Who will customers by applications from? You, or the phone company?

Microsoft's Bill Gates looks up to Salesforce.com's Marc Benioff. Well, everyone does; Benioff stands about 6'8" and greets you with an outstretched hand the size of a Pontiac. But Gates isn't just looking up, he's looking over his shoulder.

And with good reason. Companies like Salesforce.com, RightNow, and others are threatening the Microsoft crown jewels, the revenue stream (it's really more like a raging torrent) generated by traditionally licensed, locally installed software applications.

You know Salesforce.com. It delivers on-demand CRM services. No servers to buy, no software to install, no more ports added to the corporate network, no additional network administrators to hire. This is all a hosted subscriber service. It's like the tap water in your kitchen sink. It's there when you want it and you don't have to do much to get it. It killed Siebel.

Microsoft is concerned. It wants to lead, not follow. But can you remember the last time it has? Apple had a commercially viable operating system first (Apple II among other things). It was first with the GUI (Lisa, not the Mac, with a bow to Xerox PARC). Netscape jump started the everybody-into-the-pool Internet age. Google is the search king. Yahoo taught us about portals. Think instant messaging and you think AOL. Telephoning with Skype is all the rage. And now the age of subscription-based software services is upon us. And Microsoft is in danger of missing the bus --- again.

Gates years ago acknowledged that he didn't see the Internet coming, that it was senior vice presidents (Chris Peters, Pete Higgins, Bob Muglia and some others, if my memory is accurate) who convinced him of the coming revolution. They saved the company. The outcome a decade ago was Bill's famous memo that repositioned Microsoft for the ensuing Internet battle. The miracle was how quickly Microsoft got religion, like turning a battleship on a dime.

Well, here we are again, but this time it's all about "Web Services." In his Oct. 30 message to top company executives, Gates acknowledges the new wave of competitive threats, prodding them to act "quickly and decisively."

"The broad and rich foundation of the internet will unleash a 'services wave' of applications and experiences available instantly over the internet to millions of users," he writes. "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."

Gates acknowledges that the coming services wave will be "very disruptive." That's certainly true, and not just for Microsoft. This fundamental shift in how customers acquire, use, and pay for services will impact every reseller, every integrator, every developer.

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