Microsoft's New Toys
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2005/11/02/BUGGMFHGIP1.DTL

Microsoft recently announced that the company is taking a new approach to providing software. With the introduction of "Windows Live" and "Office Live", Microsoft is entering the "software as a service" industry. A common criticism of Microsoft, that they react too slowly, was repeated by critics who cite the rapid growth of Salesforce.com as outpacing Microsoft. However, Microsoft's name recognition along with their dominant position in the software industry indicates that they will likely have a great deal of success in the "software as a service" industry.

"Windows Live" and "Office Live" are essentially the same software that Microsoft has been providing for years. The difference here is that customers will be able to access this software entirely through the Internet as well as store all of their data on Microsoft's servers. Part of "Windows Live" is an email program designed to compete with Google's Gmail by offering enhanced speeds similar to what a customer would expect from a desktop email program like Outlook. Microsoft plans to sell advertising alongside these new "Live" products, attempting to get a larger piece of the advertising market currently dominated by Google.

Microsoft has always been very good at exploiting their overwhelmingly dominant position as the desktop and office software leader. "Windows Live" and "Office Live" are great examples of using that position to lock-in even more customers. Small business owners who rely on the suite of Microsoft Office products will now be able to access those same products online on a subscription basis. The subscription based approach to selling software ensures Microsoft a steady stream of revenue and also makes the cost of switching programs high for customers who have grown accustomed to the service and are dependent upon it.

Finally, both of these new services are great examples of bundling. Microsoft is offering email, personalized homepage, instant messaging, and more as part of "Windows Live". Meanwhile, "Office Live" will have the usual suite of office products. Bundling makes each product more attractive to consumers because they know everything will (supposedly) work seamlessly together. All data and files will be in one central location easily accessible by every program. That interconnectedness makes the marginal cost of using one more piece of the service small and so consumers will likely be enticed to use the entire suite of products, furthering enhancing Microsoft's lock-in of those consumers.