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HailStorm promise and threat remain distant

Nearly two years after it first began touting the idea of offering software and services online, Microsoft is still trying to figure out how to make money from its upcoming Web-services initiative.

Robert Lemos Staff Writer, CNET News.com
Robert Lemos
covers viruses, worms and other security threats.
Robert Lemos
6 min read
Microsoft's HailStorm initiative has been described as everything from a weapon aimed at America Online to a crucial component of the software giant's move to a subscription-based business model. But how, exactly, will HailStorm work, and where does Microsoft make money on the service?

Don't ask Jim Allchin.

Despite being among the top five executives at Microsoft and the man in charge of the company's crown jewels--the Windows operating system--even Allchin is unclear on HailStorm's business model and its revenue-generating potential.

"I just don't think it's fleshed out yet," the Microsoft group vice president conceded in an interview with CNET News.com. "On the business side, there's a lot of thought that needs to happen. A lot of thought."

"We are all learning about services and how to be successful," Allchin said. "We're just not there. I know what we're doing technically. I know it's the right direction. But when you touch on the business model, I know there are a lot of discussions about that."

Allchin's candor supports a long-standing criticism of Microsoft that it relies on fear and uncertainty when it's planting a flag in new territory. On the other hand, say others, Microsoft's apparent short-term foibles often become long-term successes.

Whichever is the case, the company is expected to more fully articulate the plan at its Professional Developers Conference in Los Angeles in late October at about the same time the service will undergo its initial test release.

Crucial to the cause
A lot is riding on the success of HailStorm, the company's first offering from its .Net strategy and a key element in an overarching plan for moving business computing to the Web. As a component of .Net, HailStorm is crucial to Microsoft's initiative for delivering content, shopping, banking and other services, such as e-mail, over a variety of devices ranging from cell phones to PCs and handhelds.

In short, HailStorm is considered a "foundation service" in that it will house a range of personal information such as calendar items, contacts, credit card numbers and even photographs.

That data could then be accessed from a range of devices, such as changing a calendar entry from a cell phone, and shared among various applications and Web sites. An e-commerce site, for example, could be given access to a person's credit card data, shipping information and calendar to set-up a delivery time.

HailStorm and .Net also are crucial to Microsoft's quest to create steady, subscription-based revenue while reducing its dependence on one-time sales of software and upgrades.

But analysts and even senior Microsoft executives say that although the HailStorm technology has been developed, the business strategy that will produce significant revenue remains up in the air.

Although the business plan remains a work in progress, Microsoft continues to move ahead with previously announced plans to offer HailStorm via subscription. Executives say they are unable to be more specific because Microsoft is still thinking through several issues.

"We are hoping to be more specific this fall," said Adam Sohn, product manager for Microsoft's .Net platform strategy. "The question is, do we think that if you build the right value into the services people will pay for them? If we do that right, we think that end-user subscription is a supportable and maintainable business."

Whether it's a case of purposeful confusion or of real ambiguity about how to proceed on the project, Microsoft's comments offer fodder to critics who have accused the company of preannouncing HailStorm as a marketing ploy to freeze its competitors' initiatives.

AOL Time Warner could not be reached for comment, but the online giant is said to be working on its own set of HailStorm-like services. Other software makers, including IBM, Hewlett-Packard, Oracle and Sun Microsystems, also have announced strategies with products that will allow its business customers to build Web-based software and services.

Fear, uncertainty and doubt?
Critics say Microsoft is falling back on a familiar strategy--spreading fear, uncertainty and doubt (or FUD)--to convince customers to wait for its products rather than buy from the competition.

Microsoft Chief Executive Steve Ballmer tossed out the idea of HailStorm during a press conference nearly two years ago. And in March, Microsoft formally announced the HailStorm initiative.

But analysts offered a more restrained interpretation, saying that although the test version of HailStorm is months away, Microsoft is in uncharted territory and should not be faulted for not having pinned down a definitive business model. They added that Microsoft is on track to become the first company to offer a wide array of Web services aimed at consumers and businesses.

And with the final version of HailStorm slated for release in 2002, analysts said the company has time to figure it out.

"No one has treaded here," said Evan Quinn, of the Hurwitz Group. "You are talking about changing the paradigm of how business and software works. They will provide an example for the rest of the industry regarding how to implement Web services."

Gartner analyst David Smith said Microsoft often goes through a period of trial and error with new product releases before figuring out its strategy, and HailStorm is no different.

"If you look at the history of Microsoft introducing new technologies, they go through a period of soul-searching and experimentation to determine what is feasible and what they want to do themselves and what they think is best for others," Smith said. "They don't claim to have all the answers all the time. It will take iterations and experimentation."

Smith cited Microsoft's Web properties as an example, in which the company decided to keep the MSN online service but sell its Expedia travel Web site.

Chris Payne, a marketing vice president for Microsoft's services platform division, said Microsoft has developed a general business plan that includes a subscription model for HailStorm services. The company already charges a fixed annual fee for its Web site customers who use Microsoft's Passport authentication service, a key piece of HailStorm.

The company is figuring out what to charge customers for using HailStorm services and what to charge business partners that will provide such services. "We are clearly working out the details, but we have a set of guiding principals," Payne said.

Sources say the pressure to develop a business strategy is on the shoulders of Bob Muglia, group vice president of Microsoft's .Net services group.

"From a technical point of view, (HailStorm is) coming along pretty well," a source said. "The business model--how it all works together--is still being resolved. That's Bob Muglia."

Muglia could not be reached for comment.

Credit card company American Express, touted by Microsoft as a HailStorm partner, has yet to sign a contract with Microsoft for HailStorm services, an American Express spokeswoman said.

Another Microsoft partner, ComponentSource--an e-commerce Web site that sells tools and software code to software developers--has signed a preliminary deal with Microsoft to start using HailStorm's services aimed at businesses.

ComponentSource has added support for Passport and is building in a new HailStorm notification service that will allow the Web site to inform its customers of new products through a variety of ways, including instant messages, said ComponentSource Chief Executive Sam Patterson.

Patterson did not want to disclose details about his contract with Microsoft but said Microsoft's effort to create a business plan for HailStorm is difficult.

"They are looking at all the different business models and seeing what works best," Patterson said. "They don't want to do an advertising model because those failed on the Internet, and we've seen free services fail, so it can't just be a free service. Whatever they come up with will set the standard for the industry."