Homeward bound

Microsoft and some of its rivals see the best opportunity to gain new customers, profits and industry mindshare through increasingly high-profile consumer ventures such as digital entertainment, games, search and online music.

Sure, Microsoft still garners something close to 80 percent of its overall revenue from business customers. But that's a slow growth market overall, with some areas, like business software, actually consolidating.

Sales of consumer products like digital video recorders and iPod-like music players, on the other hand, are booming and consumers--not businesses--are now buying the most powerful computing hardware. That's a tempting target for software companies. Microsoft's Bill Gates acknowledged so much at the company's latest financial analyst meeting, held earlier this year. "The pace of new activity is actually somewhat higher--I show it as high-speed--in the consumer space than in the business space," the company chairman said.

So that's why you found Gates presenting the lead keynote speech at this week's Consumer Electronic Show, touting deals with household names like TiVo, MTV Networks and the Discovery Channel. Not so long ago, Gates would have saved his best material for Comdex, the now-defunct IT-focused trade show.

The company's CES marketing pitch has come a long way from the mid-1990s, when Gates used the show as a launch pad for such revolutionary products as Microsoft Bob.

Now Gates uses CES to tout cornerstones of the company's strategy--such as Windows XP Media Center and Xbox--along with key partnerships.

But don't take Gates' word for it. Sun Microsystems, not exactly the most consumer-savvy company on the planet, has newfound respect for consumer power. Jonathan Schwartz, Sun's COO, says that "true power in the IT industry is moving out of the enterprise, and into the hands of ever younger consumers."

Schwartz and others argue that technology-buying decisions are no longer the sole domain of corporate IT staff. The technology that people use at home and are most comfortable with has a huge influence over what they want at work, such as easier-to-use software and mobile electronics. "The issue is driving the technologies that consumers take to work. That's a big a driver of our business," Schwartz says.

Categories are blending. Technology makers--IBM, Microsoft, Intel, Hewlett-Packard--no longer see their customers in stark terms of either "enterprise" or "consumer." In many ways, those customer bases are one and the same. Boeing's CIO may buy IBM servers, but he's also an iPod user. A director of IT buys 50,000 copies of Windows, but he's also thinking about MSN as a conduit for reaching potential customers.

The big players in technology have seen this trend building over the past year. Microsoft may garner the bulk of its profits from big business, but Bill Gates understands the power of consumer mindshare in winning new enterprise customers.

The consumer push among tech makers meshes with an overall shake-up in how products and services are marketed. The latest theory here is the "Long Tail" idea, first a Wired article, now a blog.

Here's the idea and how it relates to companies like Microsoft: Companies have for years focused on developing a few hugely popular products that appeal to the lowest common denominator. Home-run products like Coke and Pepsi, Toyota Corollas and Levis appealed to the largest possible audiences. Retailers, with finite shelf space, only carried the big sellers in order to maximize profit.

The Internet and flexible supply chains now make it possible to cater to the most obscure tastes--and to reap profits from even the most esoteric products. Online retailers like Amazon.com can offer Harry Potter books alongside tomes like the "Nag Hammadi Library" (discovered in 1945 buried in a large stone jar in the desert outside the modern Egyptian city of Nag Hammadi, according to Amazon. I'm not making this up).

In the technology business, Microsoft and others aren't just targeting a few thousand CIOs. They're selling to millions of customers wherever they may be. Increasingly, there's a blurring of lines between what we used to call enterprise computing-?the activities of people within the four walls of business-?and the consumer world outside of work.

The ubiquity of Windows at work and at home could ultimately give Microsoft an edge, as Redmonk analyst Stephen O'Grady points out.

We use many layers of technology at home and at work: Web sites, e-mail, blogs, wikis, instant messaging programs. Everything is interconnected, and everyone is on the same Internet.

Another example: On-demand and software-as-a-service plans let companies deliver tailored interactive content, from on-demand movies to customer relationship management applications, to customers around the world at the flick of a switch. That's why IBM Chief Executive Sam Palmisano sees his company's on-demand technology extending from "the enterprise to the home."

It's not that "enterprise" is dead. The technology business overall is evolving--and growing--and becoming more personal.