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This week in Microsoft

Bill Gates and Ray Ozzie urge Redmond's leadership ranks to confront the realities and missed opportunities of online competition.

Microsoft's chairman and its new services chief sent a pair of memos to the software maker's leadership ranks to confront the realities and missed opportunities of online competition.

Aiming to stir the same kind of momentum as his "Internet Tidal Wave" memo did a decade earlier, Bill Gates penned a memo outlining the challenges Microsoft faces from a host of online competitors.

"This coming 'services wave' will be very disruptive," Gates said to top Microsoft employees in an Oct. 30 e-mail seen by CNET News.com. "We have competitors who will seize on these approaches and challenge us."

In the memo, Gates cites an earlier missive from CTO Ray Ozzie outlining the importance of tapping online advertising and services as new revenue sources.

"It's clear that if we fail to do so, our business as we know it is at risk," Ozzie wrote. "We must respond quickly and decisively."

Ozzie's memo cited a laundry list of missed opportunities for the software maker, including competitive threats from rivals such as Google, Skype, Research In Motion and Adobe Systems. Ozzie noted areas that Microsoft could have led, such as Web-based applications, but where other companies are instead more dominant.

Some CNET News.com readers were dubious about Gates' predictions.

"So now there is a 'second tsunami' coming," wrote Earl Benser in News.com's TalkBack forum. "I wonder just how hard Microsoft will slam into the bottom this time before they get it figured out, if they get it figured out correctly."

The revelations came just days after Microsoft CEO Steve Ballmer unveiled updates to the company's flagship database programs and developer tools. In a speech, Ballmer staked out what he saw as the key business differences separating his company from other software makers--including the growing cohort that makes up the open-source community.

Microsoft's chief executive officer later sat down with CNET News.com to explain that while Oracle and SAP might enjoy a more cordial relationship with the Fortune 500, Microsoft's ambition was to become the "grand consolidator of everything else."