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The most compelling part of Steve Ballmer's hour-long keynote during this week's Worldwide Partner Conference were the first and last five minutes.

In presidential style Ballmer opened striding resolutely among 8,000 seated delegates shaking outstretched hands. He closed by taking up opportunities in Microsoft's traditional Windows client and server businesses.

In between, Microsoft's chief executive lectured with little humor and much gravitas on the inevitability of turning Microsoft into an online business. Partners, he made it clear, have to follow. It was a scripted recitation at odds with Ballmer's trademark energy and apparent spontaneity, but a performance nonetheless that put the official business stamp on a strategy that's largely been a geeky, Ray Ozzie concept.

Microsoft spent four days this week at WPC cajoling and kicking partners, waking them up to the world of online services. Microsoft's partners know a great business opportunity when they see it and smell it, and - as far as they are concerned - this online lark hasn't been proven. Worse, many suspect services, things like Office Live and Dynamics Live CRM, will hurt - not help - their businesses.

In some ways, though, the online world is looking pretty good for Microsoft right now.

While Microsoft is genuine in rolling out a services strategy, non-stop talk of services this week conveniently diverted partners' attention away from the chronic technology and market shortcomings afflicting Microsoft's client and server business that so many rely on.

Windows Server 2008 is the latest operating system launch from Microsoft to hit delay - pushed back to February 27 2008 from the previously promised end-of-year. Kevin Turner, Microsoft's chief operating officer, spun this into a plus, saying Windows Server 2008 would hit on Microsoft's biggest single day of releases, accompanying SQL Server 2008 and Visual Studio 2008.

There was not a hint of explanation or apology.

As ever with Microsoft, the problem is interdependencies between each product and Microsoft's commitment phobia - putting features in at the last minute and yanking them out. The latest manifestation of this psychosis was the grossly late decision to turn Windows Server 2008 into a lightweight application server, tacking on another Server Core to the roadmap two years after Server Cores were announced and mid-way through the server testing and rollout roadmap.

Microsoft is also treading water on server virtualization. After months of work and big promises, Microsoft this spring backtracked by pulling leading-edge features from its planned hypervisor. Microsoft is now promising a market-trailing product.

It fell to corporate vice president for server and tools marketing solutions Andy Lees - via an impromptu tangent during a demonstration - to blame media misreporting on Viridian. He said Viridian is not just "good enough" for most users - and therefore partners - but that it can also beat the one company it envies - VMware.

On the client, Windows Vista, a clear gap continued between Microsoft's marketing and executive spiel and market realities. Never mind a chronic lack of hardware and application compatibility out of the gate for even mainstream products, Windows Vista is proving so unreliable and such a resource hog that system builders are mining a niche business in downgrading Windows Vista machines to Windows XP - despite Microsoft's attempts to make downgrades difficult.

Unfortunately for Microsoft, the majority of its partners will continue to bet their businesses on the core Windows server and client products for many years to come.

While Microsoft is obviously right to phase in services, it was clear from this week's WPC demos (yes, even more Virtual Earth mash ups with Office Live and the yet-to-launch Dynamics Live CRM, which were big on proof of concept but little case study evidence) Microsoft - like everyone else - is figuring out its services and business model, while determining the limits of the ondemand hype.

What also became clear was Microsoft is spinning hard to turn the 30-year partner supertanker into also testing these limits by devising and providing services anchored on is underlying server applications and hosting platform.

Unfortunately, for Microsoft, its partners live in the real business worlds of places like Chicago and London, The Netherlands and Australia and Asia Pacific, and not in the micro bubble of Silicon Valley, a place where start-ups doing nothing but services are working towards acquisition by Google or Salesforce.com rather than building a sustainable, long-term business.

Maybe Ballmer knows that, and that's why he kept it straight this week. ®

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