Outlining what it said was its biggest strategy change in five years, the Redmond, Washington-based company told analysts and reporters on Tuesday that it would deliver many of its key products and services online, some supported by advertising, as well as by selling subscriptions or licenses for software installed on computers.
Windows Live and Office Live will give users some of the basic features of the software giant's two most-profitable products, but without the complexity of installing and maintaining the software in computer hard drives.
"We are trying to put a 'services plus software' mentality into many many of the product groups inside Microsoft," said Bill Gates, Microsoft's chairman and chief software architect.
Microsoft also said it planned to fold many well-known products in its MSN division into a new brand called Windows Live. The move will combine its instant-messaging service, a new online e-mail service replacing Hotmail, Web security, data storage and other features, all available via the Internet.
The software giant is trying to defend its mainstay Windows and Office software franchises by borrowing from ideas used by challengers such as Google, Salesforce.com, WebEx, Yahoo Inc and scores of start-ups.
While most of these rival programs have tiny audiences relative to Microsoft's hundreds of millions of Office users, the simplicity and power of Web-based software has captured the imagination of many software developers across the industry.
"(Microsoft) clearly gets where the focus of the competition needs to be," said Tim O'Reilly, publisher and software design guru, on the sidelines of the event.
"There are going to be some fabulous new services. But whether they are built by Microsoft or by Yahoo or Google or Salesforce remains to be seen," O'Reilly said.
Three tiers of service will be offered, starting with a free, advertising-supported one. The company will also offer a second tier with more features with a low-cost subscription fee and a premium priced, full-featured tier for services that users regularly rely on.
Windows Live is a free Web-based service in which individual users can sign up for a "live" home page that pulls in constantly updating content from a range of information sources including Web searches, e-mail, syndicated headlines from other sites and photos and audio from across the Web.
Office Live will give smaller companies access to many of the features in Microsoft's collection of programs for business tasks, as well as the ability to maintain corporate e-mail accounts and data.
This Microsoft service competes with Salesforce, which has hundreds of companies developing custom applications and sharing them with others over a similar small-business system.