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Wednesday, November 15, 2006

Microsoft's Google Play (MSFT)(GOOG)

Microsoft wants its customers and investors to know that the company is no longer a three-legged beast. It has added a fourth appendage, internet delivered software. Perhaps the only people on Wall St. who did not know this were those who have been away for a year.

The Microsoft push is clearly a reaction to Google's long-lived program to deliver services like spreadsheets, word processing and calendars over the internet with the software stored on servers and not the user's PC. Microsoft's new business will operate side-by-side with its desktop, server software and entertainment units.

The Microsoft program has one significant difference with Google's plans. Microsoft internet based software, dubbed Microsoft Live by the company, will work with software already installed on PCs.

Microsoft was somewhat circumspect about why it was taking the dual internet-delivered/desktop installed approach. Given Google's plan to have its products be "internet only" the hybrid approach of the world's largest software maker might be out of step.

The answer lies with the fact that Microsoft may think the Google strategy is the right one, the one that will eventually win, but MSFT cannot destroy it core business of Windows-on-the-PC overnight. With more than half of the company's revenue from that source, financial suicide is not an option.

Because Microsft is tethered so strongly to the past, and most move into internet based software services in a measured way, it may lose a great deal to company's like Google which have no legacy to protect.

That's bad news for Microsoft.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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