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Timely snapshot

Ballmer explained that Microsoft already is rearchitecting its core platform to be more of a Web-centric one. As he told the Partner Conference audience, “the programming model stays .Net and Windows.” But beyond that, Microsoft is is redoing its products and business models from scratch.

In a nutshell, Microsoft is taking the datacenter infrastructure it has been building to support Windows Live, Office Live, Xbox Live and other Live services, and is making it the crux of the company’s future products, all across the board.

Mary Jo Foley concludes with a question about cannibalization potential. No doubt some Office product managers are worried about that, but I think the "Software + Services" shift for Microsoft is likely to be a net gain scenario -- and perhaps even more profitable than its traditional mostly-shrink-wrapped/on-premises software business.

Consider: let's say an organization pays X to have Windows Server + Exchange + SharePoint + LCS/OCS on-prem, where X includes hardware, software licensing (server and client access licenses), and assorted costs for admin, support, etc. If the organization can get the same capabilities directly as SaaS from Microsoft, let's speculate for .9X, there's a very good chance that Microsoft's revenue and profit will go up, as the hardware and admin/support costs are now value-shifted to Microsoft, which can avail itself of economies-of-scale opportunities that individual organizations can't reach.

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