vnunet.com analysis: Microsoft 'Live' is a small bet with potentially large gains

Latest gambit offers a shot at ruining Google's and Yahoo's business

Microsoft's foray into hosted applications will have an initially minimal impact on the software vendor, but will certainly affect some of its main competitors, industry analysts told vnunet.com.

"This is more a swing of the pendulum," said Rob Helm, director of research at analyst firm Directions on Microsoft.

"In 2000 the pendulum was swinging towards hosted services. Two years later it was swinging back. Now Microsoft is going to make another run at it." 

Microsoft unveiled its Live Software initiative on Tuesday at a media event in San Francisco. The strategy will see the launch of the new Office Live and Windows Live products.

Both are mostly free and supported by advertisements, and are offered as an online service through a browser.

Users will be able to access the applications on any device with a browser, ranging from mobile phones to PDAs and desktop PCs.

In the short term, however, the initiative will mostly be a rebranding of existing Microsoft services including Hotmail and MSN Messenger.

The two will be released under the Live Mail (video demonstration) and Live Messenger (video demonstration) brands respectively. Similarly Microsoft's Small Business Centre will become Office Live. 

"It's mostly a branding change and an overall statement of direction," said Helm. But by making the services available free of charge and supported by advertisements, Microsoft is stepping up the competition with Google and Yahoo.

However, unlike Google and Yahoo, Microsoft does not rely solely on advertising revenues to stay in business. This not only makes it a low risk best for the software provider, but offers a shot at ruining Google's and Yahoo's business.

"Even if Microsoft doesn't win, it's possible for others to lose," said Helm.

Microsoft launched a big push towards hosted applications in 2000, but the doomed Hailstorm project faced many obstacles.

Users did not trust Microsoft, and the low adoption rate of broadband connections limited the appeal of software that required users to be constantly online. As the internet bubble burst, Microsoft quietly folded the initiative.

Trust will be a major hurdle for Microsoft once again, according to Charlene Li, principal analyst for devices, media and marketing at Forrester Research. 

"This time it is not about dominating the market but about convincing people that Microsoft is better than anything else," Li told vnunet.com. 

The personalised home page on Live.com, which is currently in beta, is a good first step where Microsoft outshines competitors like Google and Yahoo, Li argued. 

The software vendor is also allowing outside developers to create additional applications for the page, referred to as gadgets. 

"This is a good way to turbocharge the platform," said Li. But the analyst warned that the tightly integrated applications in which Messenger, Mail and Address Book use the same set of data will have only a limited appeal.

Most users already have their data dispersed over several applications, using Gmail for their email and AIM as their instant messaging application.

"This might be great for advanced users, but the number of people who want to start with a blank slate are few," said Li.

Office Live, however, is more likely to be successful. The suite targets businesses with up to 10 employees by providing a free website and email accounts as well as a series of business applications.

There is an obvious momentum for hosted business applications. Salesforce.com has proved that enterprises, and especially small businesses, are willing to trust their data to online providers.

The small business market is still largely untapped in this area, according to Rob Enderle, principal analyst at the Enderle Group. 

"The cost of doing business in that market is just too high," he told vnunet.com. Office Live also takes hosted enterprise applications to a new level, he argued.

Current hosted applications for small businesses are modelled after the enterprise versions that are bought online.

"The current hosted model is ugly," said Enderle. "Microsoft is creating a platform for the small business segment that doesn't force feed them the enterprise version through a hosting company. It is demonstrating easy-to-use core tools that most small offices will want to use."

This offering is also low risk for Microsoft. Small companies do not typically invest in enterprise tools such as Exchange, reducing the risk for cannibalisation.

However, by asking companies to look at hosted software Microsoft opens a window for competitors that offer alternatives to Office Live.

But Enderle argued that the software firm has little choice. "You either drive the change or are impacted by it," he concluded.