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AdCenter will serve-up not just context-based adverts online a la Google, but it will ensure that ads are planted deep into Microsoft's live applications. Ozzie joined other Microsoft executives by tempting software developers and service partners to its vast online territories and business applications with the promise of scale.

The shape of that market is 400 million consumers, 35 million small business users and 55 million online information workers each month, combined with a total of 250 million Hotmail users, 170 million users of Microsoft IM, 25 million users of MSN's Spaces, and more than two million gamers connected to Xbox Live.

"We are designing the ad services to be able to display ads in application containers whether that's a web based application or client side software. There are no prescriptive rules. We are designing it in a way we can make money and people putting ads in the software can make money," Ozzie said.

The pace at which Microsoft is moving and its Saul-like conversion to ad-based revenue and subscriptions betrays a growing desire to contain and beat Google. Months of rabid declarations and ballsy motivational talk from Gates and CEO Steve Ballmer counted for naught as Google last week reported a 13 per cent jump in revenue during its most recent quarter to put the company in to the Microsoft results ballpark of $1.57bn.

The desire to become number-one on the internet - again, since Microsoft erred with MSN and slipped badly against AOL during the 1990s - has forced the company's hand.

No more Longhorny waits

Elements of live software are essential. Microsoft had to engage with small business and services are arguably the best approach in doing that - hence Office Live. Service-based offerings provide a low-cost means for small businesses to tap IT without the headache of having to run the systems.

Live software also means more frequent product updates, making Microsoft less of a dinosaur prone to embarrassing Longhorn-style slippages and delivering product in large, monolithic chunks. Saleseforce.com has, for example, updated its CRM service 19 times since the year 2000 while there has been no new version of Microsoft's SQL Server in five years. "We are trying [to drive] a software and services mentality into as many different business groups," Ozzie said.

The partnering aspect to live software is something Microsoft can leverage against Google. The search giant saw 56 per cent of its revenue come from its own site during the most recent quarter. That's where Google is weak - the cost of sales on partner properties is relatively high. Microsoft clearly hopes to strike by tying in partners to its established, "franchise" approach to selling that it has used in software.

That franchise involves owning the Windows platform and brand and licensing it to others, who do the donkey work of selling and bringing product to market.

Live software, though, is replete with kinks, SKU clashes and so-whatism, There is no clear feature differentiation between Office Live and SharePoint Portal. A clash is also inevitable between Windows Live and MSN. Microsoft is positioning Windows Live as something for the net and device savvy while MSN is for the generation who like "prescribed" programming - meaning, those like their content served up by someone else.

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