Microsoft Introduces Web Services, Competing With Google and Yahoo

SAN FRANCISCO, Nov. 1 - Microsoft introduced on Tuesday two new advertising-supported Web services, Windows Live and Office Live, as a direct response to the formidable challenges posed by its major competitors, Google and Yahoo.

The new online initiatives will deliver services to businesses and consumers directly via the Web, in many cases, without the need to download the applications to a computer. As such, they are an important step in extending Microsoft's reach beyond the desktop PC to smart phones and other Internet-connected devices.

The strategic shift also represents an acknowledgment by the company, the world's largest software publisher, that the Internet has once again changed the rules of business, forcing Microsoft to scramble to catch up.

Microsoft executives said that the company intended to take on both Google and Yahoo by making advertising-supported services the core of a broad new Web-based software applications business. Bill Gates, Microsoft's co-founder and chief software architect, said Tuesday that new Internet-based technologies were creating an era of "live software" that will change the software industry and transcend the boundaries of any particular computer or mobile device.

"Every five years or so we look at our strategy and make these big bets," he said.

The new technologies, which are based on the idea of open Internet standards that allow many applications to be easily connected, is a potential threat to Microsoft because users will be able to select competing software products rather than be locked into large applications suites like Office.

Tuesday's announcement also laid the groundwork for Microsoft to compete more effectively against many smaller software competitors offering Internet-based business services, including time and billing management, customer relationship management services and Internet phone service.

Microsoft will have both free and paid offerings on Windows Live and Office Live, where basic services will be advertising-supported. The company will then try to entice or "upsell" customers to purchase subscriptions for more advanced and feature-rich services.

Until recently Microsoft did not have its own Internet-based advertising technology, but instead relied on Overture, now owned by Yahoo. However, the company, which is based in Redmond, Wash., said that it had made progress in deploying its own search-based advertising engine, which is now being tested in France and Singapore.

"We will be leaders in terms of understanding where ads really serve the user to get their jobs done, not just in a search box on the Web," said Ray Ozzie, a chief technology officer at Microsoft.

The advertising approach is a substantial shift because just a few years ago Microsoft was trying to create a subscription model in paying for software.

"They seem to think that the advertising can pay for this stuff," said Michael Gartenberg, vice president and research director for JupiterResearch, a computer industry market research firm. "This is much more about an extension of Office and Windows and not a replacement."

The product introductions were understated compared with other major turns in strategic direction that Microsoft has made in the past. The company described the introductions as a "technology preview" at a news media event, where Mr. Gates and Mr. Ozzie presided.

A number of industry analysts said the announcements showed how seriously Microsoft took the threat posed by Google and other advertising and Internet-based service providers.

"It's back to 1995 where the Internet was this great rallying cry," said Tim O'Reilly, a computer industry publisher and conference organizer. "One of the areas where Microsoft has a lead is that they are focusing on non-PC devices. That may be one of their secret weapons."

In response to the Microsoft initiatives, a Google spokeswoman, Eileen Rodriguez, said, "We welcome all technological innovations that benefit users and businesses by helping them connect to the information they need."

At Tuesday's event, which was marred by several technical glitches, Microsoft announced the immediate availability of a test version of its new Internet portal live.com.

The company called the service a "personalized starting point" for a variety of Web services like e-mail, instant messaging, and a new set of Internet-based software called gadgets. These are small Internet-based applications that provide mail, stock prices, weather forecasts and other simple functions.

The company also demonstrated its new Internet mail service, called Windows Live Mail based on an Internet technology known as AJAX, which will be as responsive as a desktop e-mail program. The service will initially be offered in a limited form.

The company demonstrated several new features available as part of a new instant messaging service called Windows Live Messenger, including the ability to make Internet voice calls directly to standard telephone numbers. Internet phone providers like Skype currently offer that service. A Microsoft spokesman said the company planned to offer the service by subscription, not free.

In introducing Office Live, Microsoft said that it did not intend to offer an alternative to its Office desktop program, but rather a set of complementary services. It demonstrated a simple tool for creating a Web site with up to 10 gigabytes of free storage, aimed at the small-business market. It also showed a free entry- level customer relationship management program.

Microsoft executives said that they had approached several companies, including American Express, Cingular and Toshiba, about becoming advertisers on the Office Live services the company plans to offer.