Gates: We're entering live era of software

Gates said Microsoft is working on two products, "Windows Live" and "Office Live," that create opportunities for the company to sell online subscriptions and advertising. Both are targeted at smaller businesses and consumers.

The products won't replace the company's ubiquitous operating system or productivity suite, and people don't need to have that software loaded to tap into the Web versions. "They are not required to use Windows or Office," Gates said at a press event in San Francisco.

Gates said that Windows Live is a set of Internet-based personal services, such as e-mail, blogging and instant messaging. It will be primarily supported by advertising and be separate from the operating system itself. Office Live will come in both ad-based and subscription versions that augment the popular desktop productivity suite.

"This advertising model has emerged as a very important thing," Gates said.

But free products won't replace paid software. Many of the Live releases will have payment tiers, Gates said, with the lowest levels free and ad-supported, and higher-end versions paid for by the user.

"We'll have licenses and subscriptions as well," Gates said. In many cases, companies will have a choice between running software on their own servers or as a Live service.

Acknowledging potential antitrust concerns, Gates said that Windows Live is built off published APIs (application programming interfaces) that its rivals will also have access to.

"It's a dramatic sea change," Gates said of the overall shift to online services.

"The live phenomenon is not just about Microsoft. It's partners, it's competitors...the whole space is being transformed."

Ray Ozzie, recently tapped to head Microsoft's services push, joined Gates in detailing the plan.

Toe in the water
The Internet-based services announcement was widely expected. But Microsoft has kept details of the plan tightly under wraps.

Gates likened the services push to other major strategy shifts at Microsoft, including its December 1995 move toward the Web and a June 2000 commitment to Web services.

The idea of an online adjunct to Office and Windows is not entirely new. The company already has its Office Online Web site that gets about 55 million unique users a month and offers items such like downloadable templates.

And in years past, Microsoft has attempted to build online alternative to Office. One widely rumored project, developed in the late 1990s under the code name "Netdocs", was never made available.

One reason: Infighting between Office executives and Web advocates, according to sources at the time. David Smith, an analyst at Gartner, says that same tension still exists within Microsoft.

"There are different factions within the company, like before, and it is unclear what the corporate strategy is going to be," Smith said.

Windows comes online
Microsoft Live will consist of new services as well as some products previously offered under the MSN brand. MSN.com will continue to exist as a site for "programmed" content. Windows Live will be more personalised, the company said.

"It's easy. It's live, and it has 'me' at the center of the universe," said Blake Irving, a Microsoft vice president who was on stage to demonstrate Windows Live. However, the demo failed. "All of you guys that have done demos have been there," Irving joked.

Blake resumed his demo a few minutes later. He showed how people could use a sidebar to subscribe to RSS feeds, load podcasts and enter search queries onto a personalised Windows Live home page.

People will also be able to add non-Web items, such as a corporate SharePoint server or recently opened documents, to the Windows Live home page. Irving also presented the Windows Live Safety Center, a free tool that lets customers check on the health of their PC and scan for and remove viruses.

Also included is an AJAX-based Windows Live mail client that connects to Hotmail or other addresses. The Web client resembles Microsoft's Outlook e-mail program and can warn people about Internet fraud phishing scams.

There is also a Windows Live Messenger program that provides traditional instant messaging alongside some social networking features, such as the ability to view your circle of IM buddies. (Members have the right to say whether they want to be included in the viewable circle.)

In the demonstration, Irving showed how Windows Live Messenger offers the ability to make phone calls over the Internet, from a PC to a traditional phone.

Also for those who opt in, Microsoft has a new live business card that updates contact information online and on a PC any time that the information changes.

Some parts of the Windows Live software are in beta testing now, executives said. Others, like the new Messenger, should begin testing in December.

In the Office
The Office Live service is mostly targeted at small businesses, said Rajesh Jha, a general manager at Microsoft who presented the demo of the service. He noted that 28 million of the world's 42 million businesses are companies with fewer than 10 employees.

Jha showed how small businesses like these can use Office online to set up Web sites with custom domain names and multiple e-mail addresses--all free. Initially, these sites will not carry ads, but Microsoft sees the feature as a revenue opportunity and expects it to eventually be ad-supported.

Another tool, called "Mojo," will enable a small group of users to work collaboratively on the same document--in the case of the demonstration, an Excel spreadsheet.

"We're always on the same page," Jha said. "This real-time service is going to be free."

He also showed some of the 22 applications that are part of the subscription service, including customer management tools and secure collaboration.

Office Live will be in invitation-only beta testing in the first quarter of next year, Jha said. That beta will also be limited to the U.S., he added.

More to come
Tuesday's announcement is more of a placeholder for other initiatives to come, Smith said. "I think part of why people look at this and say it looks sketchy is because it is. But it's a step in direction that they have to go in," he said.

Smith likened the announcement to Gates' Web call to action of a decade ago. "It's the beginning of a big change at the company that will take a long a time to see manifested in mainstream products," he said.

In the meantime, the new products help Microsoft better compete with online rivals. Although the traditional software industry is very profitable and well understood, online advertising is an important opportunity, Ozzie said. He praised Google for demonstrating some of the possibilities.

"Google is doing an amazing job of making that ad engine click on all eight cylinders." Ozzie said.

But he said that the industry has barely scratched the surface, pointing out that the market for online advertising could grow from US$15 billion now to US$150 billion by 2015.

CNET News.com's Mike Ricciuti contributed to this report.