The new initiative is the driving force behind Microsoft chief executive Bill Gates' decision to step aside today and let president Steve Ballmer take the helm. Gates will remain as chairman but take on the new role of chief software architect.
Microsoft executives say the firm's strategy, called the Next Generation Windows Services (NGWS), will bundle a mix of existing and new Microsoft software. The goal is to give people a new Web-based computing experience as Internet-enabled wireless devices, such as cell phones and personal digital assistants, become more popular.
"We believe the PC will continue to be the most powerful creativity piece available to people," Ballmer said during a press conference today. "But we also need to ensure that non-PC devices can leverage this next-generation set of services."
Analyst Anne Thomas Manes of Patricia Seybold Group said Microsoft's strategy is vital for the company's health as computing moves away from desktop computers to new Internet-enabled devices.
"What Bill is saying, is it's not just Windows on the desktop anymore," Manes said. "It's your handheld device, your refrigerator, your VCR. Everything will be done wirelessly with broadband access."
Gates wants to create a new way of computing, she said. "Gates is trying to 'get out of the box' and come up with new ways of interfacing the computer, where it's not constrained by Windows."
Because these devices have limited computing power, servers must be used to store and deliver applications. By comparison, stand-alone PCs currently contain most of the data and applications for users.
Sun Microsystems, a fierce Microsoft rival, has advocated this server-centric computing model for years. Sun chief executive Scott McNealy said his company acquired Star Division's office software, which competes with Microsoft Office, to foster a move toward server-centric software.
But Microsoft executives believe they are well-positioned to tackle the market for several reasons. The company dominates the operating system and Web browser markets, and has a wide mix of Internet investments, including the MSN Web portal and WebTV. Microsoft also has stakes in companies such as Digex and Corio, which rent software that is accessed via the Web.
Microsoft executives said the company plans to offer more details about its new strategy, including a three-year roadmap, at a day-long event in April. The plan will include a new version of the Windows operating system and new development software for programmers to build Web-based applications, they said.
"As our company did with Windows and Office, we will create specific, key services that use our platforms," Ballmer said.
Paul Maritz, Microsoft's group vice president, said Passport is an example of such a service. Passport is a so-called electronic wallet that allows users to sign in once and buy items online without having to enter credit card and personal information on numerous sites.
During the press conference, Ballmer said a future service could allow patients to go to one Web site for all their health care needs, from viewing medical histories to paying doctors' bills.
"You'll be able to?interact with your health care insurer, receive notification when an appointment is necessary, and incorporate those appointments automatically into your calendar," he said.
Gates said more of Microsoft's revenue will come from these new software services, rather than traditional software sales.
For this vision to work, Ballmer said the company must build a "a breakthrough version of Windows" that supports these next-generation services. The company also plans to incorporate new technologies, such as voice recognition.
Maritz said the foundation of Microsoft's new strategy is the forthcoming Web development software, called Windows DNA 2000, which the company announced last September. Windows DNA 2000 includes a new SQL Server database and new software tools to help developers easily build Web-based software.
When Microsoft gives more details of the new Internet strategy in April, it will unveil plans for a "new generation of programming tools" beyond Windows DNA 2000, Maritz said.