be able to really supersede where we are today, needs to bring together the best of four very different phenomenon [sic]: the best of the desktop PC world; rich user interface; offline and online access; what I call personal integration, the ability to bring things together and integrate them and store them and manage them and link them together in unique and arbitrary ways, not restricted to what somebody will let you do on some server or some service."

Integrate, Manage, Store, Link
You can see how Ballmer's four pillars translate into Microsoft unification if you think about the initiatives generatingthe most momentum within Microsoft: integration (e.g.,Office as a front end for business applications and businessintelligence—BI), management (System Center becoming the ubiquitous management paradigm—both as abrand and as an integrated component of products suchas Forefront and, soon, SQL Server), storage (SharePoint,SQL Server, and storage per se), and linkage (UC bringingtogether all communication at the PC)—and I'm not eventouching on the developer side of all this.

Explicitly, Ballmer has said, "We're building out a service-based infrastructure, not server by server, but newmanagement model, new development model, new storage, networking, computation model from the get-go. Ontop of this new platform, the cloud infrastructure services,we're also building directory services, rendezvous, devicemanagement, the kinds of things that we deliver to youtoday in our packaged products."

Strategic Direction?
It's always amazed me that Microsoft could never manageto determine a strategic direction for the entire company.Could it be that the company finally figured out how tomove itself forward under a coherent strategy that continues to produce software revenue but also creates newrevenue streams?

Commenting on Software Plus Services, Paul Thurrottrecently wrote, "The real surprise, of course, is that thecompany honestly has no idea how it's going to make it allwork yet. Yesterday, Microsoft CEO Steve Ballmer said theywould need 3–10 years, depending on the product, to makethis transition" (WinInfo Short Takes: "Week of July 30," July27, 2007, InstantDoc ID 96662.) I respectfully disagree withmy colleague and friend Paul. I believe Ballmer's time framerefers to how long it will take to put together the pieces ofthe grand unification strategy.

But then, this is Microsoft. By the time this article is published, the company might be on a completely new path. Letme know where you see the company moving.