Office Web Applications and Azure - Microsoft's new bet
Microsoft has demonstrated in more than one occasion that they can take a raw idea and bring it to its maximum market potential. They did come up with quite a few great ideas themselves - but arguably the most impressive feature that Microsoft has illustrated over the years is the capacity to re-pack an already proven concept into a better shape, that ultimately wins the market. This happened with DOS, Office, Windows, Internet Explorer, XBOX - and might also happen with the new services that MS has recently launched: Office Web Applications and Azure.
Sure, they didn't invent the online document storage/editing services, nor the cloud computing (this buzzword has been around the block for quite a few years). But with a good marketing and a bit of luck, MS might be able to push these 2 services into the center of the arena.
But why is Microsoft more and more interested in online services? After all, the flagship MS products, Windows and Office, are the definition for commercial success in desktop computing (for both corporate and home users). Why would they focus on a different approach?
The obvious answer would be that the market is already going in a different direction than desktop computing, and the power of mobility and internet will force everybody to shift focus. But how can one be sure that this is not just a temporary hype, with no solid revenue models to back it up - and therefore, doomed to fail at some point? The dotcom bubble, and the mobile applications hype from the early 2000's, were 2 clear examples of overrated tendencies, whereas the current social networking buzz is arguably another area that still has to prove a solid income model. What makes MS confident enough to bet on online-office and cloud-computing applications?
One of the reasons might be that the revenue model for desktop applications is not a great one anyway, and the "online service" approach (SaaS, ASP etc.) looks much better already. Indeed classical desktop applications benefit from the huge advantage of software over hardware: you only need to make the product once, and then a copy is infinitely easier to produce, as opposed to an automobile for example, where each copy has a significant production cost (and this doesn't apply just to software, but also to music or films, where obviously the financial benefits are huge).
But this advantage is partly canceled by a commercial issue: once a software product gets good enough (and XP was considered by many as "good enough"), why would people pay for a newer version? - therefore the relative failure of Vista. However for an organization to last, it needs new income - and how do you get money if you've already sold to your customers a product that makes them happy? This is where the online services come into place - you don't buy a product with one down-payment, you just pay a monthly fee to benefit from the system's capabilities. Since the fee isn't big, the acquisition process is pretty straightforward - and if the seller is smart enough, that trial user can be smoothly transformed into a long term customer.
But what if you can't charge for some of your services, because your competition already provides that service for free? After all, Google Docs already has a good advance, and it won't be easy to convince their users to switch to Microsoft's services - whereas the desktop users of MS Office (and especially the corporate users) are not very likely to switch in large proportions to an online service anytime soon. Then of course you can provide the service for free and use the online advertising model - and in the end, Office Web Applications goes for both (subscription fee vs. ad supported), by providing different levels of service, see more details at http://www.sitepoint.com/blogs/2008/10/29/microsoft-plans-to-finally-launch-web-office-suite/
So even if it weren't for the big technological wave that pushes everything from desktop towards online, still the financial models of the SaaS approach seem to be more flexible and more sustainable than the older offline models. Microsoft is already in the game, and if judging by the recent history of software, they'll put on a good show.