My Own Pirate Radio

InformationWeek published an article on Microsoft’s internet strategy yesterday that I found interesting. Two bits in particular:

(1) The discussion on the new team under Ray Ozzie that’s going after cloud services (”Heavy Hitters on a Secret Mission”). This is a ray of hope. (Pardon the pun.)

(2) Speculation on business model:

…where online advertising figures into a software-plus-services environment isn’t entirely clear. Ozzie said in February that ad support won’t be the predominant way Microsoft generates revenue from its online enterprise software–volume licensing or subscriptions are more appropriate–and it will play a mixed role in its small-business services offerings.

Seems kind of obvious. Many businesses are happy to have a company like Microsoft, Google, Yahoo or Amazon handle some of their infrastructure — who wants to worry about storage, for instance? — but not at the cost of peppering their employees with ads while they’re trying to get work done.

The obvious alternative is subscriptions. This is a long-time Microsoft dream; I recall as far back as 1999 very explicit discussion about how to move to an “annuity” business model, i.e. deriving annually or monthly recurring revenue from customer subscriptions to software services that continuously improve over time. That’s essentially how it works anyway for really large Microsoft customers, by way of the multi-year enterprise licensing agreements they sign. These agreements give them “all you can eat” access to Microsoft products, services, and support. The only catch is that much of the software still comes in boxes, on DVDs. But that’s changing fast as network pipes get bigger.

The challenge is making this model turnkey and cost-effective for all types of customers. Think how far we have to go before we can buy “computes” the way we buy kilowatts of electricity and liters of water. We’re getting there fast with gigabytes of disk space, though.

I wonder, also, how far up the stack software services will become commoditized in the way true utilities are.

It’s a fun race to watch.