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Remoulding Microsoft for the web

• Darren Waters
• 29 Jul 08, 12:30 GMT

What is Microsoft for? I ask the question, because I think it's one that the company has been asking itself a lot recently.

Is it a software company? Producing an operating system, and tools like Office.

Or is it a hardware company? Producing games consoles and peripherals.

Perhaps it's a web company? Producing an online ecosystem, such as Live Mesh.

Or is it a server company? Producing Microsoft's Internet Information Server (IIS).

The answer, according to Microsoft, is all four.

Yesterday two of Microsoft's leading executives, Jean Philippe Courtois, head of all Microsoft outside North America, and Gordon Frazer, head of Microsoft UK visited BBC News' Business Unit, as part of a series of lunchtime talks we arrange with leading businesses.

Mr Courtois has been with Microsoft 24 years, and Mr Frazer 13 years; long enough to see the firm reinvent itself over and over again.

Yesterday the two men were focused on explaining Microsoft to us as a software and services firm. While competitors, such as Google - whom Mr Courtois continually referred to as "our friend" - are a software-as-a-service firm, Microsoft's future is more complex.

The firm owns the desktop space, and is responsible for an ecosytem that encompases hundreds of millions of PCs.

It makes its money charging for a license each time a new version of Windows is installed.

But it also sells its own services which fit inside that ecosytem, namely Office.

It's a simple model and one that has proved to be enormously successful - the firm reported revenues of more than $50bn this year.

Yet the firm is dogged by repeated accusations that Vista has been a failure. Mr Courtois admitted that mistakes had been made at the launch of Vista, but pointed out that Microsoft had sold more than 180m licenses for Vista, putting it comfortably ahead of XP sales at the same time in that product's lifecycle.

He also said that Microsoft continued to pay a premium, in term of its brand, for being out in front in the OS market.

Microsoft is also intensely aware that a new model and market is emerging - one dominated by the free at point of use web.

So far Microsoft has proved less successful in this space, especially in search and advertising.

Mr Courtois was only to happy to acknowledge this and said the firm would be looking at areas such as specialised and niche search in the future, while still trying to compete with Google in the core search market.

He also said that health and education were two powerful new markets for the firm, as the areas were top of the agenda for most governments around the world.

But is Microsoft spreading itself too thinly? Can it create an ecosystem both offline and online, at the same time as providing services which exploit that infrastructure?

After the talk, my colleague Rory Cellan-Jones sat down and interviewed Mr Corurtois, and began by asking him how a company which has grown huge on persuading consumers to part with cash for software can prosper in an online world where they're beginning to assume it comes for free.

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