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Microsoft Ready for 2008 Challenges Page 2

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Old, Meet New

One key area under Ozzie’s purview will begin to be fleshed out in 2008. Microsoft’s response to the perceived threat of “software-as-a-service” — that is, of applications as services “in the cloud” — has been to create a framework for the strategy that the company’s execs refer to as “software-plus-services.”

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As chief software architect, Ozzie has played a large role in the continuing evolution of that strategy.

To begin with, in 2008, expect to see Microsoft continue to massively build out its physical infrastructure worldwide to support services in the cloud, as it buys or builds more gigantic data centers. All of those coming services in the cloud will require lots of processing power and storage.

Another area to expect growth — given the company’s recent land purchases and its plans for constructing a slew of new buildings, ostensibly to support many of Microsoft’s planned online offerings — is a dramatic increase in headcount.

For example, the Microsoft hired 12,800 new employees in fiscal 2007 alone and closed out fiscal 2007 with more than 78,000 employees.

Meanwhile, 2008 will be one of the most important years in recent memory for Microsoft’s traditional infrastructure products as well. On February 27, the company will hold a gala launch event for Windows Server 2008, Visual Studio 2008, and SQL Server 2008. Sometime in the first quarter, perhaps the same day, Microsoft is also slated to deliver the first service pack for Windows Vista.

Vista Service Pack 1 (SP1) is expected to be the milestone that many IT shops have been waiting for before beginning widespread deployments of Vista.

Additionally, Windows Server 2008 coordinates with Vista to provide additional security capabilities. Network Access Protection or NAP, will provide the ability to sequester PCs and laptops from the rest of the network until they satisfy defined security requirements.

Not surprisingly, synergies between servers, development platforms, and client desktops tend to influence overall sales of all of those products. IT shops often plan migrations to newer versions of server products at the same time that they deploy, or are about to deploy, a new client desktop version of Windows. That could mean healthy profits for Microsoft’s flagship products, which will help offset losses incurred while it tries to build momentum for its software-plus-services initiative.

Microsoft at Your Service

The company’s software-plus-services initiative is one point where the old Microsoft that sells packaged software converges with the emerging “new” Microsoft that’s fighting for survival in a Web-based services world. Whether or not the company can meld those technologies and economic models together successfully remains an open question.

It should be no surprise, however, that much is riding on that.

Whether Web-based productivity applications, from Google and others, could conceivably tempt users away from massive desktop apps like Office remains to be seen. In one response, the company is planning to pilot test an edition of its low-end productivity suite — Microsoft Works — that will be free but ad-supported. The company has not announced plans to do anything similar with its high-end Office suite — at least not yet.

However, online applications is only one of several areas where Google and Microsoft are beginning to collide.

There will be plenty more competition between the two rivals in 2008.Microsoft has struggled for years to catch up to Google in the area of search, an incredibly hot market for ad placement on the Web.

Still, Microsoft’s Live Search (and its variants) continues to run a weak third in the search engine race. NetApplications reported in mid-December that during 2007, Google kept its commanding lead in the search market with 76 percent of all searches globally, compared with 12.7 percent for Yahoo, and a combined total for MSN Search and Live Search of just 6.3 percent.

Not to be deterred, this fall, CEO Ballmer said he’s shooting to have as much as a quarter of the company’s revenue coming from advertising within a few years.

“Today the market for online ads is really only about $40 billion, and probably climbs to about $80 billion by 2010,” CEO Ballmer told shareholders at the company’s annual meeting in November. He also projected that “there’s a much larger advertising market as well, worth over $600 billion worldwide that includes TV, radio, and print — a market that is rapidly shifting to the world of software-based platforms.”

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