Vice-President Blake Irving talks about the movement from the desktop to the Net and how that changes Redmond's thinking

The company has rolled out its Windows Live strategy –- a collection of technologies that blends PC applications with services that run over the Web (see BW Online, 03/30/06, "Keeping Up with the Googles"). So far, Microsoft has rolled out 20 Windows Live products, from a customizable Web portal to a service that lets users view all of their e-mail accounts within the same application.

Now, Microsoft (MSFT) is in the early stages of rolling out technology on top of which companies and individuals can more easily build their own Web services. Of course, Microsoft gets a piece of the business and puts itself at the core of the new Web world.

Microsoft Vice-President Blake Irving recently discussed the company's Web services strategy with BusinessWeek Seattle Bureau Chief Jay Greene. Edited excerpts follow.

It seems to me that Web services has moved from the fringe of Microsoft, as a piece of MSN's business, really to the core of what the company does (see BW Online, 09/30/06, "Three-Part Harmony for Microsoft"). Do you agree?
I think that's true. Microsoft has over the years realized that the computing experience isn't partitioned at the desktop, and then there's another place that exists out there. I think the concept has been that you go to the Web, that you get online.

It's very clear that users want their experience unified around them, very personally. They think of their computing experience as on the Web, on their PC, [and] in many countries around the world on their phones, as well.

And what does that mean inside Microsoft? How has that changed the way the company operates? Well, it's certainly changed the way our Windows and MSN businesses are organized. We've moved MSN into the Windows organization and taken the pieces that are focused on user interface, or user experience, and moved those very, very close to the Windows user experience. So the way the look and feel of Windows, and the way the look and feel of Web services are shown to end users, those things will be very, very similar, and actually managed in the same group.

A lot of what you guys are trying to do is replicate a strategy that has worked very well for you on the PC, building something that others can use as they try and create their Web services.
Certainly, we do believe that there are so many great ideas out there that developers have. We want to enable them to the best of their ability to be distributed to customers, to get out there en masse, and to be successful and have a positive business. And the best way to do that is to take that model, that Windows platform business model and extend it to the Web, and that is a great way to get an economic engine rolling for third parties around the planet.

Web 2.0 has been a buzz phrase that a lot of folks have been using to describe these kinds of services. Does Web 2.0 need the heft of Microsoft to bring it to the masses?
Web 2.0 needs to have a platform, it needs to have a business model. For Web 2.0 to really accelerate, there needs to be easy programmability. There need to be some concepts that allow you to reach something that requires large services that reach hundreds of millions of people.

If we expose a platform to those customers in the same way that Windows exposed a platform for hundreds of millions of customers, that is a sheer opportunity for third parties. Web 2.0 does need an accelerator.

It's something some of your rivals in this space can't offer to the same degree that you can.
That's true. Google has some great assets. They certainly built a very powerful asset with their advertising back-end and their search product. But that's not a set of developer tools. It's not an audience. It's a lot of folks who go out and use that service, but it's not highly personalized today.

We have actually done a bunch of work in building that kind of relationship with customers, where those customers even rely on our back-end infrastructure to communicate to the people that are most important to them. Those are things other companies would have to go build to be in the same position Microsoft is in.

That doesn't deny that there are certainly assets that we need to go build, as well, to match some of the things that a Google is doing today. There are some assets that we have that are, frankly, not replicated in the market, that we think are strategic for us.

You mentioned Google. Are there other competitors that you take note of?
I think of Google as being probably the primary competitor in the marketplace for us.

Microsoft has been talking about software as a service, really, if I think about it, since about 2000, when it started rolling out .NET.(see BW Online, 10/30/00, "Microsoft's Big Bet"). Why has it taken so long to get that momentum really going?
There are a couple of things. One, back in 2000, the Internet business wasn't a sure thing. You had lots of companies that had done irrational deals where they were throwing hundreds of millions of dollars at Internet service providers, whether MSN, AOL (TWX), or Yahoo! (YHOO), and they were not satisfied with the results. And so, if you actually look at the business market at that time, you would have seen advertising revenue start to drop off on the Internet.

As the tools got better, and targeting was proven, and the reporting infrastructure was better, and they could tailor and customize those reports, and they could understand what their ROI was, they're going: "You know something? This is starting to pay off."

In addition to that, because more people have gotten on the Internet, because more broadband has been propagated, because the Internet infrastructure has grown and gotten more stable, it has become more reliable. Those technology components have all combined in a way that makes the value proposition for Web services much more real than it was in 2000.

Some rivals are offering Web services that compete with Microsoft's core businesses, like word processing and spreadsheets. How big of a threat does that become for you guys?
Well, the Web doesn't make products irrelevant or take away the goodness. Let's just talk about Office for a minute. Office has been in a very competitive marketplace online and offline for a long time.

And as those things move to the Web, you know, maybe that's a thing that customers want to do. But right now, our strategy with a lot of the products that are desktop products today are the right strategies. We do things like Office Live (see BW Online, 11/02/06 "Why Microsoft Is Going 'Live'") that put the appropriate things on the Web that make sense, which is primarily people's data, not necessarily just the application, and make that available in a powerful way.

Folks always have concerns about Microsoft when it stares down on a new business and sees great opportunity. It's a big company, and there's a bit of a history that Microsoft has in terms of dominating businesses. European regulators recently raised alarms about some of the ties inside Vista to some of these new worlds. How big of a concern is that for you guys?
Our concern is providing customers with value and trying to do something that makes their lives better by providing great software, by providing great services. I run a pretty good sized development team, and what I'm thinking about is how can I make the best software and the best service experience possible for my advertising customers, for my end user customers, for my developer customers.

Those are the things that I'm focused on, and that the folks inside this company are focused on. I don't spend a whole lot of time thinking about: Gee, are we a company that's thought of ill, or thought of poorly.

Fair enough, but you're a strategy guy, too. So you've got to be concerned about the regulators when they start raising these issues, don't you?
I wouldn't say I'm concerned, I'd say I get hurt by it. It makes me feel like: Gee, am I doing something that's wrong? I'm just trying to change the world for people and make life better.

And, you know, I get fired up about the great software and cool experiences, and coming up with a strategy that connects things together in a way that just makes all software work better. That's what I'm about. And what a whole lot of people in the company are about.

One of the things that we do when we recruit people into the company is say: You know, this is a place where our scale allows us to do things that change the world for people in super-fundamental ways.