User trends drove Microsoft to Windows Live, exec says

Microsoft is making significant investments in ad-supported Web services, realizing that consumers are too accustomed to using free services.

Customers' changing expectations are behind Microsoft's decision to offer some of its applications over the Web in the form of free services supported by advertising, a company executive said Monday. The change in course led to last week's management shakeup, he said.

Customers are too accustomed to free services for Microsoft to pursue a subscription-based approach with its Windows Live online services planned for later this year, said Chris Dobson, general manager of digital marketing sales and trade marketing for MSN International. As a result, Microsoft hopes to fund those free services through advertising, a market that is expected to be worth US$45 billion by 2008, he said.

"Microsoft has woken up to the fact that advertising is a major force that will shape the future of software as well as traditional media spaces," he said, speaking in London at the Guardian Newspapers media conference. "We are not responding fast enough," he added.

Dobson said Microsoft's "profound restructuring" last week, in which it appointed a new head to oversee its Windows OS and Windows Live development, was intended to reflect the new, ad-centered thinking. It followed last year's creation of the Windows Platform & Services division, which also aimed to prepare it for the arrival of advertising-based models, he said.

Customers are increasingly taking control over how they consume content and are creating new content themselves, Dobson said. Microsoft needed to rethink how it will deliver software and services to those consumers in a way that also allows it to capture advertising revenue, he said.

The company is busy developing platforms for delivering advertising-supported content and services, some of which will be delivered through Windows Live. The services are designed to function like traditional software but are delivered over the Internet using AJAX (Asynchronous JavaScript and Extensible Markup Language) and other technologies.

Some Windows Live services will be free, while others, like tools for small businesses, will be offered on a subscription basis.

Windows Live represents Microsoft's view that content will live on "distant servers" rather than on users' computers in the future, he said. It's a turnaround for the company, which has appeared to resist the online services model even as it was embraced by vocal competitors like Sun Microsystems and Oracle.

"All of a sudden you are entirely independent of that machine," Dobson said. "The way that we see the future going is that wherever you are ... whichever device you pick up as you leave the home, it will have everything you need on it. That's a major, major change to the way that Microsoft does business."

Ads will be increasingly targeted to consumers based on their searches, he said. On the Windowslive.com home page -- a new Microsoft portal currently in beta -- consumers will be able to customize their content, Dobson said. The MSN portal will remain, providing preprogrammed content for consumers who prefer that kind of format, he said.

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