SEATTLE, AP -Microsoft Corp. is widely expected to announce on Tuesday further forays into software and services that can be accessed over the Internet — a growing competitive arena that some say could eventually threaten Microsoft”s biggest cash cows.
The Redmond-based software behemoth is facing increasing competition from companies such as Google Inc. and Yahoo Inc. (Nasdaq:YHOO – news), which offer an array of free consumer services, and Salesforce.com and NetSuite Inc., which have had success with Web-based business offerings.
The concern is that applications including free e-mail and Web-based business products could eventually grow so broad and easy to use that people will begin to question why they are paying for Microsoft”s two big moneymakers, the Windows operating system and Office business software suite.
Microsoft has already acknowledged that it must create more Web-based products if it wants to stay competitive. But analysts say that in doing so, the company must walk a delicate line of drawing consumers to its online offerings without taking business away from Windows and Office.
"What Microsoft has to do, arguably, is find way to recreate itself," said David Garrity, director of research with Investec”s U.S. operations. "And unfortunately this process of recreation, if you will, potentially carries the risk with it of cannibalizing Microsoft”s existing product offering."
Microsoft Chairman Bill Gates and one of its chief technical officers, Ray Ozzie, are hosting a Tuesday event in San Francisco in which many analysts expect to see more details of its strategy. A spokeswoman for Waggener Edstrom, Microsoft”s public relations firm, declined to comment ahead of the event.
Rob Helm with independent researchers Directions on Microsoft expects the event will introduce products that complement the company”s core software, such as ways for customers to save and keep track of files over the Internet.
Microsoft already has some Web-based offerings, such as its Hotmail e-mail system, Xbox Live videogame-play service and Web conferencing software.
But the company also has had some notable failures in the field. An ambitious plan, code-named Hailstorm, to store personal information such as passwords and credit card numbers was eventually all but scuttled after widespread privacy concerns. Another effort that focused on business products, bCentral, also encountered trouble.
While other companies may have found successful strategies faster, Helm said Microsoft, with around $40 billion in cash, has a potential advantage in that it doesn”t necessarily need to make money from its online offerings.
Instead, he said, the company only needs to create products that will make people continue to want to buy Office and Windows.
"Microsoft can afford to keep coming back and coming back in this area until it finds a winning formula," he said.