Sound of the Opening Bell

The launch is symbolic for another reason: Office 2007 and Windows Vista will be available to businesses subscribing to Microsoft volume licensing. Most others will have to wait until the products' consumer launch. Given that 80 percent of Windows client revenue comes through OEM license sales, there will be plenty of businesses waiting another two months.

The software giant needs to convince Wall Street that Office and Windows--and Microsoft, for that matter--are still relevant. For years before its last U.S. antitrust trial, Microsoft enjoyed phenomenal stock growth. In more recent years, Microsoft stock has languished, even as the company reported record revenues and profits.

Stock Shock
Microsoft's stock price ranged between $21.49 and $30 per share during the last 52 weeks, trading this morning in the $29.43-$29.70 range. By contrast, Google's stock price topped $500 a share last month. Google's 52-week range is $331.55-$515 a share.

A look at the P/E reveals huge differences: Google trades at about 61 times earnings and Microsoft a little more than 23 times earnings. Microsoft's market capitalization of $290 billion is nearly double Google's $149 billion market cap, today. However, Google's rapid growth could put market capitalization ahead of Microsoft in just a few years.

With Google's stock and growth soaring high and interest in the Web platform even higher, Microsoft has much riding on the new products. (Clarification: I use Web platform when referring to Web 2.0. Conceptually, so-called Web 1.0 is little different from Web 2.0, with the Web being seen as a development platform. Microsoft's U.S. antitrust trial concluded that Microsoft sought to quash the browser as a rival development platform during the browser wars.)

Microsoft needs to impress on investors, customers and developers that its platforms are still relevant, even as the Web draws more development and business interest. Investors and venture capitalists look for the next Skype, YouTube or even Google. Some people have slapped on the Bubble 2.0 label. Maybe it is, maybe not. Online advertising is a legitimate source of revenue, in a way it simply wasn't during the late-1990s dot-com bubble.

Absolutely, Microsoft struggles with shifting relevance, because of the Web platform. The browser delivers informational access anytime, anywhere and on anything. The business appeal of finding ways to manage the platform should be obvious to any company that has lost valuable corporate data. Increased worker mobility means increased security, privacy and regulatory liabilities as more information leaves the corporate confines. According to an IDC report released about a year ago, the worldwide mobile work force will exceed 850 million in 2009, up from 650 million two years ago. Whoa.

One solution is to pull back corporate data, centrally manage it and offer employee access by other means--the browser being one mechanism. Tomorrow, Microsoft will offer another. The company will tout the synergies of Exchange Server 2007, Office 2007, Windows Vista, the unified communications concept and forthcoming SharePoint Server 2007.

Microsoft will seek to communicate the various online and offline scenarios these products will enable, as well as the perceived benefits of using desktop software rather than applications consumed via a Web browser. The company also will continue to encourage developers to treat all these products as separate development platforms.

Looking Alive
Prediction: Tomorrow's launch--the first time in a decade new versions of Office and Windows have shipped simultaneously--won't answer all the questions Wall Street will ask about the relevance of Microsoft software and the Web platform. Microsoft's ultimate answer is forthcoming, and it's still a work in progress.

"Live" is much bigger than even most people at Microsoft suspect. While Windows Live has been about the consumer market, its bigger future is the business market. Microsoft dumped the MSN brand for Windows Live for a number of reasons. Business repositioning is one of them, as the company prepared a long-term strategy of Web-based products and services for the business market. The consumer branding connotations around MSN were just too strong for it to be used as a brand for business products.

This week, I noticed some stories and blogs about Microsoft developing a Web-based version of Windows. Right, and Steve Ballmer drives a Toyota! Microsoft will extend Windows--and Office, for that matter--through Live, not replace the desktop software. That's not to say the software won't extend more to the Web. Of course it will, as it does today.

The challenge ahead for Microsoft is one of choosing its business model--and the implications are much broader than the Web platform. To date, Microsoft has taken a very partner-centric approach. Consumer products like Xbox 360 and Zune and the forthcoming Dynamics CRM Live indicate that Microsoft is willing to risk some channel conflict, by doing more of the work alone or with a smaller circle of partners.

Prediction: Microsoft will embrace the Web by extending and even going beyond its traditional channel-centric business model. Partner opportunities will remain, but some of them will change as Microsoft advances Live and seeks to maintain the relevance of desktop software. Tomorrow's launch will be the early pitch, heavily rooted in the existing model, to investors, customers and developers.

Thanks to Peter Coffee for some smart input on this post.