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Sun 20 Nov 2005 04:00 AM

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It’s a wave new world

Microsoft is facing its biggest challenges from a host of online rivals, according to the company’s chairman and chief software architect Bill Gates.

Microsoft is facing its biggest challenges from a host of online rivals, according to the company’s chairman and chief software architect Bill Gates.

In a memo circulated to its staff last month, which has been circulated online, Gates shared his opinion about the realities of online competition and spoke of the impending disruption that the new web-based services wave willbring to Microsoft’s existing business model.

“This coming ‘services wave’ will be very disruptive,” warned Gates. “We have competitors who will seize on these appr- oaches and challenge us — still, the opportunity for us to lead is very clear,” he added.

In his memo, Gates urged Mi crosoft employees to “act quic- kly and decisively” and seize the opportunities that come with the next generation of the internet.

He outlined the importance of tapping online advertising and services as new revenue sources.

“Advertising has emerged as a powerful new means by which to directly and indirectly fund the creation and delivery of software and services along with subscriptions and license fees. Services designed to scale to tens or hundreds of millions will dramatically change the nature and cost of solutions deliverable to enterprises or small businesses,” he said.

The memo reflected the message of an earlier internal memo by Ray Ozzie, the firm’s chief technology officer, which talked about the revenue potential of an internet-based business model.

In Ozzie’s memo, he discussed the opportunities that Microsoft missed and the threats it faces from rivals such as Google, Skype, Research in Motion and Adobe.

“For all our great progress, our efforts have not always led to the degree that perhaps they could have,” Ozzie wrote in his memo.

“We knew search would be important, but through Google’s focus they’ve gained a tremendously strong position… It was Skype, not us, who made VoIP broadly popular and created a new category,” he added.

But despite the threats, Gates said the opportunity for Microsoft to lead “is very clear.”

In September Microsoft reorganised itself into three business units and expanded Ozzie’s role to head Microsoft’s services strategy.

The move has seen the firm announcing the initial resultsof its efforts — Office Live and Windows Live, which are advertising or subscription-based set of online products for consumers and small businesses.

“More than any other company, we have the vision, assets, experience, and aspirations to deliver experiences and solutions across the entire range of digital work style and digital lifestyle scenarios, and to do so at scale, reaching users, developers and businesses across all markets,” he wrote.

Gates said he wanted this memo to be as influential as his famous 'Internet Tidal Wave' memo of a decade ago, which described the impact of the internet on the IT industry.

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