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Microsoft checks out the iPod way

Newly appointed CTO Ray Ozzie says the music player is a good example of where the software giant could head with its services push.

SAN FRANCISCO--If someone is trying to understand where Microsoft is headed with its services push, they might want to start by checking out the iPod.

Ray Ozzie, Microsoft's newly appointed services guru, pointed to Apple Computer's iconic music player as a "perfect example" of a product that marries hardware, software and services. He also points to Research In Motion's BlackBerry, which brings together an e-mail device, server-based software and wireless data service.

In both cases, people don't think about the individual pieces of the package, he said. They just think about the tasks they want to do, such as listening to their music or getting e-mail on the go.

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What's new:
Microsoft's service chief Ray Ozzie talks about the example of iPod and the "wake-up call" of Google's success.

Bottom line:
Ozzie's comments were the first detailed indications of where he and Microsoft are headed following a company reorganization last month.

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"You just want to think about what you want to accomplish," Ozzie, Microsoft's chief technical officer, said Tuesday during a noontime session at the VortexSF 2005 tech conference here.

The comments were the first detailed indications of where Ozzie and Microsoft are headed following a company reorganization last month. The reshuffle was seen by some as an attempt to better compete against services-based rivals such as Google.

Ozzie conceded that the rise of Google had been a "great wake-up call" and rallying point to get Microsoft thinking about services. However, he said that he didn't accept that the software giant has been playing catch-up in any area other than ad sales.

"I don't really feel personally as though Microsoft is behind in any way, shape or form related to services, except for the size of revenues from the new economic model," he said.

The services chief's comments offer a prelude for an , at which Ozzie and Chairman Bill Gates are expected to offer a more detailed look at Microsoft's plans.

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Video: Google is Microsoft's 'wake-up call'
Ray Ozzie: Too soon to tell what direction Google will take

While acknowledging that "services" is a pretty broad term, Ozzie pointed to a wide range of opportunities for the company, from hosting software for small businesses that don't want the complexity of managing a server, to adding specialized products for large businesses that already have scores of servers.

"Services-enabled software really is going to change the nature of how almost everyone uses technology, from consumers to small businesses to enterprises," Ozzie said. But that change, he added, will come "in different forms and at different paces."

While the idea that consumers might prefer to use Internet services rather than download software is pretty much accepted, it is still a fairly foreign concept to most companies that they would want to take business software out of their data center, Ozzie said.

"For enterprises, I think we've just barely scratched the surface about which systems can...be brought into the cloud in some way shape or form," he said.

That was illustrated by a poll of the crowd of technology executives that attended Ozzie's chat. Asked by moderator Geoffrey Moore how many of the audience's businesses outsourced their corporate e-mail, only one person raised a hand. But when asked how many believed e-mail was a core of the company's business as opposed to a generic tool, no hands went up.

"I just wanted to make sure we were as dysfunctional as I (thought)," said Moore, a venture partner at Mohr, Davidow Partners and a co-executive producer of the Vortex event.

Asked whether Microsoft was going to be in the business of providing these services on its own or through partners, Ozzie said: "I think it's going to be a mix." The more industry-specific the customization needed, the more likely it is that Microsoft would rely on partners as intermediaries, he said.

He also drew a distinction between a subscription business model and the Internet delivery of technology. Both are often lumped together as "services," but the two need not always be tied, he said.

Microsoft already has traditional software products that can be purchased on a subscription basis through its Software Assurance program. At the same time, Ozzie said it is also possible to have software delivered on a subscription basis, but in which the payment is more "chunky" than the traditional notion of a steady monthly or yearly fee.

Cheap and plentiful bandwidth has made it possible for businesses to get their software over the Internet, but Ozzie said that enterprises will still have to pay for their software in some way, regardless of how it is delivered.

"On the consumer side, there really is a question--or even small business--as to whether there is a different business model that might be emerging that is based on ad-funded software...I don't think that maybe has as much enterprise relevance," he said.

While much of Microsoft's current know-how is based on the MSN unit's experience, Ozzie said part of his role is making sure that the whole company learns those lessons. And while MSN has primarily been a consumer effort, Ozzie said there is clearly a role for similar services for small businesses.

In every area, he said, the shift will take time.

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Ray Ozzie: Too soon to tell what direction Google will take

"This is going to be a many, many-year process," Ozzie said. "We're very early in terms of how services can ultimately impact all of these different markets."

One thing that is clear is that Ozzie's new role is keeping him pretty far away from his old role as head of Groove Networks' operations near Boston. After Microsoft bought Groove earlier this year, Ozzie was originally supposed to split his time between there and Microsoft headquarters, but he said he is spending a lot more time in Redmond.

"It's been as close to full time as you can get," he said.

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